Marzec v. Nye

• Decision Date: 16 March 2010
• Docket Number: No. COA08-1451.,COA08-1451.
• Citation: 690 S.E.2d 537
• Court: North Carolina Court of Appeals
• Parties: Casimer C. MARZEC and Nyeco, Inc., Plaintiffs, v. Franklin L. NYE, Jr., and Nyeco, Inc., Defendants.

690 S.E.2d 537

Casimer C. MARZEC and Nyeco, Inc., Plaintiffs, v. Franklin L. NYE, Jr., and Nyeco, Inc., Defendants.

No. COA08-1451.

Court of Appeals of North Carolina.

March 16, 2010.

COPYRIGHT MATERIAL OMITTED

Dillow, McEachern & Associates, P.A., by Mary Margaret McEachern, for plaintiffs-appellants.

Shipman & Wright, LLP, by Gary K. Shipman, William G. Wright, and Matthew W. Buckmiller, for defendants-appellees.

GEER, Judge.

Plaintiff Casimer C. Marzec, on behalf of himself and derivatively on behalf of Nyeco, Inc., appeals from the trial court's order dismissing his action against defendants Franklin L. Nye, Jr. and Nyeco, Inc. pursuant to Rule 12(b)(6) of the Rules of Civil Procedure. We disagree with the trial court's determination that the allegations of the complaint establish that plaintiffs' claims are barred by the statute of limitations and, therefore, we reverse. Further, we hold that the trial court erred in not addressing Marzec's request for judicial dissolution of Nyeco.

Facts

The complaint filed in this action alleges the following facts. Nye incorporated Nyeco, a closely held corporation, in North Carolina on 21 February 2002. Nyeco was in the business of providing floor maintenance and cleaning services for commercial accounts and distributing certain floor-cleaning and maintenance products.

On 24 March 2002, Nye and Marzec entered into the following agreement:

I, Frank L. Nye, agree to sell 25% of ownership in NYECO Inc. to Casimer Marzec in exchange for $50,000.00. I further agree to offer an option to buy additional shares in NYECO Inc. for a period of five years beginning at the time of this signed agreement. Future share prices will be determined when the option is exercised. They will be based on net revenues for the preceding 12 months. Net revenues times (3.5) shall be used to figure value of shares of NYECO Inc. at any future date. Total additional shares available shall not exceed 20% of ownership in NYECO Inc.

The two men also entered into the following capital agreement:

I, Frank Nye, agree to pledge share purchase capital as follows. $20,000 shall remain in company as a loan for on going sic operating needs. $10,000 shall be placed in the bank and used as collateral for a line of credit. The remaining $20,000 shall be used to retire debt associated with NYECO Inc. prior to this agreement.

On 15 May 2002, Marzec and Nye conducted an annual shareholders meeting at which they elected Nye president and treasurer and Marzec vice president and secretary. The two men agreed that each would receive $4,000.00 a month as compensation for their roles in the company. The Nyeco business plan provided that Nye would handle sales and service calls, while Marzec would be responsible for the bookkeeping and other administrative matters.

The company's primary product, "Multi-Clean," was a new kind of floor coating that would maintain a high-gloss finish for longer periods of time than traditional floor coatings, thereby reducing the frequency of floor maintenance. In the summer of 2002, however, the Multi-Clean floor coating system was discovered to be defective, and Nyeco stopped selling the product.

According to the complaint, in September 2002, Nye unilaterally stopped making monthly payments to Marzec, although he continued to make monthly payments to himself. In March 2003, Nye obtained a personal loan in Nyeco's name and subsequently made payments on that loan using Nyeco funds. The complaint further alleges that in November 2003, Nye took a job with a competitor of Nyeco.

On 23 April 2004, Marzec sent Nye a letter requesting copies of Nyeco's corporate tax returns for fiscal years 2002 and 2003, a copy of Nyeco's corporate minute book, Marzec's share certificates, and $60,850.00 in back salary. The letter accused Nye of shutting Marzec out of the business beginning on 1 April 2004 and requested that Nye repurchase Marzec's shares for the sum of $47,541.00. Nye did not respond to the letter. In addition to the letter, Marzec made other unsuccessful attempts himself and through his attorney to resolve the dispute with Nye.

From 2005 through 2007, Marzec lived in Nevada. Although he received no actual income from Nyeco, Marzec was sent a Schedule K1 for the year 2006, stating that he had realized $20,000.00 in income from Nyeco. He also received a K-1 for the year 2007 stating that he had realized $5,000.00 in income from Nyeco for that year. As a result, Marzec had to pay $1,500.00 in taxes on income he never received.

On 4 June 2008, after Marzec returned to live in Wilmington, North Carolina, Marzec filed a complaint on behalf of himself and a shareholder derivative action on behalf of Nyeco against Nye and Nyeco. Marzec alleged claims for (1) fraudulent misrepresentation, (2) breach of fiduciary obligations, (3) conversion of corporate property, (4) breach of contract, and (5) default on a loan. In a final claim for relief, Marzec sought a decree of judicial dissolution. On 21 July 2008, Nye filed an answer and a motion to dismiss Marzec's claims pursuant to Rule 12(b)(6) of the Rules of Civil Procedure.

