Associated Hardwoods, Inc. v. Lail

Associated Hardwoods, Inc. v. Lail, 2018 NCBC 79.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
CALDWELL COUNTY 18 CVS 329

ASSOCIATED HARDWOODS, INC.,

Plaintiff,

v.

GARY N. LAIL; SUSAN G. LAIL;
DAVID C. LAIL; CATHERINE C. ORDER AND OPINION
LAIL; JENNIFER NOBLE, in her
capacity as Administrator of THE ON MOTIONS TO DISMISS
ESTATE OF CLYDE L. LAIL;
EDWARD JOSEPH MCNEIL, JR.;
and MCNEIL & PARTNERS, LP,

Defendants.

1. THIS MATTER is before the Court on Defendants Gary N. Lail (“Gary”),

Susan G. Lail (“Susan”), David C. Lail (“David”), and Cathleen C. Lail’s (“Cathleen”)

Motion to Dismiss (the “Lail Defendants’ Motion to Dismiss”), and Defendant

Jennifer Noble’s (“Noble”), as Administrator of the Estate of Clyde L. Lail (“Clyde”),

Motion to Dismiss (“Noble’s Motion to Dismiss”). The Lail Defendants’ Motion to

Dismiss and Noble’s Motion to Dismiss are referred to collectively herein as the

“Motions.” For the reasons set forth herein, the Court GRANTS the Lail Defendants’

Motion to Dismiss, and GRANTS in part and DENIES in part as moot Noble’s

Motion to Dismiss.

Richard L. Robertson & Associates, P.A., by Richard L. Robertson, for
Plaintiff.

Young, Morphis, Bach, and Taylor, LLP, by Jimmy R. Summerlin, Jr.,
for Defendants Gary N. Lail and Susan G. Lail.

Patrick, Harper & Dixon, LLP, by Michael J. Barnett, for Defendants
David C. Lail and Cathleen C. Lail.
Connors Morgan, PLLC, by C. Scott Meyers, for Defendant Jennifer
Noble, in her capacity as Administrator of the Estate of Clyde L. Lail.

Erwin, Bishop, Capitano & Moss, P.A., by Matthew M. Holtgrewe, for
Defendants Edward Joseph McNeil, Jr. and McNeil & Partners, LP.

Robinson, Judge.

I. PROCEDURAL HISTORY

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

relevant to its determination of the Motions.

3. On March 13, 2018, Plaintiff initiated this action by filing its Verified

Complaint. (ECF No. 3.)

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

of Chief Justice Mark Martin of the Supreme Court of North Carolina dated April 26,

2018, (ECF No. 6), and was assigned to the undersigned by order of then-Chief

Business Court Judge James L. Gale dated April 30, 2018, (ECF No. 2).

5. The Verified Complaint named Wayne Bach (“Bach”) as a Defendant in his

capacity as administrator of the estate of Clyde L. Lail (“Clyde’s Estate”). (Compl. 1,

ECF No. 3.) However, on March 27, 2018, Defendant Noble was appointed

administrator of Clyde’s Estate in lieu of Bach. (Verified Am. Compl. ¶ 4, ECF No. 8

[“Am. Compl.”].) Accordingly, on May 2, 2018, Plaintiff filed its Amended Verified

Complaint substituting Noble for Bach as a defendant. (Compare Compl. 1, with Am.

Compl. 1.) The Amended Complaint asserts claims against the Lail Defendants for

violation of the Uniform Voidable Transactions Act (“fraudulent transfer claim”) and

asserts claims against all Defendants for breach of fiduciary duty, constructive fraud,
and unfair and deceptive trade practices (“UDTP”). (Am. Compl. 4–13.)

6. The Lail Defendants’ Motion to Dismiss was filed on May 25, 2018 pursuant

to Rule 12(b)(1) of the North Carolina Rules of Civil Procedure (“Rule(s)”). (ECF No.

15.)

7. On May 31, 2018, Noble filed her motion to dismiss, joining the arguments

raised by the Lail Defendants pursuant to Rule 12(b)(1) and asserting additional

arguments for dismissal of the claims against Clyde’s Estate pursuant to Rule

12(b)(6). (ECF No. 22.) Because Noble is being sued in her capacity as administrator

of Clyde’s Estate and joins the Lail Defendants’ Motion to Dismiss, references to the

Lail Defendants’ Motion to Dismiss shall include Noble.

