JT RUSSELL AND SONS, INC. v. RUSSELL, 2024 NCBC 13

2024 NCBC 13Ncbizct

Abrir fonte

Texto completo

JT Russell and Sons, Inc. v. Russell, 2024 NCBC 13.
STATE OF NORTH CAROLINA
STANLY COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
23 CVS 363
JT RUSSELL AND SONS, INC.,
Plaintiff,
v.
ATLAS JAMES RUSSELL; THE
TILLERY TRADITION, INC.; and
MID-EASTERN ASPHALT, LLC,
Defendants.
ATLAS JAMES RUSSELL,
individually and derivatively on
behalf of JT RUSSELL AND SONS,
INC., Counterclaim
Plaintiff,
v.
JT RUSSELL AND SONS, INC.;
ROBERT E. RUSSELL; RAYMOND
RUSSELL; and TONY W. RUSSELL,
Counterclaim
Defendants.
ORDER AND OPINION ON MOTIONS
TO DISMISS PLAINTIFF’S CLAIMS
1. JT Russell and Sons, Inc. (“JT Russell”) is a family business. In this lawsuit,
it alleges that Atlas James (“Jim”) Russell, a onetime officer, unlawfully diverted its
assets to benefit himself, his son, and two companies that he partly owns. Jim denies
these allegations and has moved to dismiss some of the claims against him. His fellow
defendants—The Tillery Tradition, Inc. and Mid-Eastern Asphalt, LLC—have
likewise moved to dismiss certain claims. For the following reasons, the Court
GRANTS Mid-Eastern Asphalt’s motion and GRANTS in part and DENIES in
part Jim’s and Tillery Tradition’s motions.1
Troutman Pepper Hamilton Sanders LLP, by William C. Mayberry,
Daniel Prichard, William J. Farley, and Jacquelyn Arnold, for Plaintiff
JT Russell and Sons, Inc.
Ellis & Winters LLP, by Pamela S. Duffy and Tyler Jameson, for
Defendant Atlas James Russell.
Fox Rothschild LLP, by Ashley Barton Chandler and Neale T. Johnson,
for Defendants The Tillery Tradition, Inc. and Mid-Eastern Asphalt,
LLC.
Bell, Davis & Pitt, P.A., by Edward B. Davis, for Counterclaim
Defendants Robert E. Russell, Raymond Russell, and Tony W. Russell.
Conrad, Judge.
I.
BACKGROUND
2. The Court does not make findings of fact on a motion to dismiss. The
following background assumes that the allegations of the amended complaint are
true.
3. JT Russell has been in the asphalt and road construction business for nearly
sixty years. At issue here are JT Russell’s allegations that Jim—an officer from 1998
to 2018 and still a minority shareholder today—abused his official position
throughout his twenty-year tenure by channeling company money and resources
toward his other personal and business interests. (See Am. Compl. ¶¶ 2, 3, 29, ECF
No. 15.)
1 Jim has also counterclaimed against JT Russell and some of its officers and directors. A
separate opinion addresses the motions to dismiss his counterclaims.
4. One of these interests is Tillery Tradition, a country club and residential
community in which Jim is an officer and shareholder. As alleged, Jim secretly
funded Tillery Tradition’s development and built much of its infrastructure using JT
Russell’s cash, equipment, and workers. Jim also named JT Russell as a guarantor
on two loans taken by Tillery Tradition and advanced dividends to himself so that he
could repay a third loan. At no point did Jim seek or get the approval of JT Russell’s
shareholders or directors for these activities. (See Am. Compl. ¶¶ 32, 36, 37, 40, 56–
58, 60, 61, 68, 71, 72, 77.)
5. According to JT Russell, Jim and Tillery Tradition agreed after the fact to
pay back all the cash used to fund the community’s development. But they didn’t
follow through. At the end of 2019, after relieving Jim of his official duties, JT Russell
wrote to Tillery Tradition to demand repayment of nearly $11 million in principal and
interest. Tillery Tradition did not respond. (See Am. Compl. ¶¶ 45, 48, 50–54.)
6. Another of Jim’s interests is Mid-Eastern Asphalt, which he formed in 2013.
Mid-Eastern Asphalt is itself a member of another company called JTR Asphalt, LLC.
