Emrich Enters., LLC v. Hornwood, Inc.

Emrich Enters., LLC v. Hornwood, Inc., 2022 NCBC 11.

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 EMRICH
ENTERPRISES, LLC’S MOTION FOR
Defendant, SUMMARY JUDGMENT AND
DEFENDANTS’ MOTION FOR
and SUMMARY JUDGMENT
TRIANGLE AUTOMOTIVE [Public] 1
COMPONENTS, LLC,

Defendant and
Nominal Defendant.

1. THIS MATTER is before the Court on cross motions for summary

judgment filed by Emrich Enterprises, LLC (“Plaintiff’s Motion”) and Hornwood, Inc.

and Triangle Automotive Components, LLC (“Defendants’ Motion”) (collectively, the

“Motions”), pursuant to Rule 56 of the North Carolina Rules of Civil Procedure (the

“Rule(s)”).

2. For the reasons set forth herein, the Court GRANTS Plaintiff’s Motion and

GRANTS in part and DENIES in part Defendants’ Motion.

1 Recognizing that this Order and Opinion cites and discusses the subject matter of
documents that the Court has allowed to remain under seal in this action, and out of an
abundance of caution, the Court filed this Order and Opinion under seal on 15 February 2022
pending consultation with the parties regarding proposed redactions. (See ECF No. 202.) On
23 February 2022, the parties notified the Court that, after conferring, all parties agree there
is no material in this Order and Opinion that requires sealing. Accordingly, the Court now
files this public version of this Order and Opinion.
Ellis & Winters LLP by Michelle Liguori, Emily Melvin, Jonathan D.
Sasser, and Thomas H. Segars, for Plaintiff Emrich Enterprises, LLC.

Moore & Van Allen PLLC by Mark A. Nebrig and Kaitlin Price, for
Defendant Hornwood, Inc. and Defendant and Nominal Defendant
Triangle Automotive Components, LLC.

Robinson, Judge.

I. INTRODUCTION

3. Plaintiff Emrich Enterprises, LLC (“Emrich”) and Defendant Hornwood,

Inc. (“Hornwood”) are the only members of Defendant Triangle Automotive, LLC

(“Triangle”). Emrich brings this action, at least in part, as a derivative suit based on

Hornwood’s alleged breach of Triangle’s governing documents and of Hornwood’s

fiduciary duties owed directly to Emrich and derivatively to Triangle.

II. FACTUAL BACKGROUND

4. The Court does not make findings of fact when ruling on motions for

summary judgment. “[T]o provide context for its ruling, the Court may state either

those facts that it believes are not in material dispute or those facts on which a

material dispute forecloses summary adjudication.” Ehmann v. Medflow, Inc., 2017

NCBC LEXIS 88, at *6 (N.C. Super. Ct. Sept. 26, 2017).

A. Formation of Triangle

5. Emrich is a North Carolina limited liability company and is the minority

member of Triangle. 2 (Br. Supp. Defs.’ Mot. Summ. J. Ex. 16, ECF No. 147.17 [“Defs.’

Ex. 16”]; Second Am. Compl. ¶ 14.)

2 Plaintiff’s Second Amended Complaint is verified and therefore was received and treated by

the Court as an affidavit. Page v. Sloan, 281 N.C. 697, 705 (1972) (“A verified complaint may
be treated as an affidavit if it (1) is made on personal knowledge, (2) sets forth such facts as
6. Hornwood is a North Carolina corporation and is the majority member of

Triangle. (Second Am. Compl. ¶ 16.) As members of Triangle, Emrich and Hornwood

are also managers of Triangle for all purposes. (Second Am. Compl. Ex. 1, § 3.1, ECF

No. 116.1 [“Op. Agreement”].)

7. Triangle, originally founded in 2006 by Emrich, Hornwood, and non-party

Bondtex, Inc. (“Bondtex”), is a North Carolina limited liability company that supplies

headliner fabric to automobile companies. (Op. Agreement 1, Second Am. Compl. ¶¶

15, 23–25.) When Triangle was founded, its three members focused on pursuing

business opportunities that involved supplying automotive headliner fabrics.

(Second Am. Compl. ¶ 21.)

8. Bondtex eventually withdrew from Triangle in 2018. (See Second Am.

Compl. ¶¶ 43, 45, 50.)

9. On 28 February 2006, Emrich, Hornwood, and Bondtex entered into an

operating agreement to govern Triangle’s operations (the “Operating Agreement”).

(See Op. Agreement.)

10. Section 4.4 of the Operating Agreement provides 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.” (Op. Agreement § 4.4.)

11. Section 8.1 of the Operating Agreements reads as follows:

would be admissible in evidence, and (3) shows affirmatively that the affiant is competent to
testify to the matters stated therein.”).
Restrictions on Transfer. Without the prior written consent of a Majority
in Interest of the Disinterested Members (which consent may be given
or withheld in their sole discretion) . . . no Member may voluntarily or
involuntarily Transfer, or create or suffer to exist any Encumbrance
against, all or any part of such Member’s record or beneficial interest in
the Company.

(Op. Agreement § 8.1 (emphasis in original).) Section 2 of the Operating Agreement

defines “Transfer” as to “sell, assign, transfer, lease, or otherwise dispose of property,

including without limitation, an interest in the Company.” (Op. Agreement § 2.)

12. The Operating Agreement further provides 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. (Op. Agreement § 3.1.) The Operating Agreement

does not address, either to create or disclaim, fiduciary duties. (See Op. Agreement.)

13. On 28 April 2006, Emrich, Hornwood, and Bondtex entered into a separate

joint venture agreement (the “Joint Venture Agreement”). (Second Am. Compl. Ex.

2, ECF No. 116.2 [“Joint Venture Agreement”].)

14. Upon founding Triangle, Emrich, Hornwood, and Bondtex agreed to a

division of responsibilities that were then documented in the Joint Venture

Agreement. (Second Am. Compl. ¶ 30; Joint Venture Agree. § 5(d).) Hornwood

assumed responsibility for the manufacturing of fabric, invoicing, and internal

accounting. (Joint Venture Agreement § 5(d)1.) Bondtex assumed responsibility for

the lamination, cutting, storage, and distribution of laminated product. (Joint

Venture Agreement § 5(d)2.) Emrich assumed responsibility for the sales and
marketing of Triangle’s products and customer service. 3 (Joint Venture Agreement

§ 5(d)3.)

15. Section 3(a) of the Joint Venture Agreement provides that “[e]ither party

shall invoice the Joint Venture, with terms of 75 days, the cost it incurs in providing

fabric, laminating, cutting and packaging for the completion of the services.” (Joint

Venture Agreement § 3(a).)

B. Bondtex Withdraws from Triangle

16. In 2015, Triangle sued one of its former sales agents, Suminoe Textile

America (“Suminoe”) for alleged misconduct (the “Bondtex Lawsuit”). (Second Am.

Compl. ¶ 43.) Before the initiation of the lawsuit, Suminoe acquired ownership of

Bondtex. (Second Am. Compl. ¶ 43.) In September 2018, the Bondtex Lawsuit was

settled. (Second Am. Compl. ¶ 45.) As part of the settlement, Emrich and Hornwood

consented to Bondtex’s withdrawal from Triangle. (Second Am. Compl. ¶ 50.)

Triangle received significant cash proceeds from the settlement. (Second Am. Compl.

¶ 205, C. Horne Dep. 14:12–18, ECF No. 147.3.)

17. After Bondtex withdrew from Triangle, Emrich and Hornwood, as the two

remaining members of Triangle, hired C.H. Mueller (“Mueller”) as a contract

laminator to perform lamination services that had previously been performed by

Bondtex. (Second Am. Compl. ¶ 53.) Additionally, Hornwood began to perform

3Although the Joint Venture Agreement made Emrich responsible for Triangle’s customer
service, prior to its withdrawal, Bondtex apparently handled customer service for Triangle
until Bondtex’s departure from Triangle. (See Second Am. Compl. ¶¶ 30, 52; C. Horne Dep.
11:25–12:4, ECF No. 34.1.)
Triangle’s customer-service responsibilities that had previously been performed by

Bondtex. (Second Am. Compl. ¶¶ 30, 52.)

18. At Triangle’s formation, the Operating and Joint Venture Agreements

provided that Triangle would pay Emrich a commission of three to five percent on

Triangle’s sales. (Second Am. Compl. ¶ 131.) In January 2013, the parties agreed to

adjust Emrich’s commission to two percent. (Second Am. Compl. ¶ 132.)

19. After the settlement of the Bondtex Lawsuit, John Emrich, a principal of

Emrich, suggested to Chuck Horne, Hornwood’s CEO, that Triangle approach

Borgstena 4 regarding a possible joint development, sales, and supply agreement

between the two entities. (Second Am. Compl. ¶¶ 10, 90.) In September 2018, Chuck

Horne emailed Borgstena regarding this potential agreement; however, Borgstena

declined the offer. (Second Am. Compl. ¶ 90.)

C. Hornwood’s Involvement with Borgstena

20. Unbeknownst to Emrich, a year earlier, in September 2017, Borgstena had

contacted Chuck Horne to discuss the possibility of Hornwood making seating and

headliner fabric in the United States for a major automobile manufacturer. (Second

Am. Compl. ¶ 77.) In pursuit of such a relationship, and without notice to Emrich,

Chuck Horne emailed Borgstena a “company profile” for Hornwood. (Second Am.

Compl. ¶ 77.)