8. Briefing on the Motions is complete and the Court held a hearing on the

Motions on August 2, 2018 at which all parties were represented by counsel.

9. The Motions are ripe for resolution.

II. FACTUAL BACKGROUND

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

those facts that are relevant and necessary to the Court’s determination of the

Motions.

11. Plaintiff Associated Hardwoods, Inc. (“Plaintiff”) is a North Carolina

corporation with its principal office in Granite Falls. (Am. Compl. ¶ 1.)
12. Gary, Susan, David, Cathleen,1 and Clyde (who passed away before the

commencement of this litigation) (collectively, the “Lail Defendants”) were directors

of Quaker Furniture, Inc. d/b/a Studio Q Furniture (“Quaker”), a North Carolina

corporation that manufactured furniture. (Am. Compl. ¶ 10.) Gary, David, and Clyde

(during his life) were also shareholders and officers of Quaker at certain times. (Am.

Compl. ¶ 10.)

13. For years prior to 2016, Plaintiff supplied Quaker with dry kiln hardwood

lumber to be used by Quaker in its furniture business. (Am. Compl. ¶ 9.) Plaintiff

would fill Quaker’s orders and later submit invoices to Quaker requesting payment

for the lumber previously delivered. (Lail Defs.’ Mot. Dismiss Ex. 2 to Ex. A, ECF No.

15.1.) Plaintiff did not secure the debt owed to it by Quaker. (Am. Compl. ¶ 9.)

14. By May 31, 2016, Quaker was insolvent on a balance sheet and cash flow

basis and could not pay its bills as they became due in the regular course of business.

(Am. Compl. ¶ 14.) Notwithstanding Quaker’s financial condition, the Lail

Defendants, on behalf of Quaker, continued to order lumber from Plaintiff. (Am.

Compl. ¶ 15.a.)

15. Around August 22, 2016, Gary, David, and Clyde sold their shares in

Quaker and the assets of Quaker for inadequate consideration to Defendant McNeil

& Partners, LP (“McNeil & Partners”). (Am. Compl. ¶ 15.c.) Defendant Edward

1
Plaintiff’s original and amended complaints misname Cathleen as “Catherine C.
Lail.” (Compl. 1; Am. Compl. 1.) Because Cathleen has not challenged that she was
properly served with process or the Court’s jurisdiction over her, the Court sees no
need to require the Amended Complaint to be further amended at this time.
Joseph McNeil, Jr. (“McNeil,” together with McNeil & Partners, the “McNeil

Defendants”) is the general partner of McNeil & Partners and became an officer and

the sole director of Quaker following the stock transfer. (Am. Compl. ¶¶ 6, 11.)

Thereafter, none of the Lail Defendants were involved with Quaker, except for Gary,

who remained an officer of Quaker. (Am. Compl. ¶¶ 10–11.)

16. Plaintiff alleges that the Lail Defendants’ sale of their Quaker shares and

Quaker’s assets was a leveraged buyout for which no consideration passed to the Lail

Defendants or Quaker for the benefit of Quaker’s creditors. (Am. Compl. ¶ 15.c, g–

h.) In addition, Plaintiff alleges that the Lail and McNeil Defendants engaged in

unwritten side agreements whereby McNeil would refinance Quaker’s equipment and

machinery to pay Quaker’s existing secured obligations guaranteed by the Lail

Defendants. (Am. Compl. ¶ 15.f.) Plaintiff further alleges that the McNeil

Defendants, who had no experience in the furniture industry, stripped Quaker of its

working capital and equity by paying themselves and McNeil’s other businesses

exorbitant fees, salaries, and cash withdrawals. (Am. Compl. ¶ 15.d–e.)

17. At the time of the sale, Quaker had assets in excess of its secured liabilities

that exceeded $1 million, which could have been distributed to unsecured creditors

had the Lail Defendants wound up Quaker’s affairs instead of selling their shares.

(Am. Compl. ¶ 15.b.) Plaintiff alleges that the Lail Defendants’ conduct preferred

their interest over the rights of Quaker’s unsecured creditors, including Plaintiff, and

was intended to prevent such creditors from recovering any of Quaker’s assets. (Am.

Compl. ¶¶ 15.f–h, 18–20.)
18. After McNeil & Partners purchased the Lail Defendants’ shares of stock in

Quaker, and McNeil became the sole director, Quaker continued to purchase lumber

from Plaintiff without informing Plaintiff of Quaker’s financial condition. (Am.

Compl. ¶ 30.a.)

