Tac Invs., LLC v. Rodgers

TAC Invs., LLC v. Rodgers, 2020 NCBC 88.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 20 CVS 2757

TAC INVESTMENTS, LLC,

Plaintiff,

v. ORDER AND OPINION ON
DEFENDANT’S MOTION TO DISMISS
JOHN RODGERS, AND MOTION FOR SANCTIONS
Defendant.

1. GoPrime Mortgage, Inc. (“Prime”) is a residential mortgage company. This

case arises from a dispute between its two shareholders. The plaintiff is TAC

Investments, LLC (“TAC”), which became a shareholder in February 2017. The

defendant is John Rodgers, Prime’s founder. In short, TAC alleges that Rodgers has

used his position as director to stop Prime from paying dividends. This has rankled

TAC because its shares are preferred and have priority to dividends. Also, TAC

believes that Rodgers is purposely keeping cash in Prime’s accounts to increase the

value of his “put” right—a contractual right to divest his shares at a price based on

the company’s value. Though it asserts a handful of claims, TAC chiefly seeks a

declaration that Rodgers may not exercise his put right in these circumstances.

2. Rodgers has moved to dismiss all claims under Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure. (See ECF No. 17.) He has also moved for sanctions

under Rule 11. (See ECF No. 8.) For the following reasons, the Court GRANTS in

part and DENIES in part the motion to dismiss and DENIES the motion for

sanctions.
Fox Rothschild LLP, by Matthew N. Leerberg and Troy D. Shelton, and
Condon Tobin Sladek Thornton PLLC, by Aaron Z. Tobin and Jared T.S.
Pace, for Plaintiff TAC Investments, LLC.

Alston & Bird LLP, by Matthew P. McGuire and Kelsey L. Kingsbery, for
Defendant John Rodgers.

Conrad, Judge.
I.
BACKGROUND

3. The following background is drawn from the amended complaint and its

attachments. (See Am. Compl., ECF No. 10.)

4. Rodgers founded Prime in 2005. (See Am. Compl. ¶ 8.) From the beginning,

he has served as the company’s president, secretary, and treasurer. (See Am. Compl.

¶ 9.)

5. When TAC became a shareholder in February 2017, it acquired half of

Prime’s outstanding shares, and Rodgers retained the other half. They entered into

a shareholders’ agreement to govern their relationship. Among other things, the

agreement limits the board of directors to two members and allows each shareholder

to appoint one. (See Am. Compl. Ex. 2 § 3(a) [“Shareholders’ Agrmt.”].) Rodgers

appointed himself to the board, while continuing to serve as president, secretary, and

treasurer. (See Am. Compl. ¶ 9.)

6. The shareholders’ agreement also specifies when and how the parties may

transfer their shares. Relevant here are the “put” and “call” rights defined in section

7. These rights allow one shareholder or the other to mandate a transfer after a

period of time has passed. The put right allows Rodgers to divest his shares at any

time starting in February 2020. (See Shareholders’ Agrmt. § 7(a).) The call right, on
the other hand, allows either Prime or TAC to force a shareholder (most likely to be

Rodgers) to sell shares starting in February 2022. (See Shareholders’ Agrmt. § 7(b).)

In either case, the share price depends on Prime’s fair market value, as calculated

through a formula comprising earnings, cash, and debt. (See Shareholders’ Agrmt.

§§ 1, 7(c), (d).)

7. Rodgers and TAC own the same number of shares but not in the same class.

All of Rodgers’s shares are common; all of TAC’s are preferred. (See Am. Compl. ¶ 11.)

The difference between the two, spelled out in the articles of incorporation, largely

has to do with dividend priority. The board is supposed to declare and pay dividends

at least twice per year “to the extent of Available Cash, if any.” (Am. Compl. Ex. 1

Art. 2, § B.II.(a).) Priority goes to TAC, as owner of the preferred stock, until the total

outlay exceeds a defined “Liquidation Amount.” (Am. Compl. Ex. 1 Art. 2, § B.II.(a).)

The preferred stock will then automatically become common. (See Am. Compl. Ex. 1

Art. 2, § B.IV.(b).) But until that point, Prime may not pay dividends on the common

stock, nor may it redeem or acquire the common stock. (See Am. Compl. Ex. 1 Art. 2,

§ B.II.(b).) Although nothing requires Prime to pay out the Liquidation Amount by a

specific date, Rodgers allegedly promised to “operate Prime so that TAC’s investment

would be repaid quickly.” (Am. Compl. ¶ 33.)

