Azure Dolphin, LLC v. Barton , 371 N.C. 579 ( 2018 )

IN THE SUPREME COURT OF NORTH CAROLINA
No. 128A18
Filed 7 December 2018
AZURE DOLPHIN, LLC, a Nevada Limited Liability Company, and JEAN-
PIERRE BOESPFLUG
v.
JUSTIN BARTON; BARTON BOESPFLUG II, a California Limited Liability
Partnership; HESS CREEK, LLC, an Oregon Limited Liability Company; ROYAL
ASCOT, LLC, an Oregon Limited Liability Company; and VINTAGE OAK II, a
California Limited Partnership
Appeal pursuant to N.C.G.S. §§ 7A-27(a)(2) and 7A-27(a)(3) from a final
opinion and order dated 2 October 2017 and an interlocutory order entered on 2 June
2017, both by Judge Adam M. Conrad, Special Superior Court Judge for Complex
Business Cases, in Superior Court, Forsyth County, after the case was designated a
mandatory complex business case by the Chief Justice pursuant to N.C.G.S. § 7A-
45.4(b). Heard in the Supreme Court on 1 October 2018.
Blanco, Tackabery & Matamoros, P.A., by Peter J. Juran, M. Rachael Dimont,
and Chad A. Archer, for plaintiff-appellants.
Bell, Davis & Pitt, P.A., by Andrew A. Freeman and Alan M. Ruley, for
defendant-appellees.
ERVIN, Justice.
The principal issues before the Court in this case are whether the trial court
properly dismissed the claims that plaintiffs Azure Dolphin, LLC, and Jean-Pierre
Boespflug asserted in their first amended complaint and whether the trial court
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Opinion of the Court
properly denied plaintiffs’ second motion to amend their complaint. After careful
consideration of plaintiffs’ challenges to the trial court’s orders in light of the
applicable law, we conclude that the challenged orders should be affirmed.
I. Factual Background
A. Substantive Facts
Mr. Boespflug and defendant Justin Barton1 began working together in the
real estate investment business approximately thirty years ago. As part of their
business strategy, Mr. Boespflug and Mr. Barton created “various entities to acquire
and hold investment properties throughout the United States,” including “large
apartment complexes and commercial buildings.” Among the investment entities
that resulted from this process were defendants Hess Creek, LLC, an Oregon limited
liability company formed in 1996; Royal Ascot, LLC, an Oregon limited liability
company formed in 2001; and Barton Boespflug II and Vintage Oak II,2 both of which
were California limited partnerships formed in 1986.
According to the allegations contained in the amended complaint, Mr. Barton
served as manager or general partner for Hess Creek, Royal Ascot, Barton Boespflug,
Vintage Oak, and the other investment entities, while Mr. Boespflug “contributed the
1Mr. Barton and his wife, Janet Barton, control and operate a property management
business located in Winston-Salem known as Viking Properties.
2While plaintiffs’ amended complaint refers to this entity as both “Vintage Oak” and
“Vintage Oaks,” we note that plaintiffs’ briefs refer to the entity as “Vintage Oak.” We,
therefore, will refer to this entity as “Vintage Oak” throughout the remainder of this opinion.
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majority of the capital” and served as either a member or limited partner of each of
the investment entities. Mr. Boespflug gave Mr. Barton “some discretion to manage
the Properties,” with Mr. Barton having the responsibility for “reporting to [Mr.]
Boespflug intermittently on the state of the portfolio.” At some unspecified point in
time, Mr. “Boespflug formed Azure Dolphin,” a Nevada limited liability company, to
which he transferred a portion of his economic interests in the investment entities
that he and Mr. Barton had created and operated.
On 21 April 2011, Mr. Boespflug, a dual citizen of France and the United
States, moved back to Paris. On 26 April 2011, Mr. Barton e-mailed Mr. Boespflug
for the purpose of requesting his assistance in securing a new loan and refinancing
two existing loans. In his reply, Mr. Boespflug “explained to [Mr.] Barton that his
financial position was no longer conducive to personally guaranteeing loans” relating
to the investment entities. After a lender “demanded that both Azure [Dolphin] and
[Mr.] Boespflug guaranty the new loans,” Mr. Boespflug reiterated “that this was not
an option.”
Subsequently, Mr. Barton converted Mr. Boespflug’s membership interests in
the investment entities to notes payable with a face value that “was a fraction of the
true value of [Mr.] Boespflug’s membership interests.” More specifically, on 1
January 2012, Mr. Barton issued promissory notes to Mr. Boespflug in order to
transfer “all of the Investment Entities[‘] interests [that Mr.] Boespflug [had]
previously assigned to Azure Dolphin” to the following entities: Barton Boespflug;
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Viking Property Investors, LLC; Ash Creek, LLC; Vintage Oak; and Willamette River
I, LLC. On 1 January 2013, Mr. Barton issued a second series of promissory notes to
Mr. Boespflug by means of which he acquired “the remainder of [Mr.] Boespflug’s
interest in the Investment Entities.” The promissory notes in question reflected the
value of the interests that Mr. Boespflug and Azure Dolphin owned in the investment
entities, which, according to appraisals that Mr. Barton had obtained, amounted to a
total of $2,008,006. In plaintiffs’ view, Mr. Barton “manipulated” the appraisals so
as to undervalue Mr. Boespflug’s interests in the investments entities.
After engaging in these transactions, Mr. Barton “unilaterally amended the
operating agreements of the Investment Entities with terms considerably more
favorable to him,” “sold at least six of the [p]roperties” owned by the investment
entities, and transferred properties held by the investment entities “into his own
name and to different entities controlled by [Mr.] Barton and/or his immediate family
members.”
On 15 January 2013, Mr. Barton sent an e-mail to Mr. Boespflug to which was
attached a letter signed by Mr. Barton that had as its subject line “Buyout of Jean-
Pierre Boespflug, effective 1/1/2013.” The letter stated that:
Effective January 1, 2013 (pursuant to amended re-
stated operating agreements, dated November 1, 2011),
your economic interest in partnerships, per MAI
appraisals, will be replaced with promissory notes. These
partnerships are as follows: Ash Creek, LLC, Hess Creek,
LLC, Jay’s Canby, LLC, Jay’s Commonwealth Park I, LLC,
Jay’s Commonwealth Park II, LLC, Newby House LLC,
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Opinion of the Court
Richmond Park, LLC, and River Valley Investors, LLC.
The respective promissory notes and corresponding loan
amortization schedules are enclosed.
According to the amended complaint, these promissory notes accompanied “an
otherwise unrelated email with no indication of the importance of the communication
and thus this email remained unread until 2016.” Mr. Boespflug claimed that he did
not actually learn of the actions reflected in this letter until the summer of 2016.