19. For purposes of the Lail Defendants’ Motion to Dismiss pursuant to Rule

12(b)(1), the Court takes judicial notice of several proceedings involving Plaintiff and

Quaker. First, the Court takes judicial notice that on March 13, 2017, Plaintiff filed

a complaint in the General Court of Justice, Superior Court Division, Caldwell

County, asserting claims against Quaker for failing to pay for lumber that Quaker

had ordered and accepted from Plaintiff. (Lail Defs.’ Mot. Dismiss Ex. A.) Plaintiff’s

complaint in that action reveals that Plaintiff claimed that Quaker had failed to pay

for lumber purchased from approximately November 23, 2016 to February 28, 2017.

(Lail Defs.’ Mot. Dismiss Ex. A, ¶ 9.) Attached to that complaint was a report listing

Quaker’s unpaid invoices, bills of lading, and invoices from the alleged three-month

time period and showing that Quaker then owed Plaintiff $117,915.62. (Lail Defs.’

Mot. Dismiss Exs. 1–3 to Ex. A.)

20. Next, the Court takes judicial notice that on August 28, 2017, Quaker filed

a Chapter 11 voluntary petition in the U.S. Bankruptcy Court for the Western

District of North Carolina (the “Bankruptcy Action”). (Lail Defs.’ Mot. Dismiss Ex.

C, ECF No. 15.3.) Along with twenty-nine other creditors of Quaker, Plaintiff filed a

proof of claim form in the Bankruptcy Action on September 5, 2017 asserting that

Quaker owed Plaintiff $129,742.06 for unpaid invoices from November 23, 2016
through February 28, 2017. (Lail Defs.’ Mot. Dismiss Ex. B, ECF No. 15.2.) Finally,

the Court takes judicial notice that on October 13, 2017, Quaker voluntarily

converted the Bankruptcy Action to a Chapter 7 proceeding that is still pending

before the bankruptcy court. (Lail Defs.’ Mot. Dismiss Ex. D, ECF No. 15.4.)

III. LAIL DEFENDANTS’ MOTION TO DISMISS

A. Rule 12(b)(1)

21. “Rule 12(b)(1) permits a party to contest, by motion, the jurisdiction of the

trial court over the subject matter in controversy.” Swan Beach Corolla, LLC v. Cty.

of Currituck, 234 N.C. App. 617, 621, 760 S.E.2d 302, 307 (2014). When it appears

that subject matter jurisdiction is lacking, a court shall dismiss the action. N.C. Gen.

Stat. § 1A-1, Rule 12(h)(3).

22. “In order for a court to have subject matter jurisdiction to hear a claim, the

party bringing the claim must have standing.” Newton v. Barth, 788 S.E.2d 653, 659

(N.C. Ct. App. 2016); see also Smith v. Forsyth Cty. Bd. of Adjust., 186 N.C. App. 651,

653, 652 S.E.2d 355, 357 (2007) (“Standing is a necessary prerequisite to a court’s

proper exercise of subject matter jurisdiction, and is a question of law . . . .” (citation

omitted)). “[T]he party seeking to bring [its] claim before the court must include

allegations which demonstrate why [it] has standing in the particular case . . . .”

Cherry v. Wiesner, 245 N.C. App. 339, 346, 781 S.E.2d 871, 877 (N.C. Ct. App. 2016).

Since [the elements of standing] are not mere pleading requirements but
rather an indispensable part of the plaintiff’s case, each element must
be supported in the same way as any other matter on which the plaintiff
bears the burden of proof, i.e., with the manner and degree of evidence
required at the successive stages of the litigation.
Neuse River Found. Inc. v. Smithfield Foods, Inc., 155 N.C. App. 110, 113, 574 S.E.2d

48, 51 (2002) (alteration in original) (quoting Lujan v. Defenders of Wildlife, 504 U.S.

555, 561 (1992)).