8. According to TAC, that hasn’t happened. Despite having ample cash to pay

dividends twice yearly, Prime declared a dividend once in 2017 and once in 2018, shy

of the Liquidation Amount by a wide margin. (See Am. Compl. ¶¶ 18, 19.) Since then,

Rodgers has blocked the board from declaring another, most recently in February
2020. (See Am. Compl. ¶¶ 20, 21.) TAC alleges that this was strategic: by voting to

hoard cash, Rodgers boosted the value of his put right just as it ripened. (See Am.

Compl. ¶ 54.) He then exercised the put right a week later. (See Am. Compl. ¶ 23,

Ex. 3.)

9. TAC filed suit immediately. The original complaint included a single claim,

seeking a declaratory judgment that “Rodgers may not exercise his put rights . . .

until Prime first pays TAC the Liquidation Amount in full.” (Compl. ¶ 28, ECF No.

3.) TAC’s theory was that the put right “would require Prime to purchase” Rodgers’s

shares, flouting the ban on acquisitions of common shares while preferred shares

remain outstanding. (See Compl. ¶¶ 13, 15, 24.)

10. In response, Rodgers moved to dismiss the complaint and asked for Rule 11

sanctions. (See ECF Nos. 6, 8.) The basis for each motion was the same. In his view,

the shareholders’ agreement requires TAC, not Prime, to buy the divested shares.

Rodgers contends that TAC’s contrary interpretation is untenable.

11. Shortly after Rodgers filed his motions, the coronavirus pandemic led to a

lengthy statewide stay of civil cases. When the stay lifted, TAC amended its

complaint as of right, modifying the claim for declaratory judgment and adding three

new claims. TAC continues to seek a declaration that Rodgers may not close on his

put right until the Liquidation Amount is paid. It also alleges that the shareholders’

agreement “is ambiguous as to who must purchase Rodgers’s common shares” and

seeks a declaration that Prime must do so. (Am. Compl. ¶¶ 25, 41.) In the

alternative, TAC asks the Court to reform the shareholders’ agreement so that Prime
is responsible for buying Rodgers’s shares. (See Am. Compl. ¶ 47.) In addition, TAC

claims that Rodgers breached his fiduciary duty and the covenant of good faith and

fair dealing. (See Am. Compl. ¶¶ 52, 53, 60.) The amendment mooted the motion to

dismiss but not the motion for sanctions.

12. Rodgers has again moved to dismiss the amended complaint. (See ECF No.

17.) That motion and the motion for sanctions have been fully briefed. At a hearing

on September 17, 2020, the Court directed each side to file supplemental briefs

related to jurisdiction over the claim for declaratory judgment. Both motions are now

ripe for determination.

II.
MOTION TO DISMISS

13. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the

complaint.” Isenhour v. Hutto, 350 N.C. 601, 604, 517 S.E.2d 121, 124 (1999) (citation

and quotation marks omitted). The motion should be granted only when “(1) the

complaint on its face reveals that no law supports the plaintiff’s claim; (2) the

complaint on its face reveals the absence of facts sufficient to make a good claim; or

(3) the complaint discloses some fact that necessarily defeats the plaintiff’s claim.”

Corwin v. Brit. Am. Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729, 736–37 (2018)

(citation and quotation marks omitted).

14. In deciding the motion, the Court must treat the well-pleaded allegations of

the complaint as true and view the facts and permissible inferences “in the light most

favorable to” the nonmoving party. Sykes v. Health Network Sols., Inc., 372 N.C. 326,

332, 828 S.E.2d 467, 471 (2019) (citation and quotation marks omitted). Exhibits to
the complaint are deemed to be part of it and may also be considered, see Krawiec v.

Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018), but the Court need not accept

as true any “conclusions of law or unwarranted deductions of fact,” Wray v. City of

Greensboro, 370 N.C. 41, 46, 802 S.E.2d 894, 898 (2017).

A. Declaratory Judgment

15. TAC seeks twin declarations: that Prime is the party obliged to purchase

any shares subject to Rodgers’s put right but that it may not do so until it has paid

the Liquidation Amount. Rodgers moves to dismiss the claim, arguing that the

shareholders’ agreement unambiguously requires TAC, not Prime, to buy his shares.

16. First, there is a threshold issue. An actual controversy between adverse

parties is an essential “jurisdictional prerequisite” for any claim for declaratory relief.

