Timbercreek Land & Timber Co. v. Robbins

Timbercreek Land & Timber Co. v. Robbins, 2017 NCBC 64.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
DAVIDSON COUNTY 17 CVS 140

TIMBERCREEK LAND & TIMBER
COMPANY, LLC, and MYLESS RAY
HOOPER, JR.,

Plaintiffs,

v.
ORDER AND OPINION ON
JOHN THOMAS ROBBINS; DEFENDANTS’ PARTIAL MOTION
FALLING OAK ENTERPRISES, TO DISMISS
LLC, a North Carolina Limited
Liability Company; and FALLING
OAK TIMBER, LLC, a North
Carolina Limited Liability Company,

Defendants.

1. THIS MATTER is before the Court on Defendants John Thomas Robbins

(“Robbins”), Falling Oak Enterprises, LLC (“Falling Oak Enterprises”), and Falling

Oak Timber, LLC’s (“Falling Oak Timber”) (collectively, the “Defendants”) partial

motion to dismiss (the “Motion”). Having considered the Motion, the briefs, and the

arguments of counsel at a hearing on the Motion, the Court GRANTS in part and

DENIES in part the Motion.

Holton Law Firm, by Stephen C. Holton, for Plaintiffs.

Bell, Davis & Pitt, P.A., by Bradley C. Friesen and Adam T. Duke, for
Defendants.

Robinson, Judge.
I. PROCEDURAL HISTORY

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

relevant to its determination of the Motion.

3. Plaintiffs Timbercreek Land & Timber Company, LLC (“Timbercreek”) and

Myless Ray Hooper, Jr. (“Hooper”) (collectively, the “Plaintiffs”) initiated this action

on January 24, 2017 by filing their Complaint and Motion for Preliminary Injunction

(the “Complaint”).

4. This case was designated as a mandatory complex business case by order

of the Chief Justice of the Supreme Court of North Carolina dated February 2, 2017

and assigned to the undersigned by order of Chief Business Court Judge James L.

Gale dated February 7, 2017.

5. On March 15, 2017, the Court held a hearing on Plaintiffs’ motion for

preliminary injunction. Following that hearing, and prior to the Court’s

determination of Plaintiffs’ motion, the parties notified the Court on March 23, 2017

that the parties had resolved all issues in connection with Plaintiffs’ motion and, as

a result, the Court denied the motion as moot by order dated March 24, 2017.

6. Defendants filed an answer to the Complaint on March 27, 2017 and an

amended answer and counterclaims on April 26, 2017.

7. On May 5, 2017, Defendants filed the Motion pursuant to Rules 12(b)(6)

and 12(c) of the North Carolina Rules of Civil Procedure (“Rule(s)”).

8. On June 23, 2017, Plaintiffs filed a reply to Defendants’ counterclaims.
9. The Motion has been fully briefed, and the Court held a hearing on the

Motion on July 18, 2017. The Motion is now ripe for resolution.

II. FACTUAL BACKGROUND

10. The Court does not make findings of fact on the Motion, but only recites

those factual allegations of the Complaint that are relevant and necessary to the

Court’s determination of the Motion and accepts them as true for the purposes of

deciding the Motion.

11. Timbercreek is a North Carolina limited liability company (“LLC”) with its

principal place of business in Davidson County, North Carolina. (Compl. ¶ 1.)

Timbercreek is engaged in the timber and lumber business throughout the Piedmont

Triad region of North Carolina. (Compl. ¶ 18.)

12. Hooper is a manager and the sole member of Timbercreek. (Compl.

¶¶ 13−14.)

13. Falling Oak Timber and Falling Oak Enterprises are North Carolina LLCs,

having their respective principal places of business in Davidson County and

Randolph County, North Carolina. (Compl. ¶¶ 4−5.)

14. Robbins is the sole member-manager of both Falling Oak Timber and

Falling Oak Enterprises. (Compl. ¶¶ 35, 42.)

15. Before August 2009, Hooper and Robbins discussed entering into a business

in the commercial timber industry. (Compl. ¶ 9.) Robbins represented to Hooper that

Robbins had substantial experience in and knowledge of North Carolina’s commercial

timber business. (Compl. ¶ 10.) Hooper represented to Robbins that Hooper had no
knowledge of the timber business, but that he would fund such a business while

relying entirely on Robbins to exclusively manage and conduct the day-to-day

operations of the business. (Compl. ¶¶ 11, 19.) Plaintiffs allege that Robbins so

agreed. (Compl. ¶¶ 11, 19.)

