Peak Coastal Ventures, L.L.C. v. Suntrust Bank, 050511 NCSUP, 10 CVS 6676

Docket Nº:10 CVS 6676
Opinion Judge:Gale, Judge.
Attorney:W. Everette Murphrey for Plaintiff. Williams Mullen by Camden R. Webb for Defendant SunTrust Bank. The Law Firm of Hutchens, Senter & Britton, P.A. by Terry Hutchens for Defendant The Law Firm of Hutchens, Senter & Britton, P.A.
Case Date:May 05, 2011
Court:Superior Courts of Law and Equity of North Carolina

2011 NCBC 13




No. 10 CVS 6676

Superior Court of North Carolina, Forsyth

May 5, 2011

W. Everette Murphrey for Plaintiff.

Williams Mullen by Camden R. Webb for Defendant SunTrust Bank.

The Law Firm of Hutchens, Senter & Britton, P.A. by Terry Hutchens for Defendant The Law Firm of Hutchens, Senter & Britton, P.A.


Gale, Judge.

{1} THIS MATTER is before the Court on the motions to dismiss filed by Defendants SunTrust Bank and The Law Firm of Hutchens, Senter, & Britton. After considering the submissions by counsel and hearing oral arguments, for the reasons described below, the Court GRANTS Defendants' motions to dismiss the Complaint in its entirety.

{2} Plaintiff PEAK Coastal Ventures, L.L.C. ("PEAK Coastal") is a member-managed limited liability company, which has no single majority member. Two minority members, Robert Richardson ("Richardson") and Robert Pope ("Pope"), owning fifty percent (50%) of the company, caused this action to be filed in the company's name to challenge action by its third member Jeffrey Stec ("Stec") who owns the remaining fifty percent (50%). Stec secured two loans in the company's name from Defendant SunTrust Bank ("SunTrust") without written approval of a majority. Defendant The Law Firm of Hutchens, Senter & Britton, P.A. ("Hutchens, Senter & Britton" or the "law firm") represented PEAK Coastal in those loan transactions. The larger of the two loans was an acquisition and construction loan, secured by a deed of trust, which has been foreclosed upon pursuant to a final order of the Clerk of Superior Court of New Hanover County. The second loan was a line of credit facility.

The Court is called upon by these motions to determine in the first instance whether the minority member/managers of a limited liability company have standing to bring the action in the corporate name, or if not, whether the Complaint, read liberally, states an actionable derivative claim. The standing issue is amplified by the company's public filing which shows, contrary to the Complaint's allegation, that Stec was the only member/manager when the Complaint was filed. If the Court finds sufficient allegations of standing to withstand dismissal, the motions then inquire whether the substantive claims must be dismissed for failure to state a claim upon which relief may be granted. In that regard, Defendants assert that the larger loan cannot be collaterally attacked after a final judicial determination of its validity. As to the line of credit facility, Defendants contend that contract and fiduciary claims must fail, and any unfair and deceptive trade practices claim depends on those underlying claims.

The Court determines that the minority member/managers do not have standing and they have not stated a derivative claim. Assuming standing, the Complaint fails to state actionable claims upon which relief may be granted. Accordingly, the Complaint should be dismissed in its entirety.

I. Procedural History

{3} Richardson and Pope, each a minority owner of PEAK Coastal, filed this action in the company's name in Forsyth County Superior Court on September 9, 2010. The case was designated as a complex business case upon Defendant SunTrust's Notice of Designation. The Complaint alleges three claims of relief against Defendant SunTrust, including breach of contract, constructive fraud, and unfair and deceptive trade practices, and one claim against Defendant Hutchens, Senter & Britton, grounded on attorney malpractice. As to the law firm, the Complaint alleges both negligence and gross negligence. Plaintiff seeks compensatory and punitive damages. On November 12, 2010, in lieu of answer, Defendants filed separate motions to dismiss pursuant to Rule 12(b)(6), which contend that the minority member/managers had no standing to bring the corporate action, and that the claims are, in any event, without substantive merit. The law firm additionally challenges venue through its Rule 12(b)(3) motion. Plaintiff ultimately responded to these motions, but sixty-seven (67) days after the deadline. The Court considered the filings and elected not to exercise its power under its local rules to grant the motions summarily. Defendant SunTrust filed a timely reply. The Court heard oral argument on Defendants' motions. Issues beyond the briefs arose at the hearing. The Court then invited all parties to submit a supplemental brief on those issues and set a deadline for doing so. Each Defendant timely filed a supplemental brief. Plaintiff submitted two briefs, both after the deadline. Again, the Court elected to consider fully Plaintiff's late submissions.