Gaston Bd. of Realtors, Inc. v. Harrison, 311 N.C. 230, 234, 316 S.E.2d 59, 61 (1984)

(quoting Adams v. N.C. Dep’t of Nat. & Econ. Res., 295 N.C. 683, 703, 249 S.E.2d 402,

414 (1978)). The judiciary has no power to “give a purely advisory opinion which the

parties might, so to speak, put on ice to be used if and when occasion might arise.”

Tryon v. Duke Power Co., 222 N.C. 200, 204, 22 S.E.2d 450, 453 (1942).

17. Here, the put right has an escape clause. If Rodgers disputes the valuation

of his shares after giving notice of his intent to exercise the put right, he may

withdraw the notice, making it “void for all purposes.” (Shareholders’ Agrmt. § 7(a).)

The time for Rodgers to make that decision has not yet passed. At the hearing, the

Court asked counsel whether this rendered the dispute about the put right
hypothetical and invited supplemental briefing on the issue. Both parties contend

that the dispute is ripe and that the Court has jurisdiction.

18. After careful consideration, the Court agrees. There is a live dispute

between these parties. Rodgers has exercised his put right, triggering a valuation

process and revealing an interpretive dispute about who must buy his shares. The

interpretive dispute is concrete: TAC contends that Prime must buy Rodgers’s shares;

Rodgers contends that TAC must do so. The dispute has also clouded the parties’

rights and relationship, and closing cannot take place until it is resolved. To be sure,

Rodgers could call off the transfer, and if he does, the declaratory-judgment claim

might become moot. But the potential for mootness exists in nearly all cases, whether

through settlement, dismissal, or remedial action. That potential does not make the

current dispute hypothetical or advisory.

19. It follows that TAC has stated a claim for relief. “A motion to dismiss for

failure to state a claim is seldom appropriate ‘in actions for declaratory judgments,

and will not be allowed simply because the plaintiff may not be able to prevail.’ ”

Morris v. Plyler Paper Stock Co., 89 N.C. App. 555, 557, 366 S.E.2d 556, 558 (1988)

(quoting N.C. Consumers Power, Inc. v. Duke Power Co., 285 N.C. 434, 439, 206 S.E.2d

178, 182 (1974)). A trial court should dismiss the claim only “when the complaint

does not allege an actual, genuine existing controversy.” N.C. Consumers Power, 258

N.C. at 439, 206 S.E.2d at 182. As each side contends in the supplemental briefing,

there is an actual, genuine controversy related to which entity must buy Rodgers’s

shares.
20. Rodgers argues that the issue is so one-sided in his favor that the Court

should dismiss the claim anyway. Usually, the question at this stage is not whether

TAC “is ultimately entitled to the declaration it seeks.” Legalzoom.com, Inc. v. N.C.

State Bar, 2012 NCBC LEXIS 49, at *8–9 (N.C. Super. Ct. Aug. 27, 2012). Even so,

things are not as clear as Rodgers contends.

21. Section 7(a) of the shareholders’ agreement defines the put right but does

not identify the intended purchaser. The only mention of the purchaser is in section

7(d), which governs closing procedures for the put right and the call right. That

section requires the seller—whether exercising the put right or responding to the call

right—to deliver stock certificates “for transfer to the purchasing Shareholder(s).”

(Shareholders’ Agrmt. § 7(a).) Rodgers insists that the “purchasing Shareholder”

must be TAC because the agreement defines “Shareholder” to mean Rodgers and

TAC, not Prime. That is a reasonable interpretation. But there is another reasonable

interpretation. Because Prime may exercise the call right and purchase Rodgers’s

shares, it could be a “purchasing Shareholder” too. The phrase is ambiguous. See

Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 524–

25, 723 S.E.2d 744, 748 (2012) (concluding that contractual language having “more

than one possible meaning” was ambiguous).

22. The Court therefore denies the motion to dismiss the claim for declaratory

judgment. See Johnson’s Landing Homeowners Ass’n v. Hotwire Commc’ns, LLC,

2018 NCBC LEXIS 113, at *11 (N.C. Super. Ct. Oct. 29, 2018) (denying motion to
dismiss when plaintiff alleged actual controversy); Gvest Real Estate, LLC v. JS Real

Estate Invs., LLC, 2017 NCBC LEXIS 32, at *9 (N.C. Super. Ct. Apr. 6, 2017) (same).