Some allegations concerning these entities point to trademark infringement: that
JTR Asphalt’s name misleads customers into believing that it is affiliated with JT
Russell when it is not. Other allegations point to a scheme involving sales of liquid
asphalt to JT Russell by a company called SWT Group. How that scheme worked is
unclear; the most that can be said is that Jim supposedly used the business
relationship with SWT Group to divert profits to JTR Asphalt (and, thus, to
Mid-Eastern Asphalt and himself). (See Am. Compl. ¶¶ 83, 85, 98, 102, 104, 106,
107.)
7. In addition to advancing his personal interests, Jim allegedly dished out
favors to his son, Nathan. Among other things, Jim let Nathan run a competing
business (NJR Group, Inc.) while employed by JT Russell, engaged NJR Group as a
subcontractor for JT Russell, and gave NJR Group jobs that JT Russell had bid for
and won. (See Am. Compl. ¶¶ 125, 126, 128–30.)
8. Based on these allegations, JT Russell sued Jim, Tillery Tradition, and
Mid-Eastern Asphalt. The amended complaint includes claims for breach of fiduciary
duty and constructive fraud (against Jim only); account stated (against Tillery
Tradition only); conversion, unjust enrichment, and breach of contract (against Jim
and Tillery Tradition); and unfair or deceptive trade practices under N.C.G.S. § 75-1.1
(against Jim, Tillery Tradition, and Mid-Eastern Asphalt). There is also a remedial
claim for constructive trust.
9. Jim, Tillery Tradition, and Mid-Eastern Asphalt have each moved to dismiss
some of these claims under Rule 12(b)(6) of the North Carolina Rules of Civil
Procedure. (See ECF Nos. 20, 21, 24.) The motions have been fully briefed, and the
Court held a hearing on 17 January 2024. The motions are ripe for decision.
II.
ANALYSIS
10. A motion to dismiss for failure to state a claim “tests the legal sufficiency of
the complaint.” Isenhour v. Hutto, 350 N.C. 601, 604 (1999) (citation and quotation
marks omitted). Dismissal is proper 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 (2018) (citation and quotation marks omitted). In deciding the motion, the
Court must treat all well-pleaded allegations as true and view the facts and
permissible inferences in the light most favorable to the nonmoving party. See, e.g.,
Sykes v. Health Network Sols., Inc., 372 N.C. 326, 332 (2019).
A. Section 75-1.1
11. Section 75-1.1 states that “unfair or deceptive acts or practices in or affecting
commerce” are “unlawful.” Our Supreme Court has held that this language is broad
enough “to regulate a business’s regular interactions with other market participants”
but not so broad as to capture conduct “solely related to the internal operations of” a
business. White v. Thompson, 364 N.C. 47, 51–52 (2010). Thus, “any unfair or
deceptive conduct contained solely within a single business is” not in or affecting
commerce and “not covered by” the statute. Id. at 53; see also Nobel v. Foxmoor Grp.,
380 N.C. 116, 121–22 (2022).
12. JT Russell’s claim is rooted in Jim’s alleged advancement of his own
interests at its expense: funneling cash and services to Tillery Tradition, siphoning
profits through Mid-Eastern Asphalt, and diverting corporate opportunities to his
son’s business. Jim, Tillery Tradition, and Mid-Eastern Asphalt argue that these
misuses of corporate resources, if true, are matters internal to JT Russell and, thus,
not in or affecting commerce within the meaning of section 75-1.1. JT Russell
responds that its allegations go beyond its internal operations because they involve
transactions with outside entities that occurred in the broader marketplace.
13. This is a well-worn area of law. The docket brims with section 75-1.1 claims
alleging that a rogue owner or officer abused his official position to further personal
interests. Uniformly, our appellate courts and this Court have held that an insider’s
misappropriation of corporate resources and usurpation of corporate opportunities
are internal matters that are not in or affecting commerce, even when the insider
diverts those resources and opportunities to his own separate business entity or to a
family member. Various rationales support these decisions, the most powerful of
which is that any unfairness arising from this kind of insider misconduct occurs
within the company rather than in regular interactions with other market
participants. See White, 364 N.C. at 54 (concluding that partner’s diversion of
corporate opportunities to his competing business involved “conduct within the ACE
partnership”).2
2 See also, e.g., Conservation Station, Inc. v. Bolesky, 2023 NCBC LEXIS 164, at *29 (N.C.
Super. Ct. Dec. 12, 2023) (“Bolesky’s formation of CTS and usurpation of CSI’s corporate
opportunities was not in or affecting commerce for purposes of” section 75-1.1.); Langley v.
