Aubin v. Susi, COA01-427.

Decision Date19 March 2002
Docket NumberNo. COA01-427.,COA01-427.
Citation149 NC App. 320,560 S.E.2d 875
CourtNorth Carolina Court of Appeals
PartiesLois AUBIN, Plaintiff, v. Anthony A. SUSI, New Harborgate Corporation, and Bluebird Corporation, Defendants.

Brinkley Walser, P.L.L.C., by G. Thompson Miller, Lexington, for plaintiff-appellant.

Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Reid L. Phillips, Greensboro, for defendant-appellees.

HUNTER, Judge.

Lois Aubin ("plaintiff") appeals the grant of a directed verdict in favor of Anthony A. Susi ("Susi"), New Harborgate Corporation (formerly and hereinafter "The Susi Corporation") and Bluebird Corporation ("Bluebird") (collectively "defendants") on her claims of fraud, constructive fraud, and unfair and deceptive practices. She further appeals the trial court's denial of her motions for attorney's fees and a new trial. We vacate the trial court's 2 October 2000 judgment granting a directed verdict in favor of defendants, and remand for entry of an order dismissing plaintiff's claims for lack of standing. We reverse the trial court's 2 October 2000 order denying plaintiff's motion for attorney's fees on her derivative claim, and remand for further proceedings.

This case stems from events surrounding the purchase of Harborgate, a development located on High Rock Lake in Davidson County, North Carolina. Plaintiff and Susi are each fifty percent shareholders of Bluebird, a New York corporation formed in 1997 to purchase and sell commercial property. Plaintiff and Susi had a written agreement whereby Susi would loan money to Bluebird to acquire or improve property, and plaintiff would assist in day to day business operations, including the marketing of Bluebird properties. Plaintiff alleged that in January 1998, she discovered the Harborgate development as a potential property for Bluebird to acquire. Both plaintiff and Susi visited the property, and negotiations for Bluebird's purchase of Harborgate commenced. In July 1998, Bluebird purchased four lots in Harborgate, and retained an option to purchase the remaining lots.

In September 1998, plaintiff and Susi met to discuss the purchase of the remainder of Harborgate. During this meeting, Susi expressed to plaintiff that he did not feel she should have a fifty percent interest in Harborgate. According to plaintiff, Susi suggested that the profits should be split onethird for plaintiff, two-thirds for Susi. Plaintiff disagreed, and the two did not come to a resolution about their ownership percentage, nor did they ever discuss the matter again.

A closing for the purchase of Harborgate was set for 15 January 1999. Plaintiff alleged that when she arrived at the closing, Susi and Bluebird's attorney explained to her that they were going to close the property through a new North Carolina corporation, The Susi Corporation, which had been formed at the last minute. They explained that Bluebird would execute the purchase agreement, which would then be assigned to The Susi Corporation. Plaintiff did not object, although there was no discussion as to what the distribution of shares would be in the new corporation. Plaintiff assumed The Susi Corporation would either be owned by Bluebird, or that she and Susi would be fiftyfifty owners of The Susi Corporation. Susi advanced the entire purchase price for acquisition of Harborgate.

In reality, plaintiff had no interest in The Susi Corporation, and thus, no interest in Harborgate. Plaintiff alleged she did not discover that Susi was the sole owner of The Susi Corporation until 1 March 1999. According to plaintiff, Susi never mentioned before the day of closing that Harborgate would be purchased by a North Carolina corporation, and Susi never told her she was not a fifty percent shareholder in The Susi Corporation. Susi refused plaintiff's demand to immediately give her a fifty percent ownership interest in The Susi Corporation.

Plaintiff instituted this action against defendants on 19 March 1999, alleging claims of conversion, constructive fraud, and usurpation of corporate opportunity. On 19 May 1999, defendants moved to dismiss the claims on grounds that plaintiff had no right to recover individually based on the claims, which defendants asserted were Bluebird's claims, and thus, were derivative. On 15 July 1999, plaintiff filed an amended complaint which added claims of fraud, unfair and deceptive practices, and breach of contract. Defendants' motion to dismiss was heard on 23 August 1999. On 23 November 1999, Judge Sanford L. Steelman, Jr. entered an order dismissing with prejudice plaintiff's original three claims for relief, which claims plaintiff's attorney classified as her derivative claims: conversion, constructive fraud, and usurpation of corporate opportunity. Judge Steelman denied plaintiff's motion for rehearing on 4 February 2000.

