CONE v. BLUE GEM, INC., 2023 NCBC 70

STATE OF NORTH CAROLINA
GUILFORD COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
22 CVS 8287
ALAN W. (“A”) CONE, JR. and LOUIS
(“BILLY”) CONE individually and
derivatively on behalf of BLUE GEM,
INC.,
Plaintiffs,
v.
BLUE GEM, INC.; STEPHEN B.
CONE; and ELAINE BULLUCK,
Defendants.
ORDER AND OPINION
ON MOTIONS TO DISMISS
1. 	Plaintiffs, shareholders in a family-owned corporation, seek a judicial
dissolution 	of 	the 	business 	after 	their 	unsuccessful 	attempts 	to 	redeem 	their
interests. 	The case is before the Court on two motions to dismiss—one filed by the
corporate defendant, Blue Gem, Inc., and the other filed by the individual defendants,
Stephen 	B. 	Cone 	and 	Elaine 	Bulluck 	(“Defendants’ Motions to Dismiss”),
(ECF Nos. 20, 22).
2. 	After hearing Defendants’ Motions to Dismiss but prior to the Court’s
ruling, Plaintiffs filed their own Motion to Dismiss Without Prejudice (“Plaintiffs’
Motion to Dismiss”), (ECF No. 55). That motion is also before the Court.
3. 	Having considered the motions, the related briefing, the arguments of
counsel, and other appropriate matters of record, the motions are hereby GRANTED
in part and DENIED in part, as provided below.
Cone v. Blue Gem, Inc., 2023 NCBC 70.

Brooks, 	Pierce, 	McLendon, 	Humphrey 	& 	Leonard 	LLP, 	by 	Clinton
Shepperd Morse and Amanda Hawkins, for Plaintiffs Alan W. (“A”) Cone,
Jr. and Louis (“Billy”) Cone.
Block, Crouch, Keeter, Behm & Sayed, by Christopher K. Behm, for
Defendant Blue Gem, Inc.
Ward and Smith, P.A., by Jenna F. Butler and Joseph Anthony Schouten,
for Defendants Stephen B. Cone and Elaine Bulluck.
Earp, Judge.
I. 	BACKGROUND
4. 	The Court does not make findings of fact when ruling on motions to
dismiss. It recites below the factual allegations in the Amended Complaint that are
relevant and necessary to the motions before the Court.
The Parties
5. 	Blue Gem, Inc. (“Blue Gem” or the “Company”), a North Carolina
corporation, is a commercial real estate holding company. 	(First Am. Compl. [“Am.
Compl.”] ¶¶ 3, 15, 17, ECF No. 11.) It was incorporated by Alan Cone, Sr. (“Senior”),
a 	“wealthy 	descendant 	of 	the 	Cone 	Mills 	family” 	as 	a 	C 	corporation.
(Am. Compl. p. 1.)1
6. 	Senior used Blue Gem to accumulate wealth at the corporate tax rate
and rarely took dividends. (Am. Compl. pp. 1-2.) Upon his death in 2019, Senior left
his interest in Blue Gem to a trust for the benefit of his children. (Am. Compl. ¶ 29.)
1 Pages 1-3 of the First Amended Complaint contain unnumbered paragraphs. 	The Court
refers to allegations on those pages by page number.

7. 	Plaintiff Alan W. Cone (“A Cone”), one of the four Cone siblings who are
named parties in this action, is a resident of Virginia. He owns 23.146 percent of the
voting stock of Blue Gem. (Am. Compl. ¶¶ 1, 29.)
8. 	Plaintiff Louis (“Billy”) Cone is a resident of North Carolina. 	He also
owns 23.146 percent of the voting stock of Blue Gem. 	(Am. Compl. ¶¶ 2, 29.) 	In
addition, Billy serves as a director of the Company. (Am. Compl. ¶ 31.)
9. 	Defendant Elaine (“Bunny”) Bulluck is a resident of North Carolina.
She owns 23.146 percent of the voting stock of Blue Gem. 	(Am. Compl. ¶¶ 5, 29.)
Bunny is also a director of the Company. (Am. Compl. ¶ 31.)
10. 	Defendant Stephen B. Cone (“Steve”) is a resident of North Carolina. He
owns 29.748 percent of the voting stock of Blue Gem and serves as both a director of
the Company and its President. (Am. Compl. ¶¶ 4, 29, 31.)
Cone Family Wealth
11. 	Billy, 	A 	Cone, 	Bunny, 	and 	Steve 	are 	Senior’s 	children. 	(Am.
Compl. pp. 1-2.) 	During his lifetime, Senior was a beneficiary of family wealth that
he invested in a number of businesses, including Blue Gem. 	(Am. Compl. ¶¶ 6-12.)
Because Senior had other sources of income, he did not take dividends from Blue
Gem. Instead, Senior allowed his investments in Blue Gem to grow and to be taxed
at the corporate rate. (Am. Compl. pp. 1-2.)2
2 Senior incorporated Tareyton Corporation (“Tareyton”) as another holding company for his
investments. 	During the 1980s, he moved his commercial real estate to Blue Gem. 	(Am.
Compl. ¶¶ 9, 15.) He then merged Tareyton into Blue Gem in 1993. At the time of his death
in 2019, Blue Gem was Senior’s only investment vehicle. (Am. Compl. ¶¶ 17-18.)

12. 	At times, Senior used his assets to assist his family members when they
were in financial need. 	(Am. Compl. ¶ 19.) 	He provided Bunny’s family significant
financial support during the 1990s when their apparel company fell on hard times.
(Am. Compl. ¶¶ 20-23.) 	In addition, Plaintiffs believe that “sometime in the early
2000s,” Senior assisted Steve when his boat building business experienced financial
difficulties. (Am. Compl. ¶ 24.)
13. 	In 1998, as part of his estate planning, Senior “redeemed”3 all the stock
he had previously gifted his children. (Am. Compl. ¶ 25.) Plaintiffs do not allege how
the value of the stock was determined when it was redeemed.
14. 	In 2014, Senior began an annual practice of gifting non-voting Blue Gem
stock to A Cone, Billy, and Bunny, and gifting voting stock to Steve, who by then was
employed as the Vice President of Blue Gem. (Am. Compl. ¶¶ 25-26.)
15. 	Senior later redeemed Billy’s non-voting stock in Blue Gem “as needed”
for Billy’s personal living expenses. (Am. Compl. ¶ 27.) Again, Plaintiffs do not allege
how the value of the stock was determined when it was redeemed.
16. 	In addition to financial support, Senior took proactive steps to minimize
family strife within Blue Gem. 	For instance, when Senior foresaw the potential for
conflict among members of his extended family, he substituted his vacation home for
Blue Gem shares owned by his second wife’s children so that ownership of Blue Gem
would be limited to his natural offspring. (Am. Compl. ¶ 28.)
3 It is unclear from the Amended Complaint whether Senior caused Blue Gem to redeem the
stock or bought it himself.

Blue Gem’s Management
17. 	Bunny, Steve, and Billy are currently on Blue Gem’s Board of Directors.
Steve serves as its President. (Am. Compl. ¶ 31.) Because he was gifted voting stock
and the other siblings received non-voting stock while Senior was alive, Steve now
owns 29.748 percent of the voting shares, while A Cone, Billy, and Bunny each own
23.146 percent. (Am. Compl. ¶¶ 26, 29.)
18. 	Plaintiffs allege that Steve and Bunny are “acting together as a block”
with respect to decisions regarding Blue Gem. 	(Am. Compl. ¶ 32.) 	Together they
have 52.894 percent of the voting shares of the Company. 	(Am. Compl. ¶ 32.) 	This
majority voting power—along with their two board seats—gives Steve and Bunny
ultimate control. (Am. Compl. ¶¶ 52-70.)
19. 	Plaintiffs complain that “Steve and Bunny have not continued to run
Blue Gem with an eye toward avoiding family drama or to provide solutions for the
entire family as needed[.]” (Am. Compl. ¶ 33.) Among their grievances, A Cone and
Billy complain that Blue Gem is wasting assets by paying excessive taxes, and that
Steve and Bunny refuse to redeem their shares without minority and illiquidity
discounts that Plaintiffs believe are unfair. (Am. Compl. ¶¶ 52-70.)
20. 	With respect to the tax issue, A Cone and Billy contend that because
profits are taxed twice in a C corporation—once at the corporate level and again at
the individual level when shareholders receive dividends—allowing Blue Gem to
remain a C corporation constitutes corporate waste. Although the parties agree that
something should be done about the tax issue, Plaintiffs state that the shareholders

are 	“deadlocked 	on 	any 	remedy” 	and 	“at 	complete 	loggerheads.”
(Am. Compl. ¶¶ 33, 54-55.)
21. 	Plaintiffs further complain that Blue Gem’s investments are “extremely
conservative[,]” (Am. Compl. ¶ 39), and they believe their returns would improve if
they were able to access the value of their shares and reinvest in another vehicle.
Consequently, Plaintiffs state that they want to “liquidate their positions in Blue
Gem[.]” (Am. Compl. ¶ 42.)
22. 	In addition, Billy contends that because Senior periodically redeemed
his non-voting stock for “fair value,” and because in 1998, Senior redeemed all his
children’s gifted stock for “fair value,” there is a “pattern and practice” giving rise to
an expectation with respect to redemption. 	He claims that his inability to redeem
his shares at will “is an additional source of irreconcilable frustration among the
shareholders.” (Am. Compl. ¶¶ 45-51.)
23. 	In short, Plaintiffs’ inability to access the principal of their inheritance,
as well as their disagreement with their siblings over tax issues, have caused
Plaintiffs to conclude that “this is not the business [to benefit the family and avoid
strife] that Senior foresaw.” (Am. Compl. ¶ 36.)4
24. 	In pursuit of a resolution, the siblings have considered different options,
but they cannot agree on a path forward. 	(See Am. Compl. ¶¶ 55-65.) 	One option
considered was for Blue Gem to make an S corporation election. However, Plaintiffs
4 In addition to these two central grievances, Plaintiffs point to other unpleasant interactions
with Defendants, their belief that Blue Gem’s investment strategy is overly conservative, and
a general increase in family drama and tension between the siblings as additional reasons
they seek to exit Blue Gem. (Am. Compl. ¶¶ 34, 36, 40.)

allege that they have been advised that such an election would result in tax liability
that could exceed $3 million. (Am. Compl. ¶¶ 57-58.) Consequently, A Cone and Billy
have rejected the S corporation election option. 	They allege that they “reasonably
desire to end their business relationship” with their siblings and “certainly have no
interest in paying $3 million in taxes to remain in Blue Gem.” 	(Am. Compl. ¶ 59.)
Because IRS Code § 1362(a)(2) requires all shareholders to consent to an S election,
A Cone and Billy’s refusal makes an S election impossible. (Am. Compl. ¶¶ 57, 59.)
25. 	A second option considered would be for Plaintiffs to sell their shares to
Steve and Bunny. 	While Plaintiffs are willing to sell, the parties cannot agree on a
price. 	Plaintiffs contend that Steve and Bunny have “rejected A Cone and Billy’s
reasonable buy-out proposal” because “Steve and Bunny are only willing to buy-out
or redeem A Cone and Billy’s stock with illiquidity and minority discounts that A
Cone and Billy are not willing to give.” (Am. Compl. ¶ 63.) Consequently, this option
has been a nonstarter.
26. 	Similarly, converting Blue Gem to an LLC would trigger A Cone and
Billy’s statutory appraisal rights pursuant to N.C.G.S. § 55-13-02(a)(8) and entitle
them to redeem their shares at fair value, which they allege would not involve
illiquidity or minority discounts. 	They allege that, for this reason, conversion to an
LLC would be unacceptable to their siblings. (Am. Compl. ¶¶ 60-61.)
27. 	Another 	solution 	discussed 	was 	a 	tax-free 	spinoff 	“whereby 	the
shareholders would create a subsidiary and then transfer 42.6% of the real estate to
the subsidiary.” (Am. Compl. ¶ 64.) A Cone and Billy would then be able to “exchange

their shares in Blue Gem for shares in the subsidiary in a tax-free transaction.”
(Am. Compl. ¶ 64.) 	After consideration, however, Bunny and Steve did not find the
proposal to be “reasonable or in the best interest of Blue Gem[,]” and they rejected it.
(Am. Compl. Ex. 8, ECF No. 11.8.)
28. 	Having exhausted these options, Plaintiffs allege that the siblings are
“hopelessly deadlocked while Blue Gem wastes its assets through unnecessary taxes,”
and they assert that “judicial dissolution procedures present the only option available
to breach the deadlock and waste.” (Am. Compl. ¶ 65.)
29. 	Furthermore, 	Plaintiffs 	attribute 	Steve 	and 	Bunny’s 	rejections 	of
Plaintiffs’ preferred solutions to a failure on the part of Steve and Bunny to exercise
business judgment. They claim that this failure is motivated by a personal desire not
to pay fair value for A Cone and Billy’s interests. 	(Am. Compl. ¶ 69.) 	Plaintiffs
conclude that “[i]n the exercise of any business judgment, Steve and Bunny should
either 	liquidate, 	buy-out 	at 	fair 	value, 	or 	agree 	to 	a 	tax-free 	spin 	off.”
(Am. Compl. ¶ 68 (emphasis omitted).) 	By not accepting one of these three options,
Plaintiffs allege that Steve and Bunny have breached their fiduciary duties to Blue
Gem. (Am. Compl. ¶ 70.)
Procedural Background
30. 	Plaintiffs 	initiated 	this 	suit 	on 	25 	October 	2022 	by 	filing 	their
Complaint, (ECF No. 3). After designation to the Business Court, Plaintiffs filed an
Amended Complaint on 12 December 2022, asserting a claim for judicial dissolution
and a derivative claim for breach of fiduciary duty, (ECF No. 11). 	Defendants

subsequently filed Defendants’ Motions to Dismiss, and the Court held on hearing on
the motions on 11 April 2023. (See ECF No. 50.)
31. 	On 9 August 2023, following an unsuccessful mediation and prior to the
Court’s ruling on Defendants’ Motions to Dismiss, Plaintiffs filed their own motion
seeking a dismissal without prejudice of this case in its entirety. 5
II. 	LEGAL STANDARD
32. 	With respect to Defendants’ Motions to Dismiss filed pursuant to Rule
12(b)(6) of the North Carolina Rules of Civil Procedure, (the “Rule(s)”), dismissal of a
claim is proper if “(1) the complaint on its face reveals that no law supports the
plaintiff’s claim; (2) the complaint on its face reveals the absence of facts sufficient to
make a good claim; or (3) the complaint discloses some fact that necessarily defeats
the plaintiff’s claim.” 	Corwin v. Brit. Am. Tobacco PLC, 371 N.C. 605, 615 (2018).
Otherwise, “a complaint should not be dismissed for insufficiency unless it appears
to a certainty that plaintiff is entitled to no relief under any state of facts which could
be proved in support of the claim.” Sutton v. Duke, 277 N.C. 94, 103 (1970) (emphasis
omitted).
33. 	When deciding a motion to dismiss, the Court construes the complaint
liberally and accepts all allegations as true. See, e.g., Sykes v. Health Network Sols.,
5 Steve and Bunny moved to strike certain material in the pleadings and their attached
exhibits (the “Motion to Strike”), (ECF No. 15). Further, shortly after Defendants filed their
Motions to Dismiss and Motion to Strike, Plaintiffs filed a Motion for Summary Judgment,
along with a supporting brief. (See ECF Nos. 39, 43.) The Court entered an order staying
briefing on the Motion for Summary Judgment until it ruled on the pending motions to
dismiss. (See ECF No. 49.) For the reasons stated herein, both Defendants’ Motion to Strike
and Plaintiffs’ Motion for Summary Judgment are denied as moot.

Inc., 372 N.C. 326, 332 (2019); Laster v. Francis, 199 N.C. App. 572, 577 (2009).
Nonetheless, the Court is not required “to accept as true allegations that are merely
conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope
Hosp., Inc. v. N.C. Dep’t of Health & Hum. Servs., 174 N.C. App. 266, 274 (2005)
(quoting Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002)). Furthermore, the Court
“can reject allegations that are contradicted by the documents attached, specifically
referred to, or incorporated by reference in the complaint.” Laster, 199 N.C. App. at
577; see also Moch v. A.M. Pappas & Assocs., LLC., 251 N.C. App. 198, 206 (2016).
34. 	As for Plaintiffs’ Motion to Dismiss, Rule 41(a)(1) of the North Carolina
Rules of Civil Procedure permits a plaintiff, “[s]ubject to the provisions of . . . any
statute of this State” to voluntarily dismiss “an action or any claim therein . . . without
order of court (i) by filing a notice of dismissal at any time before the plaintiff rests
his case[.]” 	N.C. R. Civ. P. 41(a)(1). 	“Unless otherwise stated in the notice of
dismissal or stipulation, the dismissal is without prejudice[.]” Id.
35. 	Our Supreme Court has explained,
[t]he purpose of our long-standing rule allowing a plaintiff to take a
voluntary dismissal . . . is to provide a one-time opportunity where the
plaintiff, for whatever reason, does not want to continue the suit. 	The
range of reasons clearly includes those circumstances in which the
plaintiff fears dismissal of the case for rule violations, shortcomings in
the pleadings, evidentiary failures, or any other of the myriad reasons
for which the cause of action might fail. 	The only limitations are that
the dismissal not be done in bad faith and that it be done prior to a trial
court’s ruling dismissing plaintiff’s claim or otherwise ruling against
plaintiff at any time prior to plaintiff resting his or her case at trial.
Brisson v. Santoriello, 351 N.C. 589, 597 (2000).

36. 	Thus, “two limitations exist on the general rule permitting voluntary
dismissals.” 	Mkt. Am., Inc. v. Lee, 257 N.C. App. 98, 103 (2017). 	“[V]oluntary
dismissals may not be taken in bad faith[,]” and “a voluntary dismissal cannot be
taken after the plaintiff has rested its case.” Id. (citing Boyd v. Rekuc, 246 N.C. App.
227, 231 (2016)). 	See Eubank v. Van-Riel, 727 S.E.2d 25, 32 (N.C. App. 2012) (“[a]
dismissal taken for the purpose of defeating a substantive decision about to be
rendered by a trial court is of no effect.”).
37. 	However, Rule 41(d) provides, “[a] plaintiff who dismisses an action or
claim under section (a) of this rule shall be taxed with the costs of the action unless
the action was brought in forma pauperis.” N.C. R. Civ. P. 41(d).
38. 	And, when the dismissal involves a derivative claim, the North Carolina
Business Corporation Act requires, as an additional step, that the dismissal be
approved by the Court. N.C.G.S. § 55-7-45(a).
III. 	ANALYSIS
A. Claim for Judicial Dissolution
39. 	Plaintiffs’ Amended Complaint contains two claims, one for judicial
dissolution, and a second for breach of fiduciary duty asserted derivatively on behalf
of Blue Gem. 	By statute, dismissal of the derivative claim requires court approval.
However, dismissal of the claim for judicial dissolution does not. 	According to Rule
41(a), Plaintiffs may unilaterally dismiss a claim “at any time before the plaintiff
rests his case[.]” 	N.C. R. Civ. P. 41(a)(1). 	Accordingly, Plaintiffs’ motion serves to
dismiss their judicial dissolution claim without prejudice.

40. 	Defendants 	Steve 	and 	Bunny 	argue 	that 	the 	claim 	for 	judicial
dissolution should be dismissed with prejudice because “Plaintiffs’ claims have no
place before this Court.” (Defs.’ Stephen B. Cone’s and Elaine Bulluck’s Br. Opp. to
Pls.’ Mot. to Dismiss [“Steve and Bunny’s Br. Opp.”] p. 10, ECF No. 57.) 	Similarly,
Defendant Blue Gem argues that the first claim should be dismissed with prejudice
“because Plaintiffs failed to adequately allege any of the elements required to succeed
in judicial dissolution pursuant to [N.C.G.S.] 55-14-30[.]” (Def. Blue Gem, Inc.’s Br.
Opp. to Pls.’ Mot. to Dismiss [“Blue Gem’s Br. Opp.”] p. 7, ECF No. 60.)
41. 	Although it is true that a dismissal may not be taken in bad faith, see
e.g., Mkt. Am., 257 N.C. App. at 103, Defendants argue that it is the lawsuit itself
that was brought in bad faith, not the filing of the voluntary dismissal. In a letter to
the Court attached as an exhibit to Plaintiffs’ Motion to Dismiss, Plaintiffs explain
that a significant factor in their decision to dismiss the claim was the cost of pursuing
it. 	(Letter, ECF No. 55.1.) 	There is no indication that Plaintiffs sought to defeat a
substantive decision about to be rendered by the trial court or otherwise acted in bad
faith when they filed their dismissal.
42. 	The dismissal is not without a problem, however. 	Plaintiffs include in
their motion a demand that each side bear its own costs and attorneys’ fees. Pursuant
to Rule 41(d) of the North Carolina Rules of Civil Procedure, “[a] plaintiff who
dismisses an action or claim under section (a) of this rule shall be taxed with the costs
of the action unless the action was brought in forma pauperis.” N.C. R. Civ. P. 41(d)
(emphasis added).

43. 	Rule 	41(d) 	“serves 	as 	a 	mandatory 	directive 	to 	the 	trial 	court[.]”
Woodcock v. Cumberland Cnty. Hosp. Sys., 2021 NCBC LEXIS 65, at *5 (N.C. Super.
Ct. July 26, 2021) (quoting Sealey v. Grine, 115 N.C. App. 343, 346 (1994)). 	Our
Appellate Courts “have emphasized the mandatory nature of Rule 41(d) and the duty
of courts to strictly apply its mandate.” Id. at *8; see, e.g., Sims v. Oakwood Trailer
Sales Corp., 18 N.C. App. 726 (stating that “the language of Rule 41(d) constitutes a
mandatory directive of the trial court”), cert. denied, 283 N.C. 74 (1973).
44. 	Case law establishes that there are two purposes to Rule 41(d): “(1)
reimbursing defendants for costs when through no fault of their own they are denied
a 	hearing 	on 	the 	merits, 	and 	(2) 	curtailing 	vexatious 	lawsuits 	by 	creating
consequences for the plaintiff’s voluntary dismissal.” Lord v. Customized Consulting
Specialty, Inc., 164 N.C. App. 730, 732-33 (2004). Accordingly, Plaintiffs’ request that
each side bear its own costs is of no effect. Plaintiffs shall be taxed with the costs of
the action.
45. 	Accordingly, 	Plaintiffs’ 	Motion 	for 	Voluntary 	Dismissal 	Without
Prejudice is GRANTED as to the claim for judicial dissolution, but Plaintiffs shall be
taxed with the costs of this action. 	Plaintiffs’ voluntary dismissal of this claim
MOOTS Defendants’ Motions to Dismiss with respect to it.

B. Derivative Claim for Breach of Fiduciary Duty
46. 	As stated above, by statute “[a] derivative proceeding may not be
discontinued or settled without the court’s approval.” N.C.G.S. § 55-7-45(a).
47. 	Plaintiffs contend that dismissal of the derivative claim is in the best
interests of the shareholders because both the direct and indirect costs of litigation
are high. 	(Pls.’ Br. Supp. of Mot. to Dismiss [“Pls.’ Br. Supp.”] p. 2, ECF No. 56.)
Defendants Steve and Bunny agree that dismissal is in the best interests of the
shareholders, but they argue that any dismissal should be with prejudice for the
reasons they present in their Motions to Dismiss. (Steve and Bunny’s Br. Opp. p. 10.)
Blue Gem agrees that a dismissal with prejudice is warranted because it “should not
face the risk of having to defend against Plaintiffs’ . . . claims asserted in this action
ever again.” (Blue Gem’s Br. Opp. p. 13.)
48. 	“In determining whether to approve the [dismissal] of a derivative
action, the court is to balance (1) any legitimate corporate claims as brought forward
in the derivative shareholder suit against (2) the corporation’s best interests.” Lee v.
McDowell, 2022 NCBC LEXIS 129, at *4 (N.C. Super. Ct. Nov. 2, 2022) (quoting Scott
v. Sokolov, 1996 NCBC LEXIS 1, at *6 (N.C. Super. Ct. Dec. 2, 1996)). 	Here, the
Court evaluates the legitimacy of the claim pursuant to Rule 12(b)(6) and determines
that it is subject to dismissal with prejudice.
49. 	Plaintiffs complain that Steve and Bunny, as directors of Blue Gem,
have breached the fiduciary duty of care they owe the Company by refusing to
structure it to avoid “double taxation[.]” (Am. Compl. ¶¶ 52-53, 65, 67-70, 88.)
Plaintiffs argue that “unnecessary” corporate taxes, as well as attorneys’ fees

