Ford v. Jurgens

Ford v. Jurgens, 2021 NCBC 7.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 20 CVS 4896

JOHN FORD and CHRISTOPHER
KISGEN, derivatively on behalf of
TRIANGLE REAL ESTATE
INVESTORS ASSOCIATION, INC.,

Plaintiffs,

v.

CARL ARNOLD JURGENS, JR.;
KATHIE RUSSELL; TRIANGLE ORDER AND OPINION
REAL ESTATE INVESTORS ON PLAINTIFFS’ MOTION FOR
ASSOCIATION (TREIA), LLC; and PARTIAL SUMMARY JUDGMENT
TREIA FOUNDATION, INC.,

Defendants,

v.

TRIANGLE REAL ESTATE
INVESTORS ASSOCIATION, INC.

Nominal
Defendant.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Clint S. Morse
and Katarina K. Wong, for Plaintiffs John Ford and Christopher Kisgen.

Harris Sarratt & Hodges, LLP, by Donald J. Harris and McAngus,
Goudelock & Courie, PLLC, by Jeffrey D. Keister, for Defendants Carl
Jurgens and Kathie Russell.

Wilson Ratledge, PLLC, by Michael Ostrander and Goldberg Segalla, by
Thomas M. Buckley and Allegra A. Sinclair, for Nominal Defendant
Triangle Real Estate Investors Association, Inc.

Wilson Ratledge, PLLC, by Michael Ostrander, for Defendants TREIA
Foundation, Inc. and Triangle Real Estate Investors Association, LLC.

Conrad, Judge.
1. This derivative action arises from the reorganization of a nonprofit

corporation called Triangle Real Estate Investors Association, Inc. (“TREIA”).

Plaintiffs John Ford and Chris Kisgen are members and former directors of TREIA.

They accuse two other directors, Carl Jurgens and Kathie Russell, of misleading the

board and membership about the nature of the reorganization. Pending are related

motions by Ford and Kisgen for partial summary judgment and for leave to

supplement the record. (See Mot. Partial Summ. J., ECF No. 55; Mot. for Leave to

File Additional Member Affirmations, ECF No. 63.)

2. A brief background will suffice. In 2018, TREIA’s board and members

approved a plan to dissolve the corporation and divide its operations into new

for-profit and nonprofit arms. (See, e.g., Aff. Russell Ex. A, ECF No. 9.2.) A year

later, the board and members were given the chance to rescind the plan but voted

against doing so. (See, e.g., Aff. Russell Ex. C, ECF No. 9.4; Am. Compl. Ex. 7, ECF

No. 11.7.) Shortly after the latter vote, Russell informed TREIA’s board that she and

Jurgens would be the initial equity members of the for-profit entity (“TREIA, LLC”).

(See Am. Compl. Ex. 8, ECF No. 11.8.) Ford and Kisgen expressed surprise and

objected to being left out. (See Am. Compl. Ex. 9, ECF No. 11.9.) Their attempt to

reverse the reorganization fizzled. (See, e.g., Aff. Russell ¶ 54, ECF No. 9.) TREIA

was dissolved (though the dissolution has since been revoked), its assets were split

between TREIA, LLC and a new nonprofit entity, and the board removed Ford and

Kisgen as directors. (See, e.g., Aff. Russell ¶ 67; Aff. Millon ¶ 11, ECF No. 31.1.) Ford
and Kisgen then filed this suit, naming Jurgens, Russell, and all three entities as

defendants.

3. Discovery is ongoing. Even so, Ford and Kisgen contend that they are

entitled to summary judgment on their third claim for relief. This claim seeks a

declaration that TREIA’s reorganization is void (thus requiring restoration of its

assets) and a court-ordered membership meeting under N.C.G.S. § 55A-1-60. (See

Am. Compl. ¶¶ 102–16, ECF No. 11.) After full briefing and a hearing on January

28, 2021, the motion is now ripe.

4. Ford and Kisgen have the usual burden to demonstrate “the absence of a

genuine issue of material fact.” Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571,

579, 573 S.E.2d 118, 124 (2002) (citation omitted). And because they seek offensive

summary judgment on their own claim, they must show “that there are no gaps in

[their] proof, that no inferences inconsistent with [their] recovery arise from the

evidence, and that there is no standard that must be applied to the facts by the jury.”

Parks Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 721, 329 S.E.2d 728, 729 (1985).

The Court views the evidence “in the light most favorable to” Defendants, taking their

evidence as true and drawing inferences in their favor. Furr v. K-Mart Corp., 142

N.C. App. 325, 327, 543 S.E.2d 166, 168 (2001) (citations and quotation marks

omitted).

5. First, Ford and Kisgen seek a declaration voiding TREIA’s reorganization

on the ground that it was a conflict-of-interest transaction. “A conflict of interest

transaction is a transaction with the corporation in which a director of the corporation
has a direct or indirect interest.” N.C.G.S. § 55A-8-31(a). By statute, a transaction

is not voidable “solely because of the director’s interest” if the board approved or

ratified it with knowledge of the material facts, if the members approved or ratified

it with knowledge of the material facts, or if it was fair to the corporation. See id.