B. Procedural History
1. Trial Court Proceedings
a. Preliminary Proceedings
On 16 December 2016, Mr. Boespflug, Azure Dolphin, and JPB Holdings, Inc.,3
commenced this action by filing a complaint asserting fifteen claims, including
individual and derivative claims for constructive fraud, breach of the duty of loyalty,
breach of the duty of care, breach of the duty of good faith and fair dealing, civil
conspiracy, fraudulent conveyance, and unfair and deceptive practices, and seeking
various remedies against twenty-one defendants,4 including Mr. Barton, certain of
3 Although JPB Holdings, Inc., participated in the proceedings before the trial court,
it is not a party to the proceedings on appeal.
4 The defendants named in the original complaint were Mr. Barton; Janet Barton;
Viking Properties; Sanur Brokerage; Viking Property Investors; Montpelier Investors, LLC;
Jay’s Canby Florence, LLC; Willamette River One, LLC; Victoria Place General Partnership;
Jay’s Commonwealth Phase 1, LLC; Jay’s Commonwealth Phase 2, LLC; Ash Creek; Barton
Boespflug; Hess Creek; Jay Canby, LLC; Newby House, LLC; Richmond Park, LLC; River
Valley Investors, LLC; Royal Ascot; Vintage Oak; and Willamette River One.
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the investment entities, and other defendants. On 19 December 2016,5 the Chief
Justice designated this case as a mandatory complex business case. On 10 February
2017, defendants6 filed a motion to compel arbitration or, alternatively, to dismiss
plaintiffs’ complaint for lack of personal jurisdiction, lack of subject matter
jurisdiction, failure to join a necessary party, insufficiency of process, failure to state
a claim upon which relief could be granted, and “the existence of arbitration
agreements.” On the same day, Sanur Brokerage filed an answer to plaintiffs’
complaint.
On 14 March 2017, plaintiffs filed a motion seeking leave to file an amended
complaint, a copy of which was attached to their amendment motion. The proposed
amended complaint attempted to add eleven additional defendants and included a
number of new factual and legal assertions, including allegations that the trial court
had jurisdiction over all of the named defendants pursuant to N.C.G.S. § 1-75.4(1)
and that, even though certain of the investment entities had been organized under
the laws of other states, they were “instrumentalities of [Mr.] Barton as he engages
in substantial activity within North Carolina” and had “received property and
proceeds of property that belong to North Carolina domestic entities and benefit from
5 The e-filing date and file-stamp date associated with many of the documents
referenced in this case differ slightly. In the event that there is such a discrepancy, we have
utilized the e-filing date in this opinion in lieu of the date upon which the document was file-
stamped.
6 All of the defendants named in the original complaint except for Viking Properties
joined the motion to dismiss the original complaint.
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bad acts committed by [Mr.] Barton inside of North Carolina or directed at North
Carolina corporations.” In seeking leave to amend their complaint, plaintiffs asserted
that the amended complaint would “cure deficiencies alleged by the [d]efendants in
their joint Motion to Dismiss filed on February 10, 2017[,] including naming
necessary parties previously unknown to the [p]laintiffs.”
On 6 April 2017, the trial court granted plaintiffs’ amendment motion, ordered
plaintiffs to file their amended complaint on or before 11 April 2017, and denied
defendants’ dismissal motion without prejudice to their right to move to dismiss the
amended complaint. In the 6 April 2017 order, the trial court noted that plaintiffs
had “failed to state the position of opposing counsel” as required by Business Court
Rule 7.3 and indicated its expectation that plaintiffs would “comply with the General
Rules of Practice and Procedure for the North Carolina Business Court in future
filings.”
On 18 April 2017, plaintiffs filed an amended complaint. On 19 April 2017,
defendants filed a clarification motion in which they asserted that plaintiffs had
failed to file their amended complaint by 11 April 2017 and had, instead, sought an
extension of time within which to file their amended complaint. In addition,
defendants noted that, on 17 April 2017, the trial court had denied plaintiffs’
extension motion and had, instead, ordered plaintiffs to “file the version of their
Amended Complaint attached to their March 14, 2017 Motion to Amend no later than
5:00 [p.m.] on April 18, 2017.” Finally, defendants asserted that plaintiffs’ amended
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complaint had been filed without authorization and differed from the proposed
amended complaint that had been attached to plaintiffs’ amendment motion.
On 20 April 2017, plaintiffs filed an errata notice and the version of the
amended complaint that had been attached to their amendment motion. On 21 April
2017, the Business Court entered an order striking the amended complaint that
plaintiffs had filed on 18 April 2017 and declaring that the amended complaint that
plaintiffs had filed on 20 April 2017 was the relevant pleading for purposes of future
proceedings in this case.
On 12 May 2017, plaintiffs filed a motion for leave to file a second amended
complaint, to which they attached a proposed amended complaint. On 19 May 2017,
defendants filed a motion to dismiss plaintiffs’ amended complaint. On 22 May 2017,
plaintiffs filed an errata notice and a new version of the proposed second amended
complaint.
On 30 May 2017, the trial court entered an order denying plaintiffs’ second
amendment motion. In its order, the trial court stated that, while “[p]laintiffs filed
the correct version of the amended complaint on April 20, 2017,” they did not do so
until “31 days after [p]laintiffs first notified the Court that they intended to file a
second motion for leave to amend.” In addition, the trial court pointed out that the
“proposed second amended complaint undoes many of the changes made in the first
amended complaint,” such as the elimination of “Sanur Brokerage LLC, Viking
Properties, LLC, and all individuals except for Justin and Janet Barton as
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defendants.” According to the trial court, plaintiffs’ second amendment motion
involved undue delay, suggested the existence of a “dilatory motive,” and was
accompanied by neither a brief nor a statement of the position of opposing counsel as
required by the applicable Business Court Rules.