16. On August 18, 2009, Hooper formed Timbercreek, and Hooper, as

Timbercreek’s sole member, entered into an Operating Agreement with Timbercreek.

(Compl. ¶¶ 12−13.) The Operating Agreement provides that Timbercreek shall be

managed by its sole member, Hooper. (Compl. Ex. A, § 6.1.) The Operating

Agreement is signed by Hooper as member and manager. (Compl. Ex. A.)

17. Also on August 18, 2009, the Complaint alleges that Hooper, pursuant to

his authority to select Timbercreek’s agents and employees, hired Robbins and

delegated to Robbins the authority to act on Timbercreek’s behalf in performing a

broad range of duties. (Compl. ¶ 16.) Consistent with this allegation, after the

signature page of the Operating Agreement appears a document titled “Action of the

Sole Member of [Timbercreek]” (the “Action”). (Compl. Ex. A.) The document states:

“Pursuant to [Timbercreek]’s operating agreement [Robbins] is appointed as a

Manager of [Timbercreek] and has the authority to act on behalf of [Timbercreek] to

perform” multiple specifically enumerated duties, including: (1) to sign and issue

checks in Timbercreek’s name; (2) to endorse, cash, and deposit checks payable to

Timbercreek; (3) to execute and deliver any note, deed of trust, other obligation, or

contract and to renew the same from time to time; (4) to access any safe, lockbox, or

place of safekeeping and remove Timbercreek’s property therefrom; (5) to collect, by
suit or otherwise, and negotiate settlement of any indebtedness that is or may be

owed to Timbercreek; (6) to negotiate and contract with third parties on behalf of

Timbercreek for the purchase, sale, or brokering of timber or real property; (7) to

execute and deliver any deed, assignment, or contract for the transfer of timber or

real property owned by Timbercreek; and (8) any other act that may be required in

the normal course of Timbercreek’s business. (Compl. Ex. A.) The Action is signed

by Hooper and dated August 18, 2009. (Compl Ex. A.)

18. The Complaint alleges that Hooper provided all of Timbercreek’s financing

while Robbins was entrusted with the exclusive day-to-day operation and

management of Timbercreek. (Compl. ¶¶ 17, 25.)

19. Plaintiffs contend that Robbins, on behalf of Timbercreek, issued checks to

loggers and log haulers for amounts exceeding what they were owed in exchange for

cash payments to Robbins in the amount of the excess funds. (Compl. ¶ 30.) The

Complaint alleges that from 2013 to 2016, Robbins, on Timbercreek’s behalf, made

four overpayments, purportedly for logging services, to Josh Leonard Logging and

Max Montgomery d/b/a Montgomery Sawmill totaling $215,036.39, and seven

overpayments, purportedly for log and chip hauling, to Craig Whitley d/b/a Tim

Whitley Hauling totaling $545,370.86. (Compl. ¶¶ 31−32.)

20. On January 1, 2014, Robbins formed Falling Oak Timber without Hooper’s

knowledge. (Compl. ¶ 34.) Since forming Falling Oak Timber and continuing through

at least June 2016, Plaintiffs allege that Robbins used Falling Oak Timber to acquire

and own title to certain land and timber deeds in the Piedmont Triad area and to
carry out logging and timber operations on such land in direct competition with

Timbercreek. (Compl. ¶¶ 36−37.) The Complaint identifies seventeen timber deeds

and one general warranty deed that Robbins purchased on behalf of Falling Oak

Timber. (Compl. ¶ 37.) Plaintiffs contend that Robbins could and should have

purchased such deeds on Timbercreek’s behalf. (Compl. ¶ 37.) Additionally, the

Complaint alleges that Robbins used Timbercreek’s property, including its logging

machinery, equipment, and vehicles, to conduct logging operations on behalf of

Falling Oak Timber. (Compl. ¶ 39.)

21. On or about April 1, 2015, Robbins told Hooper that it would be in

Timbercreek’s best interests if Robbins formed his own LLC, Falling Oak Enterprises,

for the sole purpose of cutting timber for Timbercreek’s benefit. (Compl. ¶ 40.)

