Azure Dolphin, LLC v. Barton

• Decision Date: 07 December 2018
• Docket Number: No. 128A18,128A18
• Citation: 371 N.C. 579,821 S.E.2d 711
• Court: North Carolina Supreme Court
• Parties: AZURE DOLPHIN, LLC, a Nevada Limited Liability Company, and Jean-Pierre Boespflug v. Justin BARTON; Barton Boespflug II, a California Limited Liability Partnership; Hess Creek, LLC, an Oregon Limited Liability Company; Royal Ascot, LLC, an Oregon Limited Liability Company; and Vintage Oak II, a California Limited Partnership

371 N.C. 579

821 S.E.2d 711

AZURE DOLPHIN, LLC, a Nevada Limited Liability Company, and Jean-Pierre Boespflug

v.Justin BARTON; Barton Boespflug II, a California Limited Liability Partnership; Hess Creek, LLC, an Oregon Limited Liability Company; Royal Ascot, LLC, an Oregon Limited Liability Company; and Vintage Oak II, a California Limited Partnership

No. 128A18

Supreme Court of North Carolina.

Filed December 7, 2018

Blanco, Tackabery & Matamoros, P.A., by Peter J. Juran, M. Rachael Dimont, Winston-Salem, and Chad A. Archer, Greensboro, for plaintiff-appellants.

Bell, Davis & Pitt, P.A., Winston-Salem, by Andrew A. Freeman and Alan M. Ruley, for defendant-appellees.

ERVIN, Justice.

The principal issues before the Court in this case are whether the trial court properly dismissed the claims that plaintiffs Azure Dolphin, LLC, and Jean-Pierre Boespflug asserted in their first amended complaint and whether the trial court properly denied plaintiffs’ second motion to amend their complaint. After careful consideration of plaintiffs’ challenges to the trial court's orders in light of the applicable law, we conclude that the challenged orders should be affirmed.

I. Factual Background

A. Substantive Facts

Mr. Boespflug and defendant Justin Barton¹ began working together in the real estate investment business approximately thirty years ago. As part of their business strategy, Mr. Boespflug and Mr. Barton created "various entities to acquire and hold investment properties throughout the United States," including "large apartment complexes and commercial buildings." Among the investment entities that resulted from this process were defendants Hess Creek, LLC, an Oregon limited liability company formed in 1996; Royal Ascot, LLC, an Oregon limited liability company formed in 2001; and Barton Boespflug II and Vintage Oak II,² both of which were California limited partnerships formed in 1986.

According to the allegations contained in the amended complaint, Mr. Barton served as manager or general partner for Hess Creek, Royal Ascot, Barton Boespflug, Vintage Oak, and the other investment entities, while Mr. Boespflug "contributed the majority of the capital" and served as either a member or limited partner of each of the investment entities. Mr. Boespflug gave Mr. Barton "some discretion to manage the Properties," with Mr. Barton having the responsibility for "reporting to [Mr.] Boespflug intermittently on the state of the portfolio." At some unspecified point in time, Mr. "Boespflug formed Azure Dolphin," a Nevada limited liability company, to which he transferred a portion of his economic interests in the investment entities that he and Mr. Barton had created and operated.

On 21 April 2011, Mr. Boespflug, a dual citizen of France and the United States, moved back to Paris. On 26 April 2011, Mr. Barton e-mailed Mr. Boespflug for the purpose of requesting his assistance in securing a new loan and refinancing two existing loans. In his reply, Mr. Boespflug "explained to [Mr.] Barton that his financial position was no longer conducive to personally guaranteeing loans" relating to the investment entities. After a lender "demanded that both Azure [Dolphin] and [Mr.] Boespflug guaranty the new loans," Mr. Boespflug reiterated "that this was not an option."

Subsequently, Mr. Barton converted Mr. Boespflug's membership interests in the investment entities to notes payable with a face value that "was a fraction of the true value of [Mr.] Boespflug's membership interests." More specifically, on 1 January 2012, Mr. Barton issued promissory notes to Mr. Boespflug in order to transfer "all of the Investment Entities[‘] interests [that Mr.] Boespflug [had] previously assigned to Azure Dolphin" to the following entities: Barton Boespflug; Viking Property Investors, LLC; Ash Creek, LLC; Vintage Oak; and Willamette River I, LLC. On 1 January 2013, Mr. Barton issued a second series of promissory notes to Mr. Boespflug by means of which he acquired "the remainder of [Mr.] Boespflug's interest in the Investment Entities." The promissory notes in question reflected the value of the interests that Mr. Boespflug and Azure Dolphin owned in the investment entities, which, according to appraisals that Mr. Barton had obtained, amounted to a total of $2,008,006. In plaintiffs’ view, Mr. Barton "manipulated" the appraisals so as to undervalue Mr. Boespflug's interests in the investments entities.

