759 Ventures, LLC v. Gcp Apartment Inv'rs, LLC

759 Ventures, LLC v. GCP Apartment Inv’rs, LLC, 2018 NCBC 42.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 17 CVS 4138

759 VENTURES, LLC and
GUARDIAN GC, LLC, a North
Carolina limited-liability company,

Plaintiffs,
ORDER AND OPINION ON
v. MOTION TO APPOINT A RECEIVER
GCP APARTMENT INVESTORS,
LLC, a Florida limited-liability
company,

Defendant.

1. Pending before the Court is Defendant GCP Apartment Investors, LLC’s

(“GCP”) Motion to Appoint a Receiver. For the following reasons, the Court DENIES

the motion without prejudice.

Shumaker, Loop & Kendrick, LLP, by Daniel R. Hansen, William H.
Sturges, Megan M. Stacy, and Steven M. Berman, for Plaintiffs.

James McElroy & Diehl, P.A., by John R. Buric and John R. Brickley,
for Defendant.

Conrad, Judge.
I.
BACKGROUND

2. This litigation arises out of a management dispute between the members of

759 Ventures, LLC, a North Carolina limited liability company that invests in real

estate. (V. Am. Compl. ¶¶ 1, 3, 4, 15, ECF No. 34 [“Compl.”].) Plaintiff Guardian GC,

LLC (“Guardian”) owns a two-thirds membership interest in 759 Ventures, and GCP

owns the other third. (Compl. ¶ 3.) At the time 759 Ventures was created in 2013,

Guardian and GCP agreed to serve as equal co-managers, though whether that
continues to be true today is hotly contested. (Operating Agreement of 759 Ventures

LLC § 6.1(a), (b), ECF No. 35 [“Op. Agr.”]; see Compl. ¶ 4.)

3. 759 Ventures does not directly own property but instead holds membership

interests “in four single-purpose [entities], each of which owns or did own real estate

in Charlotte, North Carolina.” (Compl. ¶ 15.) These subsidiary entities, all North

Carolina limited liability companies, are: (1) Vyne Residential, LLC (“Vyne”); (2) 28th

RO Commercial, LLC (“RO Commercial”); (3) 28th RO Land, LLC (“RO Land”); and

(4) Edgeline Residential, LLC (“Edgeline”). (Compl. ¶ 15.) 759 Ventures is the sole

manager of each entity. (Compl. ¶¶ 24, 63, 64, 93.)

4. The properties owned by the four subsidiaries are in various stages of

development. Vyne sold its only asset, a condominium complex, for a substantial sum

in 2016 and currently possesses only a small amount of cash. (See Compl. ¶¶ 26–27;

Aff. Mazzone ¶ 32, ECF No. 76.1.) RO Land was originally formed “to develop more

than 135 residential units” in two phases, but development has not begun, and the

land currently serves as a parking lot for tenants of the adjacent building owned by

RO Commercial. (Aff. Mazzone ¶¶ 9–10; Compl. ¶ 61.) Finally, part of Edgeline’s

property is home to thirty-six leased residential units, and the adjacent, undeveloped

land is approved for sixty-nine additional units. (Aff. Mazzone ¶ 11.)

5. It isn’t clear when Guardian and GCP began to have significant

management disagreements, but by mid-2016, their relationship was under stress.

When Vyne sold its real property, most of the proceeds were immediately distributed

to its members, including 759 Ventures. (See Compl. ¶¶ 25–33.) It appears, though,
that Vyne reserved $1.75 million at the direction of GCP, acting through its principal,

Max Mazzone. (See Compl. ¶ 34.) About six months later, Mazzone sent a letter to

Guardian stating that Vyne was distributing the reserved funds, that 759 Ventures

was making a corresponding distribution to its members, and that Guardian’s share

of the distribution would be withheld pending certain actions by Guardian. (See

Compl. ¶¶ 36–37, Ex. 7.) Guardian asserts that GCP’s actions breached 759

Ventures’ operating agreement, which authorizes distributions only “upon the

consent of those Managers holding a majority” in interest. (Op. Agr. § 7.3(b); Compl.

¶ 21.)

6. Guardian also alleges that it was locked out of important management

decisions for RO Commercial and the other properties. (See, e.g., Compl. ¶¶ 65, 94.)

In late 2016 and early 2017, for example, RO Commercial began negotiating new

leases with its commercial tenants, including Amelie’s French Bakery (“Amelie’s”).