Accordingly, Robbins formed Falling Oak Enterprises that same day. (Compl. ¶ 41.)

At that time, Hooper still had no knowledge that Robbins had formed Falling Oak

Timber in January 2014. (Compl. ¶ 41.)

22. After forming Falling Oak Enterprises, Plaintiffs allege that Robbins,

without Hooper’s knowledge, purported to transfer ownership of Timbercreek’s

logging machinery, equipment, and vehicles to Falling Oak Enterprises. (Compl.

¶ 43.) Robbins then used such property to conduct timber operations on behalf of

Falling Oak Timber and simultaneously ceased using it to conduct timber operations

for the benefit of Timbercreek. (Compl. ¶¶ 44−45.)

23. At some point thereafter, Hooper learned that Timbercreek was operating

at a loss and failing to locate any new timberlands or timber deeds. (Compl. ¶ 47.)
When Hooper raised the issue with Robbins, Robbins informed Hooper that the land

Robbins had investigated only had invaluable timber and thus Timbercreek was not

purchasing the rights to harvest timber from those properties. (Compl. ¶ 48.)

Unbeknownst to Hooper, however, numerous tracts of land Robbins had investigated

did have valuable timber, which Robbins was purchasing at an attractive price on

behalf of Falling Oak Timber. (Compl. ¶ 49.)

24. In order to seek new business opportunities, Timbercreek decided to engage

in a bulk mailing. (Compl. ¶ 50.) At Robbins’s advisement, Hooper contacted

AlphaGraphics to design brochures advertising Timbercreek’s services. (Compl.

¶ 51.) In March 2016, Timbercreek paid AlphaGraphics just over $10,500 to design,

print, and mail 20,000 brochures to targeted recipients, all of whom were owners of

potentially harvestable tracts of timberlands in the Piedmont Triad area, with the

expectation that Timbercreek would contract for the rights to remove and sell

timberland from the recipients’ land. (Compl. ¶ 52.)

25. Many of the recipients contacted Robbins with an interest in contracting

with Timbercreek. (Compl. ¶ 54.) The Complaint alleges that, despite Timbercreek’s

ability to take advantage of these opportunities, Robbins failed to inform Hooper or

Timbercreek of such opportunities and instead purchased fee simple title to the tracts

of land and timber deeds on behalf of Falling Oak Timber. (Compl. ¶¶ 55−56.)

Thereafter, Falling Oak Timber used Timbercreek’s property to harvest and sell the

timber for a profit. (Compl. ¶ 55.)

26. Timbercreek terminated Robbins on August 3, 2016. (Compl. ¶ 57.)
27. Plaintiffs assert claims against all Defendants for claim and delivery and

injunctive relief, and claims against Robbins for breach of fiduciary duty, constructive

fraud, and civil arrest. (Compl. 24, 27, 29−30.) Timbercreek separately asserts a

claim against all Defendants for conversion. (Compl. 21−22, 25.)

28. The Motion seeks to dismiss both Plaintiffs’ breach of fiduciary duty claims

and constructive fraud claim, and, to the extent brought by Hooper, Plaintiffs’ claims

for claim and delivery, injunctive relief, and civil arrest.

III. LEGAL STANDARD

29. In ruling on a motion to dismiss pursuant to Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure, the Court reviews the allegations of the Complaint

in the light most favorable to Plaintiffs. The Court’s inquiry is “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.” Harris v. NCNB Nat’l

Bank of N.C., 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). The Court construes

the Complaint liberally and accepts all allegations as true. Laster v. Francis, 199

N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009).

30. Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the

complaint on its face reveals that no law supports [the] claim; (2) when the complaint

reveals on its face the absence of fact sufficient to make a good claim; [or] (3) when

some fact disclosed in the complaint necessarily defeats the . . . claim.” Oates v. JAG,

Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985); see also Jackson v. Bumgardner,

318 N.C. 172, 175, 347 S.E.2d 743, 745 (1986). Otherwise, “a complaint should not
be dismissed for insufficiency unless it appears to a certainty that plaintiff is entitled

to no relief under any state of facts which could be proved in support of the claim.”