6. According to Ford and Kisgen, the reorganization directly benefitted

Jurgens and Russell as the sole equity members of TREIA, LLC. As alleged in the

amended complaint, “the fact that [Jurgens and Russell] intended to be the sole

owners of the for-profit LLC is a material fact that should have been disclosed to the

membership and to the Board.” (Am. Compl. ¶ 110.) In their motion, Ford and

Kisgen argue that Jurgens and Russell “failed to disclose anything concerning the

new LLC’s ownership or governance.” (Br. in Supp. 7, ECF No. 56.)

7. Viewed in a light most favorable to Defendants, the evidence suggests that

Jurgens and Russell did not intend to become the sole equity members of TREIA,

LLC. Russell expressly denies it. (See Aff. Russell ¶ 33.) And there is evidence that

other board members were offered equity membership but declined. (See, e.g., Aff.

Russell ¶¶ 35, 36; Aff. Richards ¶ 9, ECF No. 31.2; Aff. Ortiz ¶ 11, ECF No. 31.3; Aff.

Curley ¶ 10, ECF No. 31.4.)

8. Defendants also point to evidence that the board, including Ford and Kisgen,

ratified the reorganization with knowledge of the material facts, including the

identity of TREIA, LLC’s owners and its governance structure. (See, e.g., Aff. Millon

¶¶ 11, 13; Aff. Richards ¶¶ 12, 14; Aff. Ortiz ¶¶ 14, 16; Aff. Curley ¶¶ 13, 15.) In their

reply brief, Ford and Kisgen argue that what the board knew is irrelevant because it
did not have the power, under N.C.G.S. § 55A-14-02, to ratify the plan of dissolution

without member approval. (See Reply Br. 4, ECF No. 58.) But that statute requires

approval only “[b]y the members entitled to vote” on dissolution, “if any.” N.C.G.S.

§ 55A-14-02(a)(2). Ford and Kisgen cite no evidence to show whether any members

were entitled to vote on the plan of dissolution.

9. In any event, the evidence concerning the fairness of the transaction is also

in conflict. Some evidence, for example, supports the view that the reorganization

enhanced the services available to TREIA’s general membership. (See, e.g., Aff.

Millon ¶ 14; Aff. Curley ¶¶ 3, 17.) Other evidence also suggests that TREIA, LLC

and its sister nonprofit entity preserved TREIA’s assets for the benefit of the

membership. An advisory board oversees TREIA, LLC for that purpose. (See, e.g.,

Aff. Russell ¶¶ 32, 34; Aff. Richards ¶ 8; Aff. Ortiz ¶ 10.) A different group, which

does not include Jurgens and Russell, oversees the nonprofit. (See, e.g., Aff. Curley

¶ 17.) Finally, it bears noting that there is no evidence that Jurgens and Russell took

funds for their own personal use.

10. Thus, assuming the reorganization qualifies as a conflict-of-interest

transaction, there are genuine issues of material fact about the circumstances related

to its approval and ratification and about its fairness to the corporation. Summary

judgment is not appropriate.

11. Second, Ford and Kisgen seek a court-ordered membership meeting under

N.C.G.S. § 55A-1-60. (See Br. in Supp. 8–9.) This statute allows a court to order a

meeting only when “it is impracticable for [the] corporation to call or conduct a
meeting . . . in the manner prescribed by its articles of incorporation, bylaws, or”

statute. N.C.G.S. § 55A-1-60(a). Ford and Kisgen argue that TREIA has wrongly

refused to call a meeting requested by the members. But they have not shown that

it is impracticable—the word is absent from their briefs—for TREIA to call or conduct

the meeting.

12. Furthermore, the facts concerning TREIA’s refusal to call a meeting are

unsettled. TREIA’s bylaws require a special member meeting “upon written request

from not less than . . . fifteen percent (15%) of the [m]embers in good standing.”

(Bylaws Art. V § 2, ECF No. 11.13.) Although Ford and Kisgen have gathered

meeting requests from over two hundred individuals, they have not shown how many

members TREIA has. In addition, some requests are duplicative or undated, and

there is evidence suggesting that more than a few were submitted by nonmembers.

(See, e.g., Reply Br. Ex. 1, ECF No. 58.1; Affirmation of Curley ¶ 4, ECF No. 46.) Just

before the hearing, Ford and Kisgen moved to file roughly twenty more affirmations,

but this new evidence, if allowed, would not cure these deficiencies. (See ECF No.

63.) With or without the supplemental evidence, they have not carried their burden,

in seeking offensive summary judgment, to show that “there are no gaps in [their]

proof.” Parks Chevrolet, 74 N.C. App. at 721, 329 S.E.2d at 729.

13. As Defendants note in their opposition brief, a different statute authorizes

a court-ordered meeting without a showing that it is impracticable for the corporation

to call or conduct the meeting. See N.C.G.S. § 55A-7-03 (permitting court-ordered
meeting based on member demand). Ford and Kisgen have neither invoked that

remedy nor shown that they are entitled to it.

14. For these reasons, the Court DENIES the motion for partial summary

judgment. The Court also, in its discretion, DENIES the motion for leave to file

additional affirmations.

SO ORDERED, this the 2nd day of February, 2021.

/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases