Emrich Enters., LLC v. Hornwood, Inc.

Emrich Enters., LLC v. Hornwood, Inc., 2020 NCBC 29.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 19 CVS 5659

EMRICH ENTERPRISES, LLC,
individually and derivatively on
behalf of TRIANGLE AUTOMOTIVE
COMPONENTS, LLC,

Plaintiff,

v.

HORNWOOD, INC., ORDER AND OPINION ON
DEFENDANTS’ PARTIAL
Defendant, MOTION TO DISMISS
v.

TRIANGLE AUTOMOTIVE
COMPONENTS, LLC,

Defendant and
Nominal Defendant.

1. THIS MATTER is before the Court on Defendants’ Partial Motion to

Dismiss (the “Motion”) filed on August 21, 2019. (ECF No. 63.)

2. For the reasons set forth herein, the Court DENIES the Motion.

Ellis & Winters LLP by Jonathan D. Sasser, Stephen D. Feldman, 1 and
Michelle A. Liguori, for Plaintiff.

Moore & Van Allen, PLLC by Mark A. Nebrig and Kaitlin M. Price for
Defendants.

Robinson, Judge.

1 At the time of briefing and oral arguments on the Motion, Mr. Stephen D. Feldman (“Mr.

Feldman”) represented Plaintiff Emrich Enterprises, LLC as legal counsel. After oral
arguments on February 27, 2020, Mr. Feldman requested that the Court permit him
withdraw as counsel. (ECF No. 80.) The Court granted Mr. Feldman’s request on March 3,
2020, and Mr. Feldman is effectively no longer counsel of record in the above-captioned
litigation. (ECF No. 82.) Mr. Jonathan D. Sasser and Ms. Michelle A. Liguori remain counsel
of record for Plaintiff Emrich Enterprises, LLC.
I. INTRODUCTION

3. This action arises out of a dispute between Plaintiff Emrich Enterprises,

LLC (“Emrich Enterprises”) and Defendant Hornwood, Inc. (“Hornwood”) as member-

managers of a North Carolina limited liability company, Triangle Automotive

Components, LLC (“Triangle,” and with Hornwood collectively referred to herein as

“Defendants”). Emrich Enterprises contends that Hornwood attempted to

unilaterally withdraw from Triangle contrary to the terms of Triangle’s operating

agreement. Emrich Enterprises also contends that after being enjoined from

withdrawing from Triangle by this Court, Hornwood has subsequently mismanaged

Triangle in order to benefit itself.

II. FACTUAL BACKGROUND

4. The Court does not make findings of fact for the purposes of a motion to

dismiss, but only recites or summarizes those factual allegations contained in the

operative pleading, which are accepted as true, that are relevant and necessary to the

Court’s determination of the Motion. 2

A. The Parties

5. Emrich Enterprises is a North Carolina limited liability company with its

principal office in Raleigh. (First Am. Verified Compl. ¶ 14, ECF No. 56 [“Am.

Compl.”].)

2 “Absent a request by one of the parties, the trial court is not required to make findings of

fact when ruling a motion” to dismiss. Cameron-Brown Co. v. Daves, 83 N.C. App. 281, 285,
350 S.E.2d 111, 114 (1986). The appellate courts will presume that the trial court found
sufficient facts to support its ruling. Id.
6. Hornwood is a North Carolina corporation with its principal office in

Lilesville. (Am. Compl. ¶ 15.) Chuck Horne is Hornwood’s Chief Executive Officer

(“Horne”). (Am. Compl. ¶ 43.)

7. Triangle is a North Carolina limited liability company with its principal

office in Lilesville. (Am. Compl. ¶ 15.) Triangle is in the business of manufacturing

and selling automotive textile products for passenger and commercial vehicles. (Am.

Compl. ¶ 1.)

8. Emrich Enterprises is the minority member of Triangle, with a membership

interest of approximately forty-seven percent (47%). (Am. Compl. ¶ 14.) Hornwood

is the majority and controlling member of Triangle, with a membership interest of

about fifty-three percent (53%). (Am. Compl. ¶ 16.) Hornwood controls Triangle’s

finances. (Am. Compl. ¶¶ 47, 127.)

B. Triangle’s Operations

9. On February 28, 2006, Emrich, Hornwood, and Bondtex, Inc. (“Bondtex”),

who is not a party to this litigation, entered into an operating agreement (the

“Operating Agreement”) to govern Triangle’s operations. (Am. Compl. ¶ 33; see also

Am. Compl. Ex. 1, ECF No. 56.1 [the “Operating Agreement”].) Emrich Enterprises,

Hornwood, and Bondtex also entered into a joint venture agreement dated April 28,

2006 (the “Joint Venture Agreement”). (Am. Compl. ¶ 38; see also Am. Compl. Ex. 2,

ECF No. 56.2 [the “Joint Venture Agreement”].) At some point after signing the

Operating Agreement and the Joint Venture Agreement, Bondtex withdrew from

Triangle. (See Am. Compl. ¶ 29.)
10. When Triangle was founded in 2006, Hornwood and Emrich Enterprises

agreed to a certain division of labor. (Am. Compl. ¶ 29.) Aside from the division of

Bondtex’s responsibilities after it withdrew from Triangle, Emrich Enterprises and

Hornwood’s responsibilities have remained the same since 2006. (Am. Compl. ¶ 29.)

11. Hornwood manufactures the fabric that Triangle sells and performs certain

non-manufacturing services. (Am. Compl. ¶ 28.) Hornwood also owns the facilities

at which Triangle’s products are manufactured. (Am. Compl. ¶ 30.) Emrich

Enterprises performs functions related to Triangle’s business development, including

sales and marketing services. (Am. Compl. ¶¶ 28, 118.) Emrich Enterprises does not

have manufacturing facilities or the ability to perform Hornwood’s manufacturing

and non-manufacturing responsibilities. (Am. Compl. ¶ 31.)

12. Triangle is a supplier for automobile companies, including Daimler, GM,

and Fiat Chrysler. (Am. Compl. ¶ 23.) In the automotive industry, suppliers are

awarded “programs” to supply component parts for automobiles. (Am. Compl. ¶ 25.)

Under the programs, the manufacturers usually give Triangle their projected needs

on a six-month basis, and Triangle then meets those supply needs during that period

of time. (Am. Compl. ¶ 26.)

13. The approval process for being awarded these programs usually takes six

to nine months and requires approval by the automobile manufacturers’ engineers.

(Am. Compl. ¶ 25.) Any change Triangle makes in its manufacturing process also

requires approval by the automobile manufacturer’s engineers. (Am. Compl. ¶ 25.)
C. Triangle’s Lawsuit and its Settlement Proceeds

14. In 2015, Triangle sued one of its former sales agents, who had acquired

Bondtex, for breach of contract and related claims (the “Lawsuit”). (Am. Compl. ¶

42.) In September 2018, the Lawsuit was settled favorably for Triangle. (Am. Compl.

¶ 44.)

15. Emrich Enterprises and Hornwood, comprising 100% of the membership

interests of Triangle, agreed that Triangle would distribute the Lawsuit’s settlement

proceeds with approximately fifty-two percent (52%) being distributed to Hornwood

and approximately forty-eight percent (48%) being distributed to Emrich Enterprises.

(Am. Compl. ¶¶ 14, 16, 45.)

16. In October 2018, Triangle distributed approximately seventy-eight percent

(78%) of Emrich Enterprises’ share of the settlement proceeds to Emrich Enterprises.

(Am. Compl. ¶ 46.) Emrich Enterprises, Hornwood, and Triangle agreed that

Triangle would retain the remainder of Emrich Enterprises’ share of the settlement

proceeds until the end of 2018 to ensure that Triangle could pay its liabilities for that

year. (Am. Compl. ¶ 46.)

17. Emrich Enterprises has made multiple requests for the remainder of its

share of the Lawsuit’s settlement proceeds, but Triangle has refused to make such

payment. (Am. Compl. ¶ 46.) Hornwood controls Triangle’s finances and has caused

Triangle to wrongfully withhold Emrich Enterprises’ share of the settlement

proceeds. (Am. Compl. ¶ 47.)
18. As part of the settlement of the Lawsuit, Hornwood and Emrich Enterprises

consented to Bondtex’s withdrawal from Triangle. (Am. Compl. ¶ 48.) Prior to its

withdrawal, Bondtex provided lamination services for Triangle. (Am. Compl. ¶ 49.)

Triangle hired a contract laminator, C.H. Mueller (“Mueller”), to provide Triangle

with lamination services as a successor to and replacement for Bondtex providing

these services. (Am. Compl. ¶ 51.)

19. Emrich Enterprises and Hornwood agreed that Hornwood would oversee

the transition from Bondtex to Mueller. (Am. Compl. ¶ 51.) However, Hornwood

failed to timely transition the lamination services to Mueller, requiring Triangle to

continue to use Bondtex’s lamination services. (Am. Compl. ¶¶ 52–53.) Bondtex

charges substantially more than Mueller and the continued use of Bondtex’s

lamination services has resulted in reduced Triangle profits by tens of thousands of

dollars per month. (Am. Compl. ¶¶ 54, 57.)

20. Hornwood’s failure to properly oversee the lamination transition is a

byproduct of its intensive work with a competitor of Triangle. (Am. Compl. ¶ 67.)

D. Hornwood’s Alleged Competitive Misconduct

21. Borgstena, similar to Triangle, is a textile company in the business of

manufacturing and selling automotive textile products for suppliers of automobile

manufacturers. (Am. Compl. ¶¶ 6, 68.) Borgstena is a competitor of Triangle. (Am.

Compl. ¶¶ 6, 67.)

22. Beginning in September 2017, Hornwood began working with Borgstena.

(Am. Compl. ¶ 6.) On or before that date, Borgstena contacted Horne to discuss
Hornwood making seating and headliner fabric for an automobile manufacturer.

(Am. Compl. ¶ 69.) Horne provided Borgstena with a “company profile” for Hornwood.

(Am. Compl. ¶ 69.)

23. In November 2017, Hornwood and Borgstena entered into a nondisclosure

agreement with the intent of working together on product development. (Am. Compl.

¶ 70.) Hornwood never disclosed this agreement to Emrich Enterprises or suggested

that Triangle should be a party to the agreement. (Am. Compl. ¶ 70.)

24. In February 2018, Horne, and another Hornwood principal, visited

Borgstena’s manufacturing facility in Portugal. (Am. Compl. ¶ 73.) Hornwood never

informed Emrich Enterprises of Hornwood’s plans to send its representatives to

Borgstena’s Portugal facility. (Am. Compl. ¶ 73.)

25. After Horne’s visit to Borgstena’s Portugal facility, Hornwood began

communicating weekly with Borgstena regarding product-development issues. (Am.

Compl. ¶ 74.) Hornwood and Borgstena discussed product development with at least

three automobile manufacturers, one of which is a customer of Triangle. (Am. Compl.

¶¶ 71–72, 75–76.)

26. After the Lawsuit was initiated and while the Lawsuit was pending,

Triangle, at the advice of Hornwood’s leadership, scaled back its efforts to secure new

programs. (Am. Compl. ¶ 78.) Horne represented that automobile manufacturers

would not grant new programs to a supplier that was involved in litigation. (Am.

Compl. ¶ 78.) However, during this time, Hornwood was actively engaging in

product-development efforts with Borgstena. (Am. Compl. ¶¶ 76, 78.)
27. After the Lawsuit was settled in 2018, Hornwood and Emrich Enterprises

discussed efforts to secure new business for Triangle. (Am. Compl. ¶ 79.) Before

Emrich Enterprises became aware of the work Hornwood was doing with Borgstena,

John Emrich (“Mr. Emrich”), of Emrich Enterprises, suggested to Horne that

Triangle contact Borgstena regarding a joint development, sales, and supply

agreement between Triangle and Borgstena. (Am. Compl. ¶¶ 82, 88, 97.) Borgstena’s

CEO declined this offer. (Am. Compl. ¶ 82.) The offer purportedly made by Horne to

Borgstena’s CEO was a “charade” and Hornwood had no intention of pursuing a

partnership with Borgstena as a member of Triangle. (Am. Compl. ¶ 82.)

28. On January 1, 2019, Borgstena Textile North America, LLC was formed

and organized as a North Carolina limited-liability company. (Am. Compl. ¶ 84.)

During January 2019, Hornwood informed Borgstena of an opportunity to purchase

a textile plant in North Carolina. (Am. Compl. ¶ 85.)

29. On March 5, 2019, Hornwood and Borgstena met with the director of the

Anson County Economic Development Partnership. (Am. Compl. ¶ 86.) Borgstena,

through Borgstena Textile North America, LLC, is opening a facility in Anson

County, where Horwood’s facilities are located. (Am. Compl. ¶¶ 86–87.)

30. While discussing product development with Borgstena, Hornwood disclosed

to Borgstena representatives Triangle’s confidential product information. (Am.

Compl. ¶¶ 89–95.) Horne admitted by e-mail to Borgstena’s CEO that Hornwood’s

work with Borgstena violates the provisions of the Operating Agreement. (Am.

Compl. ¶ 96.)
31. Hornwood did not tell Emrich Enterprises about its product-development

efforts with Borgstena until it was disclosed in discovery in this litigation. (Am.

Compl. ¶ 88.)

E. Hornwood’s Proposed Changes to the Operating Agreement

32. On March 4, 2019, Triangle held a members meeting. (Am. Compl. ¶ 97.)

Horne and Wesley Horne (collectively referred to herein as the “Hornes”) attended

for Hornwood and Mr. Emrich and Martha Miller (“Ms. Miller”) attended for Emrich

Enterprises. (Am. Compl. ¶ 97.)

33. Before the March 4 meeting, Emrich Enterprises and Hornwood discussed

adjusting their respective membership interests in Triangle and eliminating Emrich

Enterprises’ sales commissions. (Am. Compl. ¶ 98.)

