Pure Body Studios Charlotte, LLC v. Crnalic

Pure Body Studios Charlotte, LLC v. Crnalic, 2017 NCBC 96.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 17 CVS 674

PURE BODY STUDIOS
CHARLOTTE, LLC,

Plaintiff,
ORDER AND OPINION ON
v.
PLAINTIFF’S MOTION TO DISMISS
COUNTERCLAIMS AND
DINO CRNALIC; PURE BODY
DEFENDANTS’ MOTION TO
STUDIOS, LLC; DRIVE FITNESS
TRANSFER VENUE
PRODUCTIONS, LLC; SUKI AKOR,
LLC; and PIN ENTERPRISE, LLC,

Defendants.

1. THIS MATTER is before the Court on Plaintiff Pure Body Studios

Charlotte, LLC’s (“Plaintiff” or “Pure Body”) motion to dismiss and Defendants’

motion to transfer venue (collectively, the “Motions”). Having considered the

Motions, the briefs, and the arguments of counsel at a hearing on the Motions, the

Court GRANTS in part and DENIES in part Plaintiff’s motion to dismiss and

DENIES Defendants’ motion to transfer venue.

Wyrick Robbins Yates & Ponton LLP, by Paul J. Puryear, Jr. and Lee M.
Whitman, for Plaintiff.

Womble Carlyle Sandridge & Rice, LLP, by Russ Ferguson, for
Defendants.

Robinson, Judge.
I. FACTUAL BACKGROUND

2. The Court does not make findings of fact on Pure Body’s motion to dismiss,

but rather only recites those factual allegations of the pleadings that are relevant and

necessary to the Court’s determination of the motion.

3. Defendant Dino Crnalic (“Crnalic”) and Matt Jordan (“Jordan”), who is not

a party to this action, formed Pure Body on or about May 30, 2013. (Compl. ¶ 14,

ECF No. 10; Answer & Countercls. 1, 7, ¶ 14, ECF No. 33.) Pure Body is a North

Carolina limited liability company operating a gym and having its principal place of

business in Mecklenburg County, North Carolina. (Compl. ¶ 2; Answer & Countercls.

5, ¶ 2.)

4. Pure Body’s initial members were Dino Crnalic Investments LLC and

Matthew Jordan Investments LLC, (Answer & Countercls. Ex. A, § 3.1), and its initial

officers and directors were Crnalic and Jordan, (Answer & Countercls. Ex. A, §§ 5.1,

7.1). Crnalic was the Chief Executive Officer until August 15, 2016. (Compl. ¶ 18;

Answer & Countercls. 7, ¶ 18.)

5. On December 1, 2014, Paul Hausman (“Hausman”) and Greyhawk

Ventures, LLC, which is controlled by Peter von Jess (“von Jess”), became members

of Pure Body, and von Jess became a director. (Compl. ¶ 16; Answer & Countercls.

7, ¶¶ 15−16.)

6. In March 2016, Pure Body’s then-current landlord notified Crnalic that it

was terminating Pure Body’s lease early. (Answer & Countercls. 9, ¶ 25.) The
landlord informed Crnalic that Pure Body was required to move out by December 31,

2016. (Answer & Countercls. 9, ¶ 25.)

7. As a result of the landlord’s termination of Pure Body’s lease, Crnalic

presented Pure Body’s board of directors with four possible new locations for the gym.

(Answer & Countercls. 3, 9, ¶ 25.) The board ultimately chose a space located at 3609

South Boulevard, Charlotte, North Carolina. (Answer & Countercls. 3, 28, ¶ 38.) In

June 2016, Pure Body executed a lease agreement for that space with the owner of

the building, 3609 South Blvd, LLC (“3609 South Blvd”). (Answer & Countercls. 3,

28, ¶ 38.) At 3609 South Blvd’s requirement, Crnalic personally guaranteed the lease.

(Answer & Countercls. 28, ¶¶ 40−41.)

8. Crnalic contends without detail that, at a meeting on August 15, 2016, von

Jess made “a host of allegations” about Crnalic, the content of which is not alleged,

and threw two folders before Crnalic, one labeled “The Easy Way” and one labeled

“The Hard Way.” (Answer & Countercls. 4, 14, ¶ 38.) The Easy Way folder contained

resignation documents, and the Hard Way Folder contained documents for a lawsuit

against Crnalic. (Answer & Countercls. 4, 34, ¶ 74.) Crnalic contends that von Jess

told Crnalic that if Crnalic did not sign the resignation documents, von Jess was going

to “sue everybody” and “shoot the whole company down.” (Answer & Countercls. 33,

¶ 73.) Crnalic alleges that he saw no choice but to sign the resignation documents,

and thereby resigned as a director and CEO. (Answer & Countercls. 4, 15, ¶ 41.)

9. In addition to the resignation documents, Crnalic alleges that, at the

August 15, 2016 meeting, Crnalic was forced to sign a document titled First
Amendment to Operating Agreement of Pure Body Studios Charlotte LLC (the “First

Amendment”) and a document reflecting the joint written consent of Pure Body’s

board and members (the “Joint Written Consent”). (Answer & Countercls. 29, 32−33,

Ex. B, Ex. D.)

10. Crnalic alleges that, after he was removed as CEO and a director, Pure

Body refused to make lease payments, thereby breaching the lease agreement with

3609 South Blvd. (Answer & Countercls. 9−10, 28.) As a result, 3609 South Blvd

sued Crnalic, individually, as the personal guarantor of the lease agreement.

(Answer & Countercls. 29, ¶ 43.)

II. PROCEDURAL HISTORY

11. The Court sets forth here only those portions of the procedural history

relevant to its determination of the Motions.

12. Pure Body initiated this action by filing its Complaint on January 19, 2017.

(ECF No. 10.)