B. Reformation

23. As an alternative to its claim for declaratory judgment, TAC seeks to reform

the shareholders’ agreement. TAC alleges that the parties intended to make Prime

responsible for “purchasing Rodgers’s common shares upon the closing of his put

right” but failed to say so either due to a mutual mistake or TAC’s unilateral mistake.

(Am. Compl. ¶¶ 43, 47.) TAC contends that the agreement should be reformed to

align with the parties’ intent.

24. “Reformation is a well-established equitable remedy used to reframe written

instruments where, through mutual mistake or the unilateral mistake of one party

induced by the fraud of the other, the written instrument fails to embody the parties’

actual, original agreement.” Metropolitan Prop. & Cas. Ins. Co. v. Dillard, 126 N.C.

App. 795, 798, 487 S.E.2d 157, 159 (1997) (citation and quotation marks omitted). To

state a claim based on a mutual mistake, “[t]he party seeking reformation must allege

the provision that was agreed upon, the provision that was written, and that the

mistake was mutual.” Huss v. Huss, 31 N.C. App. 463, 467, 230 S.E.2d 159, 162

(1976) (citing Matthews v. Shamrock Van Lines, 264 N.C. 722, 142 S.E.2d 665 (1965)).

To state a claim based on a unilateral mistake, the plaintiff must allege, among other

things, that “the conduct of the promisor caused the improper expression.” Carter v.

West Am. Ins. Co., 190 N.C. App. 532, 537–38, 661 S.E.2d 264, 269 (2008).
25. The amended complaint adequately alleges a mutual mistake. Construed

liberally, the allegations show that the parties intended that Prime would purchase

Rodgers’s shares if he exercised his put right; that the shareholders’ agreement

mistakenly leaves the identity “ambiguous”; and that the mistake was mutual. (See

Am. Compl. ¶¶ 25, 43, 45.) This suffices to state a claim. Although Rodgers faults

TAC for failing to cite drafts, letters of intent, or other communications to evidence

the mistake, (Def.’s Br. in Supp. Mot. Dismiss 12, ECF No. 18 [“Def.’s MTD Br.”]),

“[i]t is not required that the pleader allege facts as to how and why the mutual

mistake came about,” Huss, 31 N.C. App. at 467, 230 S.E.2d at 162.

26. TAC’s allegation of a unilateral mistake falls short, however. A claim based

on unilateral mistake requires a showing that the defendant induced the mistake and

caused the error in the written document—for example, by “drafting, or having

drafted, an instrument contrary to the previous understanding of the parties and

permitting the other party to sign it without informing him thereof.” McCallum v.

Old Republic Life Ins. Co., 259 N.C. 573, 577, 131 S.E.2d 435, 438 (1963) (citation,

alterations, and quotation marks omitted). The amended complaint alleges nothing

of the sort. All that TAC alleges is that Rodgers falsely represented “that he would

operate Prime to repay TAC’s investment timely.” (Am. Compl. ¶ 46.) Even if true,

that does not show that Rodgers caused the error in the shareholders’ agreement.

“The mistake of one party to the . . . instrument, alone, not induced by the fraud of

the other, affords no ground for relief by reformation.” Crawford v. Willoughby, 192

N.C. 268, 272, 134 S.E. 494, 496 (1926); see Lefever v. Taylor, 2009 N.C. App. LEXIS
1243, at *18 (N.C. Ct. App. July 21, 2009) (affirming summary judgment because

plaintiff had not alleged “that the inclusion of [a] one-year limitation was induced by

the mistake, fraud or misrepresentation of defendant”).

27. The Court therefore denies the motion to dismiss the claim for reformation,

limited to the alleged mutual mistake.

C. Breach of Fiduciary Duty and Constructive Fraud

28. In its third count, TAC asserts claims for breach of fiduciary duty and

constructive fraud. The parties dispute whether the amended complaint adequately

alleges a fiduciary relationship between Rodgers and TAC, which is an essential

element of each claim. See, e.g., Panzino v. 5Church, Inc., 2020 NCBC LEXIS 17, at

*7–8 (N.C. Super. Ct. Feb. 12, 2020); Brown v. Secor, 2017 NCBC LEXIS 65, at *18–

19 (N.C. Super. Ct. July 28, 2017).

29. In general, shareholders “do not owe a fiduciary duty to each other or to the

corporation.” Freese v. Smith, 110 N.C. App. 28, 37, 428 S.E.2d 841, 847 (1993).

