Chisum v. Campagna

• Decision Date: 12 March 2021
• Docket Number: No. 406A19,406A19
• Court: North Carolina Supreme Court
• Parties: Dennis D. CHISUM, individually and derivatively on behalf of Judges Road Industrial Park, LLC, Carolina Coast Holdings, LLC, and Parkway Business Park, LLC v. Rocco J. CAMPAGNA, Richard J. Campagna, Judges Road Industrial Park, LLC, Carolina Coast Holdings, LLC, and Parkway Business Park, LLC

376 N.C. 680

855 S.E.2d 173

Dennis D. CHISUM, individually and derivatively on behalf of Judges Road Industrial Park, LLC, Carolina Coast Holdings, LLC, and Parkway Business Park, LLC

v.Rocco J. CAMPAGNA, Richard J. Campagna, Judges Road Industrial Park, LLC, Carolina Coast Holdings, LLC, and Parkway Business Park, LLC

No. 406A19

Supreme Court of North Carolina.

Filed March 12, 2021

Sigmon Law, PLLC, by Mark R. Sigmon, and Whitfield Bryson & Mason, LLP, by Daniel K. Bryson, Matthew E. Lee, and Jeremy R. Williams, Raleigh, for plaintiff-appellee/appellant.

Reiss & Nutt, PLLC, by W. Cory Reiss, Wilmington, and Shipman & Wright, LLP, Wilmington, by James T. Moore and Gary K. Shipman, for defendants-appellants/appellees.

ERVIN, Justice.

¶ 1 In this appeal from the Business Court, we address a number of issues arising from a dispute between plaintiff Dennis Chisum and defendants Rocco Campagna and Richard Campagna concerning their respective membership interests in three related limited liability companies. For the reasons set out below, we affirm the trial court's judgment and orders, in part, and reverse this judgment and those orders and remand, in part.

I. Factual Background

A. Substantive Facts

1. Formation of Limited Liability Companies

¶ 2 Beginning in the 1990s, The Camp Group–an entity which was equally owned by Richard Campagna and Rocco Campagna–formed three limited liability companies–Judges Road Industrial Park, LLC; Carolina Coast Holdings, LLC; and Parkway Business Park, LLC–for the purpose of developing commercial real estate in Wilmington. Although Mr. Chisum was a founding member of Judges Road and Carolina Coast, he did not become a member of Parkway until 16 October 2007. The members of each LLC entered into company-specific operating agreements which specified (1) the initial capital contributions that each member was required to make; (2) the membership interests of each owner, which were set forth in documents referred to as Schedule 1s¹ ; (3) the managers of each LLC; and (4) the rules concerning "capital calls" for the LLCs, which governed requests for additional capital contributions from members over and above the members’ initial contributions.

¶ 3 The operating agreements specified that member contributions were measured in "capital units," with each $1,000.00 in contributed capital constituting a single capital unit. The operating agreements further provided that members might be required to make additional capital contributions "ratably in accordance with such Members’ then existing Membership Interest within the time period approved by the Majority in Interest of the Members" if, in the case of Judges Road and Carolina Coast, a capital call was requested by the managers and approved by "a Majority in Interest of the Members" or if, in the case of Parkway, a capital call was requested by a majority of the members. In the event that any member failed to make the payment required by a capital call, the managers could "elect to allow the remaining Members ... to contribute to the Company, pro rata by Membership Interest, such Additional Capital Contribution." If one or more of the other members elected to proceed in that fashion, that member would be credited with additional capital units and would obtain a proportionate increase in his or her ownership interest that would be offset by a decrease in the non-contributing members’ ownership interests.

¶ 4 The operating agreements further provided that any member's membership interest could be transferred by "sale, assignment, gift, pledge, exchange or other disposition" "after the Membership Interest has been offered to the Company and to the Members," with the seller being required to give "thirty ... days written notice of his intention to sell or otherwise transfer all or any portion of his interest in the Company." In addition, the operating agreements included provisions governing the voluntary transfer of membership interests. Between 2007 and 2012, the Campagnas directed a number of capital calls for the three LLCs.

2. Dilution of Mr. Chisum's Interest in Judges Road

¶ 5 At the time of its formation in 1996, Mr. Chisum owned a 35% interest in Judges Road, with The Camp Group having served as the manager of Judges Road from its formation until 2007, when Richard Campagna was designated to fulfill the role. By 2010, Mr. Chisum's membership interest in Judge's Road had been reduced to 18.884%. On 25 June 2012, James MacDonald, the attorney for all three LLCs, mailed a letter to Mr. Chisum notifying him that there had been a $100,000.00 capital call for Judges Road and that a meeting had been scheduled for 2 July 2012 in order to amend the Judges Road operating agreement. In addition, the letter stated, in relevant part, that:

[b]ased on the information provided by the accountant[,] [Richard Campagna] and [Rocco Campagna] have been advised by the accountant that your interest has been diluted to the point that you have no remaining equity in the Company. If you do not participate in this capital call, you will no longer be deemed a member and your interest will be considered diluted in full.