13. On May 12, 2017, all Defendants filed their answer and their motion to

transfer venue (the “Motion to Transfer”), and Crnalic filed his counterclaims against

Pure Body. (ECF Nos. 33, 35.) Crnalic asserts the following counterclaims against

Pure Body: (1) dissolution pursuant to N.C. Gen. Stat. § 57D-6-01(1) (“First

Counterclaim”); (2) dissolution pursuant to N.C. Gen. Stat. § 57D-6-01(4) (“Second

Counterclaim”); (3) indemnity for expenses incurred in defending against this action

(“Third Counterclaim”); (4) indemnity for expenses incurred in defending against the

action brought by 3609 South Blvd (“Fourth Counterclaim”); (5) a declaratory
judgment that the First Amendment is invalid (“Fifth Counterclaim”); (6) a

declaratory judgment that a document titled Written Consent of the Members of Pure

Body Studios Charlotte LLC is invalid (“Sixth Counterclaim”); (7) a declaratory

judgment that the Joint Written Consent is invalid (“Seventh Counterclaim”); (8)

unfair and deceptive trade practices under N.C. Gen. Stat. § 75-1.1 (“UDTP”) (“Eighth

Counterclaim”); (9) breach of section 4.2(c) of the Operating Agreement (“Ninth

Counterclaim”); (10) breach of section 5.6 of the Operating Agreement (“Tenth

Counterclaim”); and (11) a second count for breach of section 5.6 of the Operating

Agreement (“Eleventh Counterclaim”). (Answer & Countercls. 24−25, 27−30, 32−36.)

14. This action was designated as a mandatory complex business case by order

of the Chief Justice of the Supreme Court of North Carolina dated May 15, 2017,

(ECF No. 36), and assigned to the undersigned by order of Chief Business Court

Judge James L. Gale dated that same day, (ECF No. 37).

15. On May 26, 2017, Pure Body voluntarily dismissed with prejudice its claims

against Jordan. (ECF No. 39.)

16. On June 7, 2017, Pure Body filed its reply to Crnalic’s counterclaims. (ECF

No. 42.) Pure Body’s reply contains a motion to dismiss Crnalic’s counterclaims under

“Rule 12(b)(1) and/or 12(b)(6) of the North Carolina Rules of Civil Procedure”

(“Rule(s)”) (“Pure Body’s Motion” or “Motion to Dismiss”), which is the subject of this

Order and Opinion. (Partial Mot. Dismiss & Answer to Countercl. 1, ECF No. 42.)

Pure Body did not file a motion contained in a separate document as required by Rule

7.2 of the General Rules of Practice and Procedure for the North Carolina Business
Court (“BCR”). At the hearing, Defendants’ counsel indicated that it did not object to

the Court proceeding on Pure Body’s Motion despite Pure Body’s technical violation

of the BCR. Notwithstanding Defendants’ consent in this instance, the Court expects

the parties to comply with BCR 7.2 throughout the remainder of this litigation. Pure

Body’s Motion seeks dismissal of the Second, Third, Fourth, Fifth, Seventh, and

Eighth Counterclaims, as well as Crnalic’s request for punitive damages, pursuant to

Rule 12(b)(6). Pure Body’s Motion seeks dismissal of Crnalic’s Ninth Counterclaim

pursuant to Rule 12(b)(1) for lack of standing.

17. On June 27, 2017, Pure Body voluntarily dismissed without prejudice its

claims against Adi Crnalic. (ECF No. 50.)

18. The Motions have been fully briefed, and the Court held a hearing on the

Motions on August 8, 2017. The Motions are now ripe for resolution.

19. Following oral argument on the Motions, counsel for Defendants moved for,

and were granted, permission to withdraw as counsel. (ECF Nos. 57, 59.) As of the

issuance of this Order and Opinion, no attorney has appeared on behalf of

Defendants.

III. LEGAL STANDARD

20. As a preliminary matter, Pure Body’s Motion to Dismiss under Rule 12(b)(6)

is untimely as it was made in, rather than before, Pure Body’s reply to Crnalic’s

counterclaims. See N.C. Gen. Stat. § 1A-1, Rule 12(b) (“A motion making any of [the

Rule 12(b)] defenses shall be made before pleading if a further pleading is permitted.”

(emphasis added)); see also New Friendship Used Clothing Collection, LLC v. Katz,
2017 NCBC LEXIS 72, at *17 (N.C. Super. Ct. Aug. 18, 2017) (finding untimely a

Rule 12(b)(6) motion filed contemporaneously with defendant’s answer). Pursuant to

Rule 12(h)(2), however, to the extent that Pure Body’s Motion is brought under Rule

12(b)(6), it may be considered as a Rule 12(c) motion for judgment on the pleadings

in these circumstances. New Friendship Used Clothing Collection, LLC, 2017 NCBC

LEXIS 72, at *24 (“[U]nder Rules 12(b) and 12(h)(2), a post-answer Rule 12(b) motion

to dismiss for failure to state a claim may, if appropriate, be considered as a Rule

12(c) motion for judgment on the pleadings.”). As a result, the Court will analyze

Pure Body’s Motion, to the extent it is based on a failure to state a claim upon which

relief may be granted, as a motion for judgment on the pleadings pursuant to Rule

12(c).

21. “A motion for judgment on the pleadings [under Rule 12(c)] should not be

granted unless the movant clearly establishes that no material issue of fact remains

to be resolved and that he is entitled to judgment as a matter of law.” Carpenter v.