4 Borgstena is a foreign manufacturer and seller of automotive textile products for suppliers

of major automobile manufacturers. (Second Am. Compl. ¶ 76.) Prior to the relevant period,
Borgstena had no presence in the United States.
21. In furtherance of a potential relationship, in November 2017, Hornwood

and Borgstena executed a nondisclosure agreement so that they could negotiate an

agreement for joint product development. (Second Am. Compl. ¶ 78.) Hornwood did

not alert Emrich about the existence of the nondisclosure agreement or Hornwood’s

discussions with Borgstena. (Second Am. Compl. ¶ 78.)

22. In February 2018, Chuck Horne and his son Wesley Horne 5 visited

Borgstena’s manufacturing facility in Portugal. (Second Am. Compl. ¶ 83.) Neither

the Hornes, nor Borgstena notified Emrich that such a meeting was taking place, and

the Hornes did not invite anyone from Emrich to accompany them on the trip.

(Second Am. Compl. ¶ 81.)

23. After the Hornes’ meeting in Portugal with Borgstena personnel, Hornwood

and Borgstena representatives engaged in weekly discussions regarding potential

joint product-development. (Second Am. Compl. ¶ 83.)

24. In May 2018, Borgstena representatives came to North Carolina and met

with the Hornes at Hornwood’s facility. (Second Am. Compl ¶ 83.) Again, no one

from Hornwood told anyone from Emrich about the meeting prior to or at the time it

occurred. (Second Am. Compl. ¶ 83.)

25. During their meeting, Hornwood and Borgstena discussed the possibility of

Hornwood manufacturing automotive textile products for two automobile

manufacturers with whom Borgstena had a relationship. (Second Am. Compl. ¶ 84.)

Later, in January 2019, Hornwood told Borgstena about an opportunity for the two

5 Wesley Horne is the President of Hornwood. (W. Horne Aff. ¶ 1, ECF No 177.)
manufacturers to jointly purchase a textile plant in North Carolina. (Second Am.

Compl. ¶ 93.)

26. Hornwood’s product-development efforts with Borgstena involved the same

types of fabrics that Hornwood manufactures for Triangle, including the

manufacturing of warp-knit headliner and pillar fabrics. (Second Am. Compl. ¶¶

101–02.) Until Hornwood produced discovery to Emrich in this action, Hornwood had

not alerted Emrich of Hornwood’s product-development efforts with Borgstena.

(Second Am. Compl. ¶ 96.)

D. The Mueller Transition

27. In the fall of 2018, Triangle began its transition from Bondtex to Mueller

for Triangle’s product lamination. (Second Am. Compl. ¶ 53.) Hornwood employee

and customer service representative Scott Dutton (“Dutton”) was selected by

Hornwood to facilitate Triangle’s transition. (Willis Aff. ¶¶ 19, 21, ECF No. 151.37.)

In November 2018, Hornwood asked Triangle’s sales agent Norman Willis (“Willis”)

not to communicate directly with Mueller and instructed him that Dutton should be

the primary contact. (Willis Aff. ¶ 14; Triangle 30(b)(6) Dep. 232:23–25, ECF No.

151.7.)

28. At a 1 November 2018 meeting, Willis and representatives of Mueller

expressed concerns to Hornwood regarding Dutton’s ability to handle the transition

from Bondtex to Mueller. (Willis Aff. ¶ 21.)
29. Also on 1 November 2018, Dutton and Willis were informed via email that

Dynevor Express, 6 a trucking company hired to ship Triangle’s product, had not

received necessary customs documents for a pending shipment of Triangle’s product

and that Dynevor Express would “need to receive these documents [at] latest by 9:00

am EST tomorrow Friday Nov 2nd to process and cross the [b]order[.]” (Exs. to Br.

Supp. Pl.’s Mot. Summ. J., Ex. 14, 4, ECF No. 151.14 [“Pl.’s Ex. 14”].)

30. In email communications the following day, 2 November 2018, Chuck

Horne informed Emrich that Dutton timely provided the customs documents after

receiving notice of the issue. (Pl.’s Ex. 14 at 2.) Chuck Horne also indicated that the

delay was not caused by Dutton, but instead was “totally caused by Bondtex,” and

described steps Dutton subsequently took to improve conveyance of shipping

information in the future. (Pl.’s Ex. 14 at 2.)

31. During this period, Chuck and Wesley Horne conversed with Dutton to

ensure he could competently handle his current workload. (Hornwood 30(b)(6) Dep.

238:14–25, ECF No. 176.3.) After December 2018, Chuck and Wesley Horne checked

in with Dutton either daily or weekly to assess the status of Dutton’s work for

Triangle. (Hornwood 30(b)(6) Dep. 239:15–23.)

6
Dynevor Express provides cross-border general freight trucking services throughout
Canada, Mexico, and the United States. (Dynevor Express Profile,
dynevorexpress.com/en/dynevor-express-profile.php (last visited Feb. 10, 2022).)
E. The Members Discuss Emrich’s Commissions

32. From Triangle’s inception until June 2019, Emrich was paid a commission

on all sales. (Joint Venture Agreement § 3(a); Triangle 30(b)(6) Dep. 114:20-116:17,

ECF No. 151.7.)

33. Following Bondtex’s withdrawal from Triangle, on 25 September 2018,

Chuck Horne informed Emrich that his understanding was that, given the new

ownership split, Emrich would no longer be receiving a commission. (Br. Supp. Defs.’

Mot. Summ. J. Ex. 9, ECF No. 147.10 [“Defs.’ Ex. 9”].) On 27 September 2019, John

Emrich informed Chuck Horne that Emrich still wished to receive commissions,

which could be offset against its share of Triangle’s profits. (Defs.’ Ex. 9.)

34. Chuck Horne and John Emrich exchanged emails on the subject of Emrich’s

commissions in February 2019. (Defs.’ Ex. 16.) An email sent from John Emrich to

Chuck Horne on 12 February 2019 referenced a new agreement between the parties

beginning on 1 October 2018. (Defs.’ Ex. 16.) In this 12 February 2019 email, John

Emrich described the agreement as changing Triangle’s profit sharing, eliminating

Emrich’s two percent commission, and treating any commissions paid from October

through December 2018 as advances. (Defs.’ Ex. 16.)

35. For approximately four months after 12 February 2019, until at least 11

June 2019, Triangle continued to account for commissions to Emrich on its books.

(Triangle 30(b)(6) Dep. 114:20–116:17.)
F. Hornwood Makes Unilateral Financial Decisions

36. On 10 June 2019, Hornwood informed Emrich that, due to sustaining losses

in its business with Triangle, Hornwood would be increasing the amount it charges

Triangle for fabric manufacturing. (Br. Supp. Emrich Enter. Mot. Compel Resp. Doc.

Req. Ex. 1, ECF No. 98.2 [“Hornwood Letter”].) Although Hornwood was raising its

prices, Hornwood contended that it would still be charging Triangle below the market

rate for its services. (Hornwood Letter ¶ 2.) Three days later, on 13 June 2019,

Hornwood informed Emrich that Triangle would no longer pay commissions to

Emrich. (Second Am. Compl. ¶ 10.)

G. Loss of Freightliner and M2 Headliner Programs

37. One of Triangle’s customers, Commercial Vehicle Group (“CVG”), supplied

headliner for Freightliner trucks. (Second Am. Compl. ¶ 61.) Triangle supplied CVG

with headliner for certain Freightliner trucks (the “Freightliner program”) and was

working toward a new relationship supplying headliner for Freightliner M2 trucks

(the “M2 program”). (Second Am. Compl. ¶ 61.) However, in late 2018, CVG reported

quality issues with Triangle’s headliner fabrics. (Second Am. Compl. ¶ 62.) In 2019,

Freightliner’s parent company, Daimler Trucks North America LLC, informed

Triangle that Triangle would be required to pass quality testing by CVG (the “CVG

trial”) to retain the Freightliner program. (Second Am. Compl. ¶¶ 66–68.)

38. The CVG trial required Triangle to submit samples of its laminated fabric

to CVG for inspection. (Second Am. Compl. ¶ 67.) CVG required that the samples be

submitted in a specific quantity, roll size, foam thickness, and contain fewer than five
fabric defects per roll. (Second Am. Compl. ¶ 69.) CVG communicated these

specifications to Hornwood prior to the trial. (See Fenton Aff. ¶ 23, ECF No. 151.39.)

Hornwood was tasked with communicating those specifications to Mueller before the

fabric was submitted to CVG. 7 (See Fenton Aff. ¶ 27–28.)

39. In July 2019, CVG informed Triangle that the fabric Triangle submitted

for the CVG trial did not comply with the specifications set by CVG and

communicated to Triangle. (Second Am. Compl. ¶ 69.) Specifically, Triangle

submitted less fabric, in smaller rolls, and with thinner foam than required. (Second

Am. Compl. ¶ 69.) In addition, the laminated fabric provided by Triangle to CVG

contained an excessive number of defects per roll. (Second Am. Compl. ¶ 70.)

Consequently, following the testing, Triangle was informed that it lost the

Freightliner program to competitor Guilford Performance Textiles (“Guilford”) and

that it was not chosen for the M2 program. (Second Am. Compl. ¶ 71.)

H. Hornwood Attempts to Withdraw from Triangle

40. On 4 March 2019, Chuck Horne called a meeting of the members of

Triangle. (Second Am. Compl. ¶ 105.) Chuck Horne and Wesley Horne attended the

meeting on behalf of Hornwood, and John Emrich and Martha Miller (“Miller”)

attended the meeting on behalf of Emrich. (Second Am. Compl. ¶ 105.) Before the

meeting, Chuck Horne and Wesley Horne presented John Emrich and Miller with a

proposed new governing document for Triangle. (Second Am. Compl. ¶ 107.) John

7 Whether Hornwood accurately conveyed to Mueller the specifications it received from CVG

is a contested issue in this litigation.
Emrich and Miller did not agree to the terms of the proposed governing document

and refused to execute it. (Second Am. Compl. ¶ 107.)