Autocraft, Inc., 2023 NCBC LEXIS 95, at *22 (N.C. Super. Ct. Aug. 7, 2023) (“[T]he fact that
Langley formed LBM and used that entity to usurp some of Autocraft’s opportunities does
not transform the misconduct into an unfair or deceptive trade practice that affected
commerce.”); Poluka v. Willette, 2021 NCBC LEXIS 105, at *17–21 (N.C. Super. Ct. Dec. 2,
2021) (“The mere presence of BR Ventures as a potential beneficiary of Willette’s alleged
wrongful conduct does not alter the fundamental character of this internal dispute.”);
Botanisol Holdings II, LLC v. Propheter, 2021 NCBC LEXIS 94, at *26–28 (N.C. Super. Ct.
Oct. 18, 2021) (“The fact that another entity or entities benefitted . . . does not make the
dispute one ‘in and affecting commerce.’ ”); Kane v. Moore, 2018 NCBC LEXIS 184, at *13–
14 (N.C. Super. Ct. Dec. 4, 2018) (“North Carolina courts have consistently held that
allegations that a corporate manager breached fiduciary duties by diverting opportunities
from a corporation to [himself], or to other third-party businesses the manager controlled,
does not amount to unfair conduct ‘in or affecting commerce.’ ”); LLG-NRMH, LLC v. N.
Riverfront Marina & Hotel, LLLP, 2018 NCBC LEXIS 105, at *11 (N.C. Super. Ct. Oct. 9,
14. Add this case to the pile. Over and over, the amended complaint accuses
Jim of “sabotage,” “theft,” “pillaging,” “loot[ing],” and “personally profiting” from the
abuse of his official position within JT Russell. (Am. Compl. ¶¶ 1, 14, 15, 17, 18, 19.)
It is neither here nor there that Jim may have routed the fruits of his theft to or
through separate entities (Tillery Tradition, Mid-Eastern Asphalt) and family
members (Nathan, NJR Group). The unfairness of his conduct, if any, is wholly
internal to JT Russell. See White, 364 N.C. at 53–54 (holding that section 75-1.1 did
not apply to partner’s diversion of opportunities to his separate business and away
from the partnership); Alexander v. Alexander, 250 N.C. App. 511, 517 (2016) (holding
that insider’s payments made “for the benefit of himself and his family members are
more properly classified as the misappropriation of corporate funds within a single
entity rather than commercial transactions between separate market participants”).
15. The cases cited by JT Russell are inapposite for that reason. There, unlike
here, the claims involved “buyer-seller relations in a business setting,” Sara Lee Corp.
v. Carter, 351 N.C. 27, 32–33 (1999), and “misrepresentations to [third-party] clients,”
Wilkie v. Stanley, 2011 NCBC LEXIS 11, at *10 (N.C. Super. Ct. Apr. 20, 2011). The
2018) (“That Schoninger advanced the interests of his own entities at the expense of the
Harnett Entities does not change the fundamental character of the dispute.” (citation and
quotation marks omitted)); Potts v. KEL, LLC, 2018 NCBC LEXIS 24, at *15 (N.C. Super. Ct.
Mar. 27, 2018) (“Rives may have carried out his . . . misappropriation of Steel Tube’s assets
by channeling money and equipment to Elite Tube and diverting a corporate opportunity to
KEL. But the unfairness of these actions, if any, inheres in the relationship between Potts
and Rives as co-owners of Steel Tube.”); JS Real Est. Invs. LLC v. Gee Real Est., LLC, 2017
NCBC LEXIS 104, at *21 (N.C. Super. Ct. Nov. 9, 2017) (“The fact that Defendants channeled
management fees to Gvest Capital, an outside entity, does not change the fundamental
character of the dispute.”); Bandy v. Gibson, 2017 NCBC LEXIS 66, at *21 (N.C. Super. Ct.
July 26, 2017) (“Any indirect dealings that Margaret or Perfect Fit had with other market
participants was incidental to the alleged unfair conduct that took place solely within Perfect
Fit.”).
unfairness, in those circumstances, was not internal. It “occurred in the broader
marketplace.” Powell v. Dunn, 2014 NCBC LEXIS 3, at *10 (N.C. Super. Ct. Jan. 28,
2014).