¶ 6 The 2 July 2012 meeting occurred in Mr. Chisum's absence. At the meeting, the Campagnas voted to fully dilute Mr. Chisum's membership interest based upon his failure to make the contribution required by the capital call. According to the meeting minutes, Mr. Chisum's "membership interest would be exhausted and extinguished if future capital calls were not timely made." The Campagnas, however, took control of the LLC at the conclusion of the 2 July 2012 meeting and failed to either include Mr. Chisum in the making of future operational decisions or correspond with him any further for the purpose of apprising him of his membership status. In addition, the Campagnas failed to amend the Judges Road operating agreement to reflect that Mr. Chisum's membership interest had been extinguished.

¶ 7 On 27 August 2012, the Campagnas paid the entire $100,000.00 capital call that had been made for Judges Road, with this amount being inclusive of Mr. Chisum's portion. In spite of the fact that the Campagnas believed that they each held a 50% ownership interest in Judges Road from and after the date of the 2 July 2012 meeting, Mr. Chisum continued to receive K-1s relating to Judges Road through the 2013 tax year, with Mr. Chisum's 2012 K-1 for Judges Road showing that he held an 18.884% ownership interest in the company and with his 2013 K-1 for Judges Road reflecting that, while he held an 18.884% interest in that company at the beginning of the year, he held no interest whatsoever by its end. The 2013 K-1 for Judges Road that Mr. Chisum received indicated that it was his "[f]inal" Judges Road K-1.

3. Dilution of Mr. Chisum's Interest in Parkway

¶ 8 Parkway was formed in 1998 by The Camp Group and Caporaletti Development, LLC, with Anthony Caporaletti and Katrina Caporaletti serving as the company managers. In 2004, Caporaletti Development resigned from Parkway and sold its membership interest to Carolina Coast, with the Campagnas having become Parkway's managers at that time. Mr. Chisum joined Parkway in 2007 and held an 8.34% membership interest in the company.

¶ 9 After the 2 July 2012 Judges Road meeting, the Campagnas took control of Parkway as well. On 27 August 2013, Parkway mailed Mr. Chisum's 2012 Parkway K-1 to him; this K-1 showed that, at the end of 2012, Mr. Chisum held an 8.34% membership interest in the company. At some point in 2014, Parkway sent Mr. Chisum his 2013 K-1 by means of a letter dated 7 April 2014. The 2013 Parkway K-1 stated that, while Mr. Chisum held an 8.34% ownership interest at the beginning of the year, he had no interest in the company at the end of 2013, with his 2013 K-1 being marked as Mr. Chisum's "[f]inal" Parkway K-1.

4. Dilution of Mr. Chisum's Interest in Carolina Coast

¶ 10 At the time of its formation in 2000, Mr. Chisum had a 33.333% membership interest in Carolina Coast. Although Mr. Chisum and the Campagnas each served as managers at the time that the company was organized, the Carolina Coast operating agreement was changed in 2007 to provide for a single manager, a role that Richard Campagna was designated to fill. By 2010, Mr. Chisum's membership interest in Carolina Coast had been reduced to 16.667%.

¶ 11 A Carolina Coast membership meeting was held on 4 October 2010, at which Mr. Chisum was told that he needed to repay a loan that he and his wife, Blanche Chisum, had obtained and that had been secured by the LLCs. In response, Mr. Chisum argued that the repayment of the loan was not his sole responsibility and that he lacked sufficient funds to repay the loan. In spite of Mr. Chisum's objections, the Campagnas assessed a capital call in the amount of $63,500.00 against Mr. Chisum, gave Mr. Chisum one week to make the required capital contribution, and warned Mr. Chisum that, in the event that he failed to make the required contribution, his interest in Carolina Coast would be diluted. After Mr. Chisum failed to make the required payment, the Campagnas paid off the loan on 27 October 2010.

¶ 12 After the 4 October 2010 meeting, the Campagnas acted as if Mr. Chisum's membership interest in Carolina Coast had been extinguished in full. In 2011, Mr. Chisum received his 2010 K-1, which was marked as his "[f]inal" K-1 relating to Carolina Coast and which stated that Mr. Chisum's membership interest in that company had been reduced to zero. Although Mr. Chisum believed that his 2010 Carolina Coast K-1 was in error and that he continued to have an ownership interest in Carolina Coast, Mr. Chisum never received another K-1 from Carolina Coast after 2011.

B. Procedural History

¶ 13 Mr. Chisum did not take any action to ascertain the status of his membership interest in any of the LLCs until he initiated this action in 2016. In March 2016, Mr. Chisum went to a storage facility owned by Judges Road for the purpose of accessing his...