Thereafter, on 11 February 2000, Judge Mark E. Klass allowed plaintiff to amend her complaint to add back the three claims that had been dismissed by Judge Steelman. Plaintiff's final amended complaint, filed 11 February 2000, alleged claims of conversion, constructive fraud, usurpation of corporate opportunity, fraud, unfair and deceptive practices, and breach of contract. Plaintiff's amended complaint averred that she was filing the suit both in an individual capacity and derivatively in her capacity as a shareholder of Bluebird. The amended complaint sought relief in the form of recovering the property for Bluebird; requiring that Susi issue plaintiff fifty percent of all outstanding Harborgate shares, or in the alternative, to recover the outstanding shares for Bluebird; judgment against Susi in the amount of the outstanding equity value of one-half Harborgate; punitive damages against Susi; treble damages against Susi pursuant to N.C. Gen.Stat. § 75-16; judgment against Susi for breach of contract; and recovery of all costs and expenses, including attorney's fees.

In May 2000, approximately four months prior to trial, Susi transferred Harborgate to Bluebird. The matter came to trial in September 2000. Plaintiff proceeded solely on her claims of fraud, constructive fraud, and unfair and deceptive practices, which plaintiff's counsel conceded both at trial and during the hearing on plaintiff's motion for attorney's fees, were being asserted by plaintiff individually, not derivatively. However, plaintiff's counsel noted that while plaintiff had essentially abandoned any derivative claims as a result of Susi's May 2000 transfer of the property to Bluebird, she was still asserting her motion for attorney's fees based on her derivative claims to recover the property for Bluebird.

At the conclusion of plaintiff's evidence, defendants moved for a directed verdict on the three claims. By judgment entered 2 October 2000, the trial court directed a verdict in favor of defendants as to all claims, concluding plaintiff had failed to show damages and other elements of her claims. The trial court entered a separate order on 2 October 2000 denying plaintiff's motion for attorney's fees based on her previously abandoned derivative claims to recover the property for Bluebird. Plaintiff moved for a new trial, and on 8 November 2000, the trial court entered an order denying the motion.

Plaintiff appeals from entry of judgment directing a verdict for defendants, and the orders denying her motion for attorney's fees and for a new trial. Defendants bring forth two cross-assignments of error, arguing that the trial court erred in failing to dismiss plaintiff's claims as moot prior to trial, and that Judge Klass erred in permitting plaintiff to amend her complaint to include her derivative claims previously dismissed with prejudice by Judge Steelman.

Plaintiff brings forth six assignments of error on appeal; however, we need not address all of her arguments. We conclude that plaintiff, as a fifty percent shareholder in Bluebird, has failed to show that any damage which she has sustained as a result of Susi's actions is different from that sustained by Bluebird, and therefore, plaintiff does not have standing to maintain a direct action against defendants for individual recovery. However, we reverse and remand the issue of attorney's fees based upon plaintiff's previously abandoned derivative claims.

I. Plaintiff's Individual Claims

Standing is a necessary prerequisite to a court's proper exercise of subject matter jurisdiction. Creek Pointe Homeowner's Ass'n v. Happ, 146 N.C.App. 159, 165-66, 552 S.E.2d 220, 225 (2001). Therefore, issues pertaining to standing may be raised for the first time on appeal, including sua sponte by the Court. Hedgepeth v. N.C. Div. of Servs. for the Blind, 142 N.C.App. 338, 341, 543 S.E.2d 169, 171 (2001).

This Court recently examined the law in this state as to when a shareholder of a closely-held corporation may sue other shareholders derivatively, and when the shareholder may sue to recover individually. See Norman v. Nash Johnson & Sons' Farms, Inc., 140 N.C.App. 390, 537 S.E.2d 248 (2000). We noted that a derivative action is one brought by a shareholder "`in the right of'" a corporation. Id. at 395, 537 S.E.2d at 253 (citing N.C. Gen.Stat. § 55-7-40.1 (1999)). An individual action "is one a shareholder brings to enforce a right which belongs to him personally." Id. As a general rule, "shareholders have no right to bring actions `in their [individual] name[s] to enforce causes of action accruing to the corporation[,]'" but they "must assert such claims derivatively on behalf of the corporation." Id. (citation omitted). In Norman, this Court held that minority shareholders in a closely-held corporation alleging wrongful conduct against the majority shareholders may bring an individual action against those shareholders in addition to maintaining a derivative action on behalf of the corporation. Id. at 405, 537 S.E.2d at 259. In so holding, we reviewed prior cases from this state allowing shareholders in closely-held corporations to maintain...

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