16. JT Russell also argues in passing that JTR Asphalt has used the letters
“JTR” to trade on its name and mislead customers, all of which is conduct in or
affecting commerce. Without doubt, trademark infringement may serve as a
predicate for a section 75-1.1 claim. See Ray Lackey Enters., Inc. v. Vill. Inn Lakeside,
Inc., 2016 NCBC LEXIS 9, at *37 (N.C. Super. Ct. Jan. 29, 2016). But JT Russell has
not pleaded the elements of trademark infringement. Nor has it alleged a basis for
attributing trademark infringement by JTR Asphalt, a nonparty, to Jim.
17. For all these reasons, the Court concludes that JT Russell has not alleged
that Jim, Tillery Tradition, or Mid-Eastern Asphalt committed any unfair or
deceptive acts in or affecting commerce within the meaning of section 75-1.1. The
Court therefore dismisses this claim.
B. Breach of Contract & Account Stated
18. JT Russell’s claims for breach of contract and account stated are based on
allegations that Jim and Tillery Tradition promised, expressly or implicitly, to repay
millions of dollars in undocumented transfers. Jim seeks to dismiss the claim for
breach of contract; Tillery Tradition seeks to dismiss the claim for account stated.
19. Breach of Contract Against Jim. The elements of a claim for breach of
contract are the existence of a valid contract and a breach of that contract’s terms.
See Poor v. Hill, 138 N.C. App. 19, 26 (2000). “Our system of notice pleading means
the bar to plead a valid contract is low.” Lannan v. Bd. of Governors of the Univ. of
N.C., 285 N.C. App. 574, 596 (2022) (citation and quotation marks omitted); see also
Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *11 (N.C. Super. Ct.
June 19, 2019) (“[S]tating a claim for breach of contract is a relatively low bar.”).
20. JT Russell’s allegations, though succinct, are sufficient. Viewed in the light
most favorable to JT Russell, the allegations show that Jim offered to pay back all
the money that he had transferred to Tillery Tradition without board approval, that
the amount of repayment would be $9 million, that JT Russell accepted that offer,
and that the parties formed a valid contract. The allegations also show that Jim then
breached this contract by failing to pay what he had promised. Having thus alleged
the existence of a contract and a breach of its terms, JT Russell has stated a claim for
relief. (See Am. Compl. ¶¶ 45, 302–05.)
21. The main argument in Jim’s opening brief rests on a misreading of the claim.
He points to allegations that he guaranteed Tillery Tradition’s debt to JT Russell in
a series of written agreements between 2012 and 2017, (see Am. Compl. ¶¶ 46, 47),
and goes on to argue that these guaranties cannot support a claim for breach of
contract because they expired and are no longer enforceable. Jim’s argument misses
the mark because JT Russell bases its claim on a promise to repay the transfers that
is distinct from the written guaranties. (See Am. Compl. ¶¶ 45, 302.)
22. Separately, Jim argues that any oral agreement to repay Tillery Tradition’s
debt would be barred by the statute of frauds. It is true that a “promise to answer
the debt, default or miscarriage of another person” is unenforceable unless
memorialized in writing and signed by the promisor. N.C.G.S. § 22-1. Construed
liberally, though, the amended complaint alleges that Jim promised to pay his own
debts attributable to breaches of the fiduciary duties that he owed to JT Russell.
Section 22-1 “is inapposite regarding the payment of one’s own debts.” Cooper v.
Cameron, 2015 N.C. App. LEXIS 337, at *13 (N.C. Ct. App. May 5, 2015)
(unpublished).
23. Jim’s reply brief argues that the amended complaint lacks particularized
allegations about when the contract was formed, whether the contract had other
material terms, and what consideration JT Russell promised in return. In its
discretion, the Court declines to consider arguments “raised by the moving party for
the first time in a reply brief.” BCR 7.7.
24. For these reasons, the Court denies Jim’s motion to dismiss as to JT
Russell’s claim for breach of contract.
25. Account Stated Against Tillery Tradition. “An account stated is by
nature a new contract to pay the amount due based on the acceptance of or failure to
object to an account rendered.” Carroll v. McNeill Indus., Inc., 296 N.C. 205, 209
(1978). To plead its claim, JT Russell must allege that it calculated “the balance due,”
that it submitted a statement of account to Tillery Tradition, that Tillery Tradition
acknowledged “the correctness of that statement,” and that Tillery Tradition made a
promise, express or implied, “to pay the balance due.” Id.