Majority shareholders have a duty to protect the minority, but Rodgers is not a

majority shareholder. He owns exactly 50 percent of Prime’s stock, (see Am. Compl.

¶ 11). See Potts v. KEL, LLC, 2019 NCBC LEXIS 30, at *11–12 (N.C. Super. Ct. May

9, 2019) (noting that shareholder with 50 percent interest is not a majority

shareholder).

30. TAC contends that Rodgers is a controlling shareholder, if not a majority

shareholder. (See Pl.’s Opp’n Mot. Dismiss 11–14, ECF No. 27.) “[O]ur Supreme

Court has not decided whether a minority shareholder exercising actual control over
a corporation owes a duty to other shareholders.” Panzino, 2020 NCBC LEXIS 17, at

*12 (citing Corwin, 371 N.C. at 616, 821 S.E.2d at 737). Even if that were the law,

though, TAC has not adequately alleged that Rodgers wields actual control. The

parties entered into an arms’-length shareholders’ agreement that gives each

substantial rights, including an equal say on the board of directors. It is an

arrangement that allows Rodgers to withhold his consent and block corporate action

but not to control the corporation. See Corwin, 371 N.C. at 618, 821 S.E.2d at 738

(observing that a shareholder with “a contractual right to withhold its consent and

effectively veto any dividend payment” does not become a controlling shareholder by

exercising that right); Upchurch v. Sapp, 2020 NCBC LEXIS 118, at *11–12 (N.C.

Super. Ct. Oct. 8, 2020) (granting motion to dismiss because complaint lacked

allegations of control); Potts, 2019 NCBC LEXIS 30, at *12–14 (granting summary

judgment because shareholders had equal power on board of directors).

31. At the hearing, TAC suggested that Rodgers “holds all the cards” in their

relationship even if he is not a controlling shareholder. But again, TAC is far from

powerless. It has the same voting rights as Rodgers. (See Am. Compl. Ex. 1 Art. 2

§§ A.III., B.I.) And it controls half the board of directors. (See Shareholders’ Agrmt.

§ 3(a)(i).) TAC agreed to this division of rights in the sort of arms’-length transaction

that does “not typically give rise to fiduciary duties.” Dallaire v. Bank of Am., N.A.,

367 N.C. 363, 368, 760 S.E.2d 263, 266 (2014).

32. The Court therefore dismisses the claims for breach of fiduciary duty and

constructive fraud.
D. Breach of Implied Covenant of Good Faith and Fair Dealing

33. The final claim is for breach of the implied covenant of good faith and fair

dealing. “In every contract there is an implied covenant of good faith and fair dealing

that neither party will do anything which injures the right of the other to receive the

benefits of the agreement.” Bicycle Transit Auth., Inc. v. Bell, 314 N.C. 219, 228, 333

S.E.2d 299, 305 (1985) (citation and quotation marks omitted). TAC’s claim is based

on allegations that the parties agreed Prime would pay dividends twice each year but

that Rodgers used his position as officer and director to halt the payments.

34. Rodgers argues, first, that the claim must be dismissed because TAC has

not also alleged a breach of the shareholders’ agreement. (See Def.’s MTD Br. 21.)

This is incorrect. “While implied covenant claims are nearly always paired with a

breach of contract claim in North Carolina practice, they need not be.” Vitaform, Inc.

v. Aeroflow, Inc., 2020 NCBC LEXIS 132, at *13 (N.C. Super. Ct. Nov. 4, 2020) (citing

Richardson v. Bank of Am., N.A., 182 N.C. App. 531, 556, 643 S.E.2d 410, 426 (2007)).

35. Next, Rodgers contends that a plaintiff may assert an independent claim for

breach of the implied covenant only “where a special relationship exists between the

parties, such as contracts for funeral services and insurance.” (Def.’s MTD Br. 20,

21–22.) As one federal district court has observed, this is “an incorrect over-

generalization of various North Carolina state appellate cases.” Robinson v. Deutsche

Bank Nat’l Tr. Co., 2013 U.S. Dist. LEXIS 50797, at *39–40 n.11 (E.D.N.C. Apr. 9,

2013). Our courts have not limited the claim in that fashion. See, e.g., Maglione v.
Aegis Fam. Health Ctrs., 168 N.C. App. 49, 58, 607 S.E.2d 286, 292 (2005) (addressing

claim based on one party’s exercise of discretionary right under contract).

