Clark v. Burnette

Clark v. Burnette, 2022 NCBC 17.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 19 CVS 8565

ANDREW CLARK,

Plaintiff,
ORDER AND OPINION ON MOTION
v. FOR ENTRY OF FINAL JUDGMENT
JARED BURNETTE and JBAC
PROPERTIES, LLC,

Defendants.

THIS MATTER comes before the Court on Jared Burnette and JBAC

Properties, LLC’s Motion for Entry of Final Judgment (ECF No. 92).

The Court, having considered the motion, the briefs, the arguments of counsel,

and all applicable matters of record, CONCLUDES that the motion should be

GRANTED for the reasons set forth below.

Vann Attorneys, PLLC, by Ian S. Richardson and Barker Richardson,
PLLC, by Daniel T. Barker for Plaintiff Andrew Clark.

Williams Mullen, by Camden R. Webb, Alexander M. Gormley, and
Caitlin M. Poe for Defendants Jared Burnette and JBAC Properties,
LLC.

Davis, Judge.

FACTUAL AND PROCEDURAL BACKGROUND

1. This dispute arises out of a lawsuit filed by Andrew Clark against Jared

Burnette and JBAC Properties, LLC (“JBAC”). (ECF No. 3, at p. 1.) Clark and

Burnette are the member-managers and equal co-owners of JBAC. (ECF No. 40.2, at

p. 2, 19.) On 25 June 2019, Clark initiated this action by filing a Complaint in Wake
County Superior Court in which he asserted the following claims: breach of contract

against Burnette; declaratory judgment against Burnette and JBAC; quantum

meruit against Burnette; and judicial dissolution of JBAC pursuant to N.C.G.S. §

57D-6-02. (ECF No. 3, at pp. 5–10.)

2. On 26 July 2019, this action was designated a mandatory complex

business case and was assigned to the Honorable Gregory P. McGuire. (ECF Nos. 1,

2.)

3. After suit was filed, Burnette initially sought—pursuant to JBAC’s

Operating Agreement and the North Carolina Limited Liability Company Act (“LLC

Act”)—reimbursement for fees he had paid in connection with JBAC’s defense of this

lawsuit and advancement of funds for his own defense. (ECF No. 65, at p. 6.)

However, Clark refused to consent to the use of JBAC funds for the provision of a

defense to either JBAC or Burnette in this lawsuit. (ECF No. 65, at p. 6.)

4. On 11 March 2020, Burnette and JBAC filed an Amended Answer and

Counterclaim. In the counterclaim, Burnette sought to establish his right to

“reimbursement and indemnification from JBAC for any payment made and any

judgment, settlement, penalty, fine, or other cost, including attorneys’ fees, incurred

in the course of this litigation.” (ECF No. 29, at pp. 11–12.)

5. Burnette and JBAC filed a Motion for Summary Judgment on 10 June

2020 with regard to his counterclaim. (ECF No. 38.) On 2 December 2020, Judge

McGuire entered an order and opinion (the “Summary Judgment Order”) granting

the motion, concluding that “[u]nder the Operating Agreement, Burnette [was]
entitled to indemnification to the extent required under and permitted by N.C.G.S. §

57D-3-31(a).” (ECF No. 65, at p. 20.)

6. Specifically, Judge McGuire concluded as follows:

There is no dispute that Burnette, as a manager of JBAC,
would be entitled to indemnification under the Operating
Agreement to the extent required under and permitted by
N.C.G.S. § 57D-3-31 if he is wholly successful on the merits
or otherwise in his defense of the claims against him in this
lawsuit. Therefore, the Court concludes that to the extent
it seeks a declaration that the Operating Agreement
entitles Burnette to indemnification to the extent required
under and permitted by N.C.G.S. § 57D-3-31(a), the Motion
for Summary Judgment should be GRANTED.

Finally, the Motion for Summary Judgment does not raise,
and the Court makes no determination in this Order and
Opinion regarding the proper procedure for, submitting
requests for payment of advancements or reimbursement,
the type of legal expenses or the particular work performed
by counsel for which Burnette should be advanced or
reimbursed, or the specific amounts to be paid for advances
or reimbursements.

(ECF No. 65, at p. 19.)

7. Judge McGuire further directed the parties to

confer and in good faith attempt to agree on: (a) the amount
of advanceable expenses incurred by Burnette to date and
on a procedure for payment of future advancement
requests, and (b) the amount of reimbursable expenses
incurred to date by Burnette on behalf of JBAC and on a
procedure for payment of future reimbursement requests.
On or before December 30, 2020, the parties shall report to
the Court, via email to the clerk assigned to this matter,
regarding their attempts to reach agreement and any
outstanding disputes.

(ECF No. 65, at pp. 20–21.)
8. After both parties subsequently moved for summary judgment on

Clark’s claims, the Court issued an order and opinion on 29 April 2021. (ECF No.

75.) Judge McGuire denied Clark’s motion for summary judgment on his judicial

dissolution claim and granted summary judgment in Burnette’s favor on Clark’s

claims for breaches of the Operating Agreement and unjust enrichment. (ECF No.

75, at pp. 36–37.) The Court also entered summary judgment in Burnette’s favor on

numerous aspects of Clark’s declaratory judgment claims. (ECF No. 75, at pp. 34–

36.)

9. This case was re-assigned to the undersigned on 1 July 2021. (ECF No.

80.)

10. On 14 July 2021, Clark filed a voluntary dismissal without prejudice

pursuant to N.C. R. Civ. P. 41(a)(1) on all of his remaining claims. (ECF No. 82.)

11. Burnette filed the present motion on 10 January 2022 seeking a final

judgment from the Court setting out the precise sums to which Burnette is entitled

to indemnification. (ECF No. 92.)

12. The motion came before the Court for a hearing on 8 March 2022 and

is now ripe for decision.

ANALYSIS

13. The LLC Act provides in pertinent part as follows:

(a) An 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.

(b) An LLC shall reimburse a person who is or was a
member for any payment made and indemnify the person
for any obligation, including any judgment, settlement,
penalty, fine, or other cost, incurred or borne in the
authorized conduct of the LLC’s business or preservation
of the LLC’s business or property, whether acting in the
capacity of a manager, member, or other company official
if, in making the payment or incurring the obligation, the
person complied with the duties and standards of conduct
(i) under G.S. 57D-3-21, as modified or eliminated by the
operating agreement or (ii) otherwise imposed by this
Chapter or other applicable law.

N.C.G.S. § 57D-3-31 (2021).

14. JBAC’s Operating Agreement, in turn, states in relevant part as follows:

To the fullest extent required under and permitted by the
[LLC] Act, the Company shall indemnify its Managers and
make advances for expenses to Managers with respect to
the matters capable of indemnification under the [LLC]
Act.

(ECF No. 29.1, at p. 7.)

15. “[I]ndemnification is the right to be reimbursed for all out of pocket

expenses and losses caused by an underlying claim.” Wheeler v. Wheeler, 2018 NCBC

LEXIS 156, at **26–27 (N.C. Super Ct. Nov. 15, 2018) (quoting Majkowski v. Am.

Imaging Mgmt. Servs., LLC, 913 A.2d 572, 586 (Del. Ch. 2006)). The availability of

indemnification allows an entity to “allocate the risk of personal liability of directors,

officers, employees, and agents.” Id. at **20 (cleaned up).

16. In his motion, Burnette argues that he is entitled to a final judgment in

the total amount of $320,866.64 for expenses and fees that he incurred defending
himself and JBAC from Clark’s claims in this action. (ECF No. 92, at p. 2.) Burnette

seeks recovery of $314,967.08 from JBAC on a theory of indemnification for fees

incurred in the defense of this lawsuit and an award of $5,899.56 from Clark

individually for costs pursuant to N.C.G.S. § 7A-305(d). (ECF No. 92, at p. 2.)

17. With regard to the fees and expenses incurred by Burnette for which he

seeks indemnification, the amount of $6,025.53 was paid to the Pendergrass Law

Firm for work completed before the filing of this lawsuit. (ECF No. 93, at p. 6.) The

Pendergrass Law Firm billed Burnette for an additional $4,041.50 in fees after the

filing of this action. (ECF No. 93, at p. 6.) The Williams Mullen law firm then began

representing Burnette and billed him for $287,459.00 in attorneys’ fees and $8,052.31

in costs in the defense of this suit. 1 (ECF No. 93, at p. 6.) Burnette further seeks

indemnification in the amount of $12,653.80 for fees incurred by an individual named

Kristen Creech “for litigation support for this lawsuit.” (ECF No. 93, at p. 6.)

Burnette also argues that he is entitled to $30,155.51 in pre-judgment interest due

to JBAC’s initial failure to advance amounts Burnette was forced to pay himself. 2

Finally, Burnette contends that he is entitled to an award of post-judgment interest. 3

1 Burnette also incurred $102,698.50 from Williams Mullen in attorneys’ fees relating to the

defense of JBAC in this action. (ECF No. 93, at p. 6.)

2 However, it is undisputed that JBAC did eventually advance Burnette $110,000 for these

incurred expenses. (ECF No. 93, at p. 2.)

3 At the hearing on Burnette’s motion, the Court granted the request of Burnette’s counsel

for leave to submit an affidavit identifying the additional legal fees that have been incurred
by Burnette’s counsel in litigating the present motion. On 10 March 2022, Burnette’s counsel
submitted an affidavit stating that between the date the present motion was filed through 9
March 2022 an additional $18,577.56 in fees have accrued. (ECF No. 102.) Clark has not
challenged any aspect of this affidavit.
18. Clark does not dispute that Burnette was successful in defending the

claims against him in this action. He does, however, make several specific arguments

in response to Burnette’s motion, each of which is discussed below.

A. Authority of Court to Enter Final Judgment

19. As an initial matter, Clark argues that the entry of a final judgment at

this time would be improper due to the “uncertain” resolution of all the claims in this

action. As a basis for this argument, Clark contends that because the voluntary

dismissal of his remaining claims was taken without prejudice pursuant to Rule 41,

he has the right to refile those claims within one year. For this reason, he contends,

the entry of a final judgment in this case prior to the expiration of the one-year period

would be improper.

20. This argument, however, rests upon an incorrect interpretation of Rule

41. It is true that pursuant to Rule 41(a)(1) Clark has the right to refile any of his

claims as to which he took a voluntary dismissal within twelve months of the date of

the dismissal. See N.C. R. Civ. P. 41(a)(1) (“If an action commenced within the time

prescribed therefor, or any claim therein, is dismissed without prejudice under this

subsection, a new action based on the same claim may be commenced within one year

after such dismissal . . . .”). However, his ability to refile those claims does not

preclude the Court from entering a final judgment at the present time as there are

currently no claims remaining for resolution in this case. Clark has failed to offer any
legal authority for the proposition that no final judgment may be entered until the

one-year period for refiling has expired. 4

21. Therefore, the Court concludes that the entry of a final judgment at the

present time is appropriate.

B. Absence of Express Claim for Indemnification in Burnette’s
Counterclaims

22. In his next argument, Clark contends that it would be inappropriate for

the Court to order that Burnette be indemnified in a particular amount because

Burnette’s counterclaim did not specifically contain a claim for indemnification. In

support of this contention, Clark asserts that the counterclaim, as pled, merely

sought a declaration establishing as a general proposition Burnette’s right to

indemnification under the Operating Agreement and the LLC Act but stopped short

of actually seeking indemnification. The Court disagrees.

23. Judge McGuire’s Summary Judgment Order demonstrated the Court’s

recognition of the fact that this lawsuit would resolve not only Burnette’s general

entitlement to indemnification but also the specific amounts for which Burnette was

to be indemnified. Indeed, as noted above, Judge McGuire directed the parties to

confer and attempt to reach an agreement on the appropriate indemnification

amounts and on a procedure for payment of those sums to Burnette. (ECF No. 65, at

pp. 20–21.) In response to the Court’s directive, the parties spent several months

4The Court’s entry of a final judgment at the present time will not disturb Clark’s ability to
refile the previously dismissed claims in a new lawsuit as provided for under Rule 41 within
the applicable one-year deadline.
conferring on this subject but were ultimately unable to reach an agreement. Their

failure to do so necessitates a ruling by the Court on these issues.

24. Clark’s argument is also inimical to basic notions of judicial economy. If

the Court were to adopt Clark’s position, Burnette would be required to file a new

lawsuit in order to actually obtain indemnification. Such a requirement would make

little sense. Moreover, the parties have each had a full and fair opportunity to brief

these issues and present arguments to the Court.

25. For these reasons, the Court rejects Clark’s argument on this issue.

C. Discrepancies in Amounts Sought

26. Next, Clark argues that the maximum amount of indemnification that

could be awarded to Burnette is $236,998.50 because of an agreement among counsel

prior to the filing of this motion. In making this argument, Clark relies upon a series

of emails between his attorney and Burnette’s attorney during the period in which

counsel were attempting to reach an agreement on the amounts of reimbursement

owed pursuant to Judge McGuire’s directive. Clark asserts that the exchange of

emails shows that counsel for both parties agreed that reimbursement to Burnette in

the amount of $236,998.50 was appropriate. In light of this agreement, Clark asserts,

Burnette is precluded from seeking the greater amount of $320,866.64 in the present

motion.

27. To the extent Clark is arguing that these emails created a binding

contract between the parties, the Court is unpersuaded. In an email from Burnette’s

counsel dated 24 August 2021 following the exchange of emails upon which Clark
relies, Burnette’s counsel wrote that he would “confer with [Burnette] to confirm his

agreement with these amounts[.]” (ECF No. 96.1, at p. 1.) The clear implication of

this statement is that Burnette had not yet assented to the indemnification amount

discussed between counsel in the prior emails. Therefore, no binding agreement was

formed. See Howard v. IOMAXIS, LLC, 2020 NCBC LEXIS 57, at *20 (N.C. Super.

Ct. May 1, 2020) (cleaned up) (declining to give effect to a Memorandum of Settlement

that manifested “an intent not to become bound until the execution of a more formal

agreement.”).

D. Satisfaction of Judgment

28. Clark next requests that any final judgment entered by the Court

include a specific mechanism for how the judgment is to be satisfied in light of the

illiquidity of JBAC’s assets. He speculates as to various problems that might exist

for JBAC if any judgment entered by the Court fails to include such a provision.

Specifically, Clark requests that the Court “direct as part of its judgment, pursuant

to N.C. Gen. Stat. § 1-362, that property in the hands of JBAC, as a judgment debtor,

is to be sold under execution.” (ECF No. 97, at p. 12.)

29. However, Clark provides no legal authority that would permit the Court

to dictate the manner in which execution on its judgment will occur. The only statute

that Clark cites in his brief on this issue—N.C.G.S. § 1-362—is contained in a section

of our General Statutes entitled “Supplemental Proceedings” and has no applicability

prior to the entry of a judgment.
30. Therefore, because this Court lacks the authority to dictate the manner

in which the judgment it enters will be satisfied, Clark’s request must be denied.

E. Specific Reimbursable Amounts

31. In his remaining arguments, Clark challenges certain categories of fees

and expenses sought by Burnette as to which he contends indemnification is not

proper. The Court will address each of these arguments in turn.

1. Pre-Litigation Fees

32. Clark argues that the LLC Act does not permit indemnification of legal

fees incurred prior to the filing of litigation and that, for this reason, the $6,025.53 in

fees paid by Burnette to the Pendergrass Law Firm for work completed before this

lawsuit was filed cannot be recovered on a theory of indemnification. 5 In response,

Burnette contends that the LLC Act’s language permitting indemnification for fees

incurred “in connection with the proceeding” shows the General Assembly’s intent to

include pre-suit fees within the scope of indemnifiable expenses.

33. A resolution of this issue requires the Court to engage in statutory

construction. In analyzing the parties’ arguments on this issue, the Court deems the

existence of material differences in the wording of the relevant portions of the LLC

Act and the North Carolina Business Corporation Act (“NCBCA”) to be significant.

34. The LLC Act authorizes indemnification of expenses incurred “in

connection with the proceeding.” N.C.G.S. § 57D-3-31 (2021). The Act, in turn,

defines a “proceeding” as “[a]ny civil or criminal proceeding or other action pending

5 Clark does not contest Burnette’s right to reimbursement of the $4,041.50 in fees billed by

the Pendergrass Law Firm after this lawsuit was filed.
before any court of law or other governmental body or agency or any arbitration

proceeding.” Id. § 57D-1-03.

35. By way of comparison, the NCBCA likewise provides for indemnification

as to reasonable expenses incurred “in connection with the proceeding.” Id. § 55-8-

52. However, the NCBCA defines “proceeding” as it relates to indemnification as “any

threatened, pending, or completed action, suit, or proceeding, whether civil, criminal,

administrative, or investigative and whether formal or informal.” Id. § 55-8-50

(emphasis added).

36. Clark argues the fact that the definition of “proceeding” in the LLC Act

does not expressly encompass “threatened” actions demonstrates that the General

Assembly did not intend to include pre-litigation fees as indemnifiable expenses

under the Act. Burnette, conversely, contends that any difference in the wording of

these two definitions is immaterial because the term “in connection with the

proceeding” included in both the LLC Act and the NCBCA is broad enough to

encompass both pending and threatened litigation.