Following a hearing on 5 August 2008, the trial court entered an order on 6 August 2008 stating that defendants had moved "for a dismissal pursuant to Rule 12(b)(6) on the ground that ... the pertinent statutes of limitations on the Plaintiffs' claims had expired and that the Plaintiffs' complaint did not state a claim for a default of a loan. ..." The court noted that plaintiffs had voluntarily dismissed the claim for default of a loan and then allowed the motion to dismiss on the remaining claims based on the statute of limitations. Marzec timely appealed to this Court.

I

Marzec's first contention on appeal is that the trial court erred in dismissing his claims for breach of fiduciary duty and conversion of corporate property.¹ When reviewing an appeal from a motion to dismiss, "`the question for the court is whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim upon which relief may be granted under some legal theory, whether properly labeled or not.'" Leary v. N.C. Forest Prods., Inc., 157 N.C.App. 396, 400, 580 S.E.2d 1, 4 (quoting Grant Constr. Co. v. McRae, 146 N.C.App. 370, 373, 553 S.E.2d 89, 91 (2001)), aff'd per curiam, 357 N.C. 567, 597 S.E.2d 673 (2003). "Documents attached as exhibits to the complaint and incorporated therein by reference are properly considered when ruling on a 12(b)(6) motion." Woolard v. Davenport, 166 N.C.App. 129, 133-34, 601 S.E.2d 319, 322 (2004).

Nye initially argues that Marzec's claims for breach of fiduciary duty and conversion of corporate property must fail because the complaint does not sufficiently allege that Marzec was a shareholder in Nyeco. We disagree. The complaint specifically alleges that Marzec is a 25% shareholder of Nyeco. Further, it alleges that on 24 March 2002, Nye and Marzec entered into an agreement in which Nye promised to convey to Marzec a 25% stock interest in Nyeco in exchange for $50,000.00. It also alleges that "Marzec and Nye conducted an annual shareholders' meeting wherein Nye was elected President and Treasurer, and Marzec was elected Vice President and Secretary." In addition, attached to Marzec's complaint are the minutes from the annual shareholders meeting, which stated that "the company is presently owned by Mr. Franklin Nye and Mr. Casimer Marzec" and that "the company stock consists of 100,000 shares of which there are 75,000 shares owned by Mr. Nye and 25,000 owned by Mr. Marzec."

Reading these allegations and the exhibits in the light most favorable to plaintiffs, Kaleel Builders, Inc. v. Ashby, 161 N.C.App. 34, 37, 587 S.E.2d 470, 473 (2003), disc. review denied, 358 N.C. 235, 595 S.E.2d 152 (2004), we hold that plaintiff sufficiently alleged that Marzec was a shareholder in Nyeco and, therefore, that Nye, as the majority shareholder, owed a fiduciary duty to Marzec. See Farndale Co. v. Gibellini, 176 N.C.App. 60, 67, 628 S.E.2d 15, 19 (2006) ("`In North Carolina, it is well established that a controlling shareholder owes a fiduciary duty to minority shareholders.'" (quoting Freese v. Smith, 110 N.C.App. 28, 37, 428 S.E.2d 841, 847 (1993))).

Nye counters that under Corp. Comm'n of N.C. v. Harris, 197 N.C. 202, 203, 148 S.E. 174, 175 (1929), in order to be a shareholder, a party must show "not only that the stock has been issued, but that it has been actually or constructively accepted by the party." Nye argues that the demand letter shows Marzec was not a shareholder in Nyeco because, in the letter, Marzec asked Nye to give him the certificates for his shares. Nye contends that this request indicates that Marzec had not yet accepted the stock.

In Powell Bros. v. McMullan Lumber Co., 153 N.C. 52, 55, 68 S.E. 926, 927 (1910) (internal quotation marks omitted), however, our Supreme Court recognized that "certificates are not necessary to membership in a corporation," explaining that "it is the act of subscribing, or the registry of the stockholder's name upon the stock book of the company, opposite the number of shares for which he has subscribed, which gives him his title thereto, and that the certificate neither constitutes his title nor is necessary to it, but only a memorial of it." See also Misenheimer v. Alexander, 162 N.C. 226, 235, 78 S.E. 161, 164 (1913) (observing that stock certificate "is not the stock itself, but constitutes only prima facie evidence of the ownership of that number of shares"); Weaver Power Co. v. Elk Mountain Mill Co., 154 N.C. 76, 78, 69 S.E. 747, 748 (1910) ("Stock is capital, and a stock certificate but evidences that the holder has ventured his means as a part of the capital."). Although these cases are dated, this is still the law in North Carolina. Thus, the fact that the share certificates were never given to Marzec does not require a conclusion that Marzec is not a shareholder.

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