Sutton v. Duke, 277 N.C. 94, 103, 176 S.E.2d 161, 166 (1970) (emphasis omitted).

31. The Court is not required “to accept as true allegations that are merely

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope

Hosp., Inc. v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274, 620

S.E.2d 873, 880 (2005). A “trial court can reject allegations that are contradicted by

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

complaint.” Laster, 199 N.C. App. at 577, 681 S.E.2d at 862. The Court can also

ignore a party’s legal conclusions set forth in its pleading. McCrann v. Pinehurst,

LLC, 225 N.C. App. 368, 377, 737 S.E.2d 771, 777 (2013).

IV. ANALYSIS

32. As a preliminary matter, the Court notes that the Motion is brought

pursuant to both Rules 12(b)(6) and 12(c). Rule 12(c) provides that “[a]fter the

pleadings are closed but within such time as not to delay the trial, any party may

move for judgment on the pleadings.” N.C. Gen. Stat. § 1A-1, Rule 12(c). A Rule 12(c)

motion may only be made after the pleadings are closed. Weaver v. Saint Joseph of

the Pines, Inc., 187 N.C. App. 198, 203, 652 S.E.2d 701, 706 (2007) (“[A] Rule 12(c)

motion cannot be filed simultaneously with an answer.”). Defendants filed the Motion

on May 5, 2017—nine days after they filed their amended answer and counterclaims.

Plaintiffs timely filed their reply to Defendants’ counterclaims on June 23, 2017. As
such, the Motion was filed before the pleadings were closed and, accordingly, the

Court considers the Motion as one made solely pursuant to Rule 12(b)(6).

A. Timbercreek’s Breach of Fiduciary Duty Claim (First Cause of
Action)

33. Defendants argue that the Complaint fails to sufficiently allege a fiduciary

relationship between Robbins and Timbercreek and, accordingly, Timbercreek’s

breach of fiduciary duty claim must be dismissed. (Br. Supp. Defs.’ Mot. Partially

Dismiss Pls.’ Compl. 9−13.)

34. In order to state a claim for breach of fiduciary duty, a plaintiff must allege

that: (1) defendant owed plaintiff a fiduciary duty; (2) defendant breached his

fiduciary duty; and (3) the breach of fiduciary duty was a proximate cause of injury

to plaintiff. Farndale Co., LLC v. Gibellini, 176 N.C. App. 60, 68, 628 S.E.2d 15, 20

(2006). Under the North Carolina Limited Liability Company Act (the “Act”), an

LLC’s managers and company officials owe fiduciary duties to the LLC to discharge

their duties in good faith, with the care of an ordinary prudent person, and in the best

interests of the LLC. N.C. Gen. Stat. § 57D-3-21(b) (setting forth the duties of a

manager); id. § 57D-3-23 (providing that company officials who are not managers

have the same duties as managers); see Kaplan v. O.K. Techs., L.L.C., 196 N.C. App.

469, 473−74, 675 S.E.2d 133, 137 (2009). The Act defines a “company official” as

“[a]ny person exercising any management authority over the limited liability

company whether the person is a manager or referred to as a manager, director, or

officer or given any other title.” N.C. Gen. Stat. § 57D-1-03(5).
35. Defendants argue that the allegations of the Complaint are insufficient to

state that Robbins was a manager or company official of Timbercreek. Specifically,

Defendants argue that the Action appointing Robbins as a manager is ineffective

because it contradicts the express terms of the Operating Agreement. Defendants

further argue that Hooper’s delegation of tasks to Robbins does not transform

Robbins into a company official. (Br. Supp. 9−13; Reply Br. Supp. Defs.’ Mot.

Partially Dismiss Pls.’ Compl. 3−4.)

36. While the Operating Agreement states that it shall be managed by the

member, Hooper, (Compl. Ex. A, § 6.1), the Operating Agreement also provides that

it may be amended or altered by the written consent of Hooper, (Compl. Ex. A, § 13.1).

Thus, the Court cannot conclude that the Action appointing Robbins as a manager

contradicts the express terms of the Operating Agreement, and thus is ineffective, as

Defendants contend.

37. Even if the Court were to conclude that the allegations of the Complaint are

insufficient to state Robbins was a manager of Timbercreek, the Court concludes that

the allegations are sufficient to state that Robbins was a company official and, as

such, owed fiduciary duties to Timbercreek.