41. Also at the 4 March 2019 meeting, Hornwood informed Emrich of its intent

to do business with Borgstena. (Second Am. Compl. ¶ 108.) Hornwood then offered

to buy Emrich’s membership interest in Triangle, or in the alternative, to sell

Hornwood’s membership interest in Triangle to Emrich. (Second Am. Compl. ¶¶ 109–

10.)

42. At the conclusion of the 4 March 2019 meeting, Hornwood provided Emrich

written notice of its intent to withdraw from Triangle in sixty days. (Second Am.

Compl. ¶ 111; Second Am. Compl. Ex. 4, ECF No. 116.4 [“Notice to Withdraw”].)

43. On 25 April 2019, Hornwood sent an email to Emrich stating its intent to

inform Triangle’s customers of Hornwood’s withdrawal. (Second Am. Compl. ¶ 122;

Second Am. Compl. Ex. 8, ECF No. 116.8.)

44. Following the initiation of this litigation, on 31 May 2019, this Court

preliminarily enjoined Hornwood, during the pendency of this action, from

unilaterally withdrawing from Triangle without properly obtaining the consent of

Emrich under Triangle’s operating agreement. (See Or. Am. Mot. Prelim. Inj. ¶ 75,

ECF No. 40.)

45. On 10 June 2019, Hornwood advised Emrich by letter that it was initiating

an increase in the prices of fabric that Hornwood was then selling to Triangle.

(Second Am. Compl. ¶ 9.) The 10 June 2019 letter stated that the price increases

were required for Hornwood to remain financially viable. (Second Am. Compl. ¶ 141.)
46. Hornwood owns the facilities where Triangle’s fabric is manufactured.

(Second Am. Compl. ¶ 31.) Triangle does not own any physical assets other than its

inventory. (Second Am. Compl. ¶ 31.) Emrich does not have manufacturing

capabilities and cannot perform the functions that Hornwood (manufacturing),

Bondtex (lamination), Mueller (lamination) or others performed for Triangle. (Second

Am. Compl. ¶¶ 114, 118; Joint Venture Agreement § 5(d)1–3; Dep. of Wesley Horne

and Chuck Horne 242:11-18, ECF No. 147.6.)

I. Triangle’s Cash Shortage

47. Triangle has experienced a cash shortage since 1 November 2018.

(McCaskill Aff. ¶ 15.) While Bondtex was a member of Triangle, Triangle did not

have to purchase raw materials or hold inventory because Bondtex performed these

functions. After Bondtex withdrew, however, Triangle had to cover these expenses.

(McCaskill Aff. ¶ 15.) In 2019, Triangle’s average accounts payable totaled $110,000

per month, while Triangle’s average sales totaled $120,000 per month. (McCaskill

Aff. ¶ 15.) As of May 2020, Triangle had over $180,000 in past due accounts payable

and as of November 2020, it was experiencing net losses. (C. Horne Aff. ¶ 7, ECF No.

145.) In November 2020, Hornwood called for each of Triangle’s members to

contribute capital to Triangle to ensure Triangle retained sufficient cash to operate.

(C. Horne Aff. ¶ 8.)

48. Emrich informed Hornwood that Emrich would not contribute capital, and

Hornwood subsequently loaned $120,000 to Triangle to meet its ongoing expenses.

(C. Horne Aff. ¶ 12.)
J. Triangle’s Accounts Receivable

49. Triangle’s customers frequently did not pay invoices on time. (McCaskill

Aff. ¶ 17.) If Triangle was not paid within sixty days of the invoice due date,

Triangle’s accountant would work with the appropriate customer contact to collect

payment. (McCaskill Aff. ¶ 17.) In particular, Triangle customers CVG and

Plasticoat often fell behind on payments to Triangle. (See Phipps Dep. 214:14, ECF

No. 147.21, W. Horne Aff. ¶ 6, ECF No. 177.)

50. Hornwood made efforts to collect the amounts owed approximately “once or

twice a month.” (Phipps Dep. 214:14.) In February 2019, John Emrich and Donald

Phipps (“Phipps”), an Emrich employee, worked with CVG to implement a new

invoicing system for better flow of payments from CVG to Triangle. (Emrich 13 Aug

2020 Dep. 238:19–239:25., ECF No. 147.8, Phipps Dep. 214:15–18.)

51. By 14 September 2020, Triangle customer Plasticoat owed Triangle $85,000

in past-due receivables. (Emrich Decl. Ex. 8, at 1, ECF No. 151.40.) On 16 September

2020, John Emrich contacted Hornwood’s Treasurer, Paula McCaskill, to ask why

these past-due receivables had not been collected. (W. Horne Aff. ¶ 6.) Paula

McCaskill worked with Plasticoat and Willis to collect the past-due receivables,

Hornwood informed John Emrich of Hornwood’s ongoing efforts to collect the

receivables, and Triangle received the past-due amount of $85,000.00 from Plasticoat

on 30 September 2020. (W. Horne Aff. ¶ 6, Exs. B–D.)
K. Triangle’s Accounting and Tax Records

52. On 16 October 2018, Triangle’s members agreed to distribute a portion of

its 2018 third quarter profits, as well as proceeds from the Bondtex Lawsuit

settlement. (McCaskill Aff. ¶ 11.) Triangle distributed $2,010,200.00 to Hornwood

and $1,789,800.00 to Emrich. (McCaskill Aff. ¶ 11.) However, $25,644.96 in advance

distributions Emrich received during the third quarter of 2018 was deducted from its

distribution reducing the amount it received to $1,764,155.04. (McCaskill Aff. ¶ 11.)

53. Hornwood, with Triangle’s accountant, coordinated the preparation of

Triangle’s 2019 tax forms. (Second Am. Compl. ¶ 160.) During the 2018–19

accounting period, Triangle issued payments to Emrich using checks stating that the

funds were for “commissions.” (Second Am. Compl. ¶ 161.) As late as March 2019,

Emrich still had not received a Form 1099 or other tax form from Triangle. (Second

Am. Compl. ¶ 162.) On 31 March 2019, Triangle’s accountant sent Emrich a Schedule

K-1 but indicated that Triangle would not be sending Emrich a Form 1099 form for

the period. (Second Am. Compl. ¶ 162.)

54. Thereafter, for a period of time monthly payments made to Emrich

continued to be labeled as commission payments in Triangle’s computer system.

(McCaskill Aff. ¶ 13, ECF No. 150.) However, Hornwood eventually changed the

bookkeeping system to classify the monthly payments to Emrich as advanced

distributions. (McCaskill Aff. ¶ 13.) By 17 December 2020, Triangle had begun

sending revised tax documents to Triangle’s members reflecting the reclassification.

(McCaskill Aff. ¶ 14.)
III. PROCEDURAL BACKGROUND

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

relevant to its determination of the Motions.

56. This action was originally initiated by Emrich on 29 April 2019 with the

filing of its Verified Complaint. (ECF No. 3.)

57. On 1 May 2019, this Court issued a Temporary Restraining Order (“TRO”)

enjoining Hornwood from, among other things, withdrawing as a member of Triangle.

(ECF No. 15.)

58. On 21 May 2019, Emrich filed its Amended Motion for Preliminary

Injunction seeking to extend the TRO throughout the pendency of this action. (ECF

No. 27.)

59. As noted previously at ¶ 44, supra, on 31 May 2019, the Court granted in

part Emrich’s Amended Motion for Preliminary Injunction and enjoined Hornwood

from unilaterally withdrawing from Triangle without consent from Emrich. (Order

on Am. Mot. for Prelim. Inj. ¶ 75, ECF No. 40.)

60. On 4 August 2020, Emrich filed its Second Amended Verified Complaint

(the “Complaint”). (ECF No. 116.)

61. Defendants filed their Answer to Second Amended Complaint, Affirmative

Defenses, and Restated Counterclaim on 8 September 2020 (the “Counterclaim”).

(Answer Second Am. Compl., Affirmative Defenses, & Restated Countercl., ECF No.

127 [“Countercl.”].) On 8 October 2020, Emrich filed Emrich’s Reply to Triangle’s

Restated Counterclaim. (ECF No. 132.)
62. On 18 December 2020, Emrich filed its Motion for Summary Judgment and

supporting brief. (Br. Supp. Emrich’s Mot. Summ. J., ECF No. 143 [“Br. Supp.

Emrich Mot.”].) Triangle filed its responsive brief on 20 January 2021. (Triangle

Auto. Components., LLC’s Br. Opp. Pl.’s Mot. Summ. J., ECF No. 169 [“Triangle Br.

Opp.”].) Emrich filed its reply brief on 1 February 2021. (ECF No. 175.)

63. Also on 18 December 2020, Defendants filed Defendants’ Motion for

Summary Judgment and supporting brief. (Br. Supp. Defs.’ Mot. Summ. J., ECF No.

147 [“Br. Supp.”].) On 20 January 2021, Emrich filed its response brief, (Emrich

Resp. Defs.’ Mot. Summ. J., ECF No. 166 [“Emrich Resp.”]), and Defendants filed

their Reply Brief on 1 February 2021, (ECF No. 176).

64. The Court held a hearing on the Motions on 20 April 2021. (See ECF No.

185.)

