Mauck v. Cherry Oil Co.
| Decision Date | 02 May 2022 |
| Docket Number | 21 CVS 343 |
| Citation | 2022 NCBC 21 |
| Parties | ARMISTEAD B. MAUCK and LOUISE CHERRY MAUCK, Plaintiffs, v. CHERRY OIL CO., INC.; JULIUS P. "JAY" CHERRY, JR.; and ANN B. CHERRY, Defendants. |
| Court | Superior Court of North Carolina |
THIS MATTER comes before the Court upon Defendants' Motion to Dismiss Second Amended Complaint. ("Motion to Dismiss" or "Motion," ECF No. 49.)
THE COURT, having considered the Motion, the briefs of the parties, the arguments of counsel, and all applicable matters of record, CONCLUDES that the Motion should be GRANTED, in part, and DENIED, in part, for the reasons set forth below.
Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Walter L. Tippett, Jr. and Katarina K. Wong, for Plaintiffs Armistead B. Mauck and Louise Cherry Mauck.
Womble Bond Dickinson (US) LLP, by Pressly M. Millen and Samuel B Hartzell for Defendants Cherry Oil Co., Inc.; Julius P. "Jay" Cherry, Jr.; and Ann B. Cherry.
1. As this Court has previously stated, "[t]his action succinctly put, concerns a dispute among family members over the management and future direction of a family business." Mauck v. Cherry Oil Co., 2021 NCBC LEXIS 81, at **2 (N.C. Super. Ct. Sept. 20, 2021). In the present motion to dismiss, the Court is tasked with analyzing several legal issues relating to the rights of minority shareholders in the context of a close corporation. In so doing, the Court must also determine the extent to which Plaintiffs' claims are affected by the parties' Shareholders' Agreement, which contains a "put/call" provision that authorizes the corporation to purchase the shares of a shareholder at any time.
2. The Court does not make findings of fact on motions to dismiss under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites pertinent facts contained in Plaintiffs' Second Amended Complaint ("SAC," ECF No. 48) and in documents attached to, referred to, or incorporated by reference in the SAC that are relevant to the Court's determination of the Motion.
3. Defendant Cherry Oil Company, Inc. ("Cherry Oil")[1] is a business that, both directly and through its affiliates-AJAL Investments, LLC ("AJAL") and C-Gas, LLC ("C-Gas")[2]-"owns and operates a substantial propane and refined fuel distribution operation serving business and residential customers and roughly 15 convenience stores, along with a portfolio of associated commercial real estate." (ECF No. 48, at ¶ 1.) Cherry Oil and its affiliates-which the parties refer to collectively as "Cherry Energy"-have been owned and managed by members of the individual parties' extended family since Cherry Oil was founded in 1928 by J.P. Cherry, Sr. (Id. at ¶¶ 2, 15, 34.)
4. Plaintiffs Armistead B. Mauck ("Armistead") and Louise Cherry Mauck ("Louise") (collectively, the "Maucks" or "Plaintiffs") are married and together own and control 194 (approximately 34%) of Cherry Oil's shares. (Id. at ¶ 8.)
5. Armistead individually owns 97 shares (17%) of Cherry Oil. (Id. at ¶¶ 6, 13.) J.P. Cherry, Sr. and Defendant Julius P. Cherry, Jr. ("Jay") "asked Armistead to join [Cherry Oil] in late 1995" after which Armistead "left a successful banking career to try to help save the family business." (Id. at ¶¶ 19-20.) Armistead has served as an officer and director of Cherry Oil since 1995 and his responsibilities have expanded to include "all aspects of Cherry Energy, ranging from short-term and long-term strategic planning, financial management, marketing, acquisitions, personnel, and operational decisions." (Id. at ¶¶ 6, 20.)
6. Louise individually owns 97 shares (17%) of Cherry Oil and has served as an officer of the company since August 2000. She also served as a member and officer of Cherry Oil's Board of Directors ("Board") from August 2000 until her purported removal from the Board-the validity of which Plaintiffs dispute-on 16 June 2021. (Id. at ¶ 7.) Since 2004, Louise has "worked as Cherry Energy's payroll and human resources manager" where she has "implemented modern employment best practices and benefits for its staff, which initiatives would not have been properly implemented and maintained without her involvement." (Id. at ¶ 21.)