34. The Hornes also proposed a new governing document for Triangle. (Am.

Compl. ¶ 99.) Emrich Enterprises contends that the proposed document eliminated

the majority of the terms in the Operating Agreement and the Joint Venture

Agreement. (Am. Compl. ¶ 99.) Mr. Emrich and Ms. Miller did not agree to the terms

of the proposed agreement and refused to sign it. (Am. Compl. ¶ 99.)

35. At the March 4 meeting, Hornwood informed Emrich Enterprises that

Hornwood planned to do business with Borgstena. (Am. Compl. ¶ 100.) Hornwood

then acknowledged that the Operating Agreement prohibited it from doing business

with Borgstena; therefore, Hornwood needed to discontinue its affiliation with

Emrich Enterprises in order to work with Borgstena. (Am. Compl. ¶ 100.)
36. Hornwood offered to buy Emrich Enterprises’ membership share in

Triangle, but Hornwood’s offer undervalued Emrich Enterprises’ interest. (Am.

Compl. ¶ 101.) Alternatively, Hornwood offered to sell its membership interest in

Triangle to Emrich Enterprises. (Am. Compl. ¶ 102.) Emrich Enterprises declined

this offer because it lacks the manufacturing capabilities that Hornwood provides and

is not able to operate Triangle without Hornwood. (Am. Compl. ¶¶ 102, 106–10.)

37. At the end of the March 4 meeting, Hornwood provided Emrich Enterprises

a notice of its intent to withdraw from Triangle in sixty (60) days. (Am. Compl. ¶

103.) Notwithstanding Hornwood’s notice, in the weeks after the conclusion of the

March 4 meeting, Emrich Enterprises and Hornwood communicated on multiple

occasions regarding Hornwood’s offer to purchase Emrich Enterprises’ interest in

Triangle. (Am. Compl. ¶ 104.)

F. Hornwood Threatens to Withdraw from Triangle

38. On April 16, 2019, Horne, by letter, again expressed Hornwood’s interest in

purchasing Emrich Enterprises’ share of Triangle. (Am. Compl. ¶ 105.) However,

Horne communicated that if Emrich Enterprises did not agree to sell its share of

Triangle, Hornwood would withdraw from Triangle as of May 2, 2019 and stop

performing its manufacturing duties. (Am. Compl. ¶ 105; see also Am. Compl. Ex. 6,

ECF No. 56.6.)

39. On April 24, 2019, Hornwood sent a letter to Emrich Enterprises,

withdrawing its offer to purchase Emrich Enterprises’ interest in Triangle and

reiterating its intent to withdraw from Triangle. (Am. Compl. ¶ 113.) The next day,
on April 25, 2019, Hornwood sent an e-mail to Emrich Enterprises threatening to

inform Triangle’s customers of Hornwood’s withdrawal. (Am. Compl. ¶ 114.)

40. On May 31, 2019, the Court entered the Order on Amended Motion for

Preliminary Injunction, prohibiting Hornwood from withdrawing from Triangle (the

“Preliminary Injunction”). (Order Am. Mot. Prelim. Inj. ¶ 75, ECF No. 40 [“Prelim.

Inj.”].)

41. After the Court entered the Preliminary Injunction, Hornwood initiated

several actions “designed to cripple Triangle.” (Am. Compl. ¶ 117.)

G. Additional Alleged Misconduct by Hornwood

42. In exchange for Emrich Enterprises providing sales and marketing

services, Triangle agreed to pay Emrich Enterprises a monthly commission on

Triangle’s sales. (Am. Compl. ¶¶ 118, 120.) This agreement was made part of the

Joint Venture Agreement. (Am. Compl. ¶ 120; see also Joint Venture Agreement ¶¶

2(c), 3(a).)

43. Beginning in January 2013, Triangle paid Emrich Enterprises a two-

percent commission on a regular basis. (Am. Compl. ¶ 125.) After Emrich

Enterprises initiated this lawsuit, Hornwood caused Triangle to stop paying

commissions to Emrich Enterprises. (Am. Compl. ¶¶ 126–27.)

44. Additionally, on June 10, 2019, Hornwood unilaterally approved an

unprecedented price increase for fabric manufactured and sold by Hornwood to

Triangle, which will cost Triangle more than $200,000 a year. (Am. Compl. ¶¶ 128,

130–32.)
45. The Joint Venture Agreement requires Hornwood to charge Triangle at cost

for the fabric it manufactures for Triangle. (Am. Compl. ¶ 129.) Emrich Enterprises

requested that Hornwood produce documents to support the proposition that the

increased prices represented Hornwood’s actual costs. (Am. Compl. ¶ 133.)

46. Hornwood has not provided credible documentation to justify the price

increases. (Am. Compl. ¶¶ 134, 140.) The documentation provided by Hornwood

suggests that the price increases are a device to achieve Hornwood’s desired

separation from Emrich Enterprises. (Am. Compl. ¶¶ 134–40.)

47. On June 24, 2019, Hornwood informed Emrich Enterprises that Hornwood,

for the first time since Triangle’s inception, would start billing Triangle for

Hornwood’s non-manufacturing services. (Am. Compl. ¶ 143.) Hornwood stated that

it was “no longer willing to handle [Triangle’s] customer service, accounting, and

other non-manufacturing tasks” if Hornwood was not paid for its non-manufacturing

services. (Am. Compl. ¶ 145.)

48. After the Court entered the Preliminary Injunction prohibiting Hornwood

from unilaterally withdrawing from Triangle, Hornwood has attempted to use its

status as controlling member of Triangle to divert Triangle profits to Hornwood, stop

the flow of profits from Triangle to Emrich Enterprises, and otherwise cripple

Triangle. (Am. Compl. ¶¶ 117, 147.)

III. PROCEDURAL BACKGROUND

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

relevant to its determination of the Motion.
50. Emrich Enterprises initiated this action by filing a Verified Complaint on

April 29, 2019 (the “First Complaint”). (ECF No. 3.) The action was designated as a

mandatory complex business case that same day, (ECF No. 1), and assigned to the

undersigned on April 30, 2019, (ECF No. 2).

51. On May 21, 2019, Emrich Enterprises filed an Amended Motion for

Preliminary Injunction. (ECF No. 27.) The Court entered the Preliminary Injunction

on May 31, 2019. (ECF No. 40.)

52. As of right, Emrich Enterprises filed the First Amended Verified Complaint

on July 22, 2019 (the “FAVC”).

53. Hornwood and Triangle filed the Motion and brief in support thereof on

August 21, 2019. (Defs.’ Mem. Supp. Partial Mot. Dismiss Pl.’s First Am. Verified

Compl., ECF No. 64 [“Br. Supp.”].) Briefing was timely completed, and the Court

held a hearing on the Motion on February 19, 2020. (See ECF No. 78.)

54. The Motion is ripe for resolution.

IV. LEGAL STANDARDS

A. Subject Matter Jurisdiction

55. A court shall dismiss the action when it appears that the court lacks subject

matter jurisdiction. N.C.G.S. § 1A-1, Rule 12(h)(3). The plaintiff bears the burden of

establishing subject matter jurisdiction. Harper v. City of Asheville, 160 N.C. App.
209, 217, 585 S.E.2d 240, 245 (2003). “A motion to dismiss for lack of subject matter

jurisdiction is not viewed in the same manner as a motion to dismiss for failure to

state a claim upon which relief can be granted.” Tart v. Walker, 38 N.C. App. 500,

502, 248 S.E.2d 736, 737 (1978). A court may consider matters outside the pleadings

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

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

at 737.

