Palmetto Wildlife Extractors, LLC v. Justin Ludy & First Cmty. Bank Corp.
| Decision Date | 05 January 2022 |
| Docket Number | Appellate Case No. 2018-001536,Opinion No. 5886 |
| Parties | PALMETTO WILDLIFE EXTRACTORS, LLC and Patrick Charping, Respondents, v. Justin LUDY and First Community Bank Corporation d/b/a First Community Bank, Defendants, of whom Justin Ludy is the Appellant. |
| Court | South Carolina Court of Appeals |
Wesley D. Few, of Wesley D. Few, LLC, of Greenville, for Appellant.
Margaret Nicole Fox and James Mixon Griffin, both of Griffin - Davis, of Columbia, for Respondents.
In this dispute between members of a limited-liability company, Justin Ludy appeals the circuit court's denial of his motion to compel arbitration of certain claims. Ludy argues the parties' Operating Agreement provided "any dispute" about arbitrability would be decided in arbitration. We affirm in part, reverse in part, and remand.
On April 6, 2012, Ludy formed Palmetto Wildlife Extractors, LLC (the LLC). Patrick Charping became a member of the LLC in 2014 in exchange for a capital contribution of $49,000. On October 13, 2014, Charping and Ludy executed an amended Operating Agreement (the Agreement) for the LLC. The Agreement stated each member owned a 50% financial interest, which the Agreement defined as "a Member's rights to share in profits and losses, a Member's rights to receive distributions[,] and a Member's Capital Interest." Ludy maintained a 51% "Governance Interest," which was defined as "all a Member's rights as a Member in the Company, other than financial rights." Additionally, the Agreement provided:
12.14. Arbitration. Any controversy or claim arising out of or related to this Agreement or the breach thereof, shall be settled, except as may otherwise be provided herein, by binding arbitration in accordance with [ sections 15-48-10 to -240 of the South Carolina Code ] and the arbitration award may be entered as a final judgment in any court having jurisdiction thereon. Any dispute as to whether a controversy or claim is subject to arbitration shall be submitted as part of the arbitration proceeding.
The Agreement also stated:
Disagreements arose between Ludy and Charping over various financial matters. As a result, Charping and Ludy amended the Agreement in October 2015 to set their salaries and to prohibit Ludy from withdrawing money for personal use unless Charping agreed to the withdrawal. However, according to Charping, he and Ludy continued to have similar issues as before.
On April 25, 2017, Ludy filed a complaint (the Lexington Suit) against Charping in the Lexington County Court of Common Pleas, seeking various remedies stemming from the Act, including the judicial expulsion and dissociation of Charping from the LLC.
Charping and the LLC (collectively, Respondents) filed a complaint against Ludy and First Community Bank Corporation (the Bank) in the Richland County Court of Common Pleas on May 10, 2017. That complaint alleged causes of action including breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, civil conspiracy, and defamation. Additionally, Respondents sought the appointment of a receiver pursuant to section 33-44-803(a), an accounting, and judicial dissolution of the LLC pursuant to section 33-44-801 on one or more of the following grounds:
Respondents' complaint alleged Ludy had taken over $126,000 more than Charping had taken from the LLC's financial accounts since 2015. They asserted Ludy used the LLC's bank accounts as his own personal accounts—writing checks and withdrawing funds to pay for expenses unrelated to the business. They contended that even after the Agreement was amended, Ludy continued using the business account for personal use, withdrawing approximately $19,347.39 for personal expenses in 2016 and $3,729.76 in personal expenses during the first quarter of 2017. Respondents asserted Ludy withdrew $57,944.92 for tax payments in 2016, whereas Charping only withdrew $24,197.62—a difference of $33,747.30. They alleged that when Charping would withdraw funds to reduce "the imbalance in the capital accounts, Ludy would become very agitated, upset[,] and confrontational." They asserted Ludy began restricting Charping's access to monitor the expenses incurred by the LLC. Charping stated in an affidavit that on March 31, 2017, Ludy limited Charping's access to financial information and customer data within the LLC's financial software, which prevented him from writing estimates while working and updating financial information on large projects.
Additionally, Respondents asserted that in April 2017, Charping withdrew $32,000 for taxes after verifying the amount with the LLC's tax accountant. Thereafter, Respondents contended "Ludy snapped, accused Charping of theft, and blocked Charping's access to [the LLC's] accounting software and social media sites. They also alleged Ludy and the Bank removed Charping from the LLC's bank account, preventing him from accessing any funds or viewing any account information. Further, they contended Ludy failed to make loan payments the LLC owed that Charping had personally guaranteed, which harmed Charping's credit and exposed him to personal liability. Charping asserted in his affidavit that Ludy's failure to make some of these payments also negatively impacted the credit history of the LLC.
Following the filing of Respondents' complaint in Richland County, Ludy dismissed the Lexington Suit pursuant to Rule 41(a), SCRCP. On June 6, 2017, Ludy filed a motion to dismiss or stay and compel arbitration. The motion stated Ludy sought "an order dismissing this case and compelling arbitration" and "dismissing or staying this action and compelling arbitration of this dispute." On June 29, 2017, Charping moved the court pursuant to section 15-65-10 of the South Carolina Code2 for an order appointing a receiver for the LLC. On July 14, 2017, Ludy filed an answer and counterclaim against Charping, reasserting the claims originally raised in the Lexington Suit along with others. Ludy counterclaimed for (1) breach of fiduciary duty; (2) breach of contract; (3) breach of contract accompanied by a fraudulent act; (4) the imposition of a constructive trust; (5) breach of the duty of loyalty; (6) breach of the duty of good faith and fair dealing; (7) injunctive relief under Rule 65, SCRCP ; and (8) judicial expulsion and dissociation. The pleading stated Ludy was filing it "out of an abundance of caution in view of and subject to the pending motion to dismiss and compel arbitration." On July 28, 2017, Respondents moved for the case to be assigned to the business court program. On December 27, 2017, Charping filed a response in opposition to Ludy's motion to compel arbitration. Charping argued the plain language of the arbitration clause illustrated it was not applicable to the statutory claims for judicial dissolution, appointment of a receiver, and an accounting. He also asserted Ludy had waived his right to demand arbitration of the claims by first suing Charping in the Lexington County circuit court.
The circuit court heard the motion to compel arbitration on March 1, 2018. Ultimately, the court granted in part and denied in part Ludy's motion to compel arbitration. The circuit court first found Ludy did not waive the right to arbitrate. The court noted, "In an abundance of caution, Defendant Ludy filed an Answer and Counterclaim on July 14, 2017 and noted in the pleading that the Court must decide his Motion to Dismiss or Stay and Compel Arbitration." The court also determined some of the causes of action raised in Respondents' complaint were subject to arbitration and some were not.
The circuit court found Respondents' claim one, a derivative claim for breach of fiduciary duty, and claim two, a derivative claim for aiding and abetting breach of fiduciary duty, were subject to arbitration.3 The court found Respondents' claims three, civil conspiracy; four, defamation; and five, requesting the appointment of a receiver, an accounting, and judicial dissolution; were not subject to arbitration. It determined the claims for civil conspiracy and defamation were tort claims that did not implicate the Agreement and were not subject to arbitration. The court also found Section 11.1.3 of the Agreement states a court must enter a judicial decree dissolving the company pursuant to section 33-44-801 of the South Carolina Code. The court determined Respondents' claim requesting the appointment of a receiver, an accounting, and judicial dissolution was not subject to arbitration as the Agreement specifically requires a finding by a court. The court stayed causes of action three, four, and five, while causes of action one...
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