38. When interpreting a statute, the Court’s primary task is to ensure that the

legislature’s purpose is accomplished. In re Advance Am., Cash Advance Ctrs. of N.C.,

Inc., 189 N.C. App. 115, 118, 657 S.E.2d 405, 408 (2008). The legislature’s purpose is

first ascertained from the plain words of the statute, which are to be given their plain

and ordinary meaning. Id. “In the absence of a contextual definition, courts may look
to dictionaries to determine the ordinary meaning of words within a statute.” Perkins

v. Ark. Trucking Servs., Inc., 351 N.C. 634, 638, 528 S.E.2d 902, 904 (2000); Powe v.

Centerpoint Human Servs., 215 N.C. App. 395, 402, 715 S.E.2d 296, 302 (2011)

(looking to both Black’s Law Dictionary and Webster’s Dictionary in interpreting

words within a statute).

39. A “company official” is defined as any person—regardless of his title—

“exercising any management authority over the [LLC].” N.C. Gen. Stat. § 57D-1-

03(5). The current edition of Black’s Law Dictionary defines “management” as “[t]he

people in an organization who are vested with a certain amount of discretion and

independent judgment in managing its affairs” and “[t]he act or system of controlling

and making decisions for a business[.]” Black’s Law Dictionary (10th ed. 2014).

Webster’s Dictionary defines “management” as “the conducting or supervising of

something (such as a business)” and “the collective body of those who manage or direct

any enterprise or interest[.]” Webster’s Third New International Dictionary 1372

(1981). Black’s Law Dictionary defines “authority” as “[t]he official right or

permission to act” and “the power delegated by a principal to an agent[.]” Black’s

Law Dictionary (10th ed. 2014). Webster’s Dictionary defines “authority” as

“delegated power over others” and “freedom granted by one in authority[.]” Webster’s

Third New International Dictionary 146 (1981).

40. The Complaint sufficiently alleges that Robbins had permission to control

and make decisions for Timbercreek and was vested with discretion and independent

judgment in managing and operating its business. The Complaint alleges that
Robbins was “entrusted with the exclusive day-to-day operation, care, custody,

control and management of Timbercreek[.]” (Compl. ¶ 25 (emphasis added).)

Further, the Complaint alleges that Hooper hired Robbins and delegated to Robbins

the authority, which Robbins exercised, to act on behalf of Timbercreek in performing

a broad range of duties, including signing and issuing checks in Timbercreek’s name;

cashing and depositing monies payable to Timbercreek; negotiating and executing

contracts, notes, and deeds on Timbercreek’s behalf; collecting and negotiating

settlement of indebtedness owed Timbercreek; selecting, supervising, and paying

Timbercreek personnel and subcontractors; and supervising Timbercreek’s day-to-

day operations. (Compl. ¶¶ 16, 23, Ex. A.)

41. The Court concludes that these allegations are sufficient, at the Rule

12(b)(6) stage, to state that Robbins was a company official as that term is defined in

N.C. Gen. Stat. § 57D-1-03(5) and, as such, owed fiduciary duties to Timbercreek.

The Complaint sufficiently alleges that Robbins breached his fiduciary duties to

Timbercreek by embezzling Timbercreek’s funds, transferring Timbercreek’s

property to Falling Oak Timber and Falling Oak Enterprises, and failing to act in

Timbercreek’s best interests. Therefore, the Motion as to Timbercreek’s claim for

breach of fiduciary duty is denied.

B. Hooper’s Breach of Fiduciary Duty Claim (Second Cause of Action)

42. Defendants argue that the Complaint fails to sufficiently allege that

Robbins owed Hooper a special duty such that Hooper may assert an individual claim

for breach of fiduciary duty. (Br. Supp. 13−15; Reply Br. 6−9.) Defendants further
argue that Hooper has failed to allege a fiduciary relationship between Robbins and

Hooper. (Br. Supp. 13−15; Reply Br. 4−6.)

43. It is a well-settled principle of North Carolina law that shareholders of a

corporation cannot pursue individual causes of action for wrongs or injuries to the

corporation. Barger v. McCoy Hillard & Parks, 346 N.C. 650, 658, 488 S.E.2d 215,

219 (1997); Corwin v. British Am. Tobacco PLC, 796 S.E.2d 324, 338 (N.C. Ct. App.