B. Rule 12(b)(6)

56. A motion to dismiss pursuant to Rule 12(b)(6) “tests the legal sufficiency of

the complaint.” Concrete Serv. Corp. v. Inv’rs Grp., Inc., 79 N.C. App. 678, 681, 340

S.E.2d 755, 758 (1986). In ruling on a motion to dismiss pursuant to Rule 12(b)(6),

the Court reviews the allegations in the Complaint in the light most favorable to

Plaintiff. See Christenbury Eye Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d

888, 891 (2017). The Court’s inquiry is “whether, as a matter of law, the allegations

of the complaint . . . are sufficient to state a claim upon which relief may be granted

under some legal theory[.]” Harris v. NCNB Nat’l Bank, 85 N.C. App. 669, 670, 355

S.E.2d 838, 840 (1987). The Court accepts all well-pleaded factual allegations in the

relevant pleading as true. See Krawiec v. Manly, 370 N.C. 602, 606, 811 S.E.2d 542,

546 (2018). The Court is therefore 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 & Human Servs., 174 N.C. App. 266,

274, 620 S.E.2d 873, 880 (2005) (citation omitted).

57. Furthermore, the Court “can reject allegations that are contradicted by the

documents attached, specifically referred to, or incorporated by reference in the

complaint.” Moch v. A.M. Pappas & Assocs., LLC., 251 N.C. App. 198, 206, 794 S.E.2d

898, 903 (2016) (citation omitted). The Court may consider these attached or

incorporated documents without converting the Rule 12(b)(6) motion into a motion

for summary judgment. Id. (citation omitted). Moreover, the Court “may properly

consider documents which are the subject of a plaintiff’s complaint and to which the

complaint specifically refers even though they are presented by the defendant.”

Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847 (2001)

(citation omitted). Where the Court considers documents that are not specifically

referred to, contained in, or attached to the complaint, the Rule 12(b)(6) motion will

be converted into a Rule 56 motion and subject to its standards of consideration and

review. Fowler v. Williamson, 39 N.C. App. 715, 717, 251 S.E.2d 889, 890−91 (1979). 3

Our Supreme Court has noted that “[i]t is well-established that dismissal pursuant

to Rule 12(b)(6) is proper when ‘(1) the complaint on its face reveals that no law

3 For the purposes of Rule 12(b)(6), the Court is limited to its review of the relevant pleading,

the FAVC, and any documents referred to in that pleading. Moch, 251 N.C. App. at 206
S.E.2d at 903 (citation omitted). While the Court may consider matters outside of the FAVC
in determining whether it has subject matter jurisdiction over the parties or the claims, the
Court limits its review for the purposes of Rule 12(b)(6), only considering appropriate matters
of record. See Estate of Belk v. Boise Cascade Wood Prods., L.L.C., 824 S.E.2d 180, 183 (N.C.
Ct. App. 2019) (“[T]he trial court is not required to convert a motion to dismiss into one for
summary judgment simply because additional documents are submitted. . . Where it is clear
from the record, namely from the order itself, that the additional materials were not
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. British Am. Tobacco PLC, 371

N.C. 605, 615, 821 S.E.2d 729, 736−37 (2018) (quoting Wood v. Guilford Cty., 355 N.C.

161, 166, 558 S.E.2d 490, 494 (2002)). This standard of review for Rule 12(b)(6) is the

standard our Supreme Court “uses routinely . . . in assessing the sufficiency of

complaints in the context of complex commercial litigation.” Id. at 615, 821 S.E.2d at

737 n.7 (citations omitted).

V. ANALYSIS

58. The FAVC includes eight claims for relief. (See Am. Compl. ¶¶ 150–235.)

Only the following six claims for relief are the subject of the Motion: (1) breach of

contract, brought derivatively and directly, against Hornwood for violation of section

4.4. of the Operating Agreement (the “First Claim for Relief”); (2) breach of contract,

brought derivatively and directly, against Hornwood for ceasing manufacturing for

Triangle (the “Second Claim for Relief”); (3) breach of fiduciary duty, brought

derivatively and directly, against Hornwood (the “Fourth Claim for Relief”); (4)

breach of contract against Triangle for failure to pay settlement proceeds from the

Lawsuit (the “Fifth Claim for Relief”); (5) breach of contract against Hornwood for

failure to manufacture for Triangle at cost (the “Seventh Claim for Relief”); and (6) a

considered by the trial court, the 12(b)(6) motion is not converted into a Rule 56 motion.”
(internal quotation marks, brackets, and citation omitted).)
direct breach of fiduciary duty claim against Hornwood (the “Eighth Claim for

Relief”). 4 (See Br. Supp. 1–2.)

59. Hornwood moves to dismiss the derivative claims asserted by Emrich

Enterprises – the First, Second, and Fourth Claims for Relief – for lack of subject

matter jurisdiction for Emrich Enterprises’ failure to meet the pre-suit demand

requirements as provided for in N.C.G.S. § 57D-8-01. (Br. Supp. 8–10.) However, on

September 20, 2019, Emrich Enterprises voluntarily dismissed its Second Claim for

Relief without prejudice. (Resp. Emrich Enterprises, LLC Defs.’ Part. Mot. Dismiss

9, ECF No. 72 [“Resp. Br.”].) Therefore, Defendants’ Motion should be DENIED as

MOOT to the extent it seeks dismissal of Emrich Enterprises’ Second Claim for Relief.

60. Hornwood also moves to dismiss the First and Seventh Claims for Relief

pursuant to Rule 12(b)(1), contending that Emrich Enterprises lacks standing to

assert the respective direct breach of contract claims against Hornwood. (Br. Supp.

15–16.)

61. Hornwood also moves to dismiss Emrich Enterprises’ direct breach of

fiduciary duty claims, the Fourth and Eighth Claims for Relief, pursuant to Rule

12(b)(1) arguing that it does not owe Emrich Enterprises fiduciary duties. (Br. Supp.

11–14.) Hornwood also argues that the Fourth and Eighth Claims for Relief fail

pursuant to Rule 12(b)(6) because Emrich Enterprises fails to allege that Hornwood

breached any fiduciary duty owed or that any such breach caused damages. (Br.

Supp. 16–19.)

4 The Third and Sixth Claims for Relief, as defined by the FAVC, are not subject to the Motion.

(See Am. Compl. ¶¶ 176–86, 207–16; see also Br. Supp. 1–2.)
62. Lastly, Hornwood and Triangle move to dismiss the direct breach of

contract claims asserted against them incorporated in the First and Fifth Claims for

Relief pursuant to Rule 12(b)(6). (Br. Supp. 19–23, 25–27.)