7. Defendants Jay and Ann B. Cherry ("Ann") (collectively, the "Cherrys" or "Defendants") are married and together own and control 390 (approximately 66%)-a majority interest-of Cherry Oil's shares.[3] (Id. at ¶ 12.) Jay is Louise's brother and serves both as the chairman of the Board and as president of Cherry Oil. (Id. at ¶¶ 10, 15.) Ann is a director, vice president, and assistant secretary of Cherry Oil. (Id. at ¶ 11.)
8. On 15 October 1998, the Maucks and Cherrys entered into a Shareholders' Agreement. ("Shareholders' Agreement," ECF No. 15.2.) Pertinent to this dispute, Section 11 of the Shareholders' Agreement contained a provision (the "Put/Call Provision") that states, in pertinent part, as follows:
9. Until early 2020, Armistead and Louise maintained "a not less than equal role in the management and operation of Cherry Oil and Cherry Energy," and Plaintiffs allege that "with Armistead's leadership, Cherry Oil's performance has steadily improved." (ECF No. 48, at ¶¶ 27, 40.) Plaintiffs assert that "[t]oday, Cherry Oil-and more broadly-Cherry Energy are successful" and that "Armistead's skills were necessary to . . . achieve that success." (Id. at ¶ 33.)
10. Plaintiffs further allege that "since Armistead joined Cherry Energy's management, Jay has voluntarily and steadily turned over his remaining, limited responsibilities to Armistead, and Ann has maintained virtually no presence at this business." (Id. at ¶ 23.) These circumstances-along with the success of Cherry Oil under Armistead and Louise's leadership-created the Maucks' expectation "that they would [continue to] be involved in management decisions as they have since" they joined Cherry Oil. (Id. at ¶¶ 38-40.)
11. Nevertheless, in or around 2007, the dispute that ultimately gave rise to this lawsuit began when Jason Cherry ("Jason")-Jay and Ann's son-joined Cherry Oil as an employee. (Id. at ¶ 45.) Plaintiffs allege that Jason lacks "commit[ment] to developing the skills or doing the work necessary to succeed on individual merit, rather than nepotism," pointing to critical reviews of Jason's job performance by company employees and a "family business consultant." (Id. at ¶¶ 46, 48; see ECF Nos. 48.3-5.)
12. Plaintiffs' dissatisfaction with Jason's performance at Cherry Oil derives in part from their concern over the prospect of Jason ultimately obtaining control of Cherry Oil-given "Jay's desire to retire and to complete estate planning, part of which involves leaving Jason, despite chronic shared concerns of all parties, potentially in a controlling ownership position." (ECF No. 48, at ¶ 49.)
13. Starting in 2018, efforts were made by the Maucks and Cherrys to address Jason's "dysfunctional contributions to the business" such that a "cooperative solution" could be reached as to the "continuing operation of Cherry Energy after Jay and/or Armistead's retirement." (Id. at ¶¶ 50-56.) These efforts included (a) consulting Cherry Oil's general counsel; (b) each side hiring their own corporate legal counsel and a professional mediator; (c) Armistead and Louise "openly discuss[ing] their expectations"; (d) implementation and preparation of an "accountability chart"; and (e) the hiring of Maggie Cherry- Jason's wife-to "remedy the problems created by Jason[.]" (Id.) While these efforts "seemingly made progress," they did not lead to any final resolution. (Id. at ¶¶ 50, 56.)
(Id. at ¶ 55.) Plaintiffs contend that Jay and Ann launched a secret effort to undermine them because Plaintiffs objected to their "reckless desire to entrust Cherry [Oil] to Jason." (Id. at ¶ 58.) Plaintiffs allege that "Jay and Ann have abused their majority status and positions on the board and in management of Cherry Oil to benefit themselves and their immediate families at the expense of Armistead and Louise and Cherry Oil." (Id. at ¶ 66.)
15. The SAC sets out various examples of acts committed by Jay and Ann that Plaintiffs contend demonstrate the Cherrys' desire to marginalize Armistead and Louise while simultaneously increasing Jason's role within the company. Plaintiffs assert that the Cherrys' conduct constituted "breach[es] of Armistead and Louise's reasonable expectations regarding management of Cherry Oil." (Id. at ¶¶ 59-66.)
16. For...
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