Carpenter, 189 N.C. App. 755, 761, 659 S.E.2d 762, 767 (2008). On a Rule 12(c)

motion, “[t]he movant is held to a strict standard and must show that no material

issue of facts exists and that he is clearly entitled to judgment.” Ragsdale v. Kennedy,

286 N.C. 130, 137, 209 S.E.2d 494, 499 (1974). “[T]he court cannot select some of the

alleged facts as a basis for granting the motion on the pleadings if other allegations,

together with the selected facts, establish material issues of fact.” J. F. Wilkerson

Contracting Co. v. Rowland, 29 N.C. App. 722, 725, 225 S.E.2d 840, 842 (1976). The
Court must read the pleadings in the light most favorable to the nonmoving party,

and

[a]ll well pleaded factual allegations in the nonmoving party’s pleadings
are taken as true and all contravening assertions in the movant’s
pleadings are taken as false. All allegations in the nonmovant’s
pleadings, except conclusions of law, legally impossible facts, and
matters not admissible in evidence at the trial, are deemed admitted by
the movant for purposes of the motion.

Ragsdale, 286 N.C. at 137, 209 S.E.2d at 499 (citations omitted).

22. “Judgment on the pleadings is not favored by the law . . . .” Huss v. Huss,

31 N.C. App. 463, 466, 230 S.E.2d 159, 162 (1976). The function of Rule 12(c) “is to

dispose of baseless claims or defenses when the formal pleadings reveal their lack of

merit.” Ragsdale, 286 N.C. at 137, 209 S.E.2d at 499. “[J]udgment on the pleadings

is not appropriate merely because the claimant’s case is weak and he is unlikely to

prevail on the merits.” Huss, 31 N.C. App. at 469, 230 S.E.2d at 163. “A motion for

judgment on the pleadings is allowable only where the pleading of the opposite party

is so fatally deficient in substance as to present no material issue of fact . . . .” George

Shinn Sports, Inc. v. Bahakel Sports, Inc., 99 N.C. App. 481, 486, 393 S.E.2d 580, 583

(1990).

23. Unlike Pure Body’s attempt to seek dismissal under Rule 12(b)(6), which

the Court analyzes under Rule 12(c), Pure Body’s Motion to Dismiss under Rule

12(b)(1) for lack of standing is timely as Rule 12(h)(3) expressly provides that

“[w]henever it appears by suggestion of the parties or otherwise that the court lacks

jurisdiction of the subject matter, the court shall dismiss the action.” N.C. Gen. Stat.

§ 1A-1, Rule 12(h)(3); New Friendship Used Clothing Collection, LLC, 2017 NCBC
LEXIS 72, at *27 (finding timely a post-answer Rule 12(b)(1) motion to dismiss).

Under Rule 12(b)(1), a court may consider matters outside the pleadings in

determining whether subject matter jurisdiction exists. Keith v. Wallerich, 201 N.C.

App. 550, 554, 687 S.E.2d 299, 302 (2009); Tart v. Walker, 38 N.C. App. 500, 502, 248

S.E.2d 736, 737 (1978). However, “if the trial court confines its evaluation [of

standing] to the pleadings, the court must accept as true the [claimant]’s allegations

and construe them in the light most favorable to the [claimant].” Munger v. State,

202 N.C. App. 404, 410, 689 S.E.2d 230, 235 (2010); see also Neuse River Found., Inc.

v. Smithfield Foods, Inc., 155 N.C. App. 110, 113, 574 S.E.2d 48, 51 (2002) (“[E]ach

element [of standing] must be supported in the same way as any other matter on

which the [claimant] bears the burden of proof, i.e., with the manner and degree of

evidence required at the successive stages of the litigation.”).

IV. PURE BODY’S MOTION UNDER RULE 12(c)

A. Second Counterclaim – Judicial Dissolution

24. Crnalic’s Second Counterclaim seeks judicial dissolution pursuant to N.C.

Gen. Stat. § 57D-6-01(4), (Answer & Countercls. 25), which provides that an LLC is

dissolved upon the entry of a decree of judicial dissolution on the grounds set forth in

N.C. Gen. Stat. § 57D-6-02. See N.C. Gen. Stat. § 57D-6-01(4). Under section 57D-6-

02, a court may dissolve an LLC in a proceeding brought by a member “if it is

established that (i) it is not practicable to conduct the LLC’s business in conformance

with the operating agreement and this Chapter or (ii) liquidation of the LLC is
necessary to protect the rights and interests of the member.” N.C. Gen. Stat. § 57D-

6-02(2).

25. Crnalic alleges that he is entitled to dissolution under either statutory

ground. Crnalic first alleges that it is not practicable to conduct Pure Body’s business

in conformance with the Operating Agreement because Pure Body does not own or

lease a fitness facility or any fitness equipment and does not have any employees.

(Answer & Countercls. 26, ¶ 19.) Second, Crnalic alleges that liquidation is necessary

to protect Crnalic’s rights and interests. (Answer & Countercls. 26, ¶ 20.)

26. Crnalic alleges that, since August 15, 2016, he has been completely shut

out from Pure Body and has not received any financial information or other

information regarding Pure Body’s operations. (Answer & Countercls. 26, ¶¶ 22−23.)

Crnalic further contends without elaboration that he was told not to visit Pure Body’s

business location and that he has not been informed that Pure Body sold all or

substantially all of its assets, laid off all employees, and closed its gym. (Answer &

Countercls. 26, ¶¶ 23−24.) Additionally, Crnalic alleges that he has not been

informed that Pure Body terminated its lease with 3609 South Blvd. (Answer &

Countercls. 26, ¶ 23.)

27. With respect to the second statutory ground, Pure Body argues that Crnalic

has failed to allege that dissolution is necessary to protect his rights and interests as

a member of Pure Body. (Br. Supp. Pl.’s Partial Mot. Dismiss 7, ECF No. 43.1.)

Crnalic, relying on Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551 (1983),

argues that the Second Counterclaim sufficiently alleges that dissolution is necessary
to protect Crnalic’s reasonable expectations. (Resp. Opp’n Mot. Dismiss Countercls.

