Oberlin Capital, LP v. Slavin

• Decision Date: 06 November 2001
• Docket Number: No. COA00-1111.,COA00-1111.
• Citation: 147 NC App. 52,554 S.E.2d 840
• Parties: OBERLIN CAPITAL, L.P., Plaintiff, v. Edward W. SLAVIN, Individually, Bettina K. Slavin, Individually, Joseph J. Finn-Egan, Individually, Jeffrey A. Lipkin, Individually, Defendants.
• Court: North Carolina Court of Appeals

554 S.E.2d 840

147 NC App. 52

OBERLIN CAPITAL, L.P., Plaintiff, v. Edward W. SLAVIN, Individually, Bettina K. Slavin, Individually, Joseph J. Finn-Egan, Individually, Jeffrey A. Lipkin, Individually, Defendants.

No. COA00-1111.

Court of Appeals of North Carolina.

November 6, 2001.

Franch Jarashow, Burgmeier & Smith, P.A., by Frank T. Laznovsky, Annapolis, MD, and Smith Debnam Narron Wyche Story & Myers, L.L.P., by Kevin L. Sink, Raleigh, for the plaintiff-appellant.

Bode, Call & Stroupe, L.L.P., by Odes L. Stroupe, Jr. and Christie M. Foppiano, Raleigh, and Roseman & Colin, L.L.P., by Richard L. Farley, Charlotte, for the defendant-appellees.

EAGLES, Chief Judge.

Oberlin Capital, L.P. ("Oberlin") appeals from the trial court's order granting the motions to dismiss of defendants Bettina Slavin, Joseph Finn-Egan, and Jeffrey Lipkin in their entirety and the motion to dismiss of defendant Edward Slavin in part. After a careful review of the record, briefs, and arguments of counsel, we affirm the trial court's dismissal of all claims against defendants Bettina Slavin, Joseph Finn-Egan, and Jeffrey Lipkin; however, as to claims against defendant Edward Slavin, we affirm the trial court in part and reverse in part with the result that all claims against Edward Slavin must be dismissed.

Oberlin's complaint alleges the following facts: Oberlin (creditor) was licensed by the Small Business Administration as a Small Business Investment Company engaged in the business of making subordinated loans to small businesses. Express Parts Warehouse, Inc. ("Express Parts") (debtor) was a North Carolina corporation engaged in the business of selling automotive parts. Defendants Edward Slavin, Bettina Slavin, Finn-Egan, and Lipkin comprised the entire board of directors of Express Parts (defendant Edward Slavin also served as President). In July 1997, Oberlin and Express Parts began negotiations for a loan to provide "working capital" to meet Express Parts' "short term cash flow problem." Negotiations on behalf of Express Parts were conducted exclusively by Edward Slavin, who had the full authorization of the board of directors. On 27 August 1997, Oberlin and Express Parts entered into a loan and security agreement ("loan agreement"), whereby Oberlin agreed to loan Express Parts $1,500,000.00 and Express Parts agreed to give Oberlin the right to purchase stock in the corporation in the future. Each defendant subsequently signed a document entitled "Consent of Directors Action Without Meeting of Express Parts" ("Consent document") acknowledging their ratification of the agreement.

Prior to entering into the loan agreement, Express Parts purchased assets from another corporation's Chapter 11 bankruptcy estate sale and increased the number of its operating locations from nine to seventy-one. Express Parts purchased these assets only after reaching an agreement with Echlin/Raybestos ("Echlin"), a supplier, in which Echlin agreed to accept parts obtained in the asset purchase and provide a like amount of new parts for sale in Express Parts' expanded locations. Approximately two months before the loan agreement between Oberlin and Express Parts was completed, Echlin breached its agreement with Express Parts. This breach had a material negative impact on Express Parts' financial condition. Oberlin was aware of the Echlin agreement, but not the breach. Conversely, Express Parts was aware of the Echlin agreement and its breach before finalizing the deal with Oberlin, but defendants failed to disclose to Oberlin the information regarding the breach. Ultimately, in January 1998, Express Parts filed a voluntary petition for Chapter 11 bankruptcy reorganization in the United States Bankruptcy Court.

On 29 March 1999, Oberlin filed suit against each defendant individually alleging that they were personally liable for Oberlin's losses incurred in connection with the loan agreement. Oberlin asserted claims against defendants in their individual capacities for fraudulent concealment, negligence, negligent misrepresentation, breach of fiduciary duty, unfair and deceptive trade practices, and punitive damages. Upon motion by defendants, Chief Justice Henry E. Frye designated this case a complex business case and assigned it to the Honorable Ben F. Tennille, Special Superior Court Judge for Complex Business Cases.