63. The Court addresses each issue in turn.

A. Derivative Claims

64. At the time Emrich Enterprises filed the FAVC, it asserted four derivative

claims against Hornwood on behalf of Triangle. (Am. Compl. ¶¶ 150–197.) Only two

of Emrich Enterprises’ derivative claims are now the subject of Hornwood’s Motion to

Dismiss: (1) breach of section 4.4 of the Operating Agreement (the First Claim for

Relief); and (2) breach of fiduciary duty (the Fourth Claim for Relief). (Defs.’ Reply

Mem. Supp. Part. Mot. Dismiss Pl.’s First Am. Verified Compl. 2–4, ECF No. 74

[“Reply Br.”].)

65. Hornwood contends that Emrich Enterprises did not comply with the pre-

suit demand requirements in N.C.G.S. § 57D-8-01(a)(2) for the derivative claims

encompassed in the First and Fourth Claims for Relief. (Br. Supp. 8.)

66. “The challenge to the adequacy of any pre-suit demand is, inter alia, a

challenge to the Court’s subject matter jurisdiction over the derivative claims.”

Zoutewelle v. Mathis, 2018 NCBC LEXIS 95, at *18 (N.C. Super. Ct. Sept. 13, 2018)

(citation omitted). “Without a proper demand, the plaintiff has no standing to pursue

derivative claims, and the trial court has no subject matter jurisdiction to hear and

decide them.” Al-Hassan v. Salloum, 2020 NCBC LEXIS 22, at *5 (N.C. Super. Ct.

Feb. 20, 2020.)
67. A member of a North Carolina limited liability company may bring a

derivative action only if “the member made written demand on the LLC to take

suitable action, and either (i) the LLC notified the member that the member’s demand

was rejected, (ii) 90 days have expired from the date the demand was made, or (iii)

irreparable injury to the LLC would result by waiting for the expiration of the 90-day

period.” N.C.G.S. § 57D-8-01(a)(2).

68. On April 29, 2019, Emrich Enterprises served Triangle with a demand

letter. (Am. Compl. ¶ 115; see also Am. Compl. Ex. 9, ECF No. 56.9.) However,

Emrich Enterprises did not wait 90 days before filing the First Complaint nor the

FAVC, which were filed on April 29, 2019 and July 22, 2019 respectively. (See ECF

Nos. 3, 56.) Emrich Enterprises also does not allege that Triangle notified Emrich

Enterprises that the demand was rejected. Therefore, Emrich Enterprises did not

comply with the 90-day waiting period requirement in N.C.G.S. § 57D-8-01(a)(2)

when initiating this derivative action.

69. However, N.C.G.S. § 57D-8-01(a)(2) provides that the 90-day waiting period

is “excused by . . . a finding of irreparable injury that would result from imposing such

a waiting period.” Petty v. Morris, 2014 NCBC LEXIS 67, at *13–14 (N.C. Super. Ct.

Dec. 16, 2014). Notably, Defendants did not move the Court to dismiss Emrich

Enterprises’ Third Claim for Relief for Hornwood’s breach of the Operating

Agreement for its threat to unilaterally withdraw from Triangle. (Br. Supp. 8–10.)

70. Emrich Enterprises alleges that Hornwood’s withdrawal from Triangle,

contrary to the provisions of the Operating Agreement, will cause Triangle and
Emrich Enterprises to suffer irreparable harm. (Am. Compl. ¶ 184.) Emrich

Enterprises specifically alleges that, if Hornwood were to withdraw and cease its

manufacturing duties owed to Triangle, all of Triangle’s business would come to a

halt, Triangle would not be able to meet its customers’ orders, and it would destroy

Triangle’s customer relationships. (Am. Compl. ¶¶ 5, 106, 184.) Emrich Enterprises

contends that Hornwood’s withdrawal from Triangle would irreparably harm

Triangle’s and Emrich Enterprises’ reputations and ability to obtain business from

future customers or to find future business opportunities in the textile industry. (Am.

Compl. ¶¶ 184–85.)

71. The Court has already concluded “that allowing Hornwood to unilaterally

withdraw in breach of the Operating Agreement, and thereby extinguish its fiduciary

duties, would result in irreparable harm to both Triangle and to Emrich Enterprises.”

(Prelim. Inj. ¶¶ 60– 64.)

72. Defendants appear to argue that Emrich Enterprises must show

irreparable injury on a claim-by-claim basis, and that a showing that irreparable

injury would result from a delay might be sufficient for one derivative claim but

insufficient to waive the 90-day waiting period requirement for other asserted

derivative claims in the same action. (Reply Br. 2–4.)

73. The statute does not require that irreparable injury stem from each claim

for the plaintiff to bring the derivative action. See N.C.G.S. § 57D-8-01. “[N.C.G.S.

§57D-8-01] does permit filing the complaint before the 90-day period expires upon a
sufficient showing of irreparable harm.” Winters v. First Union Corp., 2001 NCBC

LEXIS 5, at *6 (N.C. Super. Ct. July 12, 2001).

74. The Court declines on the record before it to judicially impose an additional

requirement on Emrich Enterprises by requiring it to show irreparable injury on a

claim-by-claim basis. See State v. Davis, 364 N.C. 297, 302, 698 S.E.2d 65, 68 (2010)

(“[C]ourts must give [an unambiguous] statute its plain and definite meaning, and

are without power to interpolate, or superimpose, provisions and limitations not

contained therein.”) (alteration in original).

75. The Court concludes that showing irreparable injury for the Third Claim

for Relief is sufficient for the purposes of N.C.G.S. § 57D-8-01 to permit Emrich

Enterprises to initiate its derivate action before the expiration of the 90-day waiting

period. Therefore, the Court may properly exercise subject matter jurisdiction over

all of Emrich Enterprises’ derivative claims in the FAVC and the Motion should be

DENIED to the extent it requests the Court dismiss any of Emrich Enterprises’

derivative claims for lack of subject matter jurisdiction based on a failure to satisfy

N.C.G.S. § 57D-8-01.

B. Standing to Bring Direct Claims

76. Hornwood also challenges this Court’s subject matter jurisdiction over

certain direct claims brought by Emrich Enterprises against Hornwood including the

First, Fourth, Seventh, and Eighth Claims for Relief. (Br. Supp. 10–16.) Generally,

Hornwood argues that Emrich Enterprises does not have standing to bring these

claims. (See Br. Supp. 10–16.)
77. “Standing is a necessary prerequisite to a court’s proper exercise of subject

matter jurisdiction.” Neuse River Found., Inc. v. Smithfield Foods, Inc., 155 N.C.

App. 110, 113, 574 S.E.2d 48, 51 (2002) (citation omitted). The plaintiff has the

burden of proving that it has standing to bring its claims. Id. “In considering whether

a member of an LLC has standing to assert an individual claim, ‘members of an LLC

are treated like corporate shareholders and managers are similar to directors.’” Wirth

v. Sunpath, LLC, 2017 NCBC LEXIS 84, at *10 (N.C. Super. Ct. Sept. 14, 2017)

(quoting Levin v. Jacobson, 2015 NCBC LEXIS 111, at *14 (N.C. Super. Ct. Dec. 7,

2015)).

78. Generally, “shareholders cannot pursue individual causes of action against

third parties for wrongs or injuries to the corporation that result in the diminution or

destruction of the value of their stock.” Barger v. McCoy Hilliard & Parks, 346 N.C.

650, 658, 488 S.E.2d 215, 219 (1997). However, there are two exceptions that may

permit a shareholder to sue for injuries to the corporation: “(1) where there is a special

duty, such as a contractual duty, between the wrongdoer and the shareholder, and

(2) where the shareholder suffered an injury separate and distinct from that suffered

by other shareholders.” Id. “These rules apply equally to LLCs and their members

because the members are, for this purpose, functionally equivalent to corporate

shareholders.” Bennett v. Bennett, 2019 NCBC LEXIS 19, at *13 (N.C. Super. Ct.

Mar. 15, 2019) (internal quotation marks omitted).
79. The Court concludes that Emrich Enterprises has standing to raise its

direct claims, as alleged in the First and Seventh Claims for Relief, for breach of

contract based on contractual obligations owed directly to Emrich Enterprises.

80. Section 4.4 of the Operating Agreement states that “[n]o Member may

engage in or possess an interest in other business ventures of any nature or

description, independently or with others, which are competitive with the activities

of [Triangle], without first offering an interest in such activities to [Triangle] and

each other Member.” (Operating Agreement § 4.4.) Section 4.4 imposes an obligation

on Hornwood to offer an interest in business ventures that are competitive activities

to Emrich Enterprises as a member of Triangle before pursing such competitive

activities. By pursuing a claim for breach of section 4.4. of the Operating Agreement,

Emrich Enterprises attempts to enforce its own contractual rights. See, e.g., Panzino

5Church, Inc., 2020 NCBC LEXIS 17, at *17–18 (N.C. Super. Ct. Feb. 12, 2020).

81. Paragraph 3(a) of the Joint Venture Agreement states that:

Either party shall invoice [Triangle], with the terms of 75 days, the cost it
incurs in providing fabric, laminating, cutting and packaging for the
completion of the services. Selling expenses shall be paid on a commission
basis of the 15th of the month based on the previous month’s invoices. All
parties shall mutually agree upon additional expenses. 5

(Joint Venture Agreement ¶ 3(a).) Emrich Enterprises is a party to the Joint Venture

Agreement. (See Compl. ¶ 38; Joint Venture Agreement 1; see also Resp. Br. 17.)

Paragraph 3(a) prevents Hornwood from invoicing Triangle for additional expenses

5 Paragraph 3(a) of the Joint Venture Agreement appears to include hand-written
modifications which read as presented in this Order and Opinion. (See Joint Venture
Agreement ¶ 3(a).)
without the consent of Emrich Enterprises. By pursuing a claim for breach of

paragraph 3(a) of the Joint Venture Agreement, Emrich Enterprises attempts to

enforce its own contractual rights to participate in the management of Triangle. See

759 Ventures, LLC v. GCP Apt. Inv’rs, LLC, 2018 NCBC LEXIS 82, at *9–10 (N.C.

Super. Ct. Aug. 13, 2018) (concluding that excluding a member from the LLC’s

management was a direct cause of action); see also La Mack v. Obeid, 2015 NCBC

LEXIS 24, at *12–14 (N.C. Super. Ct. Mar. 5, 2015) (applying Delaware law, the

Court concluded that the plaintiffs could bring a direct claim when the managers’

contractual rights to vote on matters impacting the LLC were impeded).

82. When a member of an LLC seeks to enforce its own rights under the LLC’s

operating agreement, not the rights of the LLC, in an effort to remedy its own injury,

that member has standing to bring its direct breach of contract claim. Panzino, 2020

NCBC LEXIS 17, at *17–18; 759 Ventures, LLC, 2018 NCBC LEXIS 82, at *8–11.

Accordingly, the Court concludes that Emrich Enterprises has standing to bring the

direct breach of contract claims in the First and Seventh Claims for Relief and

Hornwood’s Motion as to those claims should be DENIED.

83. Hornwood also argues that Emrich Enterprises cannot assert a direct

breach of fiduciary duty claim against Hornwood because, absent provisions in an

operating agreement to the contrary, members of a limited liability company do not

owe a fiduciary to each other and any claim brought by Emrich Enterprises should

be brought as a derivative claim. (Br. Supp. 10–14; Reply Br. 4–7.) Hornwood

contends that it follows that Emrich Enterprises lacks standing to assert its direct
breach of fiduciary duty claims encompassed in the Fourth and Eighth Claims for

Relief. (Br. Supp. 10–13.)

84. As it pertains to the Fourth and Eighth Claims for Relief, and even if the

Court applied Barger to the First and Seventh Claims for Relief, the Court concludes

that the allegations by Emrich Enterprises satisfy, at this preliminary stage in the

proceeding, the first Barger exception by sufficiently alleging that Hornwood is the

controlling member of Triangle thus owing fiduciary duties individually and directly

to Emrich Enterprises. See Corwin, 371 N.C. at 612, 821 S.E.2d at 734–35 (providing

that whether the first Barger exception applied depended on whether the plaintiff

sufficiently alleged that the controlling stockholder owed the plaintiff minority

stockholder fiduciary duties).

85. For the aforementioned reasons, the Motion as it pertains to Emrich

Enterprises’ standing to bring the First, Fourth, Seventh, and Eighth Claims for

Relief should be DENIED.

C. Motion to Dismiss Pursuant to Rule 12(b)(6)

86. Hornwood requests that the Court dismiss Emrich Enterprises’ First,

Fourth, Fifth, and Eighth Claims for Relief for Emrich Enterprises’ failure to state a

claim pursuant to Rule 12(b)(6). (Br. Supp. 16–23, 25–27.)

1. Breach of Fiduciary Duty

87. Emrich Enterprises’ Fourth and Eighth Claims for Relief assert breach of

fiduciary duty claims, directly and derivatively on behalf of Triangle, against
Hornwood in its capacity as the controlling member-manager of Triangle. (Am.

Compl. ¶¶ 188–97, 228–35.)

88. “The North Carolina Limited Liability Company Act does not create

fiduciary duties among members.” Finkel v. Palm Park, Inc., 2019 NCBC LEXIS 38,

at *23 (N.C. Super. Ct. June 11, 2019) (citation and quotation marks omitted). As a

general rule, “[m]embers of a limited liability company are like shareholders in a

corporation in that members do not owe a fiduciary duty to each other or to the

company.” Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469, 473, 675 S.E.2d 133,

137 (2009). “The rights and duties of LLC members are ordinarily governed by the

company’s operating agreement, not by general principles of fiduciary relationships.”

Strategic Mgmt. Decisions v. Sales Performance Int’l, 2017 NCBC LEXIS 69, at *10–

11 (N.C. Super. Ct. Aug. 7, 2017).

89. However, in some circumstances, “a holder of a majority interest who

exercises control over the LLC owes a fiduciary duty to minority interest members.”

Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *17 (N.C. Super. Ct.

June 19, 2019.) “Thus, when the operating agreement confers controlling authority

on the majority member, [the majority member] owes a duty not to use its control to

harm the minority, assuming no other provision disclaims such a duty.” Id. at *21.

90. Emrich Enterprises alleges that Hornwood is the majority and controlling

member of Triangle. (Am. Compl. ¶¶ 2, 16, 189.) Emrich Enterprises argues that

Hornwood “controls nearly every aspect of Triangle’s business.” (Resp. Br. 13.)

Hornwood owns all of the manufacturing equipment used by Triangle and the
facilities where Triangle’s products are manufactured. (Am. Compl. ¶¶ 30, 189.)

Hornwood controls Triangle’s day-to-day operations including its finances, customer

service, administration, and its correspondence. (Am. Compl. ¶¶ 47, 189.)

91. Furthermore, section 3.1 of the Operating Agreement states that “all

decisions with respect to the management of the business and affairs of [Triangle]

shall be made by action of a Majority Interest of the Members[.]” (Operating

Agreement § 3.1.) Section 3.1 of the Operating Agreement confers authority on

Hornwood as the majority member.

92. Hornwood has allegedly used that control over Triangle to withhold funds

owed to Emrich Enterprises, unilaterally approve unprecedented and drastic

increases in the price Triangle pays to Hornwood for fabric Hornwood manufactures

for and sells to Triangle, divert Triangle’s profits to Hornwood, and further

mismanage Triangle for Hornwood’s benefit. (Am. Compl. ¶¶ 47, 51–66, 127–28, 147,

231.)

93. Emrich Enterprises has alleged that Hornwood exercises complete control

over Triangle and has used that control to harm Emrich Enterprises. The attached

Operating Agreement confers controlling authority on Hornwood as the majority

member and neither the Operating Agreement nor the Joint Venture Agreement

address or disclaim fiduciary duties. For the purposes of a Rule 12(b)(6) motion, such

allegations are sufficient to allege the existence of a fiduciary duty. 6 See Vanguard

6 As said in Vanguard Pai Lung, LLC, it is important to note that the Court does not hold that

Hornwood owes or owed a fiduciary duty to Emrich Enterprises. Vanguard Pai Lung, LLC,
2019 NCBC LEXIS 39, at *21. While the Court concludes that Emrich Enterprises has
sufficiently alleged control for the purposes of a Rule 12(b)(6) motion, a more fully developed
Pai Lung, LLC, 2019 NCBC LEXIS 39, at *21 (concluding that for the purposes of

Rule 12, the counterclaim plaintiff alleged sufficient control by the majority member

over the LLC to plead the existence of a fiduciary duty when the counterclaim

plaintiff made allegations that (1) the operating agreement conferred controlling

authority to the majority member; (2) the majority member exercised that control;

and (3) the operating agreement did not address nor disclaim fiduciary duties owed

between members); cf. Finkel, 2019 NCBC LEXIS 38, at *27–29 (holding that, on a

Rule 56 motion, the plaintiff did not establish the majority member exercised

sufficient control over the LLC to find a fiduciary duty owed by the majority member

to the minority member where (1) the operating agreement provided “significant

protections” to the minority member; (2) the operating agreement contemplated

fiduciary duties; and (3) there was undisputed evidence that there was financial

transparency between the majority and minority members).

94. Hornwood alternatively argues that, in the event the Court concludes that

Emrich Enterprises sufficiently alleged a fiduciary duty owed by Hornwood to Emrich

Enterprises, Emrich Enterprises nonetheless failed to allege the requisite elements

of a breach of any fiduciary duty to support its claim. (Br. Supp. 16–19.)

95. To state a claim for breach of fiduciary duty a plaintiff must allege both that

(1) the defendant owes the plaintiff a fiduciary duty through the existence of a

fiduciary relationship, and (2) the defendant breached that duty. Surratt v. Brown,

2015 NCBC LEXIS 75, at *19 (N.C. Super. Ct. July 27, 2015).

record could reveal factors that weigh against the conclusion that a fiduciary relationship
existed between Hornwood and Emrich Enterprises.
96. Emrich Enterprises alleges, among other things, that Hornwood violated

the non-compete obligations of the Operating Agreement and usurped a corporate

opportunity of Triangle’s, caused Triangle to withhold payments that Emrich

Enterprises is otherwise entitled to, and generally engaged in willful misconduct in

the management of Triangle that constitutes self-dealing. (Am. Compl. ¶¶ 67–96,

191–95.) The Court concludes that these allegations are sufficient to support Emrich

Enterprises’ claim for breach of fiduciary duty. See Vanguard Pai Lung, LLC, 2019

NCBC LEXIS 39, at *3–7, 21–22 (permitting a breach of fiduciary duty claim to

survive a Rule 12 motion when the controlling member diverted the LLC’s money and

assets to benefit itself and used its controlling authority over the LLC to harm the

minority interest holder); Shaw v. Gee, 2016 NCBC LEXIS 103, at *18–19 (N.C.

Super. Ct. Dec. 21, 2016) (“[A] manager may breach his fiduciary duty when he

diverts a business opportunity that rightfully belongs to the limited liability company

for his professional gain.”); SCA-Blue Ridge, LLC v. WakeMed, 2016 NCBC LEXIS 2,

at *26 (N.C. Super. Ct. Jan. 4, 2016) (concluding that the plaintiff sufficiently stated

a claim for breach of fiduciary duty against the controlling member of the LLC by

alleging violations of non-compete obligations in the LLC’s operating agreement).

97. For the aforementioned reasons, the Motion as it pertains to the Fourth and

Eighth Claims for Relief should be DENIED.

2. Breach of Contract Claims

98. Defendants move to dismiss Emrich Enterprises’ claims for breach of

contract encompassed in the First and Fifth Claims for Relief pursuant to Rule
12(b)(6) for failure to state a claim. To properly plead a breach of contract claim, a

plaintiff need only allege “(1) [the] existence of a valid contract and (2) [a] breach of

the terms of that contract.” Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843

(2000). “[S]tating a claim for breach of contract is a relatively low bar.” Vanguard

Pai Lung, LLC, 2019 NCBC LEXIS 39, at *11.

i. Section 4.4 of the Operating Agreement

99. Hornwood, in part, contends that Emrich Enterprises’ derivative and direct

claims in the First Claim for Relief, for breach of section 4.4 of the Operating

Agreement, should be dismissed because section 4.4 is an unenforceable non-compete

provision because it is overbroad as to geographic scope and is unnecessary to protect

a legitimate business interest. 7 (Br. Supp. 19–21.)

100. Section 4.4 of the Operating Agreement states that “[n]o Member may

engage in or possess an interest in other business ventures of any nature or

description, independently or with others, which are competitive with the activities

of [Triangle], without first offering an interest in such activities to [Triangle] and

each other Member.” (Operating Agreement § 4.4.)

101. “An operating agreement is a contract,” and general rules of contract

construction are used to interpret an LLC’s operating agreement. N.C. State Bar v.