4−6, ECF No. 51.) In Meiselman, our Supreme Court discussed at length a claim for

dissolution of a close corporation under the North Carolina Business Corporation Act,

which, similar to the North Carolina Limited Liability Company Act (the “Act”),

provides for judicial dissolution when “liquidation is reasonably necessary for the

protection of the rights or interests of the complaining shareholder[.]” N.C. Gen. Stat.

§ 55-14-30(2). The Supreme Court in Meiselman concluded that dissolution of a close

corporation is appropriate “whenever corporate managers or controlling shareholders

act in a way that disappoints the minority shareholder’s reasonable expectations,

even though the acts of the managers or controlling shareholders fall within the

literal scope of powers or rights granted them by the corporation act or the

corporation’s charter or bylaws.” Meiselman, 309 N.C. at 299, 307 S.E.2d at 563

(quoting O’Neal, Close Corporations: Existing Legislation and Recommended Reform,

33 Bus. Law 873, 888 (1978)).

28. Notwithstanding the obvious similarity of the corporate dissolution

provision and the corresponding provision under the Act, “the North Carolina

appellate courts have not yet addressed whether a claim pursuant to section 57D-6-

02(2) is governed by the same principles as a Meiselman claim under Chapter 55.”

Brady v. Van Vlaanderen, 2017 NCBC LEXIS 61, at *31−32 (N.C. Super. Ct. July 19,

2017). In the absence of clear guidance from our appellate courts on the factors to be

considered in addressing a claim for dissolution of a limited liability company, the

Court is reluctant to dismiss Crnalic’s dissolution claim at this early stage. The Court
believes that a decision as to the viability of Crnalic’s Second Counterclaim should be

based on a more fully developed record and concludes that, at the pleading stage, the

allegations contained in the Second Counterclaim are sufficient to support a

dissolution claim on the ground that liquidation is necessary to protect Crnalic’s

rights and interests. Therefore, Pure Body’s Motion as to Crnalic’s Second

Counterclaim is denied.

B. Third Counterclaim – Indemnity for Defense of Action

29. Crnalic’s Third Counterclaim seeks indemnity for his costs, fees, and

expenses incurred in defending against this action. (Answer & Countercls. 27−28.)

30. With respect to directors and officers, the Operating Agreement provides

the following:

8.1 Standard of Care. Each Director’s and Officer’s duty of care in
the discharge of the Director’s or Officer’s duties to [Pure Body] and the
Members is limited to refraining from engaging in grossly negligent or
reckless conduct, intentional misconduct, or a knowing violation of
applicable law. . . .

8.2 Limitation of Liability. Each Director and Officer shall act in a
manner it believes in good faith to be in the best interest of [Pure Body]
and with such care as an ordinary prudent person in a similar position
would use under similar circumstances. A Director or Officer shall not
be liable to [Pure Body], its Members, or any other Director or Officer
for any action taken in managing the business or affairs of [Pure Body]
if the Director or Officer performs the duty of its office in compliance
with the standard contained in this Section and Section 8.1 above. . . . No
Director or Officer shall be liable to [Pure Body] or to any Member for
any loss or damage sustained by [Pure Body] or any Member except loss
or damage resulting from engaging in grossly negligent or reckless
conduct, intentional misconduct, a knowing violation of law, a knowing
violation of this Operating Agreement, or any transaction from which
the Director or Officer derived an improper personal benefit if prohibited
by the Act.
8.3 Indemnification. [Pure Body] shall indemnify the Directors and
Officers to the fullest extent permitted under the Act, excluding any
liability of the Directors or Officers that is not limited pursuant to
Section 8.1 and Section 8.2 above. . . .

(Answer & Countercls. Ex. A, §§ 8.1−8.3.)

31. Under the Act,

[a]n LLC shall indemnify a person who is wholly successful on the merits
or otherwise in the defense of any proceeding to which the person was a
party because the person is or was a member, a manager, or other
company official if the person also is or was an interest owner at the
time to which the claim relates, acting within the person’s scope of
authority as a manager, member, or other company official against
expenses incurred by the person in connection with the proceeding.

N.C. Gen. Stat. § 57D-3-31(a). “Proceeding” is defined as “[a]ny civil or criminal

proceeding or other action pending before any court of law or other governmental

body or agency or any arbitration proceeding.” N.C. Gen. Stat. § 57D-1-03(28).

32. Pure Body argues that indemnity is only available for costs incurred in

defending against claims brought by third parties and, thus, that Crnalic cannot seek

indemnity for claims asserted by Pure Body against Crnalic. (Br. Supp. Pl.’s Partial

Mot. Dismiss 8; Pl.’s Reply Br. to Def. Crnalic’s Resp. Opp’n Mot. Dismiss 2−3, ECF

No. 52.)

33. The Court disagrees. “An [LLC] operating agreement is a contract . . . .”

N.C. State Bar v. Merrell, 777 S.E.2d 103, 114 (N.C. Ct. App. 2015). The Operating

Agreement expressly provides for indemnification to the fullest extent under the Act,

except for liability resulting from gross negligence, recklessness, or intentional

misconduct. (Answer & Countercls. Ex. A, § 8.3.) The Act provides for

indemnification of expenses incurred in connection with “any proceeding,” and
“proceeding” is not limited under the Act to actions brought by third parties. N.C.

Gen. Stat. § 57D-1-03(28); see Russell M. Robinson, II, Robinson on North Carolina

Corporation Law § 18.02[2] (7th ed. 2016) (discussing the similar definition of

“proceeding” in the North Carolina Business Corporation Act and stating “[t]he

indemnification provisions relate to any ‘proceeding,’ . . . whether brought by a third

party or by or on behalf of the corporation (direct or derivative)” (emphasis added)).

Further, the Operating Agreement does not limit the indemnification rights set forth

in the Act to actions brought by third parties. See N.C. Gen. Stat. § 57D-2-30(a)

(“[T]he provisions of this Chapter and common law will apply only to the extent

contrary or inconsistent provisions are not made in, or are not otherwise supplanted,

varied, disclaimed, or nullified by, the operating agreement.”).

34. Under the express terms of the Act and absent contrary language in the

Operating Agreement, the Court cannot conclude at the pleading stage that Crnalic’s

status as a party-defendant in this action brought by Pure Body precludes him from

indemnity as a matter of law for expenses incurred in defending against this action.

35. Pure Body further argues that Crnalic’s indemnity claim should be

dismissed because Pure Body’s claims against Crnalic arise out of Crnalic’s gross

negligence, recklessness, or intentional misconduct, and the Operating Agreement

excludes indemnity for liability resulting from such conduct. (Br. Supp. 8−9.) Pure

Body’s argument, however, asks the Court to assume that Pure Body will prevail on

its claims against Crnalic and establish that Crnalic engaged in conduct excluded

from the indemnity provision. The allegations supporting Crnalic’s Third
Counterclaim for indemnity, taken as true, refute Pure Body’s contentions and do not

permit the Court to reach such a conclusion. See Isenhour v. Hutto, 350 N.C. 601,

604−05, 517 S.E.2d 121, 124 (1999) (“A motion to dismiss pursuant to Rule 12(b)(6)

should not be granted unless it appears to a certainty that [the claimant] is entitled

to no relief under any state of facts which could be proved in support of the claim.”

(quotation marks omitted)).

36. Therefore, the Court concludes that, at the pleading stage, Crnalic’s

allegations are sufficient to state an indemnity claim under the Operating

Agreement, and, as such, Pure Body’s Motion as to Crnalic’s Third Counterclaim is

denied.

C. Fourth Counterclaim – Indemnity for Third-Party Action

37. Crnalic’s Fourth Counterclaim seeks indemnity for his costs, fees, and

expenses incurred in defending against an action brought by 3609 South Blvd against

Crnalic on his personal guaranty of Pure Body’s lease. (Answer & Countercls. 28−29.)

Pure Body contends that this claim should be dismissed because Crnalic’s personal

guaranty was entered in violation of section 6.2 of the Operating Agreement and, as

a result, Crnalic was not acting within the scope of his authority when he guaranteed

the lease. (Br. Supp. 9−11; Reply Br. 3−4.)

38. Section 6.2 of the Operating Agreement provides that the officers shall not,

without board approval, “[n]egotiate, draft, or enter into any agreement on behalf of

[Pure Body] with any Person that would place obligations on [Pure Body] exceeding
$25,000.00, whether such obligations are certain or contingent.” (Answer &

Countercls. Ex. A, § 6.2(c).)

39. Pure Body contends that the lease agreement with 3609 South Blvd created

a $44,000 debt and, therefore, that Crnalic’s personal guaranty implicates section 6.2

of the Operating Agreement. (Br. Supp. 10.) In support of this contention, Pure Body

cites to a paragraph of Defendants’ answer stating that Defendants “admit that

$44,000 owed to the landlord of 3609 South Boulevard was specifically brought before

the Board on more than one occasion.” (Answer & Countercls. 15−16, ¶ 43c.) The

fact that Pure Body owed 3609 South Blvd $44,000 at one point in time does not

establish that the personal guaranty, in and of itself, put obligations on Pure Body

exceeding $25,000. Neither the lease nor the personal guaranty are included in the

pleadings and, as such, the terms thereof, including the duration and the payment

amounts, are unknown at this stage.

40. While discovery may ultimately show that Crnalic was acting outside the

scope of his authority in personally guaranteeing the lease, at this early stage of the

proceeding, and taking the allegations in the light most favorable to Crnalic, the

Court cannot conclude as a matter of law that Crnalic is precluded from indemnity

for expenses incurred in defending against the action brought by 3609 South Blvd.

Therefore, Pure Body’s Motion as to Crnalic’s Fourth Counterclaim is denied.

D. Fifth Counterclaim – Declaratory Judgment

41. Crnalic’s Fifth Counterclaim seeks a declaratory judgment that the First

Amendment is ineffective. (Answer & Countercls. 29−30.) Crnalic contends that the
First Amendment is ineffective because it was not signed by 100% of the class A and

class B membership units as required by the Operating Agreement. (Answer &

Countercls. 30, ¶ 52, Ex. B.) Specifically, Crnalic contends that Miodrag Dragich

(“Dragich”), Matthew Barley (“Barley”), and Dan Trujillo (“Trujillo”) were members

of Pure Body and that each failed to sign the First Amendment. (Answer &

Countercls. 30, ¶ 52, Ex. B.) Crnalic additionally alleges that he signed the First

Amendment under duress. (Answer & Countercls. 30, ¶ 52.)

42. Pure Body argues that Barley and Trujillo are not, and never were,

members of Pure Body, and the inclusion of their names as signatories to the First

Amendment, as well as in the capitalization table as owners of class A membership

units, was error. (Br. Supp. 11−12.) To support this contention, Pure Body attached

to its brief in support of its Motion a Second Amendment to the Operating Agreement

of Pure Body Studios Charlotte LLC (the “Second Amendment”), which does not

contain signature lines for either Barley or Trujillo. (Br. Supp. Ex. 2, ECF No. 54.)

43. In deciding a Rule 12(c) motion, “the trial court looks solely to the

pleadings.” N.C. Concrete Finishers, Inc. v. N.C. Farm Bureau Mut. Ins. Co., Inc., 202

N.C. App. 334, 336, 688 S.E.2d 534, 535 (2010). Documents attached to and

incorporated within a pleading become part of the pleading and, thus, may be

considered on a Rule 12(c) motion for judgment on the pleadings. Bank of Am., N.A.

v. Rice, 780 S.E.2d 873, 882 (N.C. Ct. App. 2015). Additionally, “a court may properly

consider documents which are the subject of a [defendant’s counterclaim] and to

which the [counterclaim] specifically refers even though they are presented by the
[plaintiff].” Weaver v. Saint Joseph of the Pines, Inc., 187 N.C. App. 198, 204, 652

S.E.2d 701, 707 (2007). On the other hand, “[a] document attached to the moving

party’s pleading may not be considered in connection with a Rule 12(c) motion unless

the non-moving party has made admissions regarding the document.” Reese v.