65. The Motions are ripe for resolution.

IV. LEGAL STANDARD

66. Summary judgment is appropriate “if the pleadings, depositions, answers

to interrogatories, and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that any party is entitled

to a judgment as a matter of law.” N.C.G.S. § 1A-1, Rule 56(c). “A ‘genuine issue’ is

one that can be maintained by substantial evidence.” Dobson v. Harris, 352 N.C. 77,

83 (2000).

67. The moving party bears the burden of showing that there is no genuine

issue of material fact and that the movant is entitled to judgment as a matter of law.
Hensley v. Nat’l Freight Transp., Inc., 193 N.C. App. 561, 563 (2008). The movant

may make the required showing by proving that “an essential element of the opposing

party’s claim does not exist, cannot be proven at trial, or would be barred by an

affirmative defense, or by showing through discovery that the opposing party cannot

produce evidence to support an essential element of her claim.” Dobson, 352 N.C. at

83 (citations omitted).

68. “Once the party seeking summary judgment makes the required showing,

the burden shifts to the nonmoving party to produce a forecast of evidence

demonstrating specific facts, as opposed to allegations, showing that he can at least

establish a prima facie case at trial.” Gaunt v. Pittaway, 139 N.C. App. 778, 784−85

(2000).

69. The Court must view the evidence in the light most favorable to the

nonmovant. Dobson, 352 N.C. at 83. However, the nonmovant “may not rest upon

the mere allegations or denials of their pleading, but their response, by affidavits or

as otherwise provided in this rule, must set forth specific facts showing that there is

a genuine issue for trial. If [the nonmovant] does not so respond, summary judgment,

if appropriate, shall be entered against [the nonmovant].” N.C.G.S. § 1A-1, Rule

56(e).

V. ANALYSIS

70. The Court first addresses Plaintiff’s Motion, then turns to Defendants’

Motion.
A. Plaintiff’s Motion

71. Triangle asserts one counterclaim for relief against Emrich alleging that

Emrich breached a fiduciary duty owed as a member to Triangle by initiating the

lawsuit. (Countercl. ¶ 63.) Emrich contends that it is entitled to summary judgment

on Triangle’s breach of fiduciary duty claim because: (1) Triangle cannot prove the

elements of its breach of fiduciary duty claim; and (2) the imposition of liability

against Emrich for a breach of a fiduciary duty based on the filing of this lawsuit

would violate the Petition Clause of the First Amendment to the United States

Constitution and Article I, Section 12 of the North Carolina Constitution. (Pl.’s Br.

Supp. Mot. 3.)

72. Emrich is a member of Triangle, but members of an LLC generally do not

owe the LLC a fiduciary duty. Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469 (2009)

(“Members of a limited liability company . . . do not owe a fiduciary duty to each other

or to the company.”). While there are exceptions to this general rule, none apply to

Emrich. Cf. Fiske v. Kieffer, 2016 NCBC LEXIS 22, at *9 (N.C. Super. Ct. Mar. 9,

2016) (“[A] holder of a majority interest who exercises control over the LLC owes a

fiduciary duty to minority interest members.”). As a result, Hornwood has failed to

demonstrate a triable issue of fact that Emrich breached a fiduciary duty to Triangle

by bringing suit.

73. Additionally, Triangle’s counterclaim is deficient for another and more

fundamental reason. The First Amendment prohibits Congress from “abridging . . .

the right of the people . . . to petition the Government for a redress of grievances.”
U.S. Const. amend. I. Similarly, Article I, Section 12 of the North Carolina

Constitution protects the right to petition. N.C. Const. art. I, § 12.

74. The Supreme Court’s decision in Cheryl Lloyd Humphrey Land Inv. Co. v.

Resco Products, Inc., 377 N.C. 384 (2021), is dispositive here. There, the Court

recognized that the right to petition for redress is a fundamental one, and

“[p]rotecting the right to petition requires early dismissal of lawsuits that

impermissibly seek to infringe on the right and thus chill petitioning activity

occurring in these political contexts.” Id. at 389-90. Accordingly, “[w]hen a lawsuit

is premised on a party’s petition activity, the First Amendment and Article I, Section

12 mandate early dismissal.” Id. at 390. “[F]iling a complaint in court is a form of

petitioning activity.” McDonald v. Smith, 472 U.S. 479, 484 (1985). And while

“baseless litigation is not immunized by the First Amendment right to petition[,]” as

determined below, Plaintiff’s complaint is far from baseless. Bill Johnson's

Restaurants, Inc. v. NLRB, 461 U.S. 731, 743 (1983).

75. Triangle’s counterclaim for breach of fiduciary duty is entirely premised on

Emrich initiating this lawsuit. The Court concludes that the pursuit by Emrich of

this claim is the sort of petitioning activity that is protected by the First Amendment

to the United States Constitution and Article I, Section 12 of the North Carolina

Constitution. Therefore, Plaintiff’s Motion is GRANTED, and Defendants’ breach of

fiduciary duty claim is DISMISSED with prejudice.
B. Defendants’ Motion

Emrich brings both direct claims against Hornwood and Triangle and claims that

are derivative in nature on behalf of Triangle against Hornwood that are premised

on Hornwood’s alleged misconduct. Defendants request that the Court grant

summary judgment as to Emrich’s claims for: (1) breach of contract against

Hornwood; (2) breach of fiduciary duty against Hornwood; and (3) breach of

contract against Triangle.

1. Breach of Contract Claims Against Hornwood

76. Emrich asserts three separate claims for breach of contract against

Hornwood. A party asserting a breach of contract claim must show “(1) existence of

a valid contract; and (2) breach of the terms of that contract.” Poor v. Hill, 138 N.C.

App. 19, 26 (2000). “When language of a contract is plain and unambiguous its

construction is a matter of law for the court.” De Torre v. Shell Oil Co., 84 N.C. App.

501, 504 (1987). “However, if the court determines that the terms of the contract are

ambiguous and resort to extrinsic evidence is necessary then the question of

construction of the contract is one for the jury.” Frye Reg’l Med. Ctr., Inc. v. Blue

Cross Blue Shield N.C., Inc., 2020 NCBC LEXIS 51, at *28 (N.C. Super. Ct. Apr. 17,

2020) (cleaned up). “An ambiguity exists in a contract when either the meaning of

words or the effect of provisions is uncertain or capable of several reasonable

interpretations.” Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs., 362 N.C. 269,

273 (2008) (citation omitted). Here, the parties dispute whether Hornwood breached
Sections 4.4 and 8.1 of the Operating Agreement and Section 3 of the Joint Venture

Agreement.

a. Section 4.4 of the Operating Agreement

77. Emrich’s first claim for relief is asserted against Hornwood, individually

and derivatively on behalf of Triangle, for breach of Section 4.4 of the Operating

Agreement. (Second Am. Compl. ¶¶ 167–74.) 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.” (Defs.’ Ex. 25; Op. Agreement § 4.4.)

The Operating Agreement entered into by Emrich and Hornwood, along with

Bondtex, on 28 February 2006, sets forth that its term lasts “until the Company is

dissolved and its affairs wound up in accordance with the provisions of this

Agreement or the [North Carolina Limited Liability Company] Act.” (Op. Agreement

¶ 1.6.) The Operating Agreement does not specifically define or elaborate on what

activities may be considered “competitive with the activities” of Triangle. (See Op.

Agreement ¶ 4.4.)

78. Emrich contends that Hornwood breached Section 4.4 of the Operating

Agreement by working with Borgstena. (Second Am. Compl. ¶¶ 169–174.)

Defendants counter that “[b]ecause Triangle’s activities within the automotive

industry are limited to supplying and selling finished, laminated products
(headliners), it is reasonable to interpret ‘competitive activities’ within Section 4.4 to

only encompass those specific activities.” (Br. Supp. Defs.’ Mot. 15.)

79. The Court concludes, based on the evidence before it, that Section 4.4 is

susceptible to multiple reasonable interpretations, including the parties’ respective

interpretations.

80. Defendants argue that Triangle’s purpose is to “supply laminated warp knit

fabrics for use in headliner, pillar and post, visor and package shelf applications.”

(Br. Supp. Defs.’ Mot. Ex. 26, ECF No. 147.27.) It is undisputed that, during Chuck

Horne’s February 2018 visit to Borgstena’s facilities, Hornwood agreed to duplicate

fabric Borgstena uses in its automotive products. (Chuck Horne Dep. 39:17–21.) It

is also undisputed that Hornwood’s product-development efforts with Borgstena

involve the same types of fabrics that Hornwood manufactures for Triangle, including

the manufacturing of warp-knit headliner and pillar fabrics. (Second Am. Compl. ¶¶

101–02.) The record indicates that Borgstena considered building a laminating

facility of its own. (Chuck Horne Dep. 34:11–12.) However, since neither Hornwood

nor Borgstena had in-house lamination capabilities, it is not clear from the record

whether Hornwood, in collaboration with Borgstena, intended to supply laminated

warp knit fabrics for use in headliner, pillar and post, visor and package shelf

applications. It is ultimately a question for the jury whether Hornwood’s conduct fell

within the meaning of “competitive activities.”

81. In sum, the Court is unable to determine the intent behind and properly

interpret Section 4.4 of the Operating Agreement without consideration of extrinsic
evidence which is conflicting, making summary judgment inappropriate as to this

claim.

82. Defendants also contend that Emrich’s “purported interpretation [of

Operating Agreement Section 4.4] is an unenforceable restraint on trade.” (Br. Supp.