23. “Unlike a Rule 12(b)(6) motion, consideration of matters outside the

pleadings does not convert the Rule 12(b)(1) motion to one for summary

judgment . . . .” Cunningham v. Selman, 201 N.C. App. 270, 280, 689 S.E.2d 517, 524

(2009). Accordingly, a court may consider matters outside the pleadings in

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

App. 550, 554, 687 S.E.2d 299, 302 (2009); Tart v. Walker, 38 N.C. App. 500, 502, 248

S.E.2d 736, 737 (1978). “However, if the trial court confines its evaluation to the

pleadings, the court must accept as true the plaintiff’s allegations and construe them

in the light most favorable to the plaintiff.” Munger v. State, 202 N.C. App. 404, 410,

689 S.E.2d 230, 235 (2010).

B. Standing to Assert Claims Against Directors of a Bankrupt
Corporation

24. The Lail Defendants move for dismissal of Plaintiff’s claims pursuant to

Rule 12(b)(1) arguing that Plaintiff lacks standing to assert claims against them as

Quaker’s former officers and directors because such claims belong to Quaker’s

bankruptcy estate. (Lail Defs.’ Mot. Dismiss ¶ 9, ECF No. 15.)

25. “When a corporation enters bankruptcy, any legal claims that could be

maintained by the corporation against other parties become part of the bankruptcy

estate, and claims that are part of the bankruptcy estate may only be brought by the

trustee in the bankruptcy proceeding.” Newton, 788 S.E.2d at 659. The filing of a
bankruptcy petition gives the trustee of the bankruptcy estate full authority over

claims belonging to the bankruptcy estate such that “a creditor may not pursue such

a claim unless there is a judicial determination that the trustee in bankruptcy has

abandoned the claim.” Keener Lumber Co. v. Perry, 149 N.C. App. 19, 25, 560 S.E.2d

817, 822 (2002); see also In re Bostic Constr., Inc., 435 B.R. 46, 60 (Bankr. M.D.N.C.

June 25, 2012) (“When a corporation files bankruptcy, the bankruptcy estate succeeds

to the corporation’s rights against its directors.”). A North Carolina state trial court

generally lacks subject matter jurisdiction to hear claims belonging to a bankruptcy

estate. Keener Lumber Co., 149 N.C. App. at 26, 560 S.E.2d at 822. However, where

a claim is personal to the creditor, such claim is not property of the bankruptcy estate.

Newton, 788 S.E.2d at 659. Whether a claim is personal to a creditor depends on

state law. Id.

1. Breach of Fiduciary Duty and Constructive Fraud

26. The Amended Complaint alleges that the Lail Defendants breached their

fiduciary duties to Plaintiff by continuing to purchase lumber from Plaintiff without

disclosing Quaker’s poor financial condition and then selling their shares of Quaker

and Quaker’s assets pursuant to agreements with the McNeil Defendants that

preferred the Lail Defendants’ interests over the interest of Quaker’s creditors in

receiving a pro rata distribution of Quaker’s assets. (Am. Compl. ¶ 15.) Plaintiff

alleges that such breaches amounted to constructive fraud. (Am. Compl. ¶ 16.)

27. “Under North Carolina law, directors of a corporation generally owe a

fiduciary duty to the corporation, and where it is alleged that directors have breached
this duty, the action is properly maintained by the corporation rather than any

individual creditor . . . .” Spoor v. Barth, 244 N.C. App. 670, 682, 781 S.E.2d 627, 635

(2016) (emphasis omitted). Accordingly, “creditors . . . of corporations generally may

not bring individual actions to recover what they consider their share of the damages

suffered by the corporation[.]” Barger v. McCoy Hillard & Parks, 346 N.C. 650, 660,

488 S.E.2d 215, 220–21 (1997). “However, where a cause of action is founded on

injuries peculiar or personal to [an individual creditor], so that any recovery would

not pass to the corporation and indirectly to other creditors, the cause of action

belongs to, and is properly maintained by, that particular creditor . . . .” Keener

Lumber Co., 149 N.C. App. at 26, 560 S.E.2d at 822 (quotation marks omitted); see

also Newton, 788 S.E.2d at 659–60 (“[C]reditors of a bankruptcy estate may prosecute

individual actions against a third party if they can show either (1) that the wrongdoer

owed [them] a special duty, or (2) that the injury suffered by the [creditors] is personal

to [them] and distinct from the injury sustained by the corporation itself.” (quotation

marks omitted)).

28. Notwithstanding the general rule that directors owe fiduciary duties

directly to the corporation, a director’s fiduciary duty to creditors arises “where there

exist circumstances amounting to a ‘winding-up’ or dissolution of the corporation.”