37. Issues of statutory interpretation present “a question of law.” McLeod

v. Nationwide Mut. Ins. Co., 115 N.C. App. 283, 288 (1994), disc. review denied, 337

N.C. 694 (1994) (cleaned up). “The cardinal principle of statutory interpretation is to

ensure that legislative intent is accomplished.” Id. In seeking to ascertain the intent

of the legislature, the Court is mindful of the presumption that the General Assembly

“acted with full knowledge of prior and existing law.” Ridge Cmty. Inv’rs, Inc. v.

Berry, 293 N.C. 688, 695 (1977) (cleaned up).
38. Although it is not clear why the General Assembly would have wanted

to establish different rules for indemnification-related issues depending on whether

they arose in the context of limited liability companies or corporations, the Court is

not free to ignore the above-referenced differences in the two respective definitions of

the word “proceeding.” In reviewing these two statutes in pari materia, the General

Assembly has recognized a distinction between actual lawsuits and merely

threatened lawsuits and only permitted indemnification as to the latter in the context

of corporations. Because the $6,025.53 in fees paid by Burnette to the Pendergrass

Law Firm was incurred before the dispute between Clark and Burnette ripened into

a lawsuit, the Court is unable to conclude that these fees are properly subject to

indemnification. 6

39. Therefore, because the LLC Act does not provide for indemnification as

to pre-litigation expenses, the Court concludes that the $6,025.53 in fees billed by the

Pendergrass Law Firm before the filing of this lawsuit is not indemnifiable.

2. Expenses for Work Performed by Creech

40. In his next contention, Clark contends that the $12,653.80 amount

reflecting work performed by Kristin Creech—a non-lawyer acquaintance of

Burnette’s who he engaged to perform administrative services related to his defense

of this lawsuit—is not permitted as an indemnifiable expense under the LLC Act.

Burnette argues in response that Creech’s expenses were incurred specifically in

6 Indeed, the Court notes that Judge McGuire’s Summary Judgment Order stated that
Burnette was entitled to indemnification “in his defense of the claims against him in this
lawsuit.” (ECF No. 65, at p. 19 (emphasis added).)
connection with the litigation, which is the sole requirement for indemnification

under the LLC Act.

41. Section 5.05 of JBAC’s Operating Agreement provides for

indemnification of managers “[t]o the fullest extent required under and permitted by

the Act[.]” (ECF No. 40.2, at p. 7.) As quoted above, the LLC Act permits

indemnification for expenses incurred “in connection with the proceeding.” N.C.G.S.

§ 57D-3-31 (2021).

42. Burnette testified that Creech billed him for “tasks that were directly

related to the lawsuit, including review of documents for production, retrieval of data,

and other similar services” and that her bills contained “detailed time entries.” (ECF

No. 94.3, at pp. 1–2.) Finally, he testified that Creech was paid by check for expenses

related to the litigation and that to the extent that she performed other tasks for

Burnette not related to this litigation, she was paid separately. (ECF No. 57.1, at pp.

8–10.)

43. Although Clark asserts that these tasks could have been performed by

a paralegal for the law firm Burnette retained to defend him and JBAC in the lawsuit,

Clark has failed to point to either (1) any evidence rebutting the proposition that the

services at issue were reasonably related to the defense of the lawsuit; or (2) any legal

authority barring Burnette’s right to indemnification for expenses relating to tasks

performed by an independent contractor that bear an appropriate nexus to the

litigation. Thus, the Court concludes that the $12,653.80 in expenses billed by Creech

is recoverable.
F. Award of Costs

44. As noted above, $5,899.56 of the total amount sought by Burnette is

being sought directly from Clark as awardable costs pursuant to N.C.G.S. § 7A-

305(d). Clark has not challenged the recoverability of any of the costs sought by

Burnette in his motion.

45. Therefore, the Court concludes that these costs are properly awarded

and shall be included in the final judgment.

CONCLUSION

For the reasons stated above, Burnette’s Motion is GRANTED except as to its

request for indemnification of $6,025.53 in pre-suit fees paid by Burnette to the

Pendergrass Law Firm. Burnette shall file with the Court within twenty (20) days a

proposed final judgment with each amount separately listed with specificity

(including the computation of all applicable pre- and post-judgment interest). This

proposed final judgment shall be consistent in all respects with the Court’s rulings

contained herein.

SO ORDERED, this the 18th day of April, 2022.

/s/ Mark A. Davis
Mark A. Davis
Special Superior Court Judge for
Complex Business Cases