26. Tillery Tradition begins by arguing that a statement of account usually
takes the form of an invoice or periodic billing statements. JT Russell’s
correspondence, according to Tillery Tradition, was neither. It contends that JT
Russell sent a demand for repayment and an invitation to negotiate, not a true
statement of account.
27. This is a question for discovery. The relevant correspondence is not attached
to the amended complaint (the operative pleading), and the facts concerning JT
Russell’s transfers of funds to Tillery Tradition are disputed and undeveloped.
Furthermore, Tillery Tradition has not cited any binding authority that limits a claim
for account stated to the regular exchange of goods and services documented by
invoices or periodic billing statements. The purpose of the claim is to enforce “a
promise to pay a pre-existing debt,” whether that debt arises from a sale of goods, a
loan grant, or some other type of transaction. Id. at 210 (quoting 6 Corbin on
Contracts § 1307, at 244 (1962)). And the statement of account that the claim
requires is simply a statement by the creditor calculating the amount of debt owed
by the debtor. Construed in the light most favorable to JT Russell, that is exactly
what the amended complaint alleges: that Jim made a series of undocumented
transfers of funds from JT Russell to Tillery Tradition and that JT Russell later
“calculated the balance due” and “submitted” a “statement of the indebtedness” to
Tillery Tradition. (Am. Comp. ¶¶ 51, 307, 308.)
28. Next, Tillery Tradition argues that the claim is barred by the three-year
statute of limitations that applies to claims for account stated. See N.C.G.S. § 1-52(1).
“A statute of limitation . . . may be the basis of a 12(b)(6) dismissal if on its face the
complaint reveals the claim is barred.” Forsyth Mem’l Hosp., Inc. v. Armstrong World
Indus., Inc., 336 N.C. 438, 442 (1994). Tillery Tradition contends that the claim is
untimely because JT Russell submitted the statement of account in December 2019
but filed this suit in May 2023, more than three years later.
29. This, too, is a question for discovery. JT Russell alleges that Tillery
Tradition implicitly agreed to the correctness of the statement of account when it
failed to object within a reasonable time, (Am. Compl. ¶ 310). See Mast v. Lane, 228
N.C. App. 294, 297 (2013) (noting that “agreement may be implied by failure of the
party to be charged to object within a reasonable time after the other party has
calculated the balance and submitted a statement of the account” (cleaned up)).
“Consequently, an account stated cause of action did not accrue, if at all, until the
expiration of a reasonable amount of time during which [Tillery Tradition] could have
objected to the statement at issue.” Channel Grp., LLC v. Cooper, 2010 N.C. App.
LEXIS 312, at *12 (N.C. Ct. App. Feb. 16, 2010) (unpublished). What constitutes a
reasonable time is a question of fact that cannot be resolved from the face of the
amended complaint.
30. Accordingly, the Court denies the motion to dismiss the claim for account
stated.
C. Constructive Trust
31. In its opposition brief, JT Russell states that it does not object to dismissal
of its constructive trust claim so long as it may still pursue the imposition of a
constructive trust as a remedy. See Haddock v. Volunteers of Am., 2021 NCBC LEXIS
8, at *19 (N.C. Super. Ct. Jan. 22, 2021) (“A constructive trust is not a standalone
claim for relief or cause of action. Rather, it is a remedy which may or may not be
available depending on the underlying causes of action.” (cleaned up)). The Court
therefore dismisses the remedial claim for constructive trust without prejudice to JT
Russell’s right to seek a constructive trust as a remedy at a later stage.
III.
CONCLUSION
32. For these reasons, the Court GRANTS Mid-Eastern Asphalt’s motion to
dismiss and GRANTS in part and DENIES in part Jim’s and Tillery Tradition’s
motions to dismiss as follows:
a. The Court DISMISSES JT Russell’s section 75-1.1 claim against Jim,
Tillery Tradition, and Mid-Eastern Asphalt with prejudice.
b. The Court DISMISSES JT Russell’s claim for constructive trust
without prejudice to its right to pursue a constructive trust as a remedy.
c. The Court DENIES the motions to dismiss JT Russell’s claims for
breach of contract and account stated.
SO ORDERED, this the 28th day of February, 2024.
/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases

Continue sua pesquisa no ChatGPT ou Claude

Conecte o Omnilex para pesquisar o corpus jurídico pelo seu assistente de IA.