On 8 June 2017, plaintiffs voluntarily dismissed their claims against Sanur
Brokerage, Viking Properties, and the “necessary defendants” that plaintiffs had
named in the amended complaint. In addition, plaintiffs voluntarily dismissed their
unjust enrichment, conversion, and derivative claims for breach of fiduciary duty,
imposition of a constructive trust, and punitive damages.
b. Trial Court’s Order
On 2 October 2017, the trial court entered an order granting defendants’
dismissal motion. Azure Dolphin, LLC v. Barton, No. 16 CVS 7622, 2017 WL
4400223, at *11 (N.C. Super. Ct. Forsyth County Bus. Ct. Oct. 2, 2017), appeal
dismissed in part, 2018 WL 3241726, at *3 (N.C. Super. Ct. Mar. 28, 2018). After
noting that “[e]ach of the ten [d]efendants [challenging the trial court’s jurisdiction
over their persons had] filed an affidavit stating it is not domiciled in and does not
have its principal place of business in this State,” the trial court concluded that
“[p]laintiffs have not carried their burden to support the exercise of personal
jurisdiction” given their failure to produce “evidence of any ‘continuous and
systematic’ contacts between these ten [d]efendants and North Carolina giving rise
to general jurisdiction,” citing Goodyear v. Brown, 564 U.S. 915, 919, 131 S. Ct. 2846,
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2851, 180 L. Ed. 2d 796, 803 (2011), or any “evidence that the ten [d]efendants
‘purposely avail[ed]’ themselves ‘of the privilege of conducting activities within’ North
Carolina, such that the exercise of specific jurisdiction would be appropriate,” citing
Cambridge Homes of N.C. L.P. v. Hyundai Constr., Inc., 194 N.C. App. 407, 413, 670
S.E.2d 290, 296 (2008) (quoting Lulla v. Effective Minds, LLC, 184 N.C. App. 274,
279, 646 S.E.2d 129, 133 (2007)). As a result, the trial court dismissed the claims
that plaintiffs had asserted against these ten defendants for lack of personal
jurisdiction.
After dismissing the claims that had been asserted on behalf of JPB Holdings
on the grounds that it lacked a valid corporate existence, the trial court determined
that it lacked the authority to dissolve Barton Boesplug and Vintage Oak, both of
which were California limited partnerships, and Hess Creek and Royal Ascot, both of
which were Oregon limited liability companies. In addition, although Jay’s
Commonwealth Park and Jay’s Commonwealth Park Phase II were both North
Carolina limited liability companies, the trial court found that, since neither Azure
Dolphin nor Mr. Boespflug were members of the entities in question, both plaintiffs
lacked standing to assert a dissolution claim involving those entities, citing N.C.G.S.
§ 57D-6-02(2) (providing that “only a member of [a limited liability company] has
standing to assert a claim for judicial dissolution”). Lastly, the trial court dismissed
plaintiffs’ claim seeking the removal of Mr. Barton from his position as manager of
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the investment entities7 on the grounds that such relief must be sought in a
derivative, rather than an individual action, and that plaintiffs had failed to make
the demand upon the entities in question required by N.C.G.S. § 57D-8-01(a)(2) before
filing their complaint in this case.
Thirdly, the trial court addressed plaintiffs’ claim seeking to have Mr.
Boespflug’s removal as a member of the investment entities and Mr. Barton’s efforts
to “unilaterally amend[ ] the operating agreements of some or all of the Investment
Entities” invalidated. In concluding that these claims should be dismissed, the trial
court determined that plaintiffs had failed to join all of the parties necessary for a
proper adjudication of the claims in question, citing N.C.G.S. § 1-260 (providing that
“all persons shall be made parties who have or claim any interest which would be
affected by the declaration, and no declaration shall prejudice the rights of persons
not parties to the proceedings”), on the grounds that, since “[a]ny declaration
invalidating an operating agreement or altering the LLC’s membership under the
operating agreement would, ‘as a practical matter,’ adversely affect the rights of these
members,” it would be improper for the trial court to adjudicate the validity of the
operating agreements without joining each member of the relevant investment
entities, quoting N.C. Monroe Constr. Co. v. Guilford County Bd. of Educ., 278 N.C.
633, 640, 180 S.E.2d 818, 822 (1971). In addition, the trial court determined that
7Any reference to a “removal claim” throughout the remainder of this opinion should
be understood as referring to plaintiffs’ request for a judicial declaration that Mr. Barton be
removed as manager or general partner of the investment entities.
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“any attempt to cure would be futile” given that “all of the additional parties reside
outside North Carolina, and there are no allegations that would support the exercise
of personal jurisdiction over them.” As a result, the trial court dismissed plaintiffs’
claims seeking the invalidation of Mr. Barton’s amendments to the operating
agreements of the investment entities and the restoration of Mr. Boespflug’s interests
in the investment entities for lack of subject matter jurisdiction.
The trial court next considered whether plaintiffs’ amended complaint
contained sufficient allegations to state a hybrid claim for breach of fiduciary duty
and constructive fraud.8 Although these two claims had been pleaded jointly in the
amended complaint, the trial court noted that they required proof of different
elements. However, the existence of a fiduciary relationship is necessary to the
successful assertion of both claims, citing Dalton v. Camp, 353 N.C. 647, 651, 548
S.E.2d 704, 707 (2001), and Crumley & Assocs., P.C. v. Charles Peed & Assocs., P.A.,
219 N.C. App. 615, 620, 730 S.E.2d 763, 767 (2012)). In spite of the fact that plaintiffs
alleged that Mr. “Barton [had] abused his position of trust and confidence by altering
the records of the Investment Entities, diverting the income streams and
opportunities to himself, other entities under his control and other insiders of Viking
Properties . . . for the purpose of benefitting himself to the detriment of the
8 As the court pointed out, plaintiffs had already voluntarily dismissed their claims
against Viking Properties, so the only remaining hybrid constructive fraud and breach of
fiduciary duty claim was the one that plaintiffs had asserted against Mr. Barton and Viking
Property Investors.
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Investment Entities and the members,” the trial court determined that plaintiffs
“ha[d] not adequately alleged the existence of a fiduciary relationship” as either a
matter of law or fact. In view of the fact that, “as a matter of law, a manager of [a
limited liability company] does not owe a fiduciary duty to its members,” the trial
court concluded that plaintiffs’ allegation that Mr. Barton managed the investment
entities and that Mr. Boespflug was a member did not establish the existence of a
fiduciary relationship between the two men as a matter of law. In addition, the trial
court determined that the amended complaint did not “meet the ‘demanding’
standard for alleging that a fiduciary relationship exists as a fact,” citing Lockerman
v. S. River Elec. Membership Corp., ___ N.C. App. ___, ___ 794 S.E.2d 346, 352 (2016),
because the amended complaint, which depicted a relationship in which “[Mr.]
Boespflug contributed most of the capital while [Mr.] Barton contributed most of the
real estate expertise,” did not reflect a dynamic in which either party “held ‘all the
financial power or technical information’ or exercised dominion and influence over
the other,” citing Lockerman, ___ N.C. App. at ___, 794 S.E.2d at 352 (quoting S.N.R.
Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613, 659 S.E.2d 442,
451 (2008)). As a result, the trial court dismissed plaintiffs’ hybrid constructive fraud
and breach of fiduciary duty claim.