2016). There are two exceptions: (1) when there is a special duty between the

wrongdoer and the shareholder; and (2) when the shareholder suffered an injury

separate and distinct from the injury suffered by the corporation and the other

shareholders. Barger, 346 N.C. at 658, 488 S.E.2d at 219; Corwin, 796 S.E.2d at 338;

Levin v. Jacobson, 2015 NCBC LEXIS 111, at *14−15 (N.C. Super. Ct. Dec. 7, 2015)

(stating that for purposes of whether a member of an LLC can assert an individual

claim, “members of an LLC are treated like corporate shareholders and managers are

similar to directors”); see Russell M. Robinson, II, Robinson on North Carolina

Corporation Law § 34.04[5] (7th ed. 2016) (“A derivative action on behalf of an LLC

will be governed by essentially the same rules that apply to a derivative action on

behalf of a corporation. Therefore, whether the member must bring the suit

individually or on behalf of the LLC turns on whether the alleged injuries were caused

directly to the member or are a consequence of breaches of fiduciary duty that harmed

the LLC.” (footnote omitted)).

44. For the special duty exception to apply, “the duty must be one that the

alleged wrongdoer owed directly to the shareholder as an individual”—a duty that
was personal to the shareholder and separate and distinct from the fiduciary duty

owed to the corporation. Barger, 346 N.C. at 659, 488 S.E.2d at 220. In Barger, our

Supreme Court set forth an illustrative, non-exclusive list of situations in which a

special duty may be found. Such list included when the wrongful actions of the party

induced plaintiff to become a shareholder, the wrongdoer violated his fiduciary duty

to the shareholder, the wrongdoer performed individualized services directly for the

shareholder, and the wrongdoer undertook to advise shareholders independently of

the corporation. Id.

45. For the special injury exception to apply, the injury must be peculiar or

personal to the shareholder. Id. “[A] plaintiff must show that its particular injury

was ‘separate and distinct from the injury sustained by the other shareholders or the

corporation itself.’” Raymond James Capital Partners, L.P. v. Hayes, 789 S.E.2d 695,

702 (N.C. Ct. App. 2016) (quoting Barger, 346 N.C. at 659, 488 S.E.2d at 219).

46. Plaintiffs argue that they have sufficiently alleged that Robbins owed

Hooper a special duty because Robbins induced Hooper to form and become a member

of Timbercreek and Hooper is a guarantor of Timbercreek’s obligations on numerous

pieces of equipment. (Pls.’ Resp. Br. Opp’n Defs.’ Partial Mot. Dismiss 20−22.) The

Complaint, however, does not contain such allegations. The Complaint alleges that

Robbins represented to Hooper that Robbins had substantial experience in and

knowledge of the timber business. (Compl. ¶¶ 11, 19.) It is alleged that Hooper told

Robbins that Hooper did not have any such knowledge, but that he would fund a

timber business and rely on Robbins to manage the business, to which Robbins
agreed. (Compl. ¶¶ 11, 19.) The Complaint fails to allege that Robbins, through

misrepresentations or otherwise, induced Hooper to form and become a member of

Timbercreek. See Robinson, § 17.02[2] (listing as an example of an individual claim

an action “to recover damages from an ‘insider’ or other party who induced him to buy

or sell shares in the corporation either by actual misrepresentations or by failing to

disclose pertinent information about the corporate affairs in breach of a fiduciary

obligation” (footnote omitted)). Likewise, the Complaint does not allege that Robbins

induced Hooper to become a guarantor of Timbercreek’s debt. Barger, 346 N.C. at

661, 488 S.E.2d at 221 (“We apply the same rules for establishing a special duty when

plaintiffs are guarantors as we apply when plaintiffs are shareholders.”).

47. Therefore, the Court concludes that the Complaint fails to allege that

Robbins induced Hooper to become a member or guarantor so as to create a special

duty between Hooper and Robbins.

48. Plaintiffs further argue that the Complaint sufficiently alleges that Robbins

owed a fiduciary duty, and thus a special duty, to Hooper. (Pls.’ Resp. Br. 14−16, 20.)

