Hilco Transp., Inc. v. Atkins

Hilco Transp., Inc. v. Atkins, 2015 NCBC 44.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF GUILFORD 14 CVS 8677

HILCO TRANSPORT, INC., )
)
Plaintiff, )
)
v. )
)
NATALIE L. ATKINS; MICHAEL )
ALLAN BREWER, as Custodian for )
Patterson Riley Brewer under the )
North Carolina Uniform Transfers to )
Minors Act; and MICHAEL ALLAN )
BREWER, as Custodian for Nicholas )
Alan Brewer under the North Carolina )
Uniform Transfers to Minors Act, )
)
ORDER
Defendants and )
Third-Party Plaintiffs, )
)
v. )
)
JOHN GURNEY LONG; )
JONATHAN DREW LONG; )
RICHARD WOHLFORD; )
LONG INVESTMENT PROPERTIES, )
LLC; CAROLINA TRANSPORT OF )
GREENSBORO, INC.; and ASHLEY )
LONG MICHAELS, )
)
Third-Party Defendants. )
)

{1} THIS MATTER is before the Court on Defendants’ Motion to Dismiss
(“Motion”), made pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil
Procedure (“Rule(s)”). The Motion seeks to foreclose Plaintiff’s right to demand
specific performance for the sale of Defendants’ shares. For the reasons stated
below, the Motion is DENIED.
Carruthers & Roth, P.A. by J. Patrick Haywood and Mark K. York for
Plaintiff.

Law Offices of Charles Winfree by Charles H. Winfree, Joseph B. Bass III,
and Ryan Q. Gladden for Defendants.

Gale, Chief Judge.

I. STANDARD OF REVIEW

{2} On a motion to dismiss pursuant to Rule 12(b)(6), the Court inquires
“whether, as a matter of law, the allegations of the complaint, treated as true, are
sufficient to state a claim upon which relief may be granted under some legal
theory, whether properly labeled or not.” Crouse v. Mineo, 189 N.C. App. 232, 237,
658 S.E.2d 33, 36 (2008) (quoting Harris v. NCNB Nat’l Bank of N.C., 85 N.C. App.
669, 670, 355 S.E.2d 838, 840 (1987)). The Court may grant a motion to dismiss
under Rule 12(b)(6) where one of the following is true: (1) the complaint on its face
reveals that no law supports the plaintiff’s claim; (2) the complaint on its face
reveals the absence of facts sufficient to make a good claim; or (3) the complaint
discloses some fact that necessarily defeats the plaintiff’s claim. Oates v. JAG, Inc.,
314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).
{3} In considering a Rule 12(b)(6) motion, the Court accepts the factual
allegations of the Complaint as true without assuming the veracity of Plaintiff’s
legal conclusions. See Walker v. Sloan, 137 N.C. App. 387, 392, 592 S.E.2d 236, 241
(2000).

II. PROCEDURAL HISTORY

{4} Plaintiff initiated this action on August 29, 2014, seeking specific
performance of a stockholder agreement. The case was designated a complex
business matter on September 5, 2014, and assigned to the undersigned on
September 9, 2014.
{5} On November 3, 2014, Defendants filed the present Motion, seeking to
dismiss the breach of contract claim and challenging Plaintiffs’ right to specific
performance. The Court heard argument on January 6, 2015. The Motion is ripe
for disposition.

III. FACTUAL BACKGROUND

{6} Plaintiff Hilco Transport, Inc. (“Hilco”) is a closely held North Carolina
corporation that provides transportation services for waste, petroleum, propane,
asphalt, dump, and aggregate hauling. William H. Long (“Doc Long”) and his
daughter, Patty Long Hill (“Patty Hill”) founded Hilco in 1987.
{7} Shortly after Hilco’s incorporation, Doc Long’s sons, Charles Long and
Third-Party Defendant John Gurney Long (“Gurney Long”) (collectively, “the Long
Brothers”), began managing Hilco’s operations.
{8} On January 17, 2005, a Stockholder Buy-Sell Agreement (“Stockholder
Agreement”) was executed. The signatories were Hilco and seven of the ten existing
stockholders.1 The stockholder signatories were the Long Brothers; Third-Party
Defendants Jonathan Drew Long and Ashley Long Michaels, who are Gurney
Long’s children; and Wendi L. Brewer, Natalie L. Atkins (“Atkins”), and Tyra L.
Nall (“Nall”), who are Charles Long’s daughters. Defendant Michael Allen Brewer
(“M.A. Brewer”), subsequently agreed to be bound by the Stockholder Agreement
after taking Wendi Brewer’s shares as custodian for their children, Patterson Riley
Brewer and Nicholas Alan Brewer, under the North Carolina Uniform Transfers to
Minors Act.
{9} The Stockholder Agreement recites that it was intended to ensure that,
“upon the death of one of the Long Brothers, the Long Brother who survives will
have the right, but not the obligation, to acquire some or all of the Shares of the
deceased Long Brother and his family and thereby obtain voting control over the
Corporation.” (Compl. Ex. A (“Stockholder Agreement”).) The Complaint asserts
that the Stockholder Agreement’s further unstated purpose was “to ensure that the

1 A subsequent motion challenges whether Hilco effectively adopted the agreement at the time of
execution, because it was not signed in accordance with the company’s bylaws. This Order does not
address that issue.
deceased Long Brother’s family members would be fairly compensated for their
Shares and that the surviving Long Brother would be able to continue running
Hilco in a congenial manner.” (Compl. ¶ 25.)
{10} More specifically, the Stockholder Agreement provides,
Notwithstanding anything contained in this Agreement to the contrary
. . . upon the death of one of the Long Brothers, the surviving Long
Brother shall have (i) the right to acquire the Shares of the Deceased
Long Brother pursuant to Article IV and thereby obtain voting control
over the Corporation, (ii) the ability (upon acquisition of voting control)
to elect a controlling majority of the Board of Directors of the
Corporation, and (iii) the ability to require one or more of the family
members of the Deceased Long Brother to sell their Shares to the
Corporation.
(Stockholder Agreement § 5.1.) The Stockholder Agreement states that any shares
sold pursuant to Section 5.1 are to be sold at fair market value measured at the end
of the month preceding the exercise of the option. Under the agreement, R. Wayne
Hutchins, CPA (“CPA Hutchins”) is to determine the value of the shares to be sold.
(Stockholder Agreement § 6.1.)2
{11} In addition to Section 5.1, a separate section of the Stockholder
Agreement gives each signatory a right to specific performance:
Each Stockholder agrees that each and every provision of this
Agreement is reasonably necessary for the protection of the rights and
interest of each Stockholder and his or her successors or assigns and
that monetary damages may not be an adequate remedy for a breach of
this Agreement. The Stockholders and their successors and assigns
shall therefore be entitled to specific performance and injunctive relief
to enforce the provisions of this Agreement.
(Stockholder Agreement § 10.1.)
{12} No provision of the Stockholder Agreement expressly provides a right
of specific performance directly to Hilco. However, a surviving Long Brother can
require corporate redemption of shares.

2 A subsequent motion challenges whether CPA Hutchins’s valuation is binding as to the shares at

issue. This Order does not address this issue.
{13} On June 30, 2005, Charles Long passed away unexpectedly. On
October 17, 2005, Gurney Long purchased Charles Long’s shares from the Estate of
Charles L. Long, based on a valuation by CPA Hutchins. Gurney Long has since
remained active in Hilco’s operations. In or around the fall of 2010, Nall redeemed
her 223 shares. In or around 2013, Wendi Brewer initiated a discussion concerning
Hilco’s possible redemption of Defendants’ shares, but no agreement was reached.
{14} On April 25, 2014, Gurney Long issued a Notice of Special Meeting of
the Board of Directors of Hilco Transport, Inc. for the purpose of considering a
motion to redeem Defendants’ shares pursuant to the Stockholder Agreement. On
April 28, 2014, Atkins purported to gift her shares to Doc Long.3
{15} The special meeting was held on May 9, 2014. During the meeting, the
Board (1) ratified the Stockholder Agreement on behalf of Hilco; (2) declared void
and ineffective Atkins attempted transfer to Doc Long; and (3) authorized Hilco to
exercise its option under the Stockholder Agreement to redeem Defendants’ shares.
(Compl. ¶¶ 86–90.) Hilco subsequently issued written notice to Atkins and M.A.
Brewer that it was exercising its option to purchase their shares.
{16} Hilco engaged CPA Hutchins to value Atkin’s and M.A. Brewer’s
shares. The closing for the redemption of their shares was scheduled for August 15,
2014. Defendants refused to allow Hilco to redeem their shares, giving rise to the
present dispute. Among other issues, Defendants challenge whether CPA Hutchins
prepared a proper valuation consistent with the Stockholder Agreement.4
{17} The present Motion is limited to the issue of whether the terms of the
Stockholder Agreement preclude Hilco’s right to seek specific performance.

3 If it applies, Section 1.1 of the Stockholder Agreement restricts such a transfer.
By a subsequent
motion which this Order does not address, Atkins contends that she made her gift prior to Hilco’s
ratification of the Stockholder Agreement, so that her transfer was not governed by the Stockholder
Agreement.
4 A subsequent motion raises the issue of what burden Defendants must meet to challenge CPA

Hutchins’s valuation. This Order does not address that issue.
IV. ANALYSIS

{18} The Court is called upon to interpret the terms of the Stockholder
Agreement and to reconcile potential conflicts of language among its various
provisions. Where a contract is sufficiently specific and mutually enforceable, a
court will permit specific performance of its terms. See Lacy J. Miller Mach. Co. v.
Miller, 58 N.C. App. 300, 306, 293 S.E.2d 622, 626 (1982). Assuming the
Stockholder Agreement is enforceable,5 no party challenges either that the
individual stockholders have the right to specific performance or that Gurney Long
has the right to cause Hilco to redeem the shares. Rather, the Motion asserts that
only the stockholders, but not Hilco itself, have a right to compel specific
performance.
{19} There are special rules for interpreting stockholder agreements that
limit share transfers, including that “restrictions on alienation or transfer of stock
are not favored and consequently are strictly construed.” Avrett & Ledbetter
Roofing & Heating Co. v. Phillips, 85 N.C. App. 248, 251, 354 S.E.2d 321, 323
(1987). However, such agreements can be upheld where the language is clear,
because “[w]hile both option contracts and restrictions on the alienation of property
interests are strictly construed, the clear intent of the parties as expressed on the
face of the contract controls.” Lee v. Scarborough, 164 N.C. App. 357, 360, 595
S.E.2d 729, 732 (2004).
{20} The parties’ intent is to be gleaned from the language used within the
four corners of the contract. Stovall v. Stovall, 205 N.C. App. 405, 410, 698 S.E.2d
680, 684 (2010) (quoting Lynn v. Lynn, 202 N.C. App. 423, 431, 689 S.E.2d 198,
204–05 (2010)). The contract is to “be construed as a whole, considering each clause
and word with reference to all other provisions and giving effect to each whenever
possible.” Marcoin, Inc. v. McDaniel, 70 N.C. App. 498, 504, 320 S.E.2d 892, 897
(1984).

5 Again, a subsequent motion, not addressed in this Order, challenges the validity and enforceability

of the Stockholder Agreement.
{21} Defendants contend that the parties to the Stockholder Agreement
clearly intended that Hilco would not be entitled to specific performance.
Defendants argue that because the Stockholder Agreement expressly gives such a
right to the stockholders but not to Hilco, it necessarily follows that Hilco has no
such right. Defendants cite Lee v. Scarborough to support their argument that,
unless expressly granted, no right to specific performance of a contract exists. The
Lee court implied that corporate conduct must be clearly prohibited by a restrictive
agreement in order for it to be actionable. Lee, 164 N.C. App. at 360, 595 S.E.2d at
732 (noting the relevant inquiry was whether a restriction on change in
capitalization of a company “clearly prohibited” approval of a merger). Lee does not,
however, speak to whether an option contract that operates as a restriction on
alienation must expressly authorize specific performance. Other North Carolina
Court of Appeals opinions have specifically enforced such agreements without
mentioning whether the underlying agreements expressly authorized specific
performance. See generally Crowder Constr. Co. v. Kiser, 134 N.C. App. 190, 517
S.E.2d 178 (1999); Lacy J. Miller Mach., 58 N.C. App. at 306, 293 S.E.2d at 626
(1982).
{22} Defendants also contend that the doctrine of expressio unius est
exclusion alterius, meaning that the expression of one thing is the exclusion of
another, dictates that Hilco’s right to specific performance should not be inferred
from the Stockholder Agreement. See Evans v. Diaz, 333 N.C. 774, 779–80, 430
S.E.2d 244, 247 (1993). The doctrine does not resolve the issue of contract
interpretation in this case. Defendants’ argument is based on an assumption that
Section 10.1 is the only section that governs Hilco’s right to specific performance.
Plaintiff counters that Section 5.1 of the Stockholder Agreement is also relevant to
discerning the parties’ intent. The Court agrees.
{23} Section 5.1 begins with the phrase, “[n]otwithstanding anything
contained in this Agreement to the contrary,” and then provides that the surviving
Long Brother can require family members of the deceased brother to sell their
shares to the Corporation. (Stockholder Agreement § 5.1.) Plaintiff contends that
this language makes clear that Hilco is ultimately entitled to purchase the shares of
the deceased brother’s immediate family members. Plaintiff asserts that Hilco is
entitled to a specific performance remedy in its own name to accomplish the purpose
of the Stockholder Agreement, particularly where the surviving Long Brother
directs the corporate action as he is entitled to do. See Crowder Constr., 134 N.C.
App. at 211, 517 S.E.2d at 192 (specifically enforcing a stock restriction and buy-out
agreement against a shareholder because such contracts “are designed to ensure
that ownership of all of the stock, especially of a close corporation, stays within the
control of . . . those who will continue to contribute to its successes or failures”
(quoting Gallagher v. Lambert, 549 N.E.2d 136, 137 (N.Y. 1989))).
{24} The Complaint alleges that Hilco was authorized under Gurney Long’s
motion to redeem the shares in question. Under Section 5.1, if Gurney Long was
entitled to cause Hilco to call shares, this defeats a negative implication that Hilco
was to be barred from specific performance.
{25} Defendants’ argument essentially is that Gurney Long cannot compel
or authorize Hilco to take the necessary action to redeem the shares, and that only
Gurney Long individually can take such actions. The Court finds the argument
inconsistent with Section 5.1. Moreover, according to the Stockholder Agreement,
to the extent Section 5.1 and Section 10.1 conflict, Section 5.1 controls.
{26} In sum, the Court concludes that it should not construe Section 10.1 as
an express limitation on Hilco’s right to specific performance to compel redemption
when acting pursuant to Section 5.1 of the Stockholder Agreement.
{27} In denying the present Motion to Dismiss, the Court has not
determined that Hilco is actually entitled to specific performance. There are many
issues yet to be resolved in that regard. The Court’s determination is limited to the
conclusion that the Stockholder Agreement does not expressly limit Hilco’s right to
specific performance, and that Hilco may properly seek that remedy.
V. CONCLUSION

{28} For the foregoing reasons, Defendants’ Motion to Dismiss is DENIED.

IT IS SO ORDERED, this the 5th day of May, 2015.

/s/ James L. Gale
James L. Gale
Chief Special Superior Court Judge
for Complex Business Cases