In addressing plaintiffs’ remaining claims, the trial court began by dismissing
the fraudulent conveyance claim that plaintiffs had asserted against four defendants
on the grounds that plaintiffs’ “vague” assertions that they were entitled to recover
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“real property, proceeds from that property and/or revenue streams associated with
the property” were insufficiently particular to satisfy the requirements of N.C.G.S. §
1A-1, Rule 9. In addition, given that plaintiffs had relied upon “instances of fraud,
constructive fraud, and fraud by omission” to establish that defendants had
committed an unfair or deceptive act, plaintiffs’ failure to “adequately allege facts to
support their claims for constructive fraud and fraudulent conveyance” necessarily
demonstrated that plaintiffs had failed to “allege[ ] facts to show that [d]efendants
committed an unfair or deceptive act under [N.C.G.S. §] 75-1.1.” The trial court
dismissed plaintiffs’ civil conspiracy claim on the grounds that civil conspiracy does
not constitute an independent cause of action and that the trial court had already
dismissed the fraud-based claims upon which plaintiffs’ civil conspiracy claim rested.
Finally, the trial court dismissed plaintiffs’ “purported ‘claims for relief’ for
injunction, appointment of a receiver, constructive trust, and punitive damages” on
the grounds that these “claims” were actually “remedies, not causes of action.” As a
result, the trial court dismissed all of the claims that plaintiffs had asserted against
each defendant. Plaintiffs noted an appeal to this Court from the trial court’s orders.
2. Appellate Proceedings
In seeking to persuade us to overturn the challenged trial court orders,
plaintiffs contend that the trial court erred by dismissing their claims for Mr. Barton’s
removal as manager or general partner of the investment entities based upon
plaintiffs’ purported failure to comply with what is “commonly known as the ‘North
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Carolina Limited Liability Company Act,’ ” citing N.C.G.S. §§ 57D-1-01, 57D-1-02(a).
More specifically, plaintiffs note that N.C.G.S. § 57D-8-06 provides, in pertinent part,
that, “[i]n any derivative proceeding in the right of a foreign [limited liability
company], the matters covered by this Article will be governed by the law of the
jurisdiction of the foreign [limited liability company’s] organization,” so that the
statutory pre-suit “demand requirement” set out in N.C.G.S. § 57D-8-01(a)(2) is
inapplicable to Barton Boespflug, Hess Creek, Royal Ascot, and Vintage Oak, each of
which was organized under either California or Oregon law. As a result, plaintiffs
contend that Oregon law governs whether and to what extent plaintiffs must satisfy
a statutory pre-suit demand requirement before commencing a derivative action on
behalf of Hess Creek and Royal Ascot and note that Oregon law recognizes a futility
exception to its statutory pre-suit demand requirement, citing Or. Rev. Stat. Ann. §
63.801(2) (West 2018) (providing that “a complaint in a proceeding brought in the
right of a limited liability company must allege with particularity the demand made,
if any, to obtain action by the managers or the members who would otherwise have
the authority to cause the limited liability company to sue in its own right, and either
that the demand was refused or ignored or the reason why a demand was not made”);
Bernards v. Summit Real Estate Mgmt., Inc., 229 Or. App. 357, 363, 213 P.3d 1, 4
(2009). According to plaintiffs, “it would be entirely illogical to treat a plaintiff’s
statutorily excused ‘failure’ to make a futile demand on an entity prior to pursuit of
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a derivative claim on the entity’s behalf as a jurisdictional bar to the adjudication of
that claim.”
Similarly, plaintiffs assert that their “claims to remove [Mr.] Barton as general
partner of Barton Boespflug II and Vintage Oak II are governed by California law”
rather than North Carolina law. As a result of the fact that the relevant North
Carolina statutory provisions apply to “a partnership formed by two or more persons
under the laws of this State,” N.C.G.S. § 59-102(8) (emphasis in plaintiffs’ brief),
plaintiffs assert that North Carolina’s statutory limited partnership pre-suit demand
requirement, N.C.G.S. § 59-1001 (providing that “[a] limited partner may bring an
action in the right of a limited partnership to recover a judgment in its favor if general
partners with authority to do so have refused to bring the action or if an effort to
cause those general partners to bring the action is not likely to succeed”), does not
extend to entities, such as Barton Boespflug and Vintage Oak, which were not
organized under North Carolina law. On the contrary, plaintiffs contend that
California law governs their claims to remove Mr. Barton as the general partner of
Barton Boespflug and Vintage Oak, citing N.C.G.S. § 59-901 for the proposition that
“the laws of the jurisdiction under which a foreign limited partnership is organized
govern its organization and internal affairs,” and argue that, “to the extent the claims
[relating to the limited partnerships] are derivative in nature, failure to make a pre-
suit demand would not be fatal” under either North Carolina law, N.C.G.S. § 59-1001,
or California law, Cal. Corp. Code § 15910.02 (West 2018) (providing that “[a] partner
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may bring a derivative action to enforce a right of a limited partnership if” “the
partner first makes a demand on the general partners, requesting that they cause
the limited partnership to bring an action to enforce the right, and the general
partners do not bring the action within a reasonable time” “or [making such] a
demand would be futile”). As a result, plaintiffs argue that the trial court erred by
dismissing their claims for Mr. Barton’s removal as the general partner of Barton
Boespflug and Vintage Oak based upon plaintiffs’ failure to make a pre-suit demand.
In addition, plaintiffs claim that a “litigant’s purported failure to satisfy a
pleading requirement does not deprive a court of subject matter jurisdiction” and
would, instead, “entitle the litigant’s opponent to challenge the claim by way of a [ ]
motion to dismiss for failure to state a claim,” which “is an affirmative defense.”
Citing Simon v. Manufacturers Hanover Tr. Co., 849 F. Supp. 880, 882 (S.D.N.Y.
1994). In view of the fact that a court may not “sua sponte raise an affirmative defense
on a defendant’s behalf,” it “must refrain from [ ] independently examining whether
dismissal could be appropriate based on an unraised affirmative defense that a
complaint fails to state a claim upon which relief can be granted,” citing Unifund
CCR, LLC v. Francois, ___ N.C. App. ___, ___, 817 S.E.2d 915, 916 (2018). As a result,
plaintiffs argue that, since defendants’ motion to dismiss pursuant to N.C.G.S. § 1A-
1, Rule 12(b)(1) did not rest upon an argument that “dismissal was appropriate
because [plaintiffs] failed to satisfy the pleading requirements of either Or. Rev. Stat.
Ann. § 63.801(2) or Cal. Corp. Code § 15910.04,” any decision to affirm the trial court’s
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dismissal order would amount to “sanctioning a sua sponte invocation of an unraised
affirmative defense.”