Keener Lumber Co., 149 N.C. App. at 31, 560 S.E.2d at 825 (quotation marks omitted);

see also Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 61, 554 S.E.2d 840, 847

(2001) (“[A] corporate director can breach a fiduciary duty to a creditor if ‘the

transaction at issue [] occurs under circumstances amounting to a “winding-up” or
dissolution of the corporation.’” (second alteration in original) (quotation marks

omitted)). In determining whether circumstances amount to a “winding up” or

dissolution, our courts consider various factors, which include:

(1) whether the corporation was insolvent, or nearly insolvent, on a
balance sheet basis; (2) whether the corporation was cash flow insolvent;
(3) whether the corporation was making plans to cease doing business;
(4) whether the corporation was liquidating its assets with a view of
going out of business; and (5) whether the corporation was still
prosecuting its business in good faith, with a reasonable prospect and
expectation of continuing to do so.

Keener Lumber Co., 149 N.C. App. at 31, 560 S.E.2d at 825 (citing Whitley v. Carolina

Clinic, Inc., 118 N.C. App. 523, 528, 458 S.E.2d 896 (1995)).

29. When such circumstances are present, the director “is generally prohibited

from taking advantage of his intimate knowledge of the corporate affairs and his

position of trust for his own benefit and to the detriment of the creditors to whom he

owes the duty” and “must treat all creditors of the same class equally by making any

payments to such creditors on a pro rata basis.” Id. at 33, 560 S.E.2d at 826–27.

Accordingly, our Court of Appeals has held that

a claim brought by a creditor against a director of a corporation, alleging
that the director has committed constructive fraud by breaching his
fiduciary duty owed directly to the creditor, is a claim founded on
injuries peculiar or personal to the individual creditor, and, therefore, is
a claim that belongs to the creditor and not the corporation.

Id. at 26–27, 560 S.E.2d at 823.

30. The Lail Defendants argue that Plaintiff lacks standing to pursue its claims

against them as directors of Quaker because such claims are property of Quaker’s

bankruptcy estate and, therefore, must be brought by the bankruptcy trustee. (Lail
Defs.’ Mot. Dismiss ¶ 9.) The Lail Defendants argue that dismissal is proper because

Plaintiff has failed to allege facts indicating that the Lail Defendants owed a special

duty directly to Plaintiff or that Plaintiff suffered a peculiar or personal injury

distinct from the injury suffered by all other creditors of Quaker. (Lail Defs.’ Br.

Supp. Mot. Dismiss 3–4, ECF No. 16.)

31. Plaintiff argues that it has standing to assert claims against the Lail

Defendants because the Amended Complaint adequately alleges that circumstances

existed where Quaker was “winding up” or in dissolution such that the Lail

Defendants, as directors of Quaker, owed fiduciary duties to Plaintiff, as a creditor of

Quaker, thereby establishing a special duty owed directly to Plaintiff. (Pl.’s Resp. Br.

Opp’n Lail Defs.’ Mot. Dismiss 10, ECF No. 28 [“Pl.’s Br. Opp’n”].) Plaintiff argues,

relying on the Court of Appeals’ decision in Keener, that its breach of fiduciary duty

and constructive fraud claims, therefore, survive. (Pl.’s Br. Opp’n 10.) Plaintiff

further argues that it has standing because “Plaintiff’s injuries require different

compensatory relief than that of any other creditor, and such injuries were caused by

the Defendants’ acts of contracting with Plaintiff—no other creditor was involved in

any lumber transaction between Plaintiff and Quaker[.]” (Pl.’s Br. Opp’n Lail Defs.’

Mot. Dismiss 12–13.) Although not entirely clear, the Court understands Plaintiff’s

argument to be that its injuries are unique because it was the only creditor that

supplied lumber to Quaker. Public filings in the Bankruptcy Action reveal that there

are numerous unsecured creditors of Quaker who supplied various goods and services

to the bankrupt company. Notice to Creditors Holding 20 Largest Unsecured Claims
at 3, In re Quaker Furniture, Inc., No. 17-50583 (Bankr. W.D.N.C. Aug. 30, 2017),

ECF No. 6.

32. Plaintiff’s standing argument ignores that the Amended Complaint neither

alleges (1) that Plaintiff was directly owed a duty separate from the duty the Lail

Defendants owed to Quaker’s creditors to treat all creditors of the same class equally,

nor (2) that Plaintiff suffered a unique injury that was not shared by all of Quaker’s

unsecured creditors.

33. Instead, Plaintiff’s counsel argued at the hearing that the Lail Defendants,

as directors of Quaker, had an obligation once the company became insolvent to have

a plan in place to protect creditors’ right to a pro rata distribution of company assets.