(Compl. ¶¶ 60, 72–73.) Correspondence attached to the amended complaint reveals

sharp disagreements between Guardian and GCP about the length of any lease,

Amelie’s use of RO Land’s property for parking, and related considerations. (See

Compl. Exs. 18–20.) Guardian alleges that GCP conducted the negotiations without

Guardian’s input and did so in a way that harmed the relationship with Amelie’s and

other tenants. (See Compl. ¶¶ 65–66, 75, 84–88.)

7. Guardian brought this action in March 2017. (See ECF No. 1.) Its verified

amended complaint asserts claims, individually and derivatively on behalf of 759
Ventures, to remove GCP as manager for breaching 759 Ventures’ operating

agreement. (Compl. ¶¶ 103–24, 126–36.)

8. GCP responded by filing counterclaims, including a counterclaim for judicial

dissolution of 759 Ventures. (Def.’s Aff. Defenses, Answer & Countercl. ¶¶ 24–26,

ECF No. 53 [“Countercl.”].) GCP alleges it and Guardian “are deadlocked on

management decisions” regarding each of the properties owned by 759 Ventures’

subsidiaries. (Countercl. ¶ 11.)

9. After exchanging limited discovery, the parties attempted to resolve their

differences through voluntary mediation. During that process, the parties considered

selling the subsidiaries’ real properties. (See Jt. Mot. Am. Case Mgmt. Order ¶ 5,

ECF No. 69.) They reported an impasse in early January 2018.

10. On March 12, 2018, GCP moved to appoint a receiver to take control of 759

Ventures and its four subsidiaries pending the outcome of the litigation. (Def.’s Mot.

to Appt. Rec., ECF No. 76 [“Mot.”].) GCP asserts that it and Guardian are deadlocked

as to the management of 759 Ventures and the properties owned by each subsidiary.

(Mot. ¶ 1.) Believing that property values are “currently at a historically high level,”

GCP would prefer to sell the properties owned by RO Commercial, RO Land, and

Edgeline. (Aff. Mazzone ¶¶ 20–21.) GCP also wants to perform an audit of Vyne’s

operations and then dissolve the company. (See Aff. Mazzone ¶ 33.) It contends that

Guardian is standing in the way, demanding to hold and develop the properties. (See

Aff. Mazzone ¶¶ 9, 13, 19.)
11. Guardian opposes the motion, denying that the parties are deadlocked and

arguing that the motion is premature. According to Guardian, the record is unsettled

because the parties have not yet completed discovery on the alleged management

disagreements. Guardian also asserts that, if it were to prevail on its claim to remove

GCP as manager, any management deadlock would be lifted. Guardian has since

filed a motion for summary judgment on its claim to remove GCP as manager, which

remains pending. (ECF No. 87.)

12. The Court heard argument on May 2, 2018. At the hearing, Guardian

agreed that it would be appropriate to dissolve Vyne. Guardian also stated that it

was willing to sell the property owned by RO Land, depending on the outcome of a

feasibility study. GCP did not object to conducting such a study prior to soliciting or

entertaining offers.

13. The motion is ripe for determination.

II.
ANALYSIS

14. The question before the Court is whether to appoint a receiver to take

possession of 759 Ventures and manage its assets as a prejudgment remedy. On this

record, the answer is no.

15. The appointment of a receiver is “a harsh remedy.” Neighbors v. Evans, 210

N.C. 550, 554, 187 S.E. 796, 798 (1936). It “takes custody” of the disputed property

out of the parties’ hands “on an interlocutory order, before the court has had an

opportunity to hear the merits of the case.” Woodall v. N.C. Joint Stock Land Bank,

201 N.C. 428, 432, 160 S.E. 475, 478 (1931) (citation and quotation marks omitted).
For that reason, “[t]he right to relief must be clearly shown and also . . . that there is

no other safe and expedient remedy.” Neighbors, 210 N.C. at 554, 187 S.E. at 798.

16. For actions involving claims to dissolve an LLC, our General Assembly has

authorized trial courts to “appoint one or more persons to serve as a receiver to

manage the business of the LLC pending the court’s decision on dissolution.” N.C.

Gen. Stat. § 57D-6-04(a). That does not mean receivership is automatic or routine in

dissolution disputes. It is not. In one of the few opinions addressing section 57D-6-

04(a), this Court held that the appointment of a receiver “is contingent upon first

reaching a determination that [the moving party] will likely succeed on the merits of

[its] claim for judicial dissolution.” Battles v. Bywater, LLC, 2014 NCBC LEXIS 54,

at *20 (N.C. Super. Ct. Oct. 31, 2014); see also Witz, Biedler & Co. v. Gray, 116 N.C.

48, 55, 20 S.E. 1019, 1020 (1895) (“[P]laintiffs are not entitled to have this ancillary

relief [of the appointment of a receiver] unless they are entitled to the main relief

demanded in their complaint[.]”).

17. The premise of GCP’s claim for dissolution and its motion for appointment

of a receiver is the same: that it and Guardian “are hopelessly deadlocked on how to

manage 759 Ventures and, particularly, what to do with and how to maximize the

value of each and every asset of 759 Ventures.” (Def.’s Br. Supp. Mot. for Appt. Rec.

2, ECF No. 77 [“Br. Supp.”].) If true, this would be a valid basis for judicial

dissolution. By statute, the Court may dissolve an LLC if the complaining member

establishes that “it is not practicable to conduct the LLC’s business in conformance

with the operating agreement and” governing statutes. N.C. Gen. Stat. § 57D-6-
02(2). This language “embrace[s] . . . management deadlock as a valid grounds for

dissolution” and, in appropriate circumstances, provides a basis for the appointment

of a receiver. Battles, 2014 NCBC LEXIS 54, at *22, 24–25.

18. The deadlock in Battles was undeniable. The LLC’s “member-managers

[were] unable to reach agreement with respect to even the most basic management

decisions,” including “day-to-day operations.” Id. at *17, 22. Coupled with mutual

“accusations of corporate mismanagement and malfeasance,” this complete and

“persisting management deadlock” posed “a constant and imminent threat of

irreparable damage” to the LLC. Id. at *19. On that basis, the Court found a

likelihood of success on the underlying claim for dissolution and appointed a receiver

pending a final decision. See id. at *19–20, 24–25 .

19. Here, the evidence is far less compelling. Although the parties undoubtedly

have their disagreements, they are neither so deep nor so entrenched as to warrant

the appointment of a receiver at this relatively early stage.

20. Indeed, at the hearing, counsel acknowledged that the parties are more or

less on the same page as to two of the four properties. They now agree that Vyne

should first be audited, followed by dissolution and winding up its operations. (See

also Aff. Mazzone ¶ 33.) In addition, both parties wish to sell RO Land’s property

pending the outcome of a feasibility study, which they agree must be conducted. (See

also Aff. Mazzone ¶¶ 20–21.) Although they may not agree on all the details, it is

clear that Guardian and GCP are not deadlocked as to the appropriate next steps in

the management of Vyne and RO Land.
21. Disagreements about RO Commercial and Edgeline run deeper. GCP has

received several unsolicited offers to purchase the properties, and its desire to accept

the best offer appears to be unequivocal. (See Aff. Mazzone ¶¶ 13, 20, 22.) Guardian,

on the other hand, is content to hold and develop the property.

22. Even so, these disagreements have not made it impracticable to operate the

businesses. The properties owned by RO Commercial and Edgeline are managed by

third parties, who handle their day-to-day operations. (See Aff. Whitley ¶ 3, ECF No.

76.3.) There is some evidence that Guardian and GCP’s disagreements have made

things more challenging for the property managers, but the properties continue to

function and generate income. (See Aff. Whitley ¶ 5; Aff. Mazzone ¶¶ 12, 18.)

Edgeline, for example, holds over half a million dollars in cash and generates

significant cash flow from the payment of monthly rents. (See Aff. Mazzone ¶¶ 11,

12.) Our case law strongly disfavors the appointment of a receiver “[w]hen a business

is an active, solvent corporation or LLC.” Mooring Capital Fund, LLC v. Comstock

N.C., LLC, 2009 NCBC LEXIS 32, at *31 (N.C. Super. Ct. Nov. 13, 2009); see also

Camacho v. McCallum, 2016 NCBC LEXIS 81, at *31 (N.C. Super. Ct. Oct. 25, 2016)

(“Appointment of a receiver is a rare and drastic remedy, especially for solvent

companies, and should be used cautiously.”).

23. It would be a stretch to say Guardian and GCP agree as much as they

disagree about the operation of 759 Ventures and its subsidiaries. Their strained

relationship is unlikely to produce vigorous and efficient management. But the

record does not reflect the type of “persisting management deadlock” with respect to
“even the most basic management decisions” that required the appointment of a

receiver in Battles. See 2014 NCBC LEXIS 54, at *19, 22. Accordingly, the Court

concludes that GCP has not demonstrated a likelihood of success on its claim for

judicial dissolution.

24. Even if the record demonstrated a clear, present deadlock, two other

considerations weigh against appointing a receiver. (See Pls.’ Resp. Opp’n to Mot.

Appt. Rec. 3–5, ECF No. 86.) First, Guardian has asserted a claim to remove GCP as

manager of 759 Ventures. If Guardian prevails, then as a practical matter, that

would resolve most, if not all, management disputes. To be clear, this does not mean

that the mere existence of Guardian’s claim negates GCP’s ability to seek a

receivership pending a decision on dissolution. Rather, a measure of caution is

warranted here because removal of GCP as a manager is the point of Guardian’s

lawsuit, the claim has not yet been tested (such as, for example, through a motion to

dismiss), and Guardian’s motion for summary judgment is now pending. It would be

premature to appoint a prejudgment receiver without giving due consideration to

Guardian’s claim.

25. Second, because the appointment of a receiver is “a harsh remedy,” courts

are reluctant to act in the absence of evidence of “fraud or imminent danger that the

property will be, among other things, lost, destroyed, squandered, or wasted.”

Williams v. Liggett, 113 N.C. App. 812, 816, 440 S.E.2d 331, 333 (1994) (citing Lowder

v. All Star Mills, Inc., 301 N.C. 561, 577, 273 S.E.2d 247, 256 (1981)). In Battles, for

example, this Court held that a management deadlock was sufficient to justify the
appointment of a receiver “when coupled with” allegations that the members had

“engaged in misconduct and misappropriated” the LLC’s funds. 2014 NCBC LEXIS

54, at *24–25.

26. The allegations of fraud and misconduct in this case are rather muted. Each

side’s pleading alludes to questionable activities by the other, but the allegations

seldom rise above mere suspicion. Nothing in the record suggests that, in the absence

of a receivership, Guardian would threaten to misappropriate the assets of 759

Ventures.

27. Nor is there any concrete evidence that the properties face the threat of

imminent, irreparable harm. Vyne’s assets appear to be insubstantial, and the

parties have agreed to dissolve the company. As to RO Land, the parties have

proposed and agreed to conduct a feasibility study before selling the property. If

anything, the appointment of a receiver may complicate and delay these processes.

28. The other two subsidiaries—Edgeline and RO Commercial—hold income-

producing properties in high-value locations. Edgeline appears to be solvent and

profitable. RO Commercial faces a more challenging situation, but the parties have

taken steps to ensure its solvency, at least in the short term. (See Aff. Mazzone

¶¶ 17–18.) Although GCP insists that the parties must act now to take advantage of

historically high property values, there is always uncertainty when it comes to

predicting future market conditions. These are not the type of rare and drastic

circumstances that would “justify the immediate appointment of a receiver pending

the final outcome of the case.” Williams, 113 N.C. App. at 817, 440 S.E.2d at 334; see
also Mooring Capital Fund, 2009 NCBC LEXIS 32, at *34; Kazer v. Peterson, No. 14

CVS 293 (N.C. Super. Ct. Dec. 10, 2014) (ECF No. 94).

* * *

29. The management of 759 Ventures isn’t perfect. Its equal co-management

structure invites stalemate without the promise of easy resolution. But appointing a

receiver is a drastic remedy—a last resort. Here, the parties continue to make efforts

to overcome their differences, albeit grudgingly. In the absence of more concrete

evidence of a true management deadlock and accompanying threat of imminent

harm, the Court is reluctant to take the management of 759 Ventures out of the

parties’ hands.

30. That said, the parties have requested Court review as they work out the

next steps for Vyne and RO Land, and the Court remains willing to take appropriate

action to facilitate their agreement. The Court is also mindful of the dynamics of both

litigation and 759 Ventures’ business operations. New factual circumstances or the

resolution of one or more pending claims may warrant revisiting the issue of a

receivership in the future.

III.
CONCLUSION

31. For these reasons, the Court DENIES the motion to appoint a receiver

without prejudice.

32. The Court also ORDERS that, no later than fourteen days after entry of

this Order, Guardian and GCP shall meet and confer to develop a plan for auditing,

dissolving, and winding-up Vyne; to develop a plan for conducting a feasibility study
for the prospective sale of RO Land; and to file a stipulation or, if necessary, propose

a consent order to this effect. If the parties cannot reach full agreement, they shall

submit to the Court a joint report setting out with specificity their disagreements and

positions.

This the 9th day of May, 2018.

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