Charlotte-Mecklenburg Bd. of Educ., 196 N.C. App. 539, 545, 676 S.E.2d 481, 486

(2009).

44. The Second Amendment is not a part of the pleadings. Crnalic’s

counterclaims do not mention the Second Amendment, and Crnalic has not made any

admissions regarding the Second Amendment. Thus, the Court cannot consider the

Second Amendment in deciding Pure Body’s Motion. As a result, Pure Body’s Motion

as to the Fifth Counterclaim necessarily fails and its Motion on this ground is denied.

E. Seventh Counterclaim – Declaratory Judgment

45. Similar to his Fifth Counterclaim, Crnalic’s Seventh Counterclaim seeks a

declaratory judgment that the Joint Written Consent is ineffective because it was not

signed by Dragich, Barley, or Trujillo as required by the Operating Agreement.

(Answer & Countercls. 32−33.) Crnalic additionally alleges that he signed the Joint

Written Consent under duress. (Answer & Countercls. 33, ¶ 66.)

46. Pure Body argues that Crnalic did not attach the “final version” of the Joint

Written Consent, (Br. Supp. 13), and, further, that the final version, which is attached

to Pure Body’s brief in support of its Motion, omits Barley and Trujillo as signatories

and contains Dragich’s signature, (Br. Supp. Ex. 4, ECF No. 43.4), necessarily

defeating Crnalic’s claim.
47. The Court, however, is not at liberty to consider Pure Body’s evidence on

this Motion. The “final version” is not attached to any pleading. (See Compl.; Answer

& Countercls.; Partial Mot. Dismiss & Answer to Countercl.) Also, the Court cannot

determine which “version” of the Joint Written Consent is controlling in the face of

the parties’ competing proofs under the standard for motions under Rule 12(c). See

Davis v. Durham Mental Health/Dev. Disabilities/Substance Abuse Area Auth., 165

N.C. App. 100, 104, 598 S.E.2d 237, 240 (2004) (“The trial court may consider[] only

the pleadings and exhibits which are attached and incorporated into the pleadings in

ruling on the motion [under Rule 12(c)]. No evidence is to be heard, and the trial

judge is not to consider statements of fact in the briefs of the parties . . . .” (citations

and quotation marks omitted)); Steeves v. Scot. Cty. Bd. of Health, 152 N.C. App. 400,

405, 567 S.E.2d 817, 821 (2002) (“Judgment on the pleadings is a summary procedure

and the judgment is final. Therefore, each motion under Rule 12(c) must be carefully

scrutinized lest the nonmoving party be precluded from a full and fair hearing on the

merits. The movant is held to a strict standard and must show that no material issue

of facts exists and that he is clearly entitled to judgment.”); Cash v. State Farm Mut.

Auto. Ins. Co., 137 N.C. App. 192, 202, 528 S.E.2d 372, 378 (2000) (“Judgment on the

pleadings, pursuant to Rule 12(c), is appropriate when all the material allegations of

fact are admitted in the pleadings and only questions of law remain.” (quotation

marks omitted)).
48. Accordingly, viewing the Seventh Counterclaim’s allegations in the light

most favorable to Crnalic, the Court concludes that Pure Body’s Motion must be

denied.

F. Eighth Counterclaim – UDTP

49. Crnalic’s Eighth Counterclaim for UDTP is based on the allegation that von

Jess engaged in coercive conduct at the August 15, 2016 meeting that forced Crnalic

to resign. (Answer & Countercls. 33−34.) Pure Body contends that this claim should

be dismissed because it is based on allegations that relate solely to Pure Body’s

internal corporate affairs and, as such, is not “in or affecting commerce” under well-

established North Carolina precedent. (Br. Supp. 14−16; Reply Br. 6−7.)

50. In order to state a UDTP claim, Crnalic must allege (1) an unfair or

deceptive act or practice, (2) in or affecting commerce, (3) which proximately caused

injury to Crnalic. Belcher v. Fleetwood Enters., Inc., 162 N.C. App. 80, 85, 590 S.E.2d

15, 18 (2004). “‘[C]ommerce’ includes all business activities, however denominated,

but does not include professional services rendered by a member of a learned

profession.” N.C. Gen. Stat. § 75-1.1(b). As stated by our Supreme Court, “‘[b]usiness

activities’ is a term which connotes the manner in which businesses conduct their

regular, day-to-day activities, or affairs, such as the purchase and sale of goods, or

whatever other activities the business regularly engages in and for which it is

organized.” Hajmm Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403

S.E.2d 483, 493 (1991). Section 75-1.1 applies to “(1) interactions between businesses,

and (2) interactions between businesses and consumers.” White v. Thompson, 364
N.C. 47, 52, 691 S.E.2d 676, 679 (2010). Section 75-1.1 does not apply to a business’s

internal operations. Id. at 53, 691 S.E.2d at 680; Urquhart v. Trenkelbach, 2017

NCBC LEXIS 12, at *11 (N.C. Super. Ct. Feb. 8, 2017) (“Acts are not ‘in or affecting

commerce’ if they are restricted to internal corporate matters.”).

51. Crnalic argues that the counterclaims allege that von Jess used coercive

tactics, which constitute unfair or deceptive conduct, (Resp. Opp’n Mot. Dismiss

Countercls. 14); however, “[Crnalic] must first establish that [Pure Body’s] conduct

was ‘in or affecting commerce’ before the question of unfairness or deception arises.”

Hajmm Co., 328 N.C. at 592, 403 S.E.2d at 492. Crnalic alleges that von Jess, a

director, called an emergency meeting and improperly forced Crnalic to resign as a

director and CEO of Pure Body by threatening to “sue everybody” and “shoot the

whole company down.” (Answer & Countercls. 33, ¶¶ 70−73.)

52. As such, Crnalic’s UDTP claim is based on conduct occurring solely within

Pure Body and cannot serve as the basis for a claim under section 75-1.1. See Wilson

v. Blue Ridge Elec. Membership Corp., 157 N.C. App. 355, 358, 578 S.E.2d 692, 694

(2003) (“Matters of internal corporate management, such as the manner of selection

and qualifications for directors, do not affect commerce as defined by Chapter 75 and

our Supreme Court.”); Talisman Software, Sys. & Servs., Inc. v. Atkins, 2015 NCBC

LEXIS 108, at *23 (N.C. Super. Ct. Nov. 18, 2015) (granting plaintiff’s motion to

dismiss defendant’s UDTP claim where the “conduct ar[ose] out of [defendant]’s

employment as President and CEO of [plaintiff] and only implicate[d] internal

business disputes”).
53. Therefore, the Court concludes that Crnalic’s Eighth Counterclaim fails to

state a claim for UDTP and, accordingly, Pure Body’s Motion as to this claim is

granted.

G. Punitive Damages

54. Pure Body’s Motion also seeks dismissal of Crnalic’s request for punitive

damages on the grounds that Crnalic has not stated a valid underlying claim to

support a punitive damages award and the allegations do not satisfy Rule 9(k). (Br.

Supp. 18; Reply Br. 9−10.)

55. The only reference to punitive damages is in Crnalic’s prayer for relief.

(Answer & Countercls. 36.) The pleading does not identify the claims for which

Crnalic seeks punitive damages.

56. Pursuant to N.C. Gen. Stat. § 1D-15(a), punitive damages may be awarded

only if Crnalic proves that Pure Body is liable for compensatory damages and that

either fraud, malice, or willful or wanton conduct was present and related to the

injury for which compensatory damages were awarded. N.C. Gen. Stat. § 1D-15(a).

Punitive damages may not be awarded solely for breach of contract. Id. § 1D-15(d).

“Nevertheless, where there is an identifiable tort even though the tort also

constitutes, or accompanies, a breach of contract, the tort itself may give rise to a

claim for punitive damages.” Newton v. Standard Fire Ins. Co., 291 N.C. 105, 111,

229 S.E.2d 297, 301 (1976). Further, Rule 9(k) states that “the aggravating factor

that supports the award of punitive damages shall be averred with particularity.”

N.C. Gen. Stat. § 1A-1, Rule 9(k). “It is not sufficient that the party seeking punitive
damages merely states a cause of action and then asserts he is entitled to punitive

damages as a result of that claim.” HSG, LLC v. Edge-Works Mfg. Co., 2015 NCBC

LEXIS 91, at *33 (N.C. Super. Ct. Oct. 5, 2015). “[T]o recover punitive damages, [the

pleading] must allege facts or elements showing the aggravating circumstances which

would justify the award of punitive damages.” Wiley v. L3 Commc’ns Vertex

Aerospace, LLC, 795 S.E.2d 580, 590 (N.C. Ct. App. 2016) (quotation marks omitted).

57. Crnalic’s claims for dissolution (First and Second Counterclaims),

indemnity (Third and Fourth Counterclaims), and declaratory judgment (Fifth, Sixth,

and Seventh Counterclaims) do not seek compensatory damages and, accordingly,

punitive damages may not be awarded for these claims. N.C. Gen. Stat. § 1D-15(a).

In addition, as the Court has dismissed Crnalic’s claims for UDTP (Eighth

Counterclaim) and breach of section 4.2 of the Operating Agreement (Ninth

Counterclaim), discussed below, the only remaining claims through which Crnalic

could potentially recover compensatory damages are his Tenth and Eleventh

Counterclaims for breach of section 5.6 of the Operating Agreement.

58. The Court has reviewed the Tenth and Eleventh Counterclaims in the light

most favorable to Crnalic and concludes that they fail to plead any recognizable tort

or allege any tortious or aggravated behavior accompanying Pure Body’s alleged

breach of the Operating Agreement sufficient to permit an award of punitive

damages. These counterclaims further fail to allege any aggravating factor that could

support a punitive damages award. Therefore, Pure Body’s Motion as to Crnalic’s

request for punitive damages is granted.
V. PURE BODY’S MOTION UNDER RULE 12(b)(1)

59. Crnalic’s Ninth Counterclaim alleges that Pure Body breached section

4.2(c) of the Operating Agreement by disposing of all or substantially all of Pure

Body’s assets as part of a single transaction or plan without the affirmative vote of

members who own more than fifty percent of the membership interests represented

by class A and class B membership units. (Answer & Countercls. 34.) Pure Body

seeks dismissal of this claim pursuant to Rule 12(b)(1) on the ground that it is a

derivative claim that must be brought derivatively on behalf of Pure Body. If Pure

Body is right, Crnalic lacks standing to assert this claim directly. (Br. Supp. 16−17;

Reply Br. 7−8.)

60. “Standing is a necessary prerequisite to a court’s proper exercise of subject

matter jurisdiction.” Neuse River Found., Inc., 155 N.C. App. at 113, 574 S.E.2d at

51. It is a well-settled principle of North Carolina law that shareholders of a

corporation cannot pursue individual causes of action for wrongs or injuries to the

corporation. Barger v. McCoy Hillard & Parks, 346 N.C. 650, 658, 488 S.E.2d 215,

219 (1997); Corwin v. British Am. Tobacco PLC, 796 S.E.2d 324, 338 (N.C. Ct. App.

2016). This same standard applies for purposes of determining whether a member of

an LLC can assert an individual, as opposed to a derivative, claim. Levin v. Jacobson,

2015 NCBC LEXIS 111, at *14−15 (N.C. Super. Ct. Dec. 7, 2015); see Russell M.

Robinson, II, Robinson on North Carolina Corporation Law § 34.04[5] (7th ed. 2016)

(“A derivative action on behalf of an LLC will be governed by essentially the same

rules that apply to a derivative action on behalf of a corporation.”).
61. There are two exceptions to the general requirement of derivative claims:

(1) when there is a special duty between the wrongdoer and the member; and (2) when

the member suffered an injury separate and distinct from the injury suffered by the

LLC and the other members. Barger, 346 N.C. at 658, 488 S.E.2d at 219; Corwin,

796 S.E.2d at 338; Levin, 2015 NCBC LEXIS 111, at *14−15; see Robinson § 34.04[5]

(“[W]hether the member must bring the suit individually or on behalf of the LLC

turns on whether the alleged injuries were caused directly to the member or are a

consequence of breaches of fiduciary duty that harmed the LLC.”).

62. For the special duty exception to apply, “the duty must be one that the

alleged wrongdoer owed directly to the shareholder as an individual”—a duty that

was personal to the shareholder and separate and distinct from the duty owed to the

corporation. Barger, 346 N.C. at 659, 488 S.E.2d at 220. In Barger, our Supreme

Court set forth an illustrative, non-exclusive list of situations in which a special duty

may be found. This non-exhaustive list includes when the wrongdoer induced

plaintiff to become a shareholder, the wrongdoer violated his fiduciary duty to the

shareholder, the wrongdoer performed individualized services directly for the

shareholder, and the wrongdoer undertook to advise shareholders independently of

the corporation. Id.

63. For the special injury exception to apply, the injury must be peculiar or

personal to the shareholder. Id. “[A] plaintiff must show that its particular injury

was ‘separate and distinct from the injury sustained by the other shareholders or the
corporation itself.’” Raymond James Capital Partners, L.P. v. Hayes, 789 S.E.2d 695,

702 (N.C. Ct. App. 2016) (quoting Barger, 346 N.C. at 659, 488 S.E.2d at 219).

64. The Court concludes that Crnalic’s Ninth Counterclaim seeks to recover for

injury suffered by Pure Body: the allegedly improper disposal of all or substantially

all of Pure Body’s assets, if true, is an injury to Pure Body, not Crnalic. See Jordan

v. Hartness, 230 N.C. 718, 719, 55 S.E.2d 484, 485 (1949) (concluding that a claim for

dissipation of corporate assets belongs to the corporation); In re Se. Eye Ctr.-Pending

Matters, 2016 NCBC LEXIS 59, at *24 (N.C. Super. Ct. July 22, 2016) (concluding

that a claim for wrongful disposition of corporate assets was derivative). Crnalic fails

to allege how he suffered a separate and distinct injury from that sustained by Pure

Body or the other members as a result of the improper disposal of Pure Body’s assets.

Further, the contractual duty to obtain the majority vote of the members before

disposing of Pure Body’s assets is a duty that is equally owed to Pure Body and the

other members.

65. Therefore, the Court concludes that Crnalic must bring this claim, if at all,

as a derivative claim and, thus, does not have standing to assert an individual claim

for breach of section 4.2 of the Operating Agreement. Pure Body’s Motion to dismiss

Crnalic’s Ninth Counterclaim pursuant to Rule 12(b)(1) is granted and the Ninth

Counterclaim is dismissed without prejudice. See Soma Tech., Inc. v. Dalamagas,

2017 NCBC LEXIS 43, at *29−30 (N.C. Super. Ct. May 11, 2017) (stating a dismissal

for lack of subject matter jurisdiction is not an adjudication on the merits and,

accordingly, is properly dismissed without prejudice).
VI. MOTION TO TRANSFER

66. Defendants’ Motion to Transfer requests that the Court transfer venue in

this action from Wake County to Mecklenburg County for the convenience of the

witnesses and to promote the ends of justice pursuant to N.C. Gen. Stat. § 1-83(2).

(Mot. Transfer Venue 1, ECF No. 35.) “The trial court is given broad discretion when

ruling on a motion to change venue for the convenience of witnesses: The trial court

may change the place of trial when the convenience of witnesses and the ends of

justice would be promoted by the change.” Zetino-Cruz v. Benitez-Zetino, 791 S.E.2d

100, 105 (N.C. Ct. App. 2016). The Court, in the exercise of its discretion, declines to

change the venue for trial at this time. Therefore, Defendants’ Motion to Transfer is

denied without prejudice to revisiting this issue at a later stage of the proceedings.

VII. CONCLUSION

67. For the foregoing reasons, the Court ORDERS as follows:

A. The Court DENIES Pure Body’s Motion under Rule 12(c) as to

Crnalic’s Second, Third, Fourth, Fifth, and Seventh Counterclaims,

and GRANTS Pure Body’s Motion under Rule 12(c) as to Crnalic’s

Eighth Counterclaim and request for punitive damages. Crnalic’s

Eighth Counterclaim is dismissed with prejudice.

B. The Court GRANTS Pure Body’s Motion under Rule 12(b)(1) as to

Crnalic’s Ninth Counterclaim, and this claim is dismissed without

prejudice.
C. The Court DENIES Defendants’ Motion to Transfer, without

prejudice to Defendants’ right to renew the Motion to Transfer at a

later stage of these proceedings for good cause shown.

68. Counsel for Plaintiff is directed to serve a copy of this Order and Opinion

on each of the Defendants. Counsel for Plaintiff is further directed to promptly file

with the Court a certificate of service documenting counsel’s compliance with the

Court’s directive.

SO ORDERED, this the 18th day of October, 2017.

/s/ Michael L. Robinson
Michael L. Robinson
Special Superior Court Judge
for Complex Business Cases