Faw v. Wilkes Sombrero, Inc.

Faw v. Wilkes Sombrero, Inc., 2021 NCBC 80.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WILKES COUNTY 20 CVS 421

GREGORY FAW, both individually as a
shareholder of and derivatively as a
representative on behalf of WILKES
SOMBRERO, INC.,

Plaintiffs,

v.
ORDER AND OPINION ON CROSS-
WILKES SOMBRERO, INC.; JAMES
MOTIONS FOR PARTIAL SUMMARY
CLAYTON, Individually and as Co-
JUDGMENT
Executor of the ESTATE OF J.C. FAW;
DIANE FAW SHAW, Individually and
as Co-Executor of the ESTATE OF J.C.
FAW; JUDY D. FAW, Individually and
as Co-Executor of the ESTATE OF J.C.
FAW,

Defendants.

I. INTRODUCTION

1. Plaintiff Gregory Faw (“Plaintiff”) brings this action individually and on

behalf of Defendant Wilkes Sombrero, Inc. (“Wilkes Sombrero”), following the death

of its founder and Faw family member J.C. Faw (“J.C.”) in February 2019. Plaintiff

sues J.C.’s estate and the individual co-executors, other Faw family members,

because they refuse to recognize his alleged 10% ownership interest in Wilkes

Sombrero. Resolution of the present motions turns on the threshold issue of whether

Plaintiff is, in fact, a shareholder of Wilkes Sombrero. Plaintiff argues that he is;

Defendants argue that he is not. The parties present this issue to the Court on cross-

motions for partial summary judgment.
Bennett & Guthrie, PLLC, by Joshua H. Bennett and Mitchell Hendrix
Blankenship, for Plaintiff Gregory Faw, individually and derivatively on
behalf of Wilkes Sombrero, Inc.

Logsdon & Neece, PLLC, by John Michael Logsdon, for Defendants Judy
D. Faw, Diane Faw Shaw, James Clayton, each individually and as Co-
Executor of the Estate of J.C. Shaw, and Nominal Defendant Wilkes
Sombrero, Inc.

Earp, Judge.

II. FACTUAL BACKGROUND

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

summary judgment. Instead, the Court summarizes material facts it considers to be

uncontested. Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C. App. 138, 142

(1975). The following background, describing the evidence and noting relevant

disputes, is therefore intended only to provide context for the Court’s analysis and

ruling.

3. Wilkes Sombrero is a North Carolina corporation formed in 1987 by J.C.

and his brother-in-law Wade Dupree (“Dupree”). (Br. Supp. Defs.’ Mot. Partial

Summ. J. Ex. B [hereinafter “Br. Supp. Defs.’ Mot.”], ECF No. 13; Materials Supp.

Pl.’s Mot. Partial Summ. J. Ex. A, 16:13–16 [hereinafter “Morris Dep.”], ECF No.

15.1.) Dupree first entered into a franchise agreement with Taco Bell on 27 March

1987 to establish a restaurant on U.S. Highway 421 and Winkler Street in

Wilkesboro, North Carolina. (Br. Supp. Defs.’ Mot. Ex. D-1.) On 19 May 1987, Dupree

assigned all right, title, and interest in and to this franchise agreement to Wilkes

Sombrero. (Br. Supp. Defs.’ Mot. Ex. D-2.)
4. Some twenty years later, on 12 June 2007, J.C. and Plaintiff entered

into another franchise agreement with Taco Bell to establish a second restaurant,

this one on 1 Sparta Road in Wilkesboro. (Materials Supp. Pl.’s Mot. Partial Summ.

J. Ex. 8 to Ex. A, at 135.) On 12 July 2007 J.C. and Plaintiff assigned all right, title,

and interest in and to the second franchise agreement to Wilkes Sombrero.

(Materials Supp. Pl.’s Mot. Partial Summ. J. Ex. 8 to Ex. A, at 153.)

5. Until January 2006, Dupree was president of Wilkes Sombrero and

owned 49% of its stock, while J.C. served as secretary and owned the remaining 51%

of the corporation’s shares. (See Br. Supp. Defs.’ Mot. Exs. C-1–C-2.) Dupree was

responsible for restaurant operations. (Morris Dep. 17:22–18:9.)

6. After deciding to move to Arizona, Dupree assigned to J.C. “all right,

title in and to 100% of his interest in Wilkes Sombrero” as franchisee of the Taco Bell

restaurant on Winkler Street, Wilkesboro, NC on 25 January 2006. 1 (Br. Supp. Defs.’

Mot. Ex. E.) Thereafter, on 28 February 2006, Dupree transferred his 49% interest

in Wilkes Sombrero to J.C., making J.C. the sole owner of all of Wilkes Sombrero’s

shares. (Br. Supp. Defs.’ Mot Ex. C-2.)

7. Plaintiff testified that he was informed by Dupree prior to Dupree’s

departure that Taco Bell required the operating managers of its restaurants to be

“owner-operators” and to hold at least a 10% ownership stake in their franchises.

(Materials Supp. Pl.’s Mot. Partial Summ. J. Ex. B, 15:8–17:25 [hereinafter “Pl.’s

Dep.”].) In addition, Plaintiff understood that an owner-operator was required to

1 Pursuant to the assignment, Dupree would be relieved of liability under the initial franchise

agreement if he did not default on any obligations for one year. (Br. Supp. Defs.’ Mot. Ex. E.)
complete a training program hosted by Taco Bell. (Pl.’s Dep. 17:4–25.) Plaintiff

admits, however, that the owner-operator requirement does not appear in the text of

any of the franchise agreements between Wilkes Sombrero and Taco Bell. (Pl.’s Dep.

15:24–16:23.)

8. J.C. apparently had no desire to operate a Taco Bell restaurant himself.

(Morris Dep. 17:22–18:2.) Therefore, Dupree’s move left Wilkes Sombrero without an

operator who owned at least 10% of the franchise. To remedy this perceived

deficiency, Plaintiff testified that J.C. transferred a 10% ownership interest in Wilkes

Sombrero to him in exchange for Plaintiff’s completion of a required Taco Bell

training program and assumption of the owner-operator role. (Pl.’s Dep. 17:6–20,

25:19–25.)

9. The parties offer competing evidence concerning Plaintiff’s status as a

shareholder. Plaintiff points to the following evidence to support his claim that he is

a shareholder of Wilkes Sombrero:

a. First, the record contains an “Application for Taco Bell Franchise and

Ownership Schedule” (the “Application”) prepared by Plaintiff and

signed by both Plaintiff and J.C., indicating that Plaintiff is a 10%

owner in Wilkes Sombrero. (Br. Supp. Defs.’ Mot. Ex. F; Pl.’s Dep.

7:9–15.) The signatures on the Application are undated, but the

Application itself references a franchise offering circular dated 25

March 2005. (Br. Supp. Defs.’ Mot. Ex. F.)
b. Second, J.C. signed a Taco Bell Corporate Franchise Ownership

Representation Form on 5 January 2006 reflecting that Plaintiff had

a 10% ownership interest in Wilkes Sombrero. (Br. Supp. Defs.’ Mot.

Ex. G.)

c. Third, both J.C. and Plaintiff signed an updated franchise agreement

for the Winkler Street location on 25 January 2006. (Br. Supp. Defs.’

Mot. Ex. H.)

d. Fourth, Defendants admit that “[s]ubsequent franchise agreements

and associated documents for both [Taco Bell restaurants owned by

Wilkes Sombrero] are substantially similar to the 2006 franchise

agreement.” (Br. Supp. Defs.’ Mot. 5.)

e. Fifth, Plaintiff made personal guaranties to Taco Bell on behalf of

Wilkes Sombrero over the course of multiple years, something he

claims he would not have done had he not believed he was an owner

of the business. (Am. Compl. ¶¶ 72–73, ECF No. 8.1; Morris Dep.

Exs. 7–17.)

10. For their part, Defendants rely on the following evidence in contending

that Plaintiff is not a shareholder in the company:

a. First, Plaintiff could not have been an owner-operator in March 2005

because Dupree did not decide to end his role as owner-operator and

transfer his 49% interest to J.C. until 28 February 2006, almost a

year later. (Br. Supp. Defs.’ Mot. Ex. C-2.) Therefore, according to
Defendants, at the (presumed) time of the Application, J.C. owned 51

shares and Dupree still owned 49 shares. (See Br. Supp. Defs.’ Mot.

4–5; Br. Supp. Defs.’ Mot. Exs. C-2, E, F.)

b. Second, it is undisputed that Plaintiff never received share

certificates for his interest in Wilkes Sombrero. (Pl.’s Dep. 26:1–10.)

c. Third, Ira Morris, secretary of Wilkes Sombrero and the corporation’s

designated representative under North Carolina Rule of Civil

Procedure 30(b)(6) in this litigation (“Morris”), testified that J.C.

never instructed him to transfer shares of Wilkes Sombrero to

Plaintiff. (Morris Dep. 46:24–47:23.)

d. Fourth, Plaintiff alleges that he received the stock upon completion

of the required Taco Bell training “in or around December 2005 or

January 2006.” (Am. Compl. ¶¶ 22–23.) However, Morris

represented to the lessor of land used by Wilkes Sombrero for one of

its restaurants that, “[a]s of February 28, 2006, Mr. Faw has been

the 100% owner of Wilkes Sombrero, Inc.” (See Br. Supp. Defs.’ Mot.

Ex. I.)

e. Finally, over the next thirteen years, Plaintiff received W-2 wages

but never received shareholder distributions, (Br. Supp. Defs.’ Mot.

Ex. P, Pl.’s Resps. to Reqs. for Admis. ¶¶ 6–7), or K-1 forms, (Br.

Supp. Defs.’ Mot. Ex. J).
11. Following J.C.’s death on 12 February 2019, his co-executors attempted

to assign Wilkes Sombrero’s Taco Bell franchise rights to another entity and liquidate

its remaining assets. (Answer to Am. Compl., Affirmative Defenses, & Mots. ¶¶ 30–

31 [hereinafter “Answer”], ECF No. 22.) However, the proposed assignee, relying on

Taco Bell’s information regarding ownership, required Plaintiff’s approval of the

assignment. Therefore, Defendants presented Plaintiff with an “Assignment of

Franchise Agreement to Limited Liability Company,” which Plaintiff refused to sign.

(Answer ¶ 31.) This litigation followed.

III. PROCEDURAL BACKGROUND

12. Plaintiff initiated this action by filing the Complaint on 9 April 2020.

(ECF No. 4.) Plaintiff filed his Amended Complaint on 8 January 2021. (ECF No.

8.1.)

13. This case was designated a mandatory complex business case on 17

April 2020, (Designation Ord., ECF No. 1), and was assigned to the Honorable James

L. Gale on 20 April 2020, (Assignment Ord., ECF No. 2). This case was reassigned to

the undersigned on 6 May 2020. (Reassignment Ord., ECF No. 20.)

14. In his Amended Complaint, Plaintiff asserts claims for declaratory

judgment, inspection rights, breach of fiduciary duty, unjust enrichment, fraud, and

tortious interference with contract. In addition to damages, he seeks imposition of a

constructive trust and other equitable relief. (Am. Compl. 18–19.)

15. Plaintiff must be a shareholder to have standing to pursue both the

derivative claims, see N.C.G.S. § 55-7-41, as well as the direct claim to exercise
inspection rights, see N.C.G.S. § 55-16-02. Plaintiff contends that he is a 10%

shareholder, but Defendants argue that he is not a shareholder at all. Given the

threshold importance of the issue, the Court entered an Order on 10 December 2020

limiting initial discovery and dispositive motions to Plaintiff’s status as a

shareholder. (Ord., ECF No. 7.)

16. Following the close of the initial discovery period, Defendants moved for

partial summary judgment on Plaintiff’s declaratory judgment claim, seeking to

establish as a matter of law that Plaintiff is not a shareholder of Wilkes Sombrero

(“Defendants’ Motion”). (Defs.’ Mot. Partial Summ. J., ECF No. 12.) Conversely,

Plaintiff moved affirmatively for partial summary judgment declaring him to be a

shareholder and permitting him to exercise shareholder inspection rights (“Plaintiff’s

Motion”; together, the “Motions”). (Pl.’s Mot. Partial Summ. J., ECF No. 14.)

17. With the benefit of full briefing and a hearing on 19 August 2021, during

which all parties were heard through counsel, the cross-motions are now ripe for

determination.

18. The Court, having considered the Motions, the briefs filed by the parties,

the arguments of counsel, and other matters of record, concludes for the reasons

stated below that the Motions are DENIED.

IV. LEGAL STANDARD

19. 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. R. Civ. P. 56(c). In deciding a motion

for summary judgment, the Court views the evidence in the light most favorable to

the nonmoving party, taking its evidence as true and drawing inferences in its favor.

See, e.g., In re Will of Jones, 362 N.C. 569, 573 (2008).

20. “An issue is ‘genuine’ if it can be proven by substantial evidence and a

fact is ‘material’ if it would constitute or irrevocably establish any material element

of a claim or a defense.” Lowe v. Bradford, 305 N.C. 366, 369 (1982).

21. Affirmative summary judgment on a party’s own claims for relief carries

an even greater burden. Brooks v. Mount Airy Rainbow Farms Ctr., Inc., 48 N.C.

App. 726, 728 (1980). The moving party “must show that there are no genuine issues

of fact, that there are no gaps in his proof, that no inferences inconsistent with his

recovery arise from the evidence, and that there is no standard that must be applied

to the facts by the jury.” Parks Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 721

(1985). Therefore, it is “rarely . . . proper to enter summary judgment in favor of the

party having the burden of proof.” Blackwell v. Massey, 69 N.C. App. 240, 243 (1984);

see Banc of Am. Merch. Servs., LLC v. Arby’s Rest. Grp., Inc., 2021 NCBC LEXIS 61,

at *10–11 (N.C. Super. Ct. June 30, 2021).

22. In either case, when ruling on a motion for summary judgment, a trial

court may not resolve issues of fact and must deny the motion if there is any genuine

issue of material fact. Singleton v. Stewart, 280 N.C. 460, 464 (1972).
V. ANALYSIS

A. Issues of Fact with Respect to Plaintiff’s Status as a Shareholder
Preclude Summary Judgment for Either Party.

23. The parties disagree on the central issue of whether Plaintiff is a

shareholder of Wilkes Sombrero. They each point to evidence that they contend

establishes their positions as a matter of law. However, the Court determines that

on the record presented, genuine issues of material fact remain to be determined by

a jury and neither party’s evidence establishes Plaintiff’s shareholder status as a

matter of law.

1. Plaintiff’s Failure to Produce a Stock Certificate is Not Dispositive.

24. Defendants first contend that Plaintiff’s inability to produce a stock

certificate or related documentation evidencing his shareholder status is dispositive

of whether he is, in fact, a shareholder. (Br. Supp. Defs.’ Mot. 9–11.) The argument

is unavailing.

25. The North Carolina Business Corporations Act (the “Act”) defines

“shareholder” as “the person in whose name shares are registered in the records of a

corporation or the beneficial owner of shares to the extent of the rights granted by a

nominee certificate on file with a corporation.” N.C.G.S. § 55-1-40(22). The Act

makes clear, however, that “[s]hares may but need not be represented by certificates.”

N.C.G.S. § 55-6-25(a); see also Powell Bros. v. McMullan Lumber Co., 153 N.C. 52, 55

(1910) (stating that a “certificate neither constitutes [one’s] title nor is necessary to

it, but only a memorial of it” (citation omitted)). Indeed, the Act provides that

“[u]nless the articles of incorporation or bylaws provide otherwise, the board of
directors of a corporation may authorize the issue of some or all of the shares of any

or all of its classes or series without certificates.” N.C.G.S. § 55-6-26(a). Official

statutory commentary explains that the statute gives a board of directors the “widest

discretion so that a particular class or series of shares might be entirely represented

by certificates, entirely uncertificated, or represented partly by each.” Official

Comment to N.C.G.S. § 55-6-26.

26. Here, it is undisputed that Plaintiff never received a stock certificate

reflecting his ownership interest. The Court concludes that fact is not dispositive,

however. Wilkes Sombrero’s Articles of Incorporation suggest, but do not specifically

require, that shares of its stock be evidenced by a certificate. Rather, the Articles of

Incorporation provide only that the shares of stock issued by the corporation bear a

restrictive legend:

The corporation shall have authority to issue One Hundred Thousand
(100,000) shares with no par value. The transfer of shares of stock in
this corporation is subject to the terms and conditions of a franchise
agreement with Taco Bell Corp. The shares of stock issued by this
corporation shall bear a restrictive legend as follows:

“The transfer of this stock is subject to the terms and conditions
of a franchise agreement with Taco Bell Corp. Reference is made
to said franchise agreement and to restrictive provisions of the
charter and bylaws of this corporation.”

The provisions of the franchise agreement with Taco Bell Corp. that
affect the transfer of shares of stock of this corporation shall be
restrictions upon the shares of stock issued by this corporation.

(Materials Supp. Pl.’s Mot. Partial Summ. J. Ex. C, at 437, Articles of Incorporation

of Wilkes Sombrero, Inc., Section 4 (emphasis added).)
27. Similarly, Section 13.3 of the Taco Bell Franchise Agreements requires

that Wilkes Sombrero’s stock certificates contain this same restrictive legend but does

not mandate that stock certificates be issued:

The Articles of Incorporation and the By-Laws of the assignee
corporation shall reflect that the issuance and transfer of shares of stock
are restricted, and all stock certificates shall bear the following legend,
which shall be printed legibly and conspicuously on the face of each stock
certificate:

“The transfer of this stock is subject to the terms and conditions
of a franchise agreement with Taco Bell Corp. Reference is made
to said franchise agreement and to restrictive provisions of the
charter and by-laws of this corporation.”

(Materials Supp. Pl.’s Mot. Partial Summ. J. Ex. 8 to Ex. A, at 142 (emphasis added).)

28. Defendants argue that the Articles of Incorporation and the Taco Bell

Franchise Agreements require that a certificate with a restrictive legend be used to

transfer shares. But the word “certificate” does not appear in the company’s Articles.

Nor do the Articles purport to alter North Carolina’s statute permitting uncertificated

shares. See N.C.G.S. § 55-6-25(a). Instead, the Articles of Incorporation require only

that shares bear a restricted legend, and North Carolina law allows a corporation to

meet that requirement in either of two ways: through use of a share certificate, see

N.C.G.S. § 55-6-25, or through use of another writing conveying the statutorily

required information, see N.C.G.S. § 55-6-26. 2 Therefore, the Court cannot conclude

2 The requirement in N.C.G.S. § 55-6-26 that the writing evidencing uncertificated shares

contain any restrictive information on their transferability—in addition to the other
necessary information for certificates—supports the Court’s conclusion that the language in
Wilkes Sombrero’s Articles of Incorporation is not a mandate that the corporation issue stock
certificates.
as a matter of law that Plaintiff is not a shareholder merely because he has not

produced a stock certificate.

29. At the same time, however, the Court cannot conclude as a matter of law

that Plaintiff is a shareholder based on the evidence that exists in the current record.

If shares are uncertificated, N.C.G.S. § 55-6-26(b) and N.C.G.S. § 55-6-27 demand

that within a reasonable time after issuance or transfer, the corporation send the

shareholder a writing containing the basic information required to be on certificates

(the name of issuing company; the fact that the issuing company is organized under

North Carolina law; the name of the person to whom shares are issued; the number

and class of shares; and, if applicable, any restrictions on transfer).

30. In this case, a jury could reasonably conclude that the several writings

received by Plaintiff in the course of his work for Wilkes Sombrero, when read

together, convey the information required by statute. For example, it is undisputed

that on 5 January 2006, shortly after Plaintiff finished the Taco Bell training

program, 3 J.C. signed a Taco Bell “Corporate Franchise Ownership Representation

Form” as secretary for Wilkes Sombrero certifying that Plaintiff owned 10% of the

company. This document bears the company seal and contains the name of the

issuing corporation, the name of the shareholder, and his percentage interest. See

N.C.G.S. § 55-6-25(b). (Br. Supp. Defs.’ Mot. Ex. G.) The fact that Wilkes Sombrero

was organized under North Carolina law appears in the Application for Taco Bell

3 Plaintiff alleges that he “completed the training in or around December 2005 or January

2006.” (Am. Compl. ¶ 22.) Defendants do not challenge this assertion.
Franchise and Ownership Schedule, (Br. Supp. Defs.’ Mot. Ex. F), 4 and in a 2007

document 5 memorializing a material modification to one of the franchise agreements,

(Materials Supp. Pl.’s Mot. Partial Summ. J. Ex. 7 to Ex. A, at 128–30). See N.C.G.S.

§ 55-6-25(b). Moreover, as discussed above, the several Taco Bell Franchise

Agreements and related modifications received and signed by Plaintiff, including one

executed by Plaintiff and by J.C. as early as 12 July 2007, provide the necessary

information regarding restrictions on transfer. (Materials Supp. Pl.’s Mot. Partial

Summ. J. Ex. 8 to Ex. A, at 131–47.) 6 Whether Wilkes Sombrero sent the information

to Plaintiff within a “reasonable time” after the alleged transfer of shares to him is

an issue of fact that remains to be determined. N.C.G.S. § 55-6-26(b) 7; see Yancey v.

Watkins, 17 N.C. App. 515, 519 (1978) (“[I]n this State, authority is to the effect that,

where this question of reasonable time is a debatable one, it must be referred to

the jury for decision.”) (quoting Etheridge v. Atlantic C. L. R. Co., 209 N.C. 306, 331

(1936)).

4 The exact date that the Application was completed is unclear, but the document includes

references to March and April 2005. (Br. Supp. Defs.’ Mot. Ex. F.)

5 The summary page of the document is dated 24 January 2007, and the page bearing
Plaintiff’s signature is dated 12 March 2007.
6 While the Franchise Agreement was undoubtedly drafted by Taco Bell and not by Wilkes

Sombrero, the statute merely requires that Wilkes Sombrero send the written statement of
information to the shareholder. Nothing in the language of the statute requires that Wilkes
Sombrero draft the document. See N.C.G.S. § 55-6-26(b).

7 For example, it is unclear based on the current record whether Plaintiff received this
information by virtue of a 2006 modification to the Winkler Street franchise agreement
signed by J.C. and Plaintiff on 25 January 2006. Only excerpts of that document are in the
record. (See Br. Supp. Defs.’ Mot. Ex. H.)
31. Although the parties disagree regarding the import of these documents

on the issue of whether uncertificated shares were issued, the Court concludes only

that genuine issues of material fact exist such that judgment may not be awarded as

a matter of law at this stage. 8 See, e.g., Kinesis Adver., Inc. v. Hill, 187 N.C. App. 1,

13 (2007) (genuine issue of material fact remained regarding whether uncertificated

shares were issued).

2. Estoppel Principles are not Dispositive.

32. Plaintiff contends that either equitable estoppel or quasi-estoppel

applies to preclude Defendants from offering any evidence suggesting that Plaintiff

is not a shareholder. In short, Plaintiff’s argument is that both J.C. and Wilkes

Sombrero represented to Taco Bell in legal documents on multiple occasions that

Plaintiff held a 10% ownership interest in Wilkes Sombrero. Having done so, Plaintiff

argues, Defendants cannot escape these representations, and the record, therefore,

establishes as a matter of law that Plaintiff is, in fact, a shareholder of Wilkes

Sombrero. (Pl.’s Br. Supp. Mot. Partial Summ. J. 7–17, ECF No. 15.)

33. Defendants maintain that Plaintiff cannot rely on estoppel, a defensive

doctrine, to establish its claims for affirmative relief. Alternatively, Defendants

8 Furthermore, N.C.G.S. § 55-6-26(b) requires companies to provide shareholders with
information regarding their ownership interests when they do not otherwise receive official
certificates. See Official Comment to N.C.G.S. § 55-6-26 (noting the required written
statement “ensures that holders of uncertificated shares will receive from the corporation the
same information that the holders of certificates receive when certificates are issued”).
Nothing in the language of the statute suggests that the requirement is intended to be used
as a sword against the unsuspecting shareholder. Indeed, it would be a strange result if a
company could unilaterally deprive a shareholder of ownership rights through its own failure
to meet its statutory obligation to send the shareholder required information.
argue that Plaintiff has failed to offer evidence establishing as a matter of law that

Defendants are estopped from contending that Plaintiff is not a shareholder. (Defs.’

Br. Opp. Pl.’s Mot. Partial Summ. J. 6–11, ECF No. 17.)

34. North Carolina recognizes both equitable estoppel and quasi-estoppel.

The elements of equitable estoppel are:

(1) conduct on the part of the party sought to be estopped which amounts
to a false representation or concealment of material facts; (2) the
intention that such conduct will be acted on by the other party; and (3)
knowledge, actual or constructive, of the real facts. The party asserting
the defense must have (1) a lack of knowledge and the means of
knowledge as to the real facts in question; and (2) relied upon the
conduct of the party sought to be estopped to his prejudice.

Chapel H.O.M. Assocs., LLC v. RME Mgmt., LLC, 256 N.C. App. 625, 627–28 (2017)

(citation omitted).

35. It is true that “[e]stoppels are protective only, and are to be invoked as

shields, and not as offensive weapons.” Herring v. Volume Merch., Inc., 252 N.C. 450,

453 (1960). That said, either party may choose to invoke the shield of estoppel

defensively in appropriate circumstances. Krawiec v. Manly, 2016 NCBC LEXIS 7,

at *12 (N.C. Super. Ct. Jan. 22, 2016) (“[Equitable estoppel] provides a defense to bar

enforcement of opposing claims or affirmative defenses.” (citation omitted)), aff’d, 370

N.C. 602 (2018).

36. Here, Plaintiff does not seek to use equitable estoppel to defeat a

counterclaim or to avoid an affirmative defense. Instead, Plaintiff attempts to apply

equitable estoppel offensively in support of his own claim by pointing to corporate

documents in which he and J.C. identified Plaintiff as a 10% owner of Wilkes
Sombrero. (Pl.’s Br. Supp. Mot. Partial Summ. J. 7–8.) Plaintiff argues that these

prior representations preclude Defendants’ position to the contrary in this litigation.

(Pl.’s Br. Supp. Mot. Partial Summ. J. 7–8.) However, Plaintiff has not pleaded such

a claim and, even if he had, North Carolina law does not recognize an affirmative

claim for equitable estoppel. See, e.g., Home Elec. Co. of Lenoir, Inc. v. Hall &

Underdown Heating & Air Conditioning Co., 86 N.C. App. 540, 543 (1987); Bohn v.

Black, 2019 NCBC LEXIS 35, at *26 (N.C. Super. Ct. June 3, 2019); Rabinowitz v.

Suvillaga, 2019 NCBC LEXIS 8, at *36 (N.C. Super. Ct. Jan. 28, 2019); Regency Ctrs.

Acquisition, LLC v. Crescent Acquisitions, LLC, 2018 NCBC LEXIS 7, at *16–17 (N.C.

Super. Ct. Jan. 24, 2018).

37. Plaintiff’s attempt to use the doctrine of quasi-estoppel to achieve

summary judgment is equally unavailing. Quasi-estoppel, also known as “estoppel

by benefit,” “does not require detrimental reliance per se by anyone, but is directly

grounded instead upon a party’s acquiescence or acceptance of payment or benefits

by virtue of which that party is thereafter prevented from maintaining a position

inconsistent with those acts.” Godley v. Cnty. of Pitt, 306 N.C. 357, 361 (1982)

(citation omitted).

38. Application of quasi-estoppel is highly fact dependent. Unlike equitable

estoppel, quasi-estoppel is “inherently flexible and cannot be reduced to any rigid

formulation.” Whitacre P’ship v. BioSignia, Inc., 358 N.C. 1, 18 (2004) (citing Taylor

v. Taylor, 321 N.C. 244, 249 n.1 (1987)); see also 28 Am. Jur. 2d Estoppel and Waiver

§ 173 (“As a general rule, unless the facts are undisputed or only one reasonable
inference can be drawn from them, whether the facts presented adequately establish

estoppel is for the jury or other trier of fact to decide.”).

39. Disputed material facts preclude application of quasi-estoppel against

Defendants on this record. For example, at least one of the documents signed by J.C.

representing to Taco Bell that Plaintiff had a 10% ownership interest in Wilkes

Sombrero was the Application prepared by Plaintiff himself, not J.C. (Pl.’s Dep. 7:9–

15.) See 28 Am. Jur. 2d Estoppel and Waiver § 120 (“[A] person may not, by his or

her own act, create an estoppel in his or her favor[.]”) 9.

40. Finally, on this record, Plaintiff fails to shoulder the substantial burden

necessary to prevail on an affirmative motion for summary judgment. Plaintiff’s

receipt of W-2 wages as opposed to shareholder distributions or K-1 forms, for

example, contradicts the existence of his alleged ownership interest. Parks Chevrolet,

Inc., 74 N.C. App. at 721 (Plaintiff “must show that there are no genuine issues of

fact, that there are no gaps in his proof, that no inferences inconsistent with his

recovery arise from the evidence, and that there is no standard that must be applied

to the facts by the jury.”). Where genuine issues of material fact exist, summary

judgment is not proper.

B. The Limitations Period in Chapter 28A Is Not Controlling.

41. Defendants argue that Plaintiff cannot claim shareholder status

because he did not pursue a timely claim pursuant to the North Carolina statutes

9 While it is not dispositive on a quasi-estoppel theory, the statement regarding ownership

made in the Application may, when considered in context, have evidentiary value as an
admission against interest. The Court makes no determination at this stage with respect to
that issue.
setting forth the procedure for the disposition of claims in estate administration. (Br.

Supp. Defs.’ Mot. 7–9.)

42. Chapter 28A of the North Carolina General Statutes provides: “If a

claim is presented to and rejected by the personal representative or collector . . . the

claimant must, within three months, after due notice in writing of such rejection,

commence an action for the recovery thereof[.]” N.C.G.S. § 28A-19-16.

43. It is undisputed that Plaintiff presented a claim against the estate on 24

May 2019, (Br. Supp. Defs.’ Mot. Ex. L), and it was subsequently denied in writing,

(Br. Supp. Defs.’ Mot. Ex. M). He did not commence this action within three months

thereafter. (See Compl.) While his failure to file a timely action under N.C.G.S.

§ 28A-19-16 may impact any claims he brings as a creditor, that failure does not

determine his rights as an owner. In this Motion, Plaintiff asks for a judgment

declaring what he contends was already his; he does not seek to acquire additional

assets from the estate. See Poteat v. Robinson, 90 N.C. App. 764, 765 (1988) (holding

that N.C.G.S. § 28A-19-16 “applies to creditors’ claims against an estate”); Jacobs v.

Brewington, 258 N.C. App. 462, 465 (2018) (statute does not apply to bar a plaintiff’s

claim if the plaintiff is not a creditor of the estate). Chapter 28A therefore does not

bar Plaintiff’s claims.

VI. CONCLUSION

44. For these reasons the Court hereby DENIES the cross-motions for

partial summary judgment and ORDERS as follows:
a. Plaintiff’s First Cause of Action seeking a declaratory judgment with

respect to his status as a shareholder, as well as his Second Cause of

Action for Inspection pursuant to N.C.G.S. § 55-16-02, shall proceed

to trial at a time to be later determined by the Court;

b. Within twenty (20) days from the date of this Order, the parties shall

jointly file a revised Case Management Report and submit a

proposed Case Management Order to the Court concerning the

adjudication of the other claims and counterclaims at issue in this

action.

IT IS SO ORDERED, this the 16th day of December, 2021.

/s/ Julianna Theall Earp
Julianna Theall Earp
Special Superior Court Judge
for Complex Business Cases