Merrell, 243 N.C. App. 356, 370, 777 S.E.2d 103, 114 (2015); Comput. Design &

7 Section 4.4 of the Operating Agreement seems to incorporate both a non-compete provision

and an obligation not to take the corporate opportunities of Triangle without first offering
the opportunity to Triangle and its other members. (Operating Agreement § 4.4.) Primarily,
the parties argue that North Carolina’s law regarding non-competes govern the enforceability
of this section of the Operating Agreement, therefore the Court only addresses this argument.
Integration, LLC v. Brown, 2018 NCBC LEXIS 216, at *25 (N.C. Super. Ct. Dec. 10,

2018). “It is the policy of the [LLC Act] to give the maximum effect to the principle of

freedom of contract and the enforceability of operating agreements.” N.C.G.S. § 57D-

10-01.

102. “The reasonableness of a restraining covenant is a matter of law for the

court to decide.” Jewel Box Stores Corp. v. Morrow, 272 N.C. 659, 663, 158 S.E.2d

840, 843 (1968). “According to well-established North Carolina law, non-competition

agreements contained in an employment contract are more closely scrutinized than

those contained in a contract for the sale of a business.” Outdoor Lighting

Perspectives Franchising v. Harders, 228 N.C. App. 613, 620, 747 S.E.2d 256, 262

(2013) (quoting Keith v. Day, 81 N.C. App. 185, 193, 343 S.E.2d 562, 567 (1986))

(internal quotation marks omitted). When a non-compete provision does “not fit

neatly into either the employer-employee category or the business sale category”

courts should engage in a detailed analysis of the reasonableness of the restrictions

rather than rigidly analyze the restrictions under one category or the other. See

Outdoor Lighting Perspectives Franchising, 228 N.C. App. at 621–22, 747 S.E.2d at

262–63.

103. As it pertains to the relationship between a member-manager and an LLC,

the Court concludes “that the facts alleged in this case do not fit squarely under the

analysis applied to restrictive covenants between employer and employee or buyer

and seller, but instead call for a more situation-specific approach.” KNC Techs., LLC

v. Tutton, 2019 NCBC LEXIS 72, at *16–17 (N.C. Super. Ct. Oct. 9, 2019). The Court
in Outdoor Lighting addressed the reasonableness of a non-compete agreement

between a franchisor and a franchisee and ultimately concluded that the elements of

the tests utilized in both the employee-employer and business sale context were

relevant in analyzing the reasonableness of the non-compete agreement between a

franchisor and franchisee. Id. at 621–22, 747 S.E.2d at 263.

104. Some factors that can be considered in making the determination as to

whether a non-compete is reasonable include, but are not limited to, (1) the area, or

the scope of the restriction; (2) the area in which the employee actually worked or was

subject to work; (3) the area in which the employer operated; (4) the nature of the

business involved; (5) the nature of the employee’s duty and his knowledge of the

employer’s business operation; and (6) the good will of the business. Outdoor Lighting

Perspectives Franchising, 228 N.C. App. at 622–23, 747 S.E.2d at 263–64 (citing Clyde

Rudd & Assocs., Inc. v. Taylor, 29 N.C. App. 679, 684, 225 S.E.2d 602, 605 (1976)).

105. However, the FAVC and the Operating Agreement attached thereto do not

adequately address these factors. The North Carolina Court of Appeals has

previously held that “a ruling on the enforceability of [a non-compete agreement]

cannot be made at the pleadings stage in cases where evidence is needed to show the

reasonableness of the restrictions contained therein. See Mkt. Am., Inc. v. Lee, 257

N.C. App. 98, 110, 809 S.E.2d 32, 41 (2017) (citing Okuma Am. Corp. v. Bowers, 181

N.C. App. 85, 96, 638 S.E.2d 617, 618 (2007)). Section 4.4 of the Operating Agreement

is not per se unreasonable. See Jewel Box Stores Corp., 272 N.C. at 663–64, 158

S.E.2d at 843–44 (“[T]his Court has upheld covenants not to compete which
accompanied the sale of a trade or business and contained limitations of ten, fifteen,

and twenty years, as well as limitations for the life of one of the parties[.]”); Biesse

Am., Inc. v. Dominici, 2019 NCBC LEXIS 50, at *24 (N.C. Super. Ct. Aug. 19, 2019)

(“A worldwide covenant not to compete is not per se invalid.”) (emphasis added).

106. The determination as to whether section 4.4. of the Operating Agreement

is enforceable should be made on a more fully developed record. See Akzo Nobel

Coatings, Inc. v. Rogers, 2011 NCBC LEXIS 42, at *39 (N.C. Super. Ct. Nov. 3, 2011).

107. At the pleading stage, Emrich Enterprises’ allegations that (1) Hornwood

and Emrich Enterprises agreed to the provisions of the Operating Agreement; (2)

Hornwood and Borgstena developed a business relationship to develop automotive

fabrics; (3) Borgstena is a competitor of Triangle; (4) Hornwood and Borgstena’s

efforts are competitive with Triangle’s business activities; and (5) Hornwood did not

offer this business opportunity to Triangle or Emrich Enterprises and actively

concealed such work, are sufficient to state a claim for breach of contract. (Am.

Compl. ¶¶ 152–57.) Accordingly, Hornwood’s Motion should be DENIED subject to

the Court’s ability to more fully consider the reasonableness of the restriction

contained in the Operating Agreement upon a more fully developed record.

ii. Agreement to Distribute Settlement Proceeds

108. Emrich Enterprises asserts the Fifth Claim for Relief on the basis that

Triangle breached the parties’ agreement to distribute the settlement proceeds from

the Lawsuit. (Am. Compl. ¶¶ 199–205.) In large part, Triangle contends that Emrich

Enterprises’ Fifth Claim for Relief must fail because Emrich Enterprises cannot
require Triangle to distribute funds where doing so would result in Triangle’s

liabilities exceeding its assets. (Br. Supp. 25–27; Reply Br. 11–13.) In its argument,

Triangle references facts that are not part of the FAVC nor the documents attached

thereto. The Court therefore declines to consider this argument or the extraneous

facts provided on a Rule 12(b)(6) motion nor will the Court convert the Motion into

one for summary judgment pursuant to Rule 56.

109. Based on the allegations made in the FAVC regarding the agreement to

distribute the settlement proceeds and the terms of the attached Operating

Agreement, there is no inherent conflict between the agreements’ respective terms.

Therefore, the Court need not determine whether the express agreement between the

parties regarding the settlement proceeds, the Operating Agreement, or both govern

the dispute at issue at this stage in the proceeding. See Vanguard Pai Lung, LLC,

2019 NCBC LEXIS 39, at *15 (citing Roth v. Penguin Toilets, LLC, 2011 NCBC LEXIS

46, at *12 (N.C. Super. Ct. Nov. 30, 2011)).

110. Emrich Enterprises has sufficiently alleged that Triangle, Emrich

Enterprises, and Hornwood agreed that Triangle would distribute the Lawsuit’s

settlement proceeds in certain amounts and at certain times and Triangle has refused

to pay Emrich Enterprises’ its share of the settlement proceeds as required by the

alleged agreement, which is sufficient for the purposes of Rule 12(b)(6). (Am. Compl.

¶¶ 199–204.) Therefore, Triangle’s Motion should be DENIED.
VI. CONCLUSION

111. For the foregoing reasons, the Court hereby DENIES the Motion.

SO ORDERED, this the 8th day of April, 2020.

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