The Court is unaware of any obligation on shareholders, officers, or directors who

seek to exit a corporation to have a “plan in place” to protect a creditor’s right to a pro

rata distribution.

34. Rather, as noted above, the fiduciary duty that directors of an insolvent

corporation owe to creditors is a duty to “treat all creditors of the same class equally

by making any payments to such creditors on a pro rata basis” and not to “tak[e]

advantage of [the director’s] intimate knowledge of the corporate affairs and his

position of trust for his own benefit and to the detriment of the creditors to whom he

owes the duty[.]” Keener Lumber Co., 149 N.C. App. at 33, 560 S.E.2d at 826–27.

35. “[W]hen all creditors of an insolvent or bankrupt corporation share an

injury based on a common act, only a receiver or trustee has standing to assert the

creditors’ collective claim against directors on behalf of the corporation.” Angell v.
Kelly, 336 F. Supp. 2d 540, 544–45 (M.D.N.C. 2004) (citing Underwood v. Stafford,

270 N.C. 700, 703, 155 S.E.2d 211, 213 (1967)). Indeed, a review of North Carolina

cases and federal cases applying North Carolina law reveals that an individual

creditor typically only has standing to sue directors of a debtor corporation where

some misconduct was directed specifically at plaintiff or the directors were alleged to

have misappropriated funds that were earmarked for plaintiff. See, e.g., Angell, 336

F. Supp. 2d at 547 (alleged misrepresentations that were made only to plaintiffs and

which induced plaintiffs to take detrimental action were “factually unique to

[p]laintiffs as among [debtor]’s other creditors” thus conferring standing on

plaintiffs); In re Midstate Mills, Inc., No. 13-50033, 2015 Bankr. LEXIS 3105, at *23–

24 (Bankr. W.D.N.C. Sept. 15, 2015) (unpublished) (standing existed where plaintiffs

alleged that directors and officers falsely represented to plaintiffs that goods shipped

would be paid for and that plaintiffs would be substantially paid when the debtor

corporation was sold); Newton, 788 S.E.2d at 661 (customers, vendors, and suppliers

had standing to sue debtor corporation’s officer who falsified financial reports and

directed corporate staff to fraudulently misrepresent to creditors that the corporation

would receive additional funds); Phillips & Jordan, Inc. v. Bostic, 2012 NCBC LEXIS

36, at *5, *17–19 (N.C. Super. Ct. June 1, 2012) (plaintiff subcontractor had standing

to assert claims against directors based on allegations that defendants made

preferential payments for their personal benefit out of construction loan proceeds that

plaintiff believed would be used to pay its construction costs); see also Snyder v.

Freeman, 300 N.C. 204, 217, 266 S.E.2d 593, 601–02 (1980) (plaintiff had individual
standing to sue corporate insiders based on allegations that corporate directors failed

to earmark funds that were to be held specifically for plaintiff apart from corporate

assets); Lillian Knitting Mills Co. v. Earle, 233 N.C. 74, 75, 62 S.E.2d 492, 493 (1950)

(individual creditor could maintain claim alleging that officers and directors made

fraudulent misrepresentations directly to that creditor).

36. Conversely, where a plaintiff-creditor seeks to advance claims that “could

also have been pursued by any of [the debtor corporation]’s creditors, the [creditor]

“lack[s] standing because the claims are property of the bankruptcy estate.” Angell,

336 F. Supp. 2d at 545; see also, e.g., M-Tek Kiosk, Inc. v. Clayton, No. 1:15CV886,

2016 U.S. Dist. LEXIS 67036, at *27 (M.D.N.C. May 23, 2016) (unpublished)

(allegations of fraudulent transfers that could have been alleged by any of the debtor

corporation’s creditors were insufficient to confer standing); Alvarez v. Ward, No.

1:11cv03, 2012 U.S. Dist. LEXIS 4557, at *14–16 (Bankr. W.D.N.C. Jan. 13, 2012)

(unpublished) (plaintiffs lacked standing where the injuries alleged were identical to

other creditors’ injuries and were caused by the common acts of defendants in

fraudulently transferring the assets of the company); Underwood, 270 N.C. at 703,

155 S.E.2d at 213 (allegations that officers and directors misappropriated corporate

assets to themselves were wrongs committed against the insolvent corporation).