Defendants filed motions to dismiss Oberlin's claims pursuant to Rule 12(b)(6) for failure to state a claim. After a hearing on the motions, Judge Tennille entered an order and opinion (1) dismissing all six of Oberlin's claims against Bettina Slavin, Finn-Egan, and Lipkin, (2) dismissing Oberlin's claims for negligence, negligent misrepresentation, breach of fiduciary duty, and unfair and deceptive trade practices against Edward Slavin, (3) denying defendants' motion to dismiss Oberlin's claim for fraudulent concealment against Edward Slavin, and (4) striking from Oberlin's complaint its claim for punitive damages against Edward Slavin but allowing amendment within thirty days for a proper claim. In a separate order, Judge Tennille certified this matter pursuant to Rule 54 for immediate appeal. Oberlin appeals.

The issue on appeal is whether the trial court erred in granting defendants Bettina Slavin, Finn-Egan, and Lipkin's motions to dismiss in their entirety and Edward Slavin's motion to dismiss in part. Viewing the complaint's allegations in the light most favorable to Oberlin, we affirm the trial court's dismissal of all of Oberlin's claims against Bettina Slavin, Finn-Egan, and Lipkin. However, as against Edward Slavin, we (1) affirm the dismissal of the claims for negligence, negligent misrepresentation, breach of fiduciary duty, and unfair and deceptive trade practices, (2) reverse the denial of the motion to dismiss as to fraudulent concealment, and (3) reverse the trial court's order regarding the punitive damages claim.

The essential question on a motion under Rule 12(b)(6) "is whether the complaint, when liberally construed, states a claim upon which relief can be granted on any theory." Barnaby v. Boardman, 70 N.C.App. 299, 302, 318 S.E.2d 907, 909 (1984), rev'd on other grounds, 313 N.C. 565, 330 S.E.2d 600 (1985) (emphasis in original). The trial court must treat the allegations in the complaint as true, see Hyde v. Abbott Laboratories, 123 N.C.App. 572, 575, 473 S.E.2d 680, 682 (1996),

but the court is not required to accept as true any conclusions of law or unwarranted deductions of fact. See Sutton v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970). When the complaint fails to allege the substantive elements of some legally cognizable claim, or where it alleges facts which defeat any claim, the complaint must be dismissed. See Hudson-Cole Dev. Corp. v. Beemer, 132 N.C.App. 341, 345-46, 511 S.E.2d 309, 312 (1999).

We note at the outset that the case before us does not include a claim for breach of contract. Five of Oberlin's claims asserted against defendants arise in tort, and one is an unfair and deceptive trade practices claim. In the absence of a claim for breach of contract, this Court is limited to a review of the trial court's disposition of these torts and unfair and deceptive trade practices claims and nothing more.

Generally, the duties of a corporation's directors are provided by G.S. § 55-8-30. These duties include a duty to act in good faith, "[w]ith the care an ordinarily prudent person in a like position would exercise under similar circumstances," and "[i]n a manner he reasonably believes to be in the best interests of the corporation." G.S. § 55-8-30(a). Directors "may be held personally liable for gross neglect of their duties, mismanagement, fraud and deceit resulting in loss to a third person, but not for errors of judgment made in good faith." Milling Co., Inc. v. Sutton, 9 N.C.App. 181, 184, 175 S.E.2d 746, 748 (1970).

The general rule is that "a director, officer, or agent of a corporation is not, merely by virtue of his office, liable for the torts of the corporation or of other directors, officers, or agents." Records v. Tape Corp., 19 N.C.App. 207, 215, 198 S.E.2d 452, 457 (1973) (quoting 19 C.J.S., Corporations, § 845, pp. 271-72). Ordinarily, "[t]he duties and liabilities of directors ... run directly to the corporation and indirectly to its shareholders; they do not run to third parties, such as creditors." Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 14.08 (6th ed.2000). One exception to this general rule is that "[a] director or other corporate agent can, of course, be held directly liable to an injured third party for a tort personally committed by the director or one in which he participated." Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 14 .08(a); see also Knitting Mills Co. v. Earle, 237 N.C. 97, 104, 74 S.E.2d 351, 356 (1953)

; Records, 19 N.C.App. at 215,

198 S.E.2d at 457.

Here, Oberlin failed to allege sufficiently any wrongful action on the part of defendants Bettina Slavin, Finn-Egan, and Lipkin. Every allegation made against these three defendants is made against them collectively and solely in their capacity as directors. The complaint simply alleges in a conclusory manner that "all of the directors of Express Parts" were kept fully apprised and informed by Edward Slavin of the facts surrounding the loan agreement and the Echlin breach. Additionally, the complaint alleges in several places that "all of the directors of Express Parts actively and personally participated in the decision to conceal, fail to disclose and otherwise hide" the facts regarding the Echlin breach. However, the complaint does not clarify how and to what extent these defendants actively and personally participated in the alleged wrongdoing.

"[W]hen the complaint on its face reveals the absence of fact sufficient to make a good claim," dismissal of the claim pursuant to Rule 12(b)(6) is properly granted. Jackson v. Bumgardner, 318 N.C....