After engaging in these transactions, Mr. Barton "unilaterally amended the operating agreements of the Investment Entities with terms considerably more favorable to him," "sold at least six of the [p]roperties" owned by the investment entities, and transferred properties held by the investment entities "into his own name and to different entities controlled by [Mr.] Barton and/or his immediate family members."

On 15 January 2013, Mr. Barton sent an e-mail to Mr. Boespflug to which was attached a letter signed by Mr. Barton that had as its subject line "Buyout of Jean-Pierre Boespflug, effective 1/1/2013." The letter stated that:

Effective January 1, 2013 (pursuant to amended re-stated operating agreements, dated November 1, 2011), your economic interest in partnerships, per MAI appraisals, will be replaced with promissory notes. These partnerships are as follows: Ash Creek, LLC, Hess Creek, LLC, Jay's Canby, LLC, Jay's Commonwealth Park I, LLC, Jay's Commonwealth Park II, LLC, Newby House LLC, Richmond Park, LLC, and River Valley Investors, LLC. The respective promissory notes and corresponding loan amortization schedules are enclosed.

According to the amended complaint, these promissory notes accompanied "an otherwise unrelated email with no indication of the importance of the communication and thus this email remained unread until 2016." Mr. Boespflug claimed that he did not actually learn of the actions reflected in this letter until the summer of 2016.

B. Procedural History

1. Trial Court Proceedings

a. Preliminary Proceedings

On 16 December 2016, Mr. Boespflug, Azure Dolphin, and JPB Holdings, Inc.,³ commenced this action by filing a complaint asserting fifteen claims, including individual and derivative claims for constructive fraud, breach of the duty of loyalty, breach of the duty of care, breach of the duty of good faith and fair dealing, civil conspiracy, fraudulent conveyance, and unfair and deceptive practices, and seeking various remedies against twenty-one defendants,⁴ including Mr. Barton, certain of the investment entities, and other defendants. On 19 December 2016,⁵ the Chief Justice designated this case as a mandatory complex business case. On 10 February 2017, defendants⁶ filed a motion to compel arbitration or, alternatively, to dismiss plaintiffs’ complaint for lack of personal jurisdiction, lack of subject matter jurisdiction, failure to join a necessary party, insufficiency of process, failure to state a claim upon which relief could be granted, and "the existence of arbitration agreements." On the same day, Sanur Brokerage filed an answer to plaintiffs’ complaint.

On 14 March 2017, plaintiffs filed a motion seeking leave to file an amended complaint, a copy of which was attached to their amendment motion. The proposed amended complaint attempted to add eleven additional defendants and included a number of new factual and legal assertions, including allegations that the trial court had jurisdiction over all of the named defendants pursuant to N.C.G.S. § 1-75.4(1) and that, even though certain of the investment entities had been organized under the laws of other states, they were "instrumentalities of [Mr.] Barton as he engages in substantial activity within North Carolina" and had "received property and proceeds of property that belong to North Carolina domestic entities and benefit from bad acts committed by [Mr.] Barton inside of North Carolina or directed at North Carolina corporations." In seeking leave to amend their complaint, plaintiffs asserted that the amended complaint would "cure deficiencies alleged by the [d]efendants in their joint Motion to Dismiss filed on February 10, 2017[,] including naming necessary parties previously unknown to the [p]laintiffs."

On 6 April 2017, the trial court granted plaintiffs’ amendment motion, ordered plaintiffs to file their amended complaint on or before 11 April 2017, and denied defendants’ dismissal motion without prejudice to their right to move to dismiss the amended complaint. In the 6 April 2017 order, the trial court noted that plaintiffs had "failed to state the position of opposing counsel" as required by Business Court Rule 7.3 and indicated its expectation that plaintiffs would "comply with the General Rules of Practice and Procedure for the North Carolina Business Court in future filings."

On 18 April 2017, plaintiffs filed an amended complaint. On 19 April 2017, defendants filed a clarification motion in which they asserted that plaintiffs had failed to file their amended complaint by 11 April 2017 and had, instead, sought an extension of time within which to file their amended complaint. In addition, defendants noted that, on 17 April 2017, the trial court had denied plaintiffs’ extension motion and had, instead, ordered plaintiffs to "file the version of their Amended Complaint attached to their March 14, 2017 Motion to Amend no later than 5:00 [p.m.] on April 18, 2017." Finally, defendants asserted that plaintiffs’ amended complaint had been filed without authorization and differed from the proposed amended complaint that had been attached to plaintiffs’ amendment motion.

On 20 April 2017, plaintiffs filed an errata notice and the version of the amended complaint that had been attached to their amendment motion. On 21 April 2017, the Business Court entered an order striking the amended complaint that plaintiffs had filed on 18 April 2017 and declaring that the amended complaint that plaintiffs had filed on 20 April 2017 was the relevant pleading for purposes of future proceedings in ...