37. Plaintiff’s allegations demonstrate that none of the Lail Defendants’ alleged

conduct was directed specifically toward Plaintiff or treated Plaintiff in a manner

different from Quaker’s other unsecured creditors. (Am. Compl. ¶¶ 15, 33.) Further,

Plaintiff’s reliance on Keener is misplaced. In Keener, defendant-director decided to
liquidate a struggling corporation’s assets in order to use the money to pay the

corporation’s outstanding debts. Keener Lumber Co., 149 N.C. App. at 23, 560 S.E.2d

at 820. The director used the funds from the liquidated assets to then fully pay, or

almost fully pay, existing secured debts and an unsecured debt to a company for

which defendant was the chief operating officer, president, director, and majority

shareholder. Id. at 22–23, 560 S.E.2d at 820–21. However, no payment was made to

plaintiff-unsecured creditor. Id. at 23, 560 S.E.2d at 820–21. Thus, the Keener

plaintiff’s claim for breach of fiduciary duty was premised on allegations that

defendant (1) directed the company to continue purchasing goods from plaintiff

without informing plaintiff of the company’s financial status and (2) made

preferential payments to another unsecured creditor where a duty existed to treat all

creditors of the same class equally. Id. at 32, 560 S.E.2d at 826. Plaintiff makes no

allegation that it was treated any differently than other unsecured creditors of

Quaker. Rather, Plaintiff alleges that the Lail Defendants preferentially paid off

“existing secured obligations of Quaker guaranteed by the Lail Defendants[.]” (Am.

Compl. ¶ 15.f.)

38. The Court further finds unavailing Plaintiff’s argument that it has suffered

a unique injury because it was the only creditor who entered into lumber transactions

with Quaker. Plaintiff’s injury is no different than any other unsatisfied creditor of

Quaker in that Plaintiff seeks to be paid for the goods it rendered to Quaker just as

other unsecured creditors seek to be paid for the goods or services they provided to

Quaker. Plaintiff does not seek to recover the lumber sold on credit, but the money
owed to Plaintiff by Quaker for the value of the lumber. (Am. Compl. 15.) In fact, the

Amended Complaint repeatedly refers to unsecured creditors of Quaker as an injured

group of which Plaintiff was a part. (See, e.g., Am. Compl. ¶ 15.) Such allegations

belie Plaintiff’s argument that it suffered a unique injury different from that

experienced by Quaker’s other unsecured creditors.

39. Accordingly, the Court concludes that Plaintiff’s breach of fiduciary duty

and constructive fraud claims are property of the bankruptcy estate and Plaintiff,

therefore, lacks standing.

40. Even assuming arguendo that Plaintiff’s claims do not belong to the

bankruptcy estate, Plaintiff lacks standing for another reason—because it cannot

demonstrate a concrete injury caused by the Lail Defendants.

41. Apart from the standing inquiry as it relates to creditors of a bankrupt

corporation, standing more generally “refers to whether a party has a sufficient stake

in an otherwise justiciable controversy so as to properly seek adjudication of the

matter.” Neuse River Found. Inc., 155 N.C. App. at 114, 574 S.E.2d at 51. To

establish this more general standing, a plaintiff must demonstrate three elements:

(1) an injury in fact, i.e., “an invasion of a legally protected interest that is (a) concrete

and particularized and (b) actual or imminent, not conjectural or hypothetical;” (2)

that the injury is fairly traceable to defendants’ actions; and (3) that the injury will

likely be redressed by a decision in plaintiff’s favor. Strates Shows, Inc. v.

Amusements of Am., Inc., 184 N.C. App. 455, 460, 646 S.E.2d 418, 423 (2007).
42. Plaintiff alleges that it was harmed by the Lail Defendants’ alleged

breaches of fiduciary duty and constructive fraud because Plaintiff did not receive its

pro rata distribution of Quaker’s assets as payment for lumber that Plaintiff delivered

to Quaker. (Am. Compl. ¶¶ 15–16; see also Pl.’s Br. Opp’n 12–13 (arguing that

Plaintiff’s injuries are unique because each one of Plaintiff’s sales of lumber is

unique).) However, the record before the Court demonstrates that Plaintiff has been

paid for all shipments of lumber that occurred prior to November 23, 2016 as

evidenced by Plaintiff’s earlier civil suit against Quaker and Plaintiff’s proof of claim

filed in the Bankruptcy Action. (Lail Defs.’ Mot. Dismiss Ex. A ¶ 9, Ex. 1 to Ex. A,

Ex. B.) The Lail Defendants sold their Quaker shares and otherwise ceased their

involvement with Quaker, except for Gary remaining as an officer, around the time

of the stock sale on August 22, 2016—nearly three months before the date of the first

invoice for which Plaintiff claims entitlement to payment. (Am. Compl. ¶¶ 10–11,

15.)