Furthermore, plaintiffs contend that the common law-based “internal affairs
doctrine would nevertheless vitiate the Business Court’s holding” that plaintiffs’
claims for the removal of Mr. Barton as manager or general partner of the investment
entities were subject to the pre-suit demand requirements enunciated in N.C.G.S. §
57D-8-01(a)(2). According to plaintiffs, the internal affairs doctrine is
a conflict of laws principle which recognizes that only one
State should have the authority to regulate a corporation’s
internal affairs—matters peculiar to the relationships
among or between the corporation and its current officers,
directors, and shareholders—because otherwise a
corporation could be faced with conflicting demands.
Quoting Bluebird Corp. v. Aubin, 188 N.C. App. 671, 680, 657 S.E.2d 55, 63, disc.
review denied, 362 N.C. 679, 669 S.E.2d 741 (2008). Although this doctrine arose in
the corporate context, plaintiffs assert that the internal affairs doctrine “has also
been applied with respect to the internal affairs of limited liability companies and
limited partnerships,” citing TC Invs., Corp. v. Becker, 733 F. Supp. 2d 266, 282
(D.P.R. 2010). As a result, plaintiffs argue that the internal affairs doctrine provides
another basis for concluding that plaintiffs’ removal claims are subject to Oregon and
California, rather than North Carolina, law.
Lastly, plaintiffs contend that “it is not clear that the claims for removal of
[Mr.] Barton as manager or general partner of the Entity Appellees are purely
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derivative.” After recognizing that decisions from other jurisdictions have
determined that similar removal claims in the limited liability company and limited
partnership context are derivative in nature, plaintiffs argue that, “in accordance
with the internal affairs doctrine, courts look to the state of an entity’s organization
to determine whether a particular claim is derivative or direct,” citing Becker, 733 F.
Supp. 2d at 282, and Munson v. Valley Energy Inv. Fund, U.S., LP, 264 Or. App. 679,
703, 333 P.3d 1102, 1119 (2014). According to plaintiffs, the Oregon and California
courts “have eschewed strict classification of particular types of claims as either direct
or derivative and have opted instead to take an ad hoc approach, evaluating whether
a particular claim, as asserted in a particular lawsuit, is being asserted in a direct
capacity, a derivative capacity, or both,” citing Loewen v. Galligan, 130 Or. App. 222,
228, 882 P.2d 104, 111, review denied, 320 Or. 493, 887 P.2d 793 (1994), as “looking
to whether a shareholder has suffered a ‘special injury’ to determine whether [a]
claim, as asserted, was direct or derivative,” and pointing to Sole Energy Co. v.
Petrominerals Corp., 128 Cal. App. 4th 212, 228, 26 Cal. Rptr. 3d 798, 809, review
denied, 2005 Cal. LEXIS 8003 (2005), as holding that “[w]hether a cause of action is
derivative or can be asserted by an individual shareholder is determined by
considering the wrong alleged.”
Plaintiffs assert that their claims to remove Mr. Barton from the management
of Hess Creek and Royal Ascot “likely are at least partially direct” because Mr.
“Boespflug and Azure Dolphin have undoubtedly suffered ‘special injury’ as a result
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of Barton’s abuse of his position as manager,” citing Loewen, 130 Or. App. at 228, 882
P.2d at 111. Similarly, plaintiffs argue that, because their removal claims pertaining
to Hess Creek and Royal Ascot “are ‘based . . . on a fraud affecting [them] directly,’ ”
they are, for that reason, at least partially direct, quoting Sutter v. Gen. Petroleum
Corp., 28 Cal. 2d 525, 530, 170 P.2d 898, 901 (1946). As a result, for all of these
reasons, plaintiffs contend that the trial court erred by dismissing plaintiffs’ removal
claims on the basis of N.C.G.S. § 57D-8-01(a)(2).
Secondly, plaintiffs assert that the trial court erred by dismissing plaintiffs’
hybrid constructive fraud and breach of fiduciary duty claim by ignoring the
“allegations that a fiduciary relationship existed as a matter of law” and by
improperly subjecting plaintiffs to a heightened pleading standard. According to
plaintiffs, Mr. “Boespflug specifically pleaded allegations which, if taken as true, are
sufficient to establish a broker-principal fiduciary relationship between [Mr.] Barton
and [Mr.] Boespflug.” In support of their “broker-principal” argument, plaintiffs point
to the allegations contained in the amended complaint that Mr. Barton acted as Mr.
Boespflug’s “deal broker” and that Mr. Barton held himself out as an expert in real
estate investments. In addition, plaintiffs contend that the allegations contained in
the amended complaint show that a fiduciary relationship in fact existed between Mr.
Boespflug and Mr. Barton. After acknowledging that the trial court, acting in
reliance upon “the ‘demanding’ standard articulated in Lockerman,” found that
plaintiffs had failed to adequately plead the existence of a de facto fiduciary
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relationship, plaintiffs contend that Lockerman, which was decided in a summary
judgment rather than a pleading context, is irrelevant to the proper resolution of this
case and has been utilized by the trial court to require plaintiffs to satisfy an
impermissibly high pleading standard. As a result, since the amended complaint
“adequately pleaded . . . the existence of both a de jure and a de facto fiduciary
relationship,” plaintiffs contend that the trial court erred by reaching a contrary
conclusion.
Thirdly, plaintiffs claim that the trial court’s erroneous decision to dismiss
their hybrid constructive fraud and breach of fiduciary duty claim resulted in the
erroneous decision to dismiss plaintiffs’ unfair and deceptive practices claim.
According to plaintiffs, the fact that they adequately pleaded a claim for constructive
fraud sufficed to establish that they adequately pleaded an unfair and deceptive
practices claim as well.
Finally, plaintiffs contend that trial court erred by denying their motion for
leave to file a second amended complaint. After acknowledging that the trial court
had considered “various factors sanctioned by the appellate courts of this State in its
order denying [p]laintiffs’ motion,” plaintiffs assert that the trial court “improperly
[drew] every inference and view[ed] all the circumstances in a light most favorable to
the [d]efendants, who actually bore the burden of demonstrating why the
(presumptively permissible) motion should not have been granted.”
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In urging us to uphold the challenged orders, defendants begin by noting that,
“[i]n discussing the 2 October 2017 Order granting the motion to dismiss, [plaintiffs]
only address five of the defendants listed in the Amended Complaint”—Mr. Barton,
Barton Boespflug, Hess Creek, Royal Ascot, and Vintage Oak—and “only three of the
fifteen claims for relief alleged in the Amended Complaint.” In addressing plaintiffs’
challenge to the dismissal of their removal claims, defendants contend that plaintiffs
had “requested application of North Carolina law” and had refrained from
questioning the manner in which the trial court had applied North Carolina law in
dismissing their removal claims. According to defendants, “[u]nder both Oregon and
California law, the necessary prerequisites to pursuing a derivative claim to remove
a manager (to the extent such a claim exists) were not alleged” in plaintiffs’ amended
complaint, necessitating the dismissal of plaintiffs’ claims under Oregon or California
law. More specifically, defendants note that the Oregon statute upon which plaintiffs
rely provides that the complaint in a derivative action “must allege with particularity
the demand made . . . or the reason why a demand was not made,” citing Or. Rev.