“[A] fiduciary relationship is generally described as arising when there has been a

special confidence reposed in one who in equity and good conscience is bound to act

in good faith and with due regard to the interests of the one reposing confidence.”

Dallaire v. Bank of Am., N.A., 367 N.C. 363, 367, 760 S.E.2d 263, 266 (2014)

(quotation marks omitted). Domination and influence are an essential component of

any fiduciary relationship. Dalton v. Camp, 353 N.C. 647, 652, 548 S.E.2d 704, 708

(2001). “The standard for finding a de facto fiduciary relationship is a demanding
one: ‘Only when one party figuratively holds all the cards—all the financial power or

technical information, for example—have North Carolina courts found that the

special circumstance of a fiduciary relationship has arisen.’” Lockerman v. S. River

Elec. Membership Corp., 794 S.E.2d 346, 352 (N.C. Ct. App. 2016) (quoting S.N.R.

Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613, 659 S.E.2d 552,

451 (2008)). In general, an employer-employee relationship does not give rise to

fiduciary duties. Dalton, 353 N.C. at 652, 548 S.E.2d at 708; Lockerman, 794 S.E.2d

at 351−52. “Even when an employee is entrusted with substantial managerial

authority, a fiduciary relationship will not exist absent evidence that such authority

led to the employer being subjugated to the improper influences or domination of [its]

employee.” Artistic S. Inc. v. Lund, 2015 NCBC LEXIS 113, at *41−42 (N.C. Super.

Ct. Dec. 9, 2015) (alteration in original) (quotation marks omitted).

49. Plaintiffs allege that Hooper had the power to select and remove all of

Timbercreek’s agents and employees. (Compl. ¶ 15.) Plaintiffs contend that Hooper

exercised this power in hiring and delegating to Robbins the authority to act on behalf

of Timbercreek to perform a wide range of duties. (Compl. ¶ 16.) The Complaint

further alleges that

[b]ased on the gross disparity of their knowledge concerning the timber
industry, Hooper reposed special confidence in Robbins, and Robbins,
who controlled all of the technical information concerning how to operate
the business, exercised domination and influence over Hooper with
respect to the business. As such, Robbins was bound to act in good faith
with due regard to Hooper’s interest at all times.

(Compl. ¶ 26.)
50. Although “[a] fiduciary duty may constitute a ‘special duty’ when owed

directly to a party[,]” Corwin, 796 S.E.2d at 338, any duty arising out of Robbins’s

superior knowledge of the timber business is also owed to Timbercreek—it is not

unique to Hooper. Indeed, Plaintiffs argue in their brief that “Robbins held all of the

technical information regarding the timber industry in the relationship between both

Plaintiffs.” (Pls.’ Resp. Br. Opp’n 14.) The Complaint alleges that Robbins exercised

domination and influence over Hooper with respect to Timbercreek’s business.

Moreover, the Complaint alleges that Hooper hired Robbins to work for Timbercreek,

reposed confidence in Robbins concerning the operation of Timbercreek, and

delegated to Robbins the authority to act on behalf of Timbercreek. Accordingly, any

duty to Hooper created therefrom is not distinct from the general fiduciary duties

Robbins owed to Timbercreek to act in good faith, with the care of an ordinary prudent

person, and in Timbercreek’s best interests. See Corwin, 796 S.E.2d at 339 (“Because

the legislature intended shareholders to bring derivative actions, as opposed to direct

actions, and a directors’ fiduciary duty is to the corporation generally and not the

shareholder individually, a shareholder’s action against a director should be brought

derivatively unless he or she can allege facts that the director owed him or her a

special duty beyond that of the general fiduciary duty to the corporation.”); Robinson,

§ 17.02[1] (“One of the clearest examples of a derivative action is a suit against the

officers or directors of a corporation for mismanagement of its affairs as constituting

a breach of their fiduciary obligations to the corporation. Thus, for example, an action

must be brought derivatively on behalf of the corporation against its officers or
directors for . . . fraudulently dissipating the assets of the corporation, or for a

fraudulent withdrawal and appropriation of corporate assets.” (footnotes omitted)).