accruing as a result of this action, are wasting corporate assets. 	They contend that
Steve and Bunny are using their majority voting power to reject options to remedy
the perceived tax issue in order to deny Plaintiffs the opportunity to receive fair value
for their shares. (Am. Compl. p. 3, ¶¶ 32, 36, 62-70, 87-91.)
50. 	Defendants respond first that Plaintiffs do not have standing to assert
a derivative claim because they have not alleged facts sufficient to show that they
have complied with the pre-suit demand requirement found in Section 55-7-42 of the
General Statutes. 	Second, they argue that the Amended Complaint lacks factual
support for Plaintiffs’ conclusion that Steve and Bunny have acted in bad faith or
self-interest and, therefore, the business judgment rule controls. 	(Defs.’ Stephen B.
Cone’s and Elaine Bulluck’s Reply to Pls.’ Opp. to Mot. to Dismiss [“Steve and Bunny’s
Reply”] pp. 2-7, ECF No. 40; Defs.’ Memo. L. Supp. Mot. Dismiss Am. Compl. [“Defs.’
Br. Supp.”] pp. 22-28, ECF No. 19.)
51. 	The Court concludes that Plaintiffs have sufficiently alleged compliance
with the demand requirement in Section 55-7-42 by attaching the derivative demand
itself to their Amended Complaint. 	(See Am. Compl. Ex. 6, ECF No. 11.6.) 	See
Oberlin Cap., L.P. v. Slavin, 147 N.C. App. 52, 60 (2001) (“when ruling on a Rule
12(b)(6) motion, a court may properly consider documents which are the subject of a
plaintiff’s complaint and to which the complaint specifically refers”). 	Therefore,
Plaintiffs have standing to bring the claim. 	Even so, the Court determines that
Plaintiffs have failed to state a derivative claim for breach of fiduciary duty against
Steve and Bunny.

52. 	To state their claim, Plaintiffs must allege: “(1) the defendant owed the
plaintiff a fiduciary duty; (2) the defendant breached that fiduciary duty; and (3) the
breach 	of 	fiduciary 	duty 	was 	a 	proximate 	cause 	of 	injury 	to 	the 	plaintiff.”
Sykes, 372 N.C. at 339.
53. 	It is elementary that directors of a corporation owe fiduciary duties to
the corporation. See Governor’s Club Inc. v. Governors Club Ltd., 152 N.C. App. 240,
248 	(2002) 	(“directors 	of 	a 	corporation 	generally 	owe 	a 	fiduciary 	duty 	to 	the
corporation” (emphasis omitted)); Seraph Garrison, LLC v. Garrison, 787 S.E.2d 398,
403 (N.C. App. 2016) (“corporate directors . . . act in a fiduciary capacity in the sense
that 	they 	owe the corporation 	the 	duties 	of 	loyalty 	and due 	care.”); 	see also
N.C.G.S. § 55-8-30(a).
54. 	Actions and decisions by corporate directors are subject to review under
the business judgment rule. 	Adum v. Albermarle Plantation Prop. Owners Ass’n,
2021 NCBC LEXIS 6, at **38 (N.C. Super. Ct. Jan. 19, 2021) (“[t]he standard of
conduct applicable to officers and directors is subject to review under the business
judgment rule”). The business judgment rule creates an initial presumption that “in
making a decision the directors acted with due care (i.e., on an informed basis) and
in good faith in the honest belief that their action was in the best interest of the
corporation[.]” Russell M. Robinson, II, Robinson on North Carolina Corporation Law
§ 14.06, at 281. 	Absent rebuttal of this initial presumption, a powerful substantive
presumption arises “that a decision by a loyal and informed board will not be
overturned by a court unless it cannot be attributed to any rational business

purpose.” 	Id.; see also Adum, 2021 NCBC LEXIS 6, at **38-39 (applying the rule);
Holland v. Warren, 2020 NCBC LEXIS 146, at **19-24 (N.C. Super. Ct. Dec. 15, 2020)
(same). “The business judgment rule recognizes that business decisions are best left
in the hands of informed and experienced boards of directors and managers.” Emrich
Enters. v. Hornwood, Inc., 2022 NCBC LEXIS 19, at **46 (N.C. Super. Ct. Feb. 15,
2022).
55. 	To survive a motion to dismiss in the face of the business judgment rule,
“the Complaint must allege, in other than conclusory terms, that the board was
inattentive or uninformed, acted in bad faith, or that the board’s decision was
unreasonable.” Green v. Condra, 2009 NCBC LEXIS 20, at **20 (N.C. Super. Ct. Aug.
14, 2009) (quotations omitted) (emphasis added). Conclusory assertions in the
pleadings are not enough. 	Allegations of bad faith must be pleaded through facts.
See Mauck v. Cherry Oil Co., 2022 NCBC LEXIS 39, at **28-29 (N.C. Super. Ct. May
2, 2022).6
56. 	Plaintiffs argue that their allegations that Steve and Bunny are acting
in bad faith without using “any business judgment” are sufficient to satisfy their
pleading obligations. 	(Pls.’ Br. Opp. to Defs.’ Mot. to Dismiss [“Pl.’s Br. Opp.”] pp.
7-11, ECF No. 27.) They accuse Steve and Bunny of refusing to address Blue Gem’s
6 Ultimately, the burden is on the Plaintiffs to overcome the business judgment rule. 	See
Winter v. First Union Corp., 2001 NCBC LEXIS 5, at **11 (N.C. Super. Ct. July 12, 2001)
(“At a minimum, to overcome the presumption of the business judgment rule, the burden is
on the plaintiff to show the defendant directors failed to act (1) in good faith, (2) in the honest
belief that the action taken was in the best interest of the company, or (3) on an informed
basis.” (cleaned up)).