Stat. § 63.801(2), and that the relevant California statute contains a “pleading
requirement, which [ ] requires a party to plead with particularity why a demand
would be futile,” citing Cal. Corp. Code § 15910.02 (West 2018). Defendants argue
that plaintiffs have “fail[ed] to point to any paragraph in the forty-three page
Amended Complaint that purports to satisfy the particularized demand futility
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pleading requirements of Oregon and California” and assert that “no such allegations
were made.”
In addition, defendants argue that plaintiffs’ contention that their request for
Mr. Barton’s removal as manager or limited partner of the investment entities was
“partially” derivative lacks merit. According to defendants, the relevant operating
agreements provide that the “removal of a manager for gross negligence requires
either the ‘majority vote’ or a ‘unanimous vote’ of all members.” As a result, “even if
[plaintiffs] had properly pled a claim to remove [Mr.] Barton as the manager of the
[investment entities],” the Court lacks the authority to act in accordance with
plaintiffs’ request.
In addition, defendants claim that plaintiffs’ removal claims are time barred,
given that the “allegedly negligent conduct that forms the basis for requested removal
occurred prior to January 1, 2013, at the latest,” which means that “[t]he statute of
limitations for the [ ] removal claim expired three years later, on January 1, 2016.”
In view of the fact that this action was not filed until 16 December 2016, defendants
contend that plaintiffs’ “removal claim is barred by the statute of limitations.”
Secondly, defendants assert that the trial court properly dismissed plaintiffs’
constructive fraud and breach of fiduciary duty claim. According to defendants,
plaintiffs had attempted to establish the existence of a de facto, but not a de jure,
fiduciary relationship before the trial court. Under that set of circumstances,
defendants contend that plaintiffs should not be permitted to argue before this Court
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Opinion of the Court
that a de jure fiduciary relationship existed between Mr. Boespflug and Mr. Barton.
In addition, defendants argue that plaintiffs failed to allege that Mr. Barton took any
action in his capacity as Mr. Boespflug’s real estate broker that would amount to a
breach of that fiduciary duty.
Similarly, defendants argue that plaintiffs failed to allege sufficient facts to
establish the existence of a de facto fiduciary relationship between Mr. Barton and
Mr. Boespflug. More specifically, defendants contend that plaintiffs failed to allege
sufficient facts to show that Mr. Barton completely dominated Mr. Boespflug. In
addition, defendants assert that any conduct that might otherwise amount to the
breach of a fiduciary duty, such as the issuance of the promissory notes about which
plaintiffs complain, “is not a substitute for [plaintiffs’] failure to allege sufficient facts
to show that a de facto fiduciary relationship arose prior [to] the time this conduct
occurred.”
In the same vein, defendants argue that the trial court properly dismissed
plaintiffs’ unfair and deceptive practices claim in light of plaintiffs’ failure to allege
“instances of fraud, constructive fraud, and fraud by omission.” Moreover, defendants
assert that plaintiffs failed to allege the occurrence of an in-state injury, which they
believe to be a prerequisite to the assertion of a valid unfair and deceptive practices
claim. Lastly, defendants argue that the dismissal of plaintiffs’ unfair and deceptive
practices claim was appropriate because “intra-corporate conduct” is not cognizable
under N.C.G.S. § 75-1.1.
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Finally, defendants assert that the trial court properly denied plaintiffs’ second
amendment motion. Although plaintiffs did include “a section in their brief
requesting that the denial of their second motion to amend be reversed,” defendants
contend that plaintiffs’ failure to provide any “substantive analysis or argument”
relating to the amendment issue constituted an abandonment of plaintiffs’ challenge
to the denial of their amendment motion. In addition, defendants note that the
various justifications that the trial court provided “in the Order denying the second
motion to amend” “make[ ] it undeniable that the trial court’s decision was the
product of a reasoned decision.” As a result, defendants contend that the trial court
did not err by denying plaintiffs’ second amendment motion.
II. Substantive Legal Analysis
A. Claims for Mr. Barton’s Removal
In their initial challenge to the trial court’s dismissal order, plaintiffs argue
that the trial court erred by dismissing their claims for Mr. Barton’s removal as the
manager or general partner of certain of the investment entities for lack of standing
because the claims in question were derivative, rather than personal, in nature and
because plaintiffs failed to make a demand upon the entities to take action against
Mr. Barton before filing suit. “We review the decision of a trial court to dismiss an
action for lack of subject matter jurisdiction de novo.” Catawba County ex rel. Rackley
v. Loggins, 370 N.C. 83, 87, 804 S.E.2d 474, 477-78 (2017) (citing Harris v. Matthews,
361 N.C. 265, 271, 643 S.E.2d 566, 570 (2007)). Likewise, “[q]uestions of statutory
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interpretation are ultimately questions of law for the courts and are reviewed de
novo.” In re Ernst & Young, LLP, 363 N.C. 612, 616, 684 S.E.2d 151, 154 (2009)
(citing Brown v. Flowe, 349 N.C. 520, 523, 507 S.E.2d 894, 896 (1998)).
A limited liability company is defined as “[a]n entity formed under [Chapter
57D] (or former Chapter 57C of the General Statutes) that has not become another
entity or form of entity by merger, conversion, or other means.” N.C.G.S. § 57D-1-
03(19) (2017). A “derivative action” is defined as “a proceeding brought in the
superior court of this State in the right of [a limited liability company] or, to the extent
provided in G.S. 57D-8-06, in the right of a foreign [limited liability company], to
recover a judgment in favor of the [limited liability company] or, if applicable, the
foreign [limited liability company].” Id. § 57D-8-01(b) (2017). A member of a limited
liability company9 may initiate a derivative action when the member “ma[kes]
written demand on the [limited liability company] to take suitable action,” and either
the demand is rejected or “90 days [ ] expire[ ] from the date the demand was made,”
or, alternatively, when “irreparable injury to the [limited liability company] would
result by waiting for the expiration of the 90-day period.” Id. § 57D-8-01(a)(2) (2017).
9 A member of a limited liability company is “[a] person who has been admitted as a
member of the [limited liability company] as provided in the operating agreement or G.S.
57D-3-01, who was a member of the [limited liability company] immediately before the repeal
of Chapter 57C of the General Statutes until the person ceases to be a member as provided
in the operating agreement or G.S. 57D-3-02, or, with respect to a foreign [limited liability
company], a person who has been admitted as a member of the foreign [limited liability
company] under the law of the jurisdiction in which the foreign [limited liability company] is
organized until the person ceases to be a member under that law.” N.C.G.S. § 57D-1-03(21)
(2017).
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Similarly, a limited partnership is defined as “a partnership formed by two or
more persons under the laws of this State and having one or more general partners
and one or more limited partners, [including], for all purposes of the laws of the State
of North Carolina, a limited liability limited partnership.” Id. § 59-102(8) (2017). “A
limited partner may bring an action in the right of a limited partnership to recover a
judgment in its favor if general partners with authority to do so have refused to bring
the action or if an effort to cause those general partners to bring the action is not
likely to succeed.” Id. § 59-1001 (2017). As a result, North Carolina law contains pre-
suit demand requirements applicable to derivative claims asserted against both
limited liability companies and limited partnerships.
In dismissing plaintiffs’ claims for the removal of Mr. Barton, the trial court
determined that plaintiffs’ failure to allege that they had made demand upon the
investment entities in accordance with N.C.G.S. § 57D-8-01(a)(2) deprived plaintiffs
of standing to maintain their removal claims and necessitated dismissal of those
claims for lack of subject matter jurisdiction. Plaintiffs, however, argue that the trial
court’s decision to this effect was erroneous for a number of reasons, including, but
not limited to, the fact that the demand rule contained in N.C.G.S. § 7D-8-01(a)(2)
does not apply to limited partnerships,10 that plaintiffs’ removal claims are governed
10 Although we tend to agree with plaintiffs that the demand rules for derivative
claims relating to North Carolina limited liability companies and North Carolina limited
partnerships are different, we need not address the nature or extent of those differences given
our determination that the demand rules applicable to plaintiffs’ claims are governed by
foreign, rather than North Carolina, law.
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by the laws of jurisdictions other than North Carolina, and that the laws of the
relevant foreign jurisdictions do not contain mandatory pre-suit demand
requirements of the type embodied in N.C.G.S. § 57D-8-01(a)(2). As a result,
plaintiffs urge us to overturn that portion of the trial court’s dismissal order relating
to plaintiffs’ removal claims.
As an initial matter, we are inclined to believe that plaintiffs’ removal claims
are, in fact, governed by foreign, rather than North Carolina, law.11 As far as limited
liability companies are concerned, N.C.G.S. § 57D-8-06 provides that, “[i]n any
derivative proceeding in the right of a foreign [limited liability company], the matters
covered by this Article will be governed by the law of the jurisdiction of the foreign
[limited liability company’s] organization.” Id. § 57D-8-06 (2017). Similarly, with
respect to limited partnerships, “the laws of the jurisdiction under which a foreign
limited partnership is organized govern its organization and internal affairs . . . .” Id.
§ 59-901 (2017). As a result, the relevant North Carolina statutes indicate that
plaintiffs’ claims for Mr. Barton’s removal as the manager of Hess Creek and Royal
Ascot are governed by Oregon law and that plaintiffs’ claims for Mr. Barton’s removal
as the general partner of Barton Boespflug and Vintage Oak are governed by
California law.12 However, the fact that the trial court’s decision rested upon North
11We note, in passing, that the trial court appears to have introduced the pre-suit
demand requirement issue into this case rather than the parties.
12In light of our understanding of the relevant statutory provisions, we need not
determine whether a similar result is required under the internal affairs doctrine.
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Carolina, rather than Oregon and California, law does not require reversal of the trial
court’s decision to dismiss plaintiffs’ removal claims in this case.
According to the statutory provisions governing derivative actions brought
against Oregon limited liability companies:
Except as otherwise provided in writing in the articles of
organization or any operating agreement, a complaint in a
proceeding brought in the right of a limited liability
company must allege with particularity the demand made,
if any, to obtain action by the managers or the members
who would otherwise have the authority to cause the
limited liability company to sue in its own right, and either
that the demand was refused or ignored or the reason why
a demand was not made.
Or. Rev. Stat. Ann. § 63.801(2) (West 2018). Similarly, the California statute
governing the assertion of derivative claims in the limited partnership context
provides that
[a] partner may bring a derivative action to enforce a right
of a limited partnership if:
(1) the partner first makes a demand on the general
partners, requesting that they cause the limited
partnership to bring an action to enforce the right, and the
general partners do not bring the action within a
reasonable time; or
(2) a demand would be futile.
Cal. Corp. Code § 15910.02 (West 2018). According to section 15910.04 of the
California Corporations Code, the complaint filed in a derivative action involving a
limited partnership must state “the date and content of plaintiff’s demand and the
general partners’ response to the demand” or “why demand is excused as futile.” Id.-29-
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§ 15910.04 (West 2018). As a result, while plaintiffs are correct in noting that both
Oregon Revised Statutes section 63.801(2) and California Corporations Code section
15910.02 contain what amounts to a “futility” exception to the otherwise-applicable
pre-suit demand requirement, they overlook the fact that both Oregon and California
law require that the plaintiff allege the basis for any claim of futility in any derivative
complaint that he or she elects to file on behalf of a limited liability company or a
limited partnership.
A careful reading of plaintiffs’ amended complaint provides no indication that
plaintiffs have attempted to satisfy the statutory requirement that the complaint in
any derivative action that they might seek to file under either Oregon limited liability
company law or California limited partnership law contain an affirmative allegation
explaining why it would have been futile for them to have made a demand upon the
relevant investment entities. In fact, plaintiffs do not appear to contend in their brief
that they made any effort to satisfy the requirement that they affirmatively allege
the basis for a contention that the making of a demand upon Hess Creek, Royal Ascot,
Barton Boespflug, or Vintage Oak would have been futile. Instead, plaintiffs appear
to argue that it would have been inappropriate for the trial court to raise what they
describe as the “affirmative defense” of their failure to allege why it would have been
futile for them to make demand upon the relevant investment entities and suggest
that their removal claims were only “partially” derivative. Rather than being an
affirmative defense, however, the pleading requirements set out in Oregon Revised
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Statutes section 63.801(2) and California Corporations Code section 15910.02
constitute affirmative obligations that plaintiffs clearly are required to satisfy in
order to assert a valid derivative claim on behalf of either an Oregon limited liability
company or a California limited partnership.13 In addition, as defendants note,
plaintiffs sought Mr. Barton’s removal as the manager or general partner of the
relevant investment entities rather than the recovery of damages or some relief that
does not affect all other interested parties associated with the relevant investment
entities for some specific injury that plaintiffs claim to have sustained. For that
reason, plaintiffs’ removal claims strike us as quintessentially derivative, rather than
personal, in nature. Loewen, 130 Or. App. at 229-30, 882 P.2d at 112 (stating that a
claim that does not seek recovery for a “special injury” is derivative). As a result, for
all of these reasons, we conclude that the trial court did not err by dismissing
plaintiffs’ removal claims.14
13As a result of the fact that the pleading requirements set out in Or. Rev. Stat. Ann.