II. Facts

{4} The facts stated presume the truth of Plaintiff's allegations and grant Plaintiff favorable inferences, while recognizing that Defendants have forecasted that many facts are hotly contested.

{5} PEAK Coastal is a North Carolina limited liability company formed on December 7, 2006. The Complaint alleges that when the relevant events occurred and the lawsuit was filed, the company was owed by three member/managers according to the following share percentages: Stec (50%), Richardson (25%), and Pope (25%). (Compl. ¶ 7.)1 When the company formed, its registered office, registered agent, and principal place of business were located in Forsyth County. When the company's annual report was updated in 2008, those locations were changed to Iredell County. Richardson and Pope reside in Forsyth County. The loans at issue were in connection with property located in and a business to be conducted in New Hanover County and were closed in New Hanover County. On August 26, 2010, pursuant to N.C. Gen Stat. § 57-06-03, the North Carolina Secretary of State administratively dissolved the company for its failure to file annual reports. The company has since been reinstated.

{6} Defendant SunTrust is a Georgia corporation authorized to transact business in North Carolina. Defendant Hutchens, Senter & Britton is a North Carolina Professional Association with various law offices in North Carolina, including its office in New Hanover County which closed the loan transactions at issue.

{7} The contract to purchase real property in Wilmington, NC to construct an exercise facility was executed on September 21, 2006. On December 10, 2006, Stec and Richardson approached SunTrust, requesting a $2.16 million loan to purchase and construct the facility. SunTrust issued a March 14, 2007 commitment letter stating conditions for the loan. SunTrust would lend the funds to a limited liability company to be created for the sole purpose of developing the project. (Compl., Ex. A at 1.) Both Stec and Richardson would be guarantors on the loan. (Compl., Ex. A at 2.) As a part of its loan review, SunTrust required the company to provide its operating agreement. (Compl., Ex. A at 7.) Richardson provided SunTrust with copies of the PEAK Coastal Operating Agreement ("Operating Agreement"). The Complaint implies that the Operating Agreement charged SunTrust and the law firm with knowledge that the company could not be bound to a loan contract without the written approval of a majority interest. (See Compl. ¶ 20.)

{8} PEAK Coastal retained Defendant law firm to handle the title work for the purchase of the real property and to close the loans. On September 12, 2007, PEAK Coastal closed on two loans with SunTrust: the $2.16 million loan for purchase and construction and a line of credit in the amount of $550, 000.00. Stec alone signed all the loan documents as "Authorized Member." He was the only signatory on the promissory note secured by a Deed of Trust pledging the real property as collateral for the two loans.

{9} PEAK Coastal's Operating Agreement2 contains two paragraphs which control the managers' authority to take action on the company's behalf. The first paragraph of provision 3.1 states, in part: "At any time when there is more than one Manager: (i) any one Manager may take any action permitted to be taken by the Managers, unless the approval of more than one of the Managers is expressly required pursuant to this Agreement or the [ N.C. Limited Liability Company] Act . . . ." The next paragraph of the same provision states that for any action:

No individual Manager, nor any number of Managers that is less than 51% of the Managers in the Company (by virtue of their percentage of membership interest . . .) is/are authorized to bind the Company, contractually, on any matter in which the Company incurs any liability of any type without a majority approval of the Managers.

(See Operating Agreement, Article III- Right and Duties of Managers 3.1.)

{10} Plaintiff alleges on information and belief that neither SunTrust's loan officer nor the closing attorney read the Operating Agreement, and that they improperly allowed the loans to close with only Stec executing the loan documents for PEAK Coastal. The Complaint alleges that SunTrust acted "negligently" by failing to follow its own guidelines and allowing a single member to sign for the loans in violation of the Operating Agreement. (Compl. ¶ 23.)

{11} After the closing, Stec ordered a $250, 000.00 draw on the new line of credit. The law firm's closing attorney wrote the check from the law firm's trust account payable to Redline Holdings, LLC ("Redline"). Plaintiff alleges, upon information and belief, that Redline is solely owned by Stec and neither has any ownership interest in nor is owed any obligation by PEAK Coastal. Richardson and Pope disclaim knowing that the credit line extended to PEAK Coastal would be used to fund Redline. Plaintiff claims that SunTrust improperly approved this loan without...

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