Defs.’ Mot. 18.) "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 (1968). In

arguing that Plaintiff’s interpretation is an unenforceable restraint on trade,

Defendants draw support from cases analyzing post-termination restrictions. See

Sandhills Home Care, L.L.C., v. Companion Home Care–Unimed, Inc., 2016 NCBC

LEXIS 61, at *20 (N.C. Super. Ct. Aug 1, 2016) (restricting competitive activities for

one year following termination of employment); Outdoor Lighting Perspectives

Franchising v. Harders, 228 N.C. App. 613, 623 (2013) (restricting competitive

activities for two years following termination of the franchise agreement); Horner

Int’l Co. v. McKoy, 232 N.C. App. 559, 565 (2014) (restricting competitive activities

for eighteen months after the end of employment).

83. Section 4.4 is distinguishable from the provisions at issue in the cases on

which Defendants rely. First, Section 4.4 contains no post-termination restriction

and thus applies only to members while they are still part of Triangle. Second,

Section 4.4 is not an absolute prohibition on competitive activities by members.

Instead, it permits members to engage in competitive activities provided that

Triangle and each member of Triangle are “first offer[ed] an interest in such

activities[.]” (Op. Agreement § 4.4.) In effect, Section 4.4 is better understood as
imposing a limited duty of loyalty on Triangle’s members, rather than as a non-

compete provision.

84. Therefore, the Court DENIES Defendants’ Motion to the extent

Defendants request summary judgment as to Emrich’s claim for breach of Section 4.4

of the Operating Agreement.

b. Section 8.1 of the Operating Agreement

85. Emrich’s second claim for relief is asserted against Hornwood, individually

and derivatively on behalf of Triangle, for breach of Section 8.1 of the Operating

Agreement. (Second Am. Compl. ¶¶ 183–190.) It is Emrich’s position that the

Operating Agreement prohibits a member from unilaterally withdrawing from

Triangle. (Second Am. Compl. ¶ 184.)

86. Section 8.1 of the Operating Agreements reads as follows:

Restrictions on Transfer. Without the prior written consent of a Majority
in Interest of the Disinterested Members (which consent may be given
or withheld in their sole discretion) . . . no Member may voluntarily or
involuntarily Transfer, or create or suffer to exist any Encumbrance
against, all or any part of such Member’s record or beneficial interest in
the Company.

(Operating Agreement § 8.1 (emphasis in original).) Section 2 of the Operating

Agreement defines “Transfer” as to “sell, assign, transfer, lease, or otherwise dispose

of property, including without limitation, an interest in the Company.” (Operating

Agreement § 2.)

87. Hornwood contends that “Hornwood did not breach Section 8.1 of the

Operating Agreement because it does not prohibit a member from unilaterally

withdrawing.” (Br. Supp. Defs.’ Mot. 20.) It is Hornwood’s position that “Transfer,”
as defined by the Operating Agreement, does not include a member’s withdrawal.

(Br. Supp. Defs.’ Mot. 20–22.) Hornwood’s proposed definition of “Transfer” is “the

act of giving something to another entity or person.” (Br. Supp. Defs.’ Mot. 21.) In

other words, Hornwood contends that its withdrawal from Triangle does not

constitute a “Transfer” within the meaning of the Operating Agreement because

Hornwood would only be removing itself from Triangle, not giving its interest to

another person or entity. (Br. Supp. Defs.’ Mot. 21.)

88. Hornwood further cites to Section 9 of the Operating Agreement, which

defines a “Buy-Sell Event” as “[a]ny purported voluntary or involuntary Transfer or

Encumbrance of all or any part of a Member’s Membership Interest in a manner not

expressly permitted by this Agreement” or “[a]ny withdrawal by a Member from

[Triangle] other than as may be expressly permitted by this Agreement.” (Operating

Agreement § 9.1 (d), (g).) Hornwood contends that Section 9’s use of the word

“withdrawal,” separately from its use of the word “Transfer”, requires the Court to

reach the conclusion that a Transfer does not include a withdrawal. (Br. Supp. Defs.’

Mot. 22–23.)

89. The Court declines to disregard the express choice of the words “dispose of”

in the Operating Agreement’s definition of “Transfer,” which could reasonably include

Hornwood’s withdrawal from Triangle. In fact, it is Chuck Horne’s position that

Hornwood’s attempt to withdraw was to “give up,” or otherwise dispose of,

Hornwood’s financial interest in Triangle. (Chuck Horne Dep. 25:24–26:6.)
90. The Court is in no way concluding that Hornwood’s interpretation is

unreasonable or incorrect as a matter of law. However, at best, the terms of the

Operating Agreement, specifically the use of the word “Transfer” in Section 8.1, are

susceptible to multiple reasonable interpretations, making summary judgment

inappropriate as to this claim.

91. Defendants then contend that, even if the Court concludes that Hornwood

breached Section 8.1 of the Operating Agreement, the remedy Plaintiff seeks violates

public policy and is unavailable under the Operating Agreement. (Br. Supp. Defs.’

Mot. 23–24.) Emrich requests compensatory damages and “permanent injunctive

relief prohibiting Hornwood from unilaterally withdrawing from Triangle[.]” (Second

Am. Compl. ¶ 192.) It is Hornwood’s interpretation of the Second Amended

Complaint that Emrich “seeks a judgment requiring Hornwood to remain an active

member of Triangle forever.” (Br. Supp. Defs.’ Mot. 20 (emphasis in original).)

92. As an initial matter, it is unclear to the Court on what basis compensatory

damages would violate public policy and Defendants do not cite to any case in support

of this proposition. Therefore, the Court DENIES Defendants’ request for summary

judgment as to any compensatory damages stemming from Hornwood’s alleged

breach of Section 8.1 of the Operating Agreement.

93. As to Defendants’ position that Emrich seeks injunctive relief prohibiting

Hornwood from withdrawing from Triangle for an indefinite period of time, it is not

clear to the Court that this is Emrich’s request. As noted by Emrich, Hornwood may

seek to withdraw from Triangle in compliance with the terms of the Operating
Agreement, as long as it is not in violation of this Court’s orders, or it may seek relief

pursuant to North Carolina statutes. (See Resp. Br. Defs.’ Mot. 16–7.) In this regard,

the Court notes that the Operating Agreement, voluntarily agreed to by Hornwood at

the inception of the venture, has a defined term and a termination date. (See Op.

Agreement ¶ 1.6.)

94. In any event, based on the record before it, the Court believes it premature

to analyze the public policy ramifications of a remedy to which Emrich may or may

not be entitled.

95. The Court therefore DENIES Defendants’ Motion to the extent Defendants

request summary judgment as to Emrich’s claim for breach of Section 8.1 of the

Operating Agreement.

c. Agreement to Manufacture Fabric for Triangle at Cost

96. Emrich’s sixth claim for relief is asserted against Hornwood, individually

and derivatively on behalf of Triangle, for Hornwood’s alleged violation of the Joint

Venture Agreement by refusing to manufacture fabric for Triangle at its cost. (Second

Am. Compl. ¶¶ 227–35.)

97. Section 3(a) of the Joint Venture Agreement provides “[e]ither party shall

invoice [Triangle], with terms of 75 days, the cost it incurs in providing fabrics,

laminating, cutting and packaging for the completion of services. . . . All parties shall

mutually agree upon additional expenses.” (Joint Venture Agreement § 3(a).)

98. Defendants contend that it is undisputed that Hornwood did not breach

Section 3(a) of the Joint Venture Agreement because Hornwood’s price increase
reflected only the increased costs of general and administrative expenses. (Br. Supp.

Defs.’ Mot. 24–25.)

99. The Joint Venture Agreement neither expressly addresses general and

administrative expenses in Section 3(a) nor otherwise defines “cost.” Defendants rely

in part on the Black’s Law Dictionary definition of “Manufacturing Cost,” which

includes the cost of general and administrative activities. (Br. Supp. Defs.’ Mot. 24.)

100. The original arrangement between Hornwood, Bondtex, and Emrich was

for Hornwood to manufacture fabric and Bondtex to laminate the fabric with “no

general and administrative expenses included[.]” (Chuck Horne Dep. 23:2–9, ECF

No. 147.3.) Hornwood did not charge Triangle for general or administrative expenses

from 2010 until 2018. (Hornwood 30(b)(6) Dep. 80:21–81:2, ECF 147.15.)

101. The Joint Venture Agreement’s use of the word “cost” could reasonably

encompass general or administrative expenses associated with Hornwood “providing

fabric” to Triangle. On the other hand, the Joint Venture Agreement could

reasonably be construed to be limited to the costs directly incurred in the

manufacturing process of the fabric. Based on the record before it, the Court is unable

to resolve the interpretation of Section 3(a) without consideration of extrinsic

evidence, making summary judgment inappropriate.
102. Accordingly, the Court DENIES Defendants’ Motion to the extent

Defendants request summary judgment as to Emrich’s claim for breach of Section

3(a) of the Joint Venture Agreement.

d. Distribution of Settlement Proceeds

103. Emrich’s fourth claim for relief is asserted directly against Triangle for

Triangle’s alleged failure to pay Emrich its portion of settlement proceeds from the

Bondtex Lawsuit. (Second Am. Compl. ¶¶ 205–12.) Emrich alleges, and Defendants

deny, that Emrich and Defendants agreed that Triangle would distribute

approximately seventy-eight percent of Emrich’s share of the settlement proceeds

from the Bondtex lawsuit in October 2018, and the remainder at the end of 2018. (See

Second Am. Compl. ¶ 206.) It is undisputed that Triangle distributed seventy-eight

percent of Emrich’s share of the proceeds to Emrich in October 2018. (Second Am.

Compl. ¶ 207.) However, Emrich contends that Triangle breached the agreement

regarding the payment and distribution of the proceeds by failing to distribute the

remainder of Emrich’s share at the end of 2018. (Second Am. Compl. ¶ 208.)

104. It is Defendants’ position that there is no enforceable agreement to

distribute the settlement proceeds at the end of 2018. (Br. Supp. Defs.’ Mot. 25.) The

record reveals that the parties agreed to “set aside” the remaining twenty-two percent

of the settlement proceeds when seventy-eight percent was distributed to Emrich and

Hornwood, (Emrich Dep. 111:1–3, ECF No 147.8, Br. Supp. Defs.’ Mot. Sum. J. Ex.

17, 2, ECF No. 147.18), and Hornwood contends that the agreement to set aside the

remainder of the settlement proceeds was made to ensure Triangle retained enough
cash to operate. (See Emrich Dep. 111:6–7.) There is also evidence that on 16 October

2018, Chuck Horne and John Emrich “agreed to hold back $200,000 in reserve until

year end.” (Br. Supp. Defs.’ Mot. Ex. 11, ECF No. 147.12.) On 10 April 2019, Chuck

Horne again affirmed that he and John Emrich previously “agreed to set aside part

of the settlement money[.]” (Br. Supp. Defs.’ Mot. Summ. J. Ex. 17, 2.). Thus, the

agreement to “hold back” the remaining twenty-two percent of the settlement

proceeds “until year end” may be reasonably construed as an agreement to distribute

the proceeds at year end.

105. However, since Triangle’s cash shortage apparently motivated the decision

to withhold twenty-two percent of the settlement proceeds, the 16 October 2018

communication may also be reasonably construed as an agreement to revisit

Triangle’s financial condition at the end of the year, and after doing so, to consider

the propriety of making additional cash distributions. There is record evidence to

support this interpretation.

106. “[W]hen an agreement is ambiguous and the intention of the parties is

unclear, interpretation of the contract is for the trier of fact.” Schenkel & Schultz,

Inc. v. Hermon F. Fox & Assocs., P.C., 180 N.C. App. 257, 266 (2006). Viewing the

evidence in the light most favorable to Emrich as the non-movant, the record fails to

establish the non-existence of an enforceable agreement to distribute the remaining

settlement proceeds at the end of 2018. It is for a jury to determine the meaning of

the 16 October 2018 communication.
107. Accordingly, the Court concludes that Defendants’ Motion should be

DENIED as to Emrich’s breach of contract claim against Triangle regarding the

distribution of settlement proceeds.

e. Emrich’s Sales Commission

108. Emrich’s fifth claim for relief is asserted against directly Triangle for

Triangle’s alleged failure to pay Emrich a sales commission owed to it pursuant to

the terms of the Joint Venture Agreement. (Second Am. Compl. ¶¶ 215–23.)

109. Section 3(a) of the Joint Venture Agreement provides that “[s]elling

expenses shall be paid on a commission basis[.]” (Joint Venture Agreement § 3(a).)

The record before the Court reflects that, from inception until June 2019, Emrich was

paid a commission on all sales. (Joint Venture Agreement § 3(a); Triangle 30(b)(6)

Dep. 114:20–116:17, ECF No. 151.7.)

110. Following Bondtex’s withdrawal from Triangle, Chuck Horne and John

Emrich began negotiating a change in the percentages of their respective ownership

of Triangle. (Second Am. Compl. ¶ 218.) On 25 September 2018, Chuck Horne

expressed that his understanding of the agreement for a new ownership split was

that Emrich would no longer receive a commission. (Defs.’ Ex. 9.) However, just two

days later, on 27 September 2018, John Emrich expressed that Emrich still wanted

to receive commissions, which could be offset against periodic distributions to Emrich

of its share of Triangle’s profits. (Defs.’ Ex. 9.)

111. Triangle points to a series of emails exchanged between Chuck Horne and

John Emrich in February 2019. (Defs.’ Ex. 16.) An email sent from John Emrich to
Chuck Horne on 12 February 2019 references a new agreement between the parties

beginning on 1 October 2018. (Defs.’ Ex. 16.) In this 12 February 2019 email, John

Emrich describes the agreement as changing Triangle’s profit sharing, eliminating

Emrich’s two percent commission, and treating any commissions paid from October

through December 2018 as advances. (Defs.’ Ex. 16.)

112. Emrich responds that, although the parties began negotiating new terms

relating to Triangle’s operation following Bondtex’s departure, they “never

memorialized any modification in writing[.]” (Emrich Enter. LLC’s Resp. to Defs.’

Mot. for Summ. J. 24, ECF No. 166 [“Emrich Resp.”].)

113. While Defendants dispute the formation of an agreement as contended by

Emrich, the record before the Court indicates that, following these email

communications, until at least 11 June 2019, Triangle continued to pay Emrich at

the rate of two percent of sales and account for such payments to Emrich as

commissions on its books. (Triangle 30(b)(6) Dep. 114:20–116:17.) Hornwood was

responsible for maintaining the financial books and records, including the

classification of the payments to Emrich. (See McCaskill Aff. ¶ 3.) The evidence

further reflects that, on 13 June 2019, Hornwood unilaterally advised Emrich that it

would no longer be paid a sales commission. (Emrich Resp. Ex. 14, ECF No. 166.15.)

114. The Court concludes that, as to this claim, there are material facts in

dispute. Therefore, the Court DENIES Defendants’ Motion as to Emrich’s fifth claim

for relief.
2. Breach of Fiduciary Duty Claims Against Hornwood

115. Emrich’s third and seventh claims for relief are asserted against Hornwood

both directly and derivatively on behalf of Triangle, for breach of fiduciary duty.

(Second Am. Compl. ¶¶ 193–203; 238–45.) In a nutshell, Emrich contends that

Hornwood breached its fiduciary duties owed derivatively to Triangle and directly to

Emrich in several respects, including by: (1) surreptitiously entering into a joint

venture agreement with Borgstena to compete directly with Triangle; (2) threatening

to cease manufacturing and to unilaterally withdraw from Triangle; (3) mismanaging

the transition from Bondtex to Mueller for fabric lamination; (4) failing to properly

address quality control issues with the Freightliner program; (5) unjustifiably

increasing the price it charged Triangle for fabric; (6) preventing settlement proceeds

from being paid to Emrich; (7) failing to act reasonably to collect Triangle’s past-due

accounts receivable; (8) ceasing to make advanced payments to Emrich; and (9)

mischaracterizing income in Triangle’s accounting and tax records.

116. Defendants contend that Hornwood does not owe fiduciary duties directly

to Emrich because Hornwood lacks requisite control over Triangle. Hornwood further

contends that the business judgment rule, economic loss rule, and proximate cause

issues bar claims three, four, and seven through nine by Emrich. The Court will

address each of Defendants’ contention in turn.

a. Hornwood’s Control of Triangle

117. “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 (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).

118. 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.

119. It is undisputed that Hornwood became the majority member of Triangle

on 1 January 2018 when Bondtex’s withdrawal became effective. (Defs.’ Ex. 16 at 1.)

120. Defendants contend that “[t]here are no facts to demonstrate that

Hornwood had the requisite control over Triangle[.]” (Br. Supp. Defs.’ Mot. 32.)

Emrich’s position is that “abundant evidence shows that Hornwood controls Triangle,

and thus owes fiduciary duties directly to Emrich Enterprises.” (Resp. Defs.’ Mot.

28.) The Court agrees with Emrich.
121. It is undisputed that Hornwood is the majority member of Triangle.

(Second Am. Compl. ¶¶ 16.) Due to its status as a member of Triangle, Hornwood is

“also a Manager of [Triangle] for all purposes.” (Op. Agreement § 3.1.) It is further

undisputed that Hornwood owned all of the manufacturing facilities where Triangle’s

products were manufactured and Emrich was not capable of manufacturing

Triangle’s products without Hornwood. (Second Am. Compl. ¶¶ 31–32.)

122. Furthermore, the Operating Agreement provides 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[.]” (Op. Agreement § 3.1.) The

Operating Agreement does not address or disclaim fiduciary duties.

123. The undisputed evidence before the Court indicates that Hornwood acted

unilaterally to decide financial issues of Triangle, including unilaterally deciding, and

informing Emrich without debate, that Hornwood would increase the prices it

charged Triangle for its production of fabric and that Emrich would no longer be paid

a sales commission. Hornwood further controlled the bank account for Triangle.

124. Under these circumstances, the Court concludes that there is sufficient

evidence to support Emrich’s claim that Hornwood both served Triangle in a fiduciary

capacity and owed fiduciary duties directly to Emrich.

b. The Business Judgment Rule

125. Defendants additionally contend that Hornwood’s conduct and specifically

that conduct that Emrich contends was improper is insulated under the business

judgment rule. (Br. Supp. Defs.’ Mot. 32.) Specifically, Defendants contend that a
presumption of good faith applies to Hornwood’s management of (1) the CVG trials,

(2) Triangle’s transition to Mueller for lamination, (3) Triangle’s accounting and tax

records and (4) cash distributions to Triangle’s members. (Br. Supp. Defs.’ Mot. 33–

35.) In each case, Defendants argue that there is no evidence that Hornwood acted

unreasonably or in bad faith in its management decisions and that the record viewed

in the light most favorable to Emrich is insufficient to rebut the business judgment

rule’s presumption of good faith.

126. In some instances, Managers of an LLC may be entitled to protections

afforded by the business judgment rule. Mooring Capital Fund, LLC v. Comstock

N.C., LLC, 2009 NCBC LEXIS 32, at *12 (N.C. Super. Ct. Nov. 13, 2009).

127. In North Carolina, the business judgment rule creates, first, an evidentiary

presumption that in making a decision, the managers acted on an informed basis and

in good faith in the honest belief that their decision was in the best interest of the

LLC, and second, absent rebuttal of the initial presumption, the rule creates a

powerful substantive presumption that a decision by a loyal and informed manager

will not be overturned by a court unless it cannot be attributed to any rational

business purpose. See Adum v. Albemarle Plantation Prop. Owners Ass'n, 2021

NCBC LEXIS 6, at *38–39 (N.C. Super. Ct. Jan. 19, 2021).

128. “A plaintiff may overcome the presumption with proof that [the manager]

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.” Holland v. Warren, 2020

NCBC LEXIS 146, at *31 (N.C. Super. Ct. Dec. 15, 2020) (cleaned up). Evidence that
a manager was inattentive, uninformed, acted in bad faith, or made a decision that

is unreasonable may be considered in determining that the business judgment rule

does not apply to protect alleged misdeeds. See Wachovia Capital Partners, LLC v.

Frank Harvey Inv. Family L.P., 2007 NCBC LEXIS 7, at *12 (N.C. Super. Ct. Mar. 5,

2007).

(1) The CVG Trials

129. Based on the evidence of record, the Court concludes that Hornwood’s

alleged failure to communicate the correct specifications to Mueller prior to the CVG

trials is not the type of conduct protected by the business judgment rule. The business

judgment rule recognizes that business decisions are best left in the hands of

informed and experienced boards of directors and managers. Courts “are ill equipped

to engage in post hoc substantive review of business decisions.” In re The Walt Disney

Co. Derivative Litig., 907 A.2d 693, 746 (Del. Ch. 2005) (emphasis added). Business

decisions “involve judgments by the board as to whether to enter into a course of

conduct, generally one that creates new rights or obligations on behalf of the

company. . . [and] involves weighing the risks and rewards of future conduct, which

is the type of decision-making process the business judgment rule is designed to

protect.” Tindall v. First Solar, 892 F.3d 1043, 1047 (9th Cir. 2018).

130. By contrast, a ministerial act “involves obedience to instructions, but

demands no special discretion, judgment or skill.” Ministerial, Black’s Law

Dictionary (4th ed. 1951).
131. In the present case, the alleged tortious act by Hornwood through its agents

regarding communication with Mueller about CVG’s specifications and overseeing

the manufacturing and delivery process was not a “business decision” as

contemplated by the business judgment rule, but was instead in the nature of a

ministerial act. Plaintiff’s evidence tends to indicate that CVG sent Hornwood the

trial specifications, and that Hornwood failed to accurately convey that information

to Mueller, causing Triangle to submit samples to CVG in the wrong quantity with

foam of the wrong thickness and with excessive fabric defects. (Second Am. Compl.

¶¶ 69–70; see Fenton Aff. ¶¶ 27–28.) Hornwood’s communication to Mueller of CVG’s

specifications was a ministerial act that did not involve either judgment as to whether

to enter into a course of conduct, or a weighing of the risks and rewards of future

conduct. Likewise, the alleged failure to properly oversee manufacturing and quality

assurance is similarly ministerial. This is not the type of situation where Hornwood’s

decisions and conduct are protected by the business judgment rule from critical

review. Therefore, the Motion is DENIED to the extent it seeks dismissal of Emrich’s

breach of duty claim regarding the CVG trials.

(2) Triangle’s Transition to Mueller

132. Emrich argues that Hornwood’s reliance on Hornwood customer service

representative Scott Dutton to perform certain tasks essential to the Mueller

transition, and Hornwood’s exclusion of Emrich and Norman Willis from

communicating with Mueller constituted lack of attention, unreasonable decision-

making, and a breach of loyalty. (Emrich Resp. 36–37.)
133. The record indicates that, at a 1 November 2018 meeting, Willis and

representatives of Mueller expressed concerns to Hornwood regarding Hornwood

employee Dutton’s ability to handle the transition from Bondtex to Mueller, but that

Chuck Horne expressed confidence in Dutton and kept him in charge of handling the

Mueller transition. (Willis Aff. ¶ 19.)

134. The record indicates that Wesley Horne and Chuck Horne routinely

checked-in with Dutton regarding his work for Triangle on the transition to Mueller.

(Hornwood 30(b)(6) Dep. 238:14–25.)

135. There is an apparent dispute of fact over whether a 2 November 2018

shipment of Triangle’s product was delayed, and, if so, whether it was the fault of

Dutton. Emrich proffers the affidavit of Willis to state that a shipping delay occurred

under the oversight of Dutton. (Willis Aff. ¶ 21.) Emails between John Emrich and

Chuck Hornwood indicate that the shipment was not delayed. (Pl.’s Ex. 14 at 2, ECF

No. 151.14.) However, this dispute is immaterial because regardless of whether or

not a shipping delay occurred, the undisputed record also indicates that Mueller, and

not Dutton, was responsible for the product shipments at issue. (See Pl.’s Ex. 14 at

2.)

136. The record indicates that Hornwood was attentive to Dutton’s performance

in his role for Triangle. Thus, Emrich has failed to provide sufficient evidence, at this

stage, to suggest that Hornwood was inattentive, uninformed, acted in bad faith, or

acted unreasonably.
137. The Court further concludes that the conduct at issue here is in the nature

of conduct coming within the ambit of the business judgment rule. Plaintiff has failed

to come forward with evidence rebutting the presumption arising under the rule.

Therefore, except as set forth above in section b.(1), the Motion is GRANTED to the

extent Defendants seek dismissal of Emrich’s breach of duty claim regarding

Hornwood’s management of Triangle’s transition to Mueller.

(3) Triangle’s Accounting and Tax Records

138. Hornwood argues that the business judgment rule protects its management

of Triangle’s accounts receivable and that, even without application of the rule, there

is no breach of duty because Hornwood kept regularly informed regarding the

accounts receivable and took reasonable action to collect payment. (Defs.’ Br. Supp.

35.) Plaintiff responds that Hornwood failed to properly collect Triangle’s accounts

receivable. (Emrich Resp. 37.)

139. The record contains evidence of Triangle’s efforts to collect past-due

receivables from Triangle customers CVG and Plasticoat. (See Phipps Dep. 214:14,

W. Horne Aff. ¶ 6, ECF No. 177.) On several occasions, CVG fell behind on its

payments to Triangle and Hornwood made efforts to collect the amounts owed

approximately “once or twice a month.” (Phipps Dep. 214:14.) In February 2019,

John Emrich and Phipps worked with CVG to establish a better flow of payments

from CVG to Triangle. (Emrich 13 Aug. 2020 Dep. 238:19–239:25., ECF No. 147.8.)

Another Triangle customer, Plasticoat, owed Triangle $85,000 in past-due receivables

as of 14 September 2020. (Emrich Decl. Ex. 8, 1.) On 16 September 2020, John
Emrich contacted Hornwood’s Treasurer, Paula McCaskill, about the past-due

receivables, and Triangle received full payment from Plasticoat two weeks later on

30 September 2020. (W. Horne Aff. ¶ 6, Exs. B–D.)

140. These facts are not sufficient to demonstrate that Defendants’ actions were

outside the realm of the business judgment rule, were improper, or caused Plaintiff

harm. Therefore, the Motion is GRANTED to the extent Defendants seek dismissal

of Emrich’s breach of duty claim regarding management of Triangle’s accounts

receivable.

141. Hornwood also argues that the business judgment rule protects its

management of Triangle’s tax records. Emrich contends that Hornwood caused

Emrich’s tax forms to erroneously classify Emrich’s income by failing to report

commission payments by Triangle to Emrich on a Form 1099. (Emrich Resp. 37.)

The record indicates that Emrich’s 2018 tax documents, including Emrich’s Form

1099, were erroneous due to a clerical mistake in Triangle’s computer system.

(McCaskill Aff. ¶ 13.) Defendants maintain that discrepancies on Emrich’s Form

1099 were clerical errors and that Hornwood has addressed these errors with

Triangle’s accountant. (Defs.’ Br. Supp. 35.) Indeed, at the time of the briefing on

Defendants’ motion for summary judgment, it appeared from the record that, at

Hornwood’s instruction, revised tax records were being prepared. (McCaskill Aff. ¶

13–14.) While these facts could indicate negligence on the part of Defendants,

Plaintiff has not shown how it was injured by the alleged misconduct. Therefore, the
Motion is GRANTED to the extent Defendants seek dismissal of Emrich’s breach of

duty claim regarding Triangle’s tax records.

(4) Halting Cash Distributions

142. Plaintiff claims that Hornwood breached its duty to Triangle and Emrich

by refusing to distribute available funds to the members of Triangle.

143. Plaintiff argues that Hornwood’s decision to cease payments to Emrich,

together with Hornwood’s decision to charge Triangle higher prices for its fabric, both

beginning in June 2019, indicate bad faith on the part of Hornwood and rebuts the

presumption afforded Defendants by the business judgment rule. However, the

record reflects that, as of May 2020, Triangle had over $180,000 in past due accounts

payables and as of November 2020, was experiencing net losses. (C. Horne Aff. ¶ 7.)

In fact, the record indicates that Hornwood called for Triangle’s members to

contribute capital to Triangle to ensure Triangle retained sufficient cash to operate,

(C. Horne Aff. ¶ 8.), and that when Emrich refused to do so, Hornwood loaned

$120,000 to Triangle to meet its ongoing expenses. (C. Horne Aff. ¶ 12.) Furthermore,

even though Hornwood increased its prices charged to Triangle, Hornwood continued

to charge Triangle less than the market rate. (Hornwood Letter ¶ 2.)

144. Based on the record before it, the Court determines that Plaintiff has not

submitted sufficient evidence to rebut the presumption afforded by the business

judgment rule that Defendants acted in good faith when deciding to halt cash

distributions—particularly when the record reflects that Triangle faced financial

difficulty less than one year later. Because the business judgment rule applies to the
conduct at issue and because Emrich has not rebutted the presumption afforded by

the rule, the Motion is therefore GRANTED to the extent Defendants seek dismissal

of Emrich’s breach of duty claim regarding cash distributions to Triangle’s members.

c. The Economic Loss Rule

145. Defendants seek summary judgment as to Plaintiff’s claim for breach of

fiduciary duty regarding Hornwood’s decision to raise the prices it charged Triangle

for fabric. (Br. Supp. Defs.’ Mot. 36.) Defendants do not argue that the business

judgment rule insulates this conduct, 8 but instead contend solely that the economic

loss rule bars the claim because the claim is “solely based on Hornwood’s contractual

obligation in the Joint Venture Agreement and not Hornwood’s fiduciary relationship

with Triangle.” (Br. Supp. Defs.’ Mot. 36.)

146. “The economic loss rule, as it has developed in North Carolina, generally

bars recovery in tort for damages arising out of a breach of contract[.]” Rountree v.

Chowan Cty., 252 N.C. App. 155, 159 (2017). A claimant may not maintain a tort

action, “against a party to a contract who simply fails to properly perform the terms

of the contract, even if that failure to perform was due to the negligent or intentional

conduct of that party, when the injury resulting from the breach is damage to the

subject matter of the contract.” Lord v. Customized Consulting Specialty, Inc., 182

N.C. App. 635, 639 (2007). “To state a viable claim in tort for conduct that is also

8
Defendants’ decision to not claim entitlement to summary judgment on the basis of the
business judgment rule is consistent with this Court’s prior decisions. In selling its fabric to
Triangle, Hornwood was engaged in a self-interested transaction. “While it may be
appropriate for a fiduciary to negotiate in his own interest, it does not follow that he is
entitled to the business judgment rule when doing so.” Ehmann v. Medflow, Inc., 2017 NCBC
LEXIS 88, *45–46 (N.C. Super. Ct. Sept. 26, 2017).
alleged to be a breach of contract, ‘a plaintiff must also allege a duty owed to him by

the defendant separate and distinct from any duty owed under a contract.’ ” Akzo

Nobel Coatings, Inc. v. Rogers, 2011 NCBC LEXIS 42, at *48 (N.C. Super. Ct. Nov. 3,

2011) (quoting Kelly v. Georgia-Pacific LLC, 671 F. Supp. 2d 785, 791 (E.D.N.C.

2009)).

147. This Court has observed that “a contracting party may have fiduciary

duties to his counterparty that are separate and distinct from his contractual duties

and thus may be enforceable in tort.” Kixsports, LLC v. Munn, 2021 NCBC LEXIS

32, at *17 (N.C. Super. Ct. April 1, 2021); see also Perry v. Frigi-Temp Frigeration,

Inc., 2020 NCBC LEXIS 100, at *17 (N.C. Super. Ct. Sept. 3, 2020). Here, Emrich’s

claims for breach of fiduciary duty against Hornwood arise from the duties Hornwood

owed as majority member and manager of Triangle. Those duties are independent

from any contractual duties the operating agreement may require of Hornwood.

Thus, the economic loss rule does not bar Emrich’s claims.

148. Accordingly, the Court concludes that Emrich has come forward with

sufficient evidence to demonstrate both a breach of fiduciary duty by Hornwood and

an injury such that summary judgment on this claim would be improper.

d. Proximate Cause

149. Defendants next contend that even if Hornwood breached fiduciary duties

owed to Emrich concerning the CVG Trials and its conduct is not insulated by the

business judgment rule, “there is no evidence Hornwood’s alleged acts proximately

caused damage to Triangle.” (Br. Supp. Defs.’ Mot. 36.) Emrich replies that the
record contains ample evidence to suggest that Hornwood’s actions in preparation for

the CVG trials and Triangle’s subsequent performance in the CVG Trials were the

direct cause of Triangle losing the Freightliner program and failing to obtain the M2

program.

150. Proximate cause is “a cause which in natural and continuous sequence,

unbroken by any new and independent cause, produced the plaintiff’s injuries, and

without which the injuries would not have occurred.” Adams v. Mills, 312 N.C. 181,

192 (1984). Proximate cause exists only where “the risk of injury . . . is within the

reasonable foresight of the defendant.” Williams v. Carolina Power & Light Co., 296

N.C. 400, 403 (1979). “Proximate cause is ordinarily a question of fact for the jury”

and courts should decide proximate cause as a matter of law “only in exceptional

cases, in which reasonable minds cannot differ as to the foreseeability of injury.” Id.

151. This is not such a case. There is evidence in the record indicating that, but

for Hornwood’s alleged misconduct, Triangle would have maintained the Freightliner

program. Emrich has provided evidence that Triangle, through Hornwood, did not

inform Mueller of CVG’s specifications for foam thickness and roll length. (Fenton

Aff. ¶¶ 27–28.) The record also indicates that the CVG Trials were held following a

series of quality control issues with Triangle products, and that the outcome of the

Freightliner Trials “led CVG to conclude that Triangle was not reliable and . . . that

issues would continue with Triangle if Triangle remained the supplier[.]” (Fenton

Aff. ¶ 34.) On the other hand, Hornwood presents evidence that Hornwood

communicated CVS’s trial specifications to Mueller. (See Defs.’ Ex. 20, 5, ECF No.
151.20.) Given the conflicting evidence, reasonable minds can differ as to the

foreseeability of injury. As a result, the issue of proximate cause must be determined

by the jury, and Defendants’ Motion on this point is DENIED.

e. Lost Profits

152. Defendants contend that Emrich’s breach of fiduciary duty claims seeking

lost profits from the Freightliner program and the M2 program should be dismissed

because Emrich has failed to establish lost profits with any reasonable degree of

certainty. (Br. Supp. Defs.’ Mot. 39–40.)

153. In support of its claim for lost profits, Emrich relies on Erik Lioy’s (“Lioy”)

expert report, which Defendants contend is “based on numerous assumptions that

are ‘purely speculative in nature[.]’ ” (Br. Supp. Defs.’ Mot. 39.) Defendants argue

that Lioy’s expert report fails to establish lost profits with reasonable certainty

because it is not based on “economic and financial data, market surveys and analysis,

or business records of similar enterprises.” (Br. Supp. Defs.’ Mot. 40.) Defendants

further contend Lioy’s expert report ignores “the Bondtex exit, the Mueller problems,

the lack of agreement between Triangle and CVG, Guilford’s efforts, no vertical

integration at Triangle, [and] Triangle’s precarious financial position[.]” (Br. Supp.

Defs.’ Mot. 40.) Conversely, Emrich contends that Lioy’s opinion is reliable, data-

driven, and satisfies the requisite standard to survive summary judgment.

154. Under North Carolina law, “the party seeking damages bears the burden of

showing that the amount of damages is based upon a standard that will allow the

finder of fact to calculate the amount of damages with reasonable certainty.” Olivetti
Corp. v. Ames Business Systems, Inc., 319 N.C. 534, 546 (1987). For parties seeking

to recover lost profits, “[a]bsolute certainty is not required but evidence of damages

must be sufficiently specific and complete to permit the jury to arrive at a reasonable

conclusion.” Weyerhaeuser Co. v. Godwin Bldg. Supply Co., 292 N.C. 557, 561 (1977).

155. Defendants cite language from Iron Steamer, Ltd. v. Trinity Restaurant,

Inc. to support their argument that Lioy’s report is insufficient because it is not based

on “expert testimony, economic and financial data, market surveys and analysis, and

business records of similar enterprises.” 110 N.C. App. 843, 849 (1993). But Iron

Steamer dealt with an “unestablished resort restaurant,” a factual scenario

materially distinguishable from the facts in this case. Id.

156. Triangle is an established business that has operated since 2006. Triangle’s

past dealings with CVG and the Freightliner program enabled Lioy, when preparing

a forecast of lost sales, to “perform an analysis of the historical sales by Triangle and

Guilford Mills under the CVG/Freightliner Program.” (Exp. Report. Erik C. Lioy ¶ 54,

ECF No. 151.42. [“Lioy Report”].) Further, Lioy arrived at a discount rate by taking

into account “the nature of the cash flow stream, risk, timing, and interest rate

environment.” (Lioy Report ¶ 66.) Lioy’s report is sufficiently specific to allow a jury

to arrive at a reasonable conclusion. As a result, Defendants’ Motion is DENIED to

the extent it seeks dismissal of Plaintiff’s claim for lost profits.
VI. CONCLUSION

157. For the foregoing reasons, the Court hereby GRANTS Plaintiff’s Motion

and GRANTS in part and DENIES in part Defendants’ Motion as follows:

A. The Court GRANTS summary judgment in favor of Defendants

on Emrich’s breach of fiduciary duty claim regarding Hornwood’s

management of Triangle’s transition to Mueller;

B. The Court GRANTS summary judgment in favor of Defendants

on Emrich’s breach of fiduciary duty claim regarding Triangle’s

management of its accounts receivable and its tax records;

C. The Court GRANTS summary judgment in favor of Defendants

on Emrich’s breach of fiduciary duty claim regarding Hornwood’s

decision to cease cash distributions to members of Triangle.

Except as expressly GRANTED herein, the Motions are DENIED.

SO ORDERED this the 15th day of February, 2022.

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