tax status because of their “self-interested desire” to force A Cone and Billy to sell
shares at a substantial discount. 	Plaintiffs argue that leveling this accusation is
sufficient to meet their pleading requirement. (Pls.’ Br. Opp. p. 10.)
57. 	The Court disagrees. Plaintiffs’ conclusion that Steve and Bunny have
acted in bad faith and self-interest is based on their own assumptions, not alleged
facts. See Good Hope Hosp., Inc., 174 N.C. App. at 274 (the Court is not required “to
accept as true allegations that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences”).
58. 	Nowhere in the Amended Complaint do Plaintiffs allege facts suggesting
that Steve and Bunny are attempting to force them to sell their shares. 	To the
contrary, Plaintiffs allege that it is they who want out, but their exit proposals have
been voted down. (See Am. Compl. p. 3, Exs. 7, 8, ¶¶ 37-51, 59, 78, 88.) In addition,
Plaintiffs’ allegations reflect that Steve and Bunny are not ignoring the shareholders’
desire to reduce their tax burden, a burden they share. 	Exhibits to the Amended
Complaint evidence that Steve and Bunny have participated in negotiations and
discussions regarding the various options; they simply disagree with Plaintiffs.
(Am. Compl. ¶ 64, Exs. 7, 8.) In the meantime, the Company has continued to pay its
taxes, as it must.
59. 	Without the requisite factual allegations of bad faith, Plaintiffs cannot
overcome the business judgment rule. 	See Wachovia Cap. Partners, LLC v. Frank
Harvey Inv. Family L.P., 2007 NCBC LEXIS 7, at **12 (N.C. Super. Ct. Mar. 5, 2007)

(absent “specific allegations, the board’s decision is entitled to a presumption of
reasonableness” (quotations omitted)).
60. 	Accordingly, the Court GRANTS the Motions to Dismiss with respect to
the derivative claim for breach of fiduciary duty and DISMISSES that claim with
prejudice. 	Plaintiffs’ Motion to Dismiss the derivative claim without prejudice is
DENIED.
IV. 	CONCLUSION
61. 	WHEREFORE, the Court hereby ORDERS as follows:
a. 	Plaintiffs’ Motion to Dismiss is GRANTED with respect to their claim
for 	judicial 	dissolution, 	and 	that 	claim 	is 	DISMISSED 	without
prejudice. 	In all other respects, Plaintiffs’ Motion to Dismiss is
DENIED.
b. 	Defendants’ 	Motions 	to 	Dismiss 	are 	GRANTED 	with 	respect 	to
Plaintiffs’ derivative claim for breach of fiduciary duty, and that claim
is 	DISMISSED 	with 	prejudice. 	Except 	as 	stated, 	Defendants’
Motions to Dismiss are DENIED as MOOT.
c. 	Defendants Steve and Bunny’s Motion to Strike, (ECF No. 15), and
Plaintiffs’ Motion for Summary Judgment, (ECF No. 39), are DENIED
as MOOT.
d. 	Pursuant to Rule 41(d) Plaintiffs are taxed with the costs of this action.7
7 For purposes of Rule 41(d), the definition of costs does not include attorneys’ fees. 	See
N.C.G.S. § 7A-305(d). 	Therefore, with respect to attorneys’ fees, the Court will consider
separately Blue Gem’s Motion for Recovery of Reasonable Expenses, Including Attorneys’

IT IS SO ORDERED, this the 13 th day of October, 2023.
/s/ Julianna Theall Earp
Julianna Theall Earp
Special Superior Court Judge
for Complex Business Cases
Fees (ECF No. 61) and Defendants Stephen B. Cone’s and Elaine Bulluck’s Motion for
Payment of Expenses or, in the alternative, for Indemnification (ECF No. 58).