43. Therefore, even assuming the Lail Defendants owed and breached a

fiduciary duty by continuing to purchase lumber from Plaintiff without disclosing

Quaker’s financial status, the allegations of the Complaint do not establish that

Plaintiff, as a result, suffered a particular, concrete injury.

44. Based on the foregoing, the Court concludes that Plaintiff lacks standing to

assert its claims for breach of fiduciary duty and constructive fraud against the Lail

Defendants.
2. Fraudulent Transfer Claim

45. Plaintiff alleges as a part of its breach of fiduciary duty claim that the Lail

Defendants violated the North Carolina Uniform Voidable Transactions Act by

fraudulently transferring Quaker’s assets to the McNeil Defendants without

receiving reasonably equivalent value in an attempt to hinder, delay, or defraud

Quaker’s creditors. (Am. Compl. ¶¶ 18–22.)

46. “[A]ny transfer that fraudulently or unlawfully deprives all creditors of

their right to an insolvent corporation’s assets necessarily gives rise to a cause of

action shared by those creditors and not unique to any one of them.” Angell, 336 F.

Supp. 2d at 546. Upon reviewing the allegations of the Amended Complaint, the Lail

Defendants’ alleged misconduct in stripping Quaker of its assets is identical as to all

of Quaker’s unpaid creditors who experienced the same harm—not receiving payment

for goods or services rendered. Because all of Quaker’s creditors share an injury

based on the Lail Defendants’ alleged fraudulent transfers, only Quaker’s bankruptcy

trustee has standing to assert the creditors’ collective claim against the Lail

Defendants on behalf of Quaker. Id.

47. Accordingly, the Court concludes that Plaintiff lacks standing to assert its

fraudulent transfer claim against the Lail Defendants.

3. UDTP Claim

48. Plaintiff alleges that the Lail Defendants engaged in unfair and deceptive

conduct based on the same factual allegations that Plaintiff alleged in support of its

breach of fiduciary duty and constructive fraud claims. (Am. Compl. ¶ 33.) As the
Court has concluded that Plaintiff lacks standing to assert its breach of fiduciary duty

and constructive fraud claims because such claims are property of the bankruptcy

estate, the Court similarly concludes that Plaintiff lacks a basis for standing as to its

UDTP claim.

49. Therefore, the Court concludes that Plaintiff’s UDTP claim should be

dismissed for lack of subject matter jurisdiction.

IV. NOBLE’S MOTION TO DISMISS

50. In her motion to dismiss, Noble not only joins the Lail Defendants’ Motion

to Dismiss, but also asserts as a separate basis for her motion that Plaintiff’s claims

against Noble, as Administrator of Clyde’s Estate, should be dismissed pursuant to

Rule 12(b)(6) for failure to state a claim on which relief may be granted. (Noble’s Mot.

Dismiss 1, ECF No. 22.)

51. Because the Court concluded that the Lail Defendants’ Motion to Dismiss

should be granted, the Court further concludes that Noble’s Motion to Dismiss should

be granted to the extent it joins the Lail Defendants’ Motion to Dismiss. Having

concluded that the Court lacks subject matter jurisdiction over Plaintiff’s claims

against the Lail Defendants, including the claims against Clyde’s Estate, the Court

need not, and does not, reach the merits of the additional arguments raised pursuant

to Rule 12(b)(6) in Noble’s Motion to Dismiss.

52. As a result, the Court grants Noble’s Motion to Dismiss to the extent it is

premised on Rule 12(b)(1) and, to the extent it is premised on Rule 12(b)(6), the Court

denies the motion as moot.
V. CONCLUSION

53. THEREFORE, based on the foregoing, the Court hereby GRANTS the

Lail Defendants’ Motion to Dismiss for lack of standing pursuant to Rule 12(b)(1).

The Court further GRANTS in part Noble’s Motion to Dismiss, to the extent it joins

the Lail Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1), and DENIES as

moot Noble’s Motion to Dismiss pursuant to Rule 12(b)(6). Accordingly, Plaintiff’s

claims against the Lail Defendants and against Defendant Noble, in her capacity as

Administrator of the Estate of Clyde L. Lail, are dismissed without prejudice.

SO ORDERED, this the 6th day of August, 2018.

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