Vanguard Pai Lung, LLC v. Moody
| Decision Date | 31 August 2022 |
| Docket Number | 18 CVS 13891 |
| Citation | 2022 NCBC 48 |
| Parties | VANGUARD PAI LUNG, LLC; and PAI LUNG MACHINERY MILL CO. LTD., Plaintiffs and Counterclaim Defendants, v. WILLIAM MOODY; NOVA TRADING USA, INC.; and NOVA WINGATE HOLDINGS, LLC, Defendants and Counterclaim Plaintiffs. |
| Court | Superior Court of North Carolina |
Womble Bond Dickinson (US) LLP, by Matthew F. Tilley, Russ Ferguson and Patrick G. Spaugh, and Perkins Coie LLP, by John P Schnurer, John D. Esterhay, Yun (Louise) Lu, and Hayden M Schottlaender, for Plaintiffs Vanguard Pai Lung, LLC and Pai Lung Machinery Mill Co. LTD. Burns, Gray & Gray, by Christopher A. Gray, for Defendants William Moody, Nova Trading USA, Inc., and Nova Wingate Holdings, LLC. [1]
ORDER AND OPINION ON MOTION FOR JUDICIAL DISSOLUTION AND MOTION FOR COSTS AND ATTORNEYS' FEES
1. A six-day jury trial in this matter resulted in a verdict in favor of Plaintiffs Vanguard Pai Lung, LLC ("Vanguard") and Pai Lung Machinery Mill Co. LTD. ("Pai Lung"). Following the verdict, the parties agreed to submit two nonjury issues for the Court to resolve before entering judgment. One is Plaintiffs' motion for an award of costs and attorneys' fees against Defendants William Moody, Nova Trading USA, Inc. ("Nova Trading"), and Nova Wingate Holdings, LLC ("Nova Wingate"). (ECF No. 169.) The other is Nova Trading's motion for judicial dissolution of Vanguard. (ECF No. 170.) For the following reasons, the Court GRANTS in part and DENIES in part Plaintiffs' motion for costs and attorneys' fees and DENIES Nova Trading's motion for dissolution.
2. This case arises out of disputes over Vanguard's management and operations. Vanguard makes and sells high-speed circular knitting machines. Its majority member is Pai Lung, and its minority member is Nova Trading. Moody is Vanguard's former president and CEO; he is also the sole owner of Nova Trading and Nova Wingate.
3. In 2018, Vanguard and Pai Lung filed suit and asserted sixteen claims for relief against Moody, Nova Trading, and Nova Wingate. In a nutshell, the complaint alleged that Moody orchestrated a long-running scheme of self-dealing and other misconduct designed to benefit himself, his family, and his friends. Defendants counterclaimed and accused Pai Lung of using its majority position to force Moody out of Vanguard and to frustrate Nova Trading's minority rights. The twelve counterclaims included Nova Trading's demand for judicial dissolution of Vanguard on statutory and common-law grounds. Previous orders describe the competing allegations in more detail. See Vanguard Pai Lung, LLC v. Moody, 2020 NCBC LEXIS 92 (N.C. Super. Ct. Aug. 4, 2020); Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39 (N.C. Super. Ct. June 19, 2019).
4. Many of the twenty-eight claims and counterclaims were dismissed or otherwise resolved before trial.[2] Those that remained, excluding Nova Trading's counterclaims for judicial dissolution, were tried before a jury in March 2022. The jury rendered a verdict in favor of Vanguard and Pai Lung on their claims-fraud, conversion, embezzlement, unjust enrichment, and more-and awarded compensatory and punitive damages totaling over $3 million. The jury also rendered a verdict in favor of Vanguard and Pai Lung on Defendants' counterclaims. (See Verdict Sheet, ECF No. 167.)
5. The parties agreed to reserve Nova Trading's dissolution counterclaims for resolution by the Court. Following the verdict, Nova Trading filed its motion to dissolve Vanguard, which seeks a decree of dissolution, appointment of a receiver, and entry of judgment on the dissolution counterclaims. Vanguard and Pai Lung oppose dissolution. They have, in turn, moved for an award of costs and reasonable attorneys' fees based on the jury's verdict.
6. These matters are now fully briefed. The Court held a hearing on 16 June 2022, at which all parties were represented by counsel.
7. The Court begins with Nova Trading's motion for judicial dissolution. In its pleading, Nova Trading asserted both statutory and common-law grounds for its dissolution counterclaims. Its brief, however, argues for dissolution exclusively on statutory grounds. The Court therefore deems any common-law basis for dissolution to have been abandoned.
8. By statute, a member of an LLC may seek judicial dissolution when "it is not practicable to conduct the LLC's business in conformance with the operating agreement and [Chapter 57D]" or when "liquidation of the LLC is necessary to protect the rights and interests of the member." N.C. G.S. § 57D-6-02(2); see also Norris v. Greymont Dev., LLC, 2022 NCBC LEXIS 7, at *8 ( N.C. Super. Ct. Jan. 31, 2022) (). Nova Trading contends that acrimony between the members and confusion over the size of each member's ownership interest in Vanguard will make it impracticable to conduct Vanguard's business going forward. It further contends that it is powerless within Vanguard and that dissolution is therefore necessary to protect its rights. (See Br. Supp. Mot. Dissolution 2-3, ECF No. 171.)
9. These arguments have no merit. For one thing, Nova Trading cites virtually no supporting evidence. It did not attach any exhibits to its motion, nor did it cite any previously filed materials apart from Vanguard's operating agreement. This is a glaring violation of the Business Court Rules, which require a party to include an index of exhibits, to file supporting materials with its motion or identify their location on the docket if filed previously, and to give "a pinpoint citation to the relevant page of the supporting material whenever possible." BCR 7.5; see also Brewster v. Powell Bail Bonding, Inc., 2020 NCBC LEXIS 27, at *9 (N.C. Super. Ct. Mar. 11, 2020).
10. Nothing in the record suggests that it is impracticable to conduct Vanguard's business in conformance with its operating agreement and governing statutes. Nova Trading hasn't argued, for example, that Vanguard's management is deadlocked. Nor could it: Pai Lung holds a majority of seats on the board of managers and is able to direct the day-to-day business. (See Op. Agrmt. §§ 3.1(c), 4.3, ECF No. 175.3.) Indeed, Plaintiffs' evidence tends to show that Vanguard is operating and profitable. (See Pls.' Ex. B 36:3-7, ECF No. 175.2.) Likewise, there is no confusion about the size of each member's interest in Vanguard because the parties stipulated at trial that Pai Lung owns 67.1053% and that Nova Trading owns 32.8947%. (See Jury Instrs. 7, ECF No. 166.)
11. Dissolution is also not necessary to protect Nova Trading's rights. Nova Trading isn't powerless as it contends. Vanguard's operating agreement prevents Pai Lung from taking major actions-adding members, selling all company assets, and amending the operating agreement, among other things-without Nova Trading's approval. Yes, Pai Lung controls day-to-day operations and has a three-to-one advantage on the board of managers. But that is the division of authority that Nova Trading bargained for and agreed to when it signed the operating agreement. Being outvoted is not, by itself, a basis for dissolution.
12. Nova Trading worries that it has not received any distributions since the beginning of this lawsuit and that it has no access to Vanguard's financial information. Missing, though, is any evidence that Vanguard failed to make a required distribution, authorized a distribution to Pai Lung while withholding one from Nova Trading, or denied a request to inspect records. It bears noting that Nova Trading initially asserted but later dismissed a counterclaim based on alleged violations of its inspection rights. Nova Trading does not explain how that abandoned claim could support its case for dissolution now.
13. Finally, dissolution would frustrate the jury's verdict. Although the dissolution claim itself was not submitted to the jury, many allegations underlying the claim were. The jury rejected them, deciding that Vanguard and Pai Lung had not breached the operating agreement or withheld payments contractually owed to Moody and Nova Trading. Yet the jury found Moody and Nova Trading liable for millions of dollars in harm caused to Vanguard. Nova Trading says nothing about the verdict and makes no effort to reconcile its request with the jury's actual and presumed findings.
14. In short, neither evidence nor equity supports Nova Trading's demand to dissolve and wind up Vanguard's profitable business. The Court therefore denies its motion.
15. Vanguard and Pai Lung seek an award of costs as prevailing parties. See N.C. G.S. §§ 6-1, 7A-305(d). Defendants do not oppose the request. Having considered the record and governing law, the Court grants the unopposed request to recover $44,418.06 in costs.
16. Vanguard and Pai Lung also seek their attorneys' fees under N.C. G.S. § 1-538.2(a), which applies to civil actions for embezzlement. The jury found Moody liable for embezzlement and awarded $500,000 in compensatory damages for that claim. Based on this verdict, Vanguard and Pai Lung contend that they are entitled to recover all attorneys' fees-more than $2.5 million-that they incurred in prosecuting their claims and in defending against the counterclaims.
17. This request suffers from several deficiencies. First section 1-538.2(a) entitles "the owner" of embezzled property to recover damages plus "reasonable attorneys' fees." Here, Vanguard is the owner of the property that Moody embezzled. Pai Lung is...
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