36. The Court therefore denies the motion to dismiss the claim. See Richardson

v. Utili-Serve, LLC, 2020 NCBC LEXIS 135, at *9–11 (N.C. Super. Ct. Nov. 17, 2020)

(denying motion to dismiss claim based on LLC member’s discretionary right under

operating agreement).

III.
MOTION FOR SANCTIONS

37. Next, the Court turns to Rodgers’s motion for sanctions. This motion relates

to the original complaint, which alleged that “[a]n exercise of Rodgers’ put right would

require Prime to purchase Rodgers’ common shares, in accordance with the terms of

the Shareholders’ Agreement.” (Compl. ¶ 13.) Rodgers contends that the allegation

is baseless, contradicted by the plain text of the agreement. (See Def.’s Br. in Supp.

Mot. Sanctions 6–7, ECF No. 9.)

38. Rule 11 requires every pleading to be signed by an attorney, certifying that

it “is (1) well grounded in fact; (2) warranted by existing law . . . (legal sufficiency);

and (3) not interposed for any improper purpose.” Bryson v. Sullivan, 330 N.C. 644,

655, 412 S.E.2d 327, 332 (1992). “A breach of the certification as to any one of these

three prongs is a violation of the Rule.” Id.

39. Rodgers does not allege an improper purpose. Only the factual and legal

sufficiency of the original complaint are at issue. The test for factual sufficiency is

whether the alleged offender made “a reasonable inquiry into the facts” and, after

assessing that inquiry, “reasonably believed that his position was well grounded in
fact.” Kohler Co. v. McIvor, 177 N.C. App. 396, 402, 628 S.E.2d 817, 822 (2006)

(citation and quotation marks omitted). The test for legal sufficiency is whether the

pleading is facially plausible and, if not plausible, whether the alleged offender made

a reasonable inquiry into the law. See Ward v. Jett Props., LLC, 191 N.C. App. 605,

607–08, 663 S.E.2d 862, 864 (2008). “[I]n determining compliance with Rule 11,

courts should avoid hindsight and resolve all doubts in favor of the signer.” Twaddell

v. Anderson, 136 N.C. App. 56, 70, 523 S.E.2d 710, 720 (1999) (citation and quotation

marks omitted).

40. The Court concludes that the original complaint was factually and legally

sufficient for at least three reasons. First, TAC attached the shareholders’ agreement

to the complaint, confirming that it made a reasonable inquiry into its terms. (See

Compl. Ex. 2.) Second, the shareholders’ agreement is ambiguous. As noted, section

7(a) does not say who is responsible for purchasing Rodgers’s shares. Rodgers bases

his interpretation on an oblique reference to “the purchasing Shareholder(s)” in

section 7(d). His interpretation of that phrase is reasonable, but so is TAC’s. The

claim is facially plausible. Third, Rodgers’s put notice does not identify his intended

counterparty. TAC says it understood that Rodgers intended to make Prime the

purchaser. (See Pl.’s Opp’n Mot. Sanctions 8, ECF No. 11.) In hindsight, that

understanding was erroneous; judged at the time, though, it supports the plausibility

of TAC’s claim and the reasonableness of its belief that the claim was well grounded.

41. Rodgers also points to a guarantee given by TAC’s principal, Greg Lindberg.

The document states, in relevant part, that Lindberg guarantees “the due and
punctual payment by [TAC] of any amounts required to be paid to [Rodgers] upon

exercise of a Put Right or a Call Right under” the shareholders’ agreement. (Def.’s

Br. in Supp. Mot. Sanctions Ex. B.) This parol evidence supports Rodgers’s position,

but it does not conclusively resolve the ambiguity. This is particularly true given that

Rodgers filed his motion before the parties began discovery, which remains open.

Contractual ambiguities are questions of fact and should be resolved on the merits

after discovery, not through the lens of a prediscovery motion under Rule 11.

42. The Court denies the motion for sanctions.

IV.
CONCLUSION

43. For all these reasons, the Court GRANTS in part and DENIES in part the

motion to dismiss. The claims for breach of fiduciary duty and constructive fraud are

DISMISSED. The Court DENIES the motion to dismiss the claims for declaratory

judgment, reformation (limited to the alleged mutual mistake), and breach of the

implied covenant of good faith and fair dealing.

44. The Court DENIES the motion for sanctions.

SO ORDERED, this the 7th day of December, 2020.

/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases