Mountaineer Fire & Rescue Equip., LLC v. City Nat'l Bank of W. Va.

• Citation: 854 S.E.2d 870
• Decision Date: 20 November 2020
• Docket Number: No. 18-0984,18-0984
• Court: Supreme Court of West Virginia
• Parties: MOUNTAINEER FIRE & RESCUE EQUIPMENT, LLC, Brian Cavender, and Walter Cavender, Petitioners v. CITY NATIONAL BANK OF WEST VIRGINIA, and Joe Beam, Respondents

854 S.E.2d 870

MOUNTAINEER FIRE & RESCUE EQUIPMENT, LLC, Brian Cavender, and Walter Cavender, Petitioners

v.CITY NATIONAL BANK OF WEST VIRGINIA, and Joe Beam, Respondents

No. 18-0984

Supreme Court of Appeals of West Virginia.

Submitted: September 15, 2020

Filed: November 20, 2020

Concurring and Dissenting Opinion of Justice Jenkins November 23, 2020

Michael D. Weikle, Esq.¹ , Tiffin, Ohio, Counsel for Petitioners.

Ancil G. Ramey, Esq., Steptoe & Johnson PLLC, Huntington, West Virginia, Counsel for Respondent City National Bank of West Virginia.

Miles B. Berger, Esq., Romano & Associates, PLLC, Charleston, West Virginia, Counsel for Respondent Joe Beam.

HUTCHISON, Justice:

In this appeal from the Circuit Court of Kanawha County, we examine orders dismissing various counterclaims and crossclaims from this action. The parties’ arguments about the dismissal orders seemingly implicate the complicated interplay between the duties of banks toward their customers, the Uniform Commercial Code, and the statutory fiduciary duties of the members of limited liability companies.

At its heart, however, this appeal focuses on a narrow issue: the interpretation and application of Rule 12(b)(6) of the West Virginia Rules of Civil Procedure. That rule, although brief in length, can be devastating in application because it permits a trial court to dismiss a pleading that, beyond doubt, has "fail[ed] to state a claim upon which relief can be granted." The petitioners in this appeal argue that the circuit court improperly granted motions, pursuant to Rule 12(b)(6), to dismiss all claims they asserted against both of the respondents. In part, the petitioners assert that the circuit court improperly considered exhibits outside the pleadings that one respondent attached to its motion to dismiss.

As we set forth below, we find that the petitioners sufficiently asserted claims against both respondents, and that the respondents failed to show otherwise beyond doubt. We further find that a circuit court may consider only those exhibits that are intrinsic to the drafting of the pleading under challenge.

I. Factual and Procedural Background

When we examine a circuit court's order dismissing a pleading under Rule 12(b)(6), we are required to accept the pleading's allegations as true. As we have often said, "Since the preference is to decide cases on their merits, courts presented with a motion to dismiss for failure to state a claim construe the complaint in the light most favorable to the plaintiff, taking all allegations as true." Sedlock v. Moyle , 222 W. Va. 547, 550, 668 S.E.2d 176, 179 (2008) (citing John W. Lodge Distrib. Co. v. Texaco, Inc. , 161 W. Va. 603, 605, 245 S.E.2d 157, 158 (1978) ). Hence, we begin with a recitation of the crossclaims and counterclaims asserted by the petitioners against the respondents in their pleading.

Petitioners Walter Cavender and Brian Cavender are experienced firefighters and EMTs. Working together for 15 years, the Cavenders sold fire safety and rescue equipment.

In 2011, the Cavenders met with respondent Joe Beam, who presented himself as a successful businessman with an excellent credit record and a long-established banking relationship with the other respondent, City National Bank of West Virginia, Inc. ("City National"). The Cavenders reached an agreement with Mr. Beam to create a new limited liability company, petitioner Mountaineer Fire & Safety Equipment, LLC ("Mountaineer Fire"). The three men agreed that the Cavenders would continue to sell equipment to their many existing customers, while Mr. Beam would provide the Cavenders with office space and an office manager to handle mail, accounting, and other paperwork. The parties agreed that the Cavenders would be the majority owners and own 60% of Mountaineer Fire, while Mr. Beam would own 40%.

On March 11, 2011, Brian Cavender filed Articles of Organization for Mountaineer Fire with the West Virginia Secretary of State's office identifying Brian Cavender, Walter Cavender, and Mr. Beam as the only members.

Seven days later, on March 18, 2011, Brian Cavender and Mr. Beam visited City National to open a company checking account on behalf of Mountaineer Fire. City National provided them with a form resolution titled "Limited Liability Company Banking Resolution" (the "2011 Resolution"), and Brian Cavender and Mr. Beam completed and signed the form. The resolution designated Brian Cavender and Mr. Beam as the agents having authority to sign City National documents for Mountaineer Fire. The 2011 Resolution further authorized Brian Cavender and Mr. Beam to "enter into any such agreements" with City National regarding "funds, checks or items" of Mountaineer Fire. The 2011 Resolution also specified that it would remain in effect until City National received a "written notice of any amendment or revocation thereof[.]" Despite quoting language from the 2011 resolution, the petitioners did not attach a copy of the document to their pleading.

After receiving the signed 2011 Resolution, City National opened a checking account in the name of Mountaineer Fire (the "2011 account").

Over two years later, around June 27, 2013, Mr. Beam visited City National. The petitioners allege that, without notice to or authorization by Brian or Walter Cavender, and without a properly adopted corporate resolution, Mr. Beam directed City National to open a new checking account in the name of Mountaineer Fire (the "2013 account").

The petitioners assert in their pleading that City National provided Mr. Beam with a form "Limited Liability Company Authorization Resolution" to complete (the "2013 Resolution"). However, it seems Mr. Beam failed to properly complete the form 2013 Resolution. Quoting from the resolution, the petitioners point out that the form resolution required signatures from at least two members of Mountaineer Fire (the "Secretary" and "One Other Officer"); the form was signed by Mr. Beam alone. Second, quoting from the 2013 Resolution, the petitioners noted that the form provided: "This resolution supersedes resolution dated _____. If not completed, all resolutions remain in effect." Because Mr. Beam did not complete this portion, the petitioners contend that the 2011 Resolution continued to govern Mountaineer Fire's relationship with City National and, more importantly, that Brian Cavender retained the authority to act on behalf of Mountaineer Fire with City National. While the petitioners quoted language from the 2013 resolution, they did not attach a copy of the document to their pleading.

Despite Mr. Beam not having true authority from Mountaineer Fire to open an account, and despite not providing a properly adopted corporate resolution establishing his agency, the petitioners allege that City National improperly opened the new 2013 account. City National designated Mr. Beam as the only person with authority to make deposits to, and withdrawals from, the 2013 account.

In the Spring of 2017, Brian Cavender completed the sale of a fire truck on behalf of Mountaineer Fire. The sale terms reached by Brian Cavender required Mountaineer Fire to pay a $10,000 sales commission to a third party and permitted Mountaineer Fire to earn a $50,000 fee. Thereafter, Brian Cavender asked Mr. Beam several times if payment for the fire truck had been received; Mr. Beam repeatedly said it had not. On May 31, 2017, Brian Cavender went to Mountaineer Fire's office after hours to search the files kept by Mr. Beam and his office manager. The files revealed that Mountaineer Fire had in fact received full payment from the customer for the fire truck. Further, the files showed that Mr. Beam had paid himself $55,000 and had simultaneously failed to pay the third-party his commission (thereby breaching Mountaineer Fire's agreement with the third party, and adversely affecting the company's relationship with the third party).

The petitioners assert that Brian Cavender's search of the files also revealed that Mr. Beam had "made undisclosed and unapproved distributions" to himself and to other businesses he owned for services supposedly provided to Mountaineer Fire. West Virginia law provides that "[a] member [of a limited liability company] is not entitled to remuneration for services performed for a limited liability company[.]" W. Va. Code § 31B-4-403(d) (1996). Mr. Beam apparently never discussed with Brian or Walter Cavender paying himself or his other business interests from Mountaineer Fire's income, and never received proper authorization to do so.

Following discussions with Brian Cavender, Mr. Beam agreed that he would withdraw as a member from Mountaineer Fire. However, Mr. Beam allegedly refused to provide a complete accounting of Mountaineer Fire's income and expenses. Moreover, Mr. Beam asserted that he was entitled to thousands of dollars in compensation from Mountaineer Fire for services he had provided. Further, the petitioners believed that at some point Mr. Beam initiated a collection action against a customer of Mountaineer Fire, a volunteer fire department. The collection action was not successful, and the customer is demanding Mountaineer Fire pay its legal expenses. The customer now refuses to work with the petitioners, and other customers in the area will not accept the petitioners’ sales calls.

On June 8, 2017, Brian Cavender filed a report with the West Virginia Secretary of State's office listing Brian Cavender and Walter Cavender as the only members of Mountaineer Fire. Thereafter, the Cavenders opened a new checking account with a different bank on behalf of Mountaineer Fire.

The petitioners claim that Brian Cavender then approached City National and asked it to close Mountaineer Fire's accounts.² Brian Cavender presented City National with the documents filed with the Secretary of State showing Mr. Cavender was a member of the company, and, conversely, showing that Mr. Beam was not. The petitioners allege that City National refused to close the 2013 account and "falsely or...