51. To the extent Plaintiffs argue that Hooper has suffered a special injury

because Hooper personally guaranteed Timbercreek’s obligations, this argument is

unavailing. The loss of one’s investment, regardless of amount, is identical to the

injury suffered by the LLC. Energy Inv’rs Fund, L.P. v. Metric Constructors, Inc., 351

N.C. 331, 336, 525 S.E.2d 441, 444 (2000). Further, “consequential damages incurred

as a result of personally guaranteeing corporate debts do not constitute a separate

and distinct injury from that injury which was suffered by the corporation.” Griffin

Mgmt. Corp. v. Carolina Power & Light Co., Inc., 2009 NCBC LEXIS 25, at *11 (N.C.

Super. Ct. Nov. 13, 2009).

52. Therefore, the Court concludes that the Complaint fails to allege that

Hooper suffered a special injury or was owed a special duty separate and distinct from

Robbins’s fiduciary duties to Timbercreek. As such, the Motion as to Hooper’s breach

of fiduciary duty claim is granted. During the hearing, counsel for Defendants

stipulated that any dismissal due to a defect in the pleadings should be without

prejudice. Accordingly, Hooper’s breach of fiduciary duty claim is dismissed without

prejudice.

C. Plaintiffs’ Constructive Fraud Claim (Third Cause of Action)

53. “To survive a motion to dismiss, a cause of action for constructive fraud

must allege (1) a relationship of trust and confidence, (2) that the defendant took

advantage of that position of trust in order to benefit himself, and (3) that plaintiff
was, as a result, injured.” White v. Consol. Planning, Inc., 166 N.C. App. 283, 294,

603 S.E.2d 147, 156 (2004). A constructive fraud claim requires the existence of a

fiduciary duty. Brissett v. First Mount Vernon Indus. Loan Ass’n, 233 N.C. App. 241,

252, 756 S.E.2d 798, 806 (2014). The difference between a constructive fraud claim

and a breach of fiduciary duty claim is that a claim for constructive fraud requires

that defendant sought to benefit himself. White, 166 N.C. App. at 294, 603 S.E.2d at

156.

54. As the Court has concluded that the Complaint fails to allege a fiduciary

relationship between Hooper and Robbins, the Motion as to Plaintiffs’ constructive

fraud claim, to the extent brought by Hooper, is granted and this claim is dismissed

without prejudice.

55. On the other hand, as the Court has concluded that the Complaint

sufficiently alleges a fiduciary relationship between Timbercreek and Robbins, the

sole issue on the Motion is whether the Complaint sufficiently alleges that Robbins

took advantage of that relationship in order to benefit himself. In this regard, the

Complaint alleges that Robbins caused Timbercreek to overpay loggers and log

haulers in exchange for cash payments to Robbins in the amount of the excess funds.

(Compl. ¶ 30.) The Complaint further alleges that Robbins used Timbercreek’s

property to conduct timber operations for the benefit of his own LLCs, Falling Oak

Timber and Falling Oak Enterprises. (Compl. ¶¶ 39, 44, 55.) The Court concludes

that these allegations are sufficient to state that Robbins took advantage of his
fiduciary relationship in order to benefit himself. Therefore, the Motion as to

Timbercreek’s constructive fraud claim is denied.

D. Plaintiffs’ Claims for Civil Arrest, Injunctive Relief, and Claim and
Delivery (Fifth, Sixth, and Seventh Causes of Action)

56. The Motion seeks dismissal of Plaintiffs’ claims for civil arrest, injunctive

relief, and claim and delivery. In their brief, Plaintiffs did not address the Motion as

to these claims and, during the hearing on the Motion, Plaintiffs stipulated that these

claims have been abandoned. Therefore, the Motion as to Plaintiffs’ claims for civil

arrest, injunctive relief, and claim and delivery is granted.

V. CONCLUSION

57. For the foregoing reasons, the Court hereby GRANTS in part and

DENIES in part the Motion as follows:

A. The Court GRANTS the Motion as to Hooper’s claims for breach of

fiduciary duty and constructive fraud and dismisses these claims

without prejudice.

B. The Court GRANTS the Motion as to Plaintiffs’ claims for civil

arrest, injunctive relief, and claim and delivery and dismisses these

claims with prejudice.

C. The Court DENIES the Motion as to Timbercreek’s claims for breach

of fiduciary duty and constructive fraud.
SO ORDERED, this the 28th day of July, 2017.

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