§ 63.801(2) (West 2018) and Cal. Corp. Code § 15910.02 (West 2018) are clearly mandatory
in nature, plaintiffs’ removal claims are clearly subject to dismissal pursuant to N.C.G.S. §
1A-1, Rule 12(b)(6) even if the pleading requirement in question is not jurisdictional in
nature.
14In light of our determination that plaintiffs failed to satisfy the applicable Oregon
and California pleading requirements, we need not consider the validity of defendants’ other
arguments in support of the trial court’s decision to dismiss plaintiffs’ removal claims.
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B. Fiduciary Relationship
Secondly, plaintiffs challenge the trial court’s decision to dismiss their hybrid
constructive fraud and breach of fiduciary duty claim for failure to state a claim upon
which relief can be granted.
Dismissal under Rule 12(b)(6) is proper when one of the
following three conditions is satisfied: (1) the complaint on
its face reveals that no law supports the plaintiff’s claim;
(2) the complaint on its face reveals the absence of facts
sufficient to make a good claim; or (3) the complaint
discloses some fact that necessarily defeats the plaintiff’s
claim.
Wood v. Guilford County, 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002) (citing Oates
v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985)). In ruling upon a
dismissal motion filed pursuant to N.C.G.S. § 1A-1, Rule 12(b)(6), “the well-pleaded
material allegations of the complaint are taken as true; but conclusions of law or
unwarranted deductions of fact are not admitted.” Arnesen v. Rivers Edge Golf Club
& Plantation, Inc., 781 S.E.2d 1, 7-8, 368 N.C. 440, 448 (2015) (quoting Sutton v.
Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970)). “Our review of the grant of a
motion to dismiss under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure
is de novo.” Bridges v. Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013).
A claim for constructive fraud only “arises where a confidential or fiduciary
relationship exists.” Watts v. Cumberland Cty. Hosp. Sys., Inc., 317 N.C. 110, 115-
16, 343 S.E.2d 879, 884 (1986) (first citing Terry v. Terry, 302 N.C. 77, 83, 273 S.E.2d
674, 677 (1981); and then citing Patuxent Dev. Co. v. Bearden, 227 N.C. 124, 128, 41
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S.E.2d 85, 88 (1947)). Similarly, “[f]or a breach of fiduciary duty to exist, there must
first be a fiduciary relationship between the parties.” Dalton, 353 N.C. at 651, 548
S.E.2d at 707 (first citing Curl v. Key, 311 N.C. 259, 264, 316 S.E.2d 272, 275 (1984);
and then citing Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971)). In the
event that a party “fail[s] to allege any special circumstances that could establish a
fiduciary relationship,” Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C.
440, 449, 781 S.E.2d 1, 8 (2015), dismissal of a claim which hinges upon the existence
of such a relationship would be appropriate. See id. at 448-51, 781 S.E.2d at 8-9
(upholding a trial court’s order dismissing claims for fraud and unfair and deceptive
practices given the failure of the complaint to sufficiently allege the existence of a
fiduciary relationship between the parties).
“Though difficult to define in precise terms, a fiduciary relationship is
generally described as arising when ‘there has been a special confidence reposed in
one who in equity and good conscience is bound to act in good faith and with due
regard to the interests of the one reposing confidence.’ ” Dallaire v. Bank of Am.,
N.A., 367 N.C. 363, 367, 760 S.E.2d 263, 266 (2014) (quoting Green v. Freeman, 367
N.C. 136, 141, 749 S.E.2d 262, 268 (2013)). A fiduciary relationship may exist in law
or in fact. See Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931). For
that reason, even when a fiduciary relationship does not arise as a matter of law, that
is, due to the “legal relations” between two parties, it may yet exist as a matter of fact
in such instances when there is “confidence reposed on one side, and the resulting
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superiority and influence on the other.” Id. at 598, 160 S.E. at 906 (quoting Pomeroy’s
Equity Jurisprudence, 3d Ed., Vol. 2, § 956). As a result, the ultimate issue raised by
plaintiffs’ challenge to the trial court’s decision to dismiss the plaintiffs’ hybrid
constructive fraud and breach of fiduciary duty claim is whether the amended
complaint alleges facts that, if believed, would suffice to establish the existence of a
fiduciary relationship between Mr. Barton and Mr. Boespflug.
As an initial matter, we find no merit in plaintiffs’ challenge to the standard
upon which the trial court relied in determining that plaintiff had failed to state a
claim for constructive fraud or breach of fiduciary duty. Although Lockerman was,
as plaintiffs note, decided in the context of a summary judgment motion rather than
a motion to dismiss for failure to state a claim upon which relief can be granted, that
fact does not indicate that the trial court required plaintiffs to satisfy a “heightened
pleading standard” with respect to their hybrid constructive fraud and breach of
fiduciary duty claim. Aside from the fact that the language from Lockerman upon
which the trial court relied states a general legal standard that would not vary
depending upon whether a court was considering a summary judgment motion or a
dismissal motion lodged pursuant to N.C.G.S. § 1A-1, Rule 12(b)(6), the trial court
clearly cited Lockerman for the purpose of indicating that, as is required by well-
established North Carolina law, detailed factual allegations, rather than mere
conclusory assertions, are necessary to demonstrate the existence of a fiduciary
relationship as a matter of fact. Watts, 317 N.C. at 116, 343 S.E.2d at 884 (stating
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that, in order to “stat[e] a cause of action for constructive fraud, the plaintiff must
allege facts and circumstances,” among other things, “ ‘which created the relation of
trust and confidence’ ”) (quoting Rhodes v. Jones, 232 N.C. 547, 549, 61 S.E.2d 725,
726 (1950)). As a result, the trial court’s decision to dismiss plaintiffs’ hybrid
constructive fraud and breach of fiduciary duty claim does not rest upon a
misapprehension of the pleading standard that must be satisfied in order to survive
a motion to dismiss for failure to state a claim upon which relief can be granted.
As a substantive matter, plaintiffs argue that they “specifically pleaded
allegations” of a “broker-principal” relationship between Mr. Barton and Mr.
Boespflug and that the existence of such a relationship suffices to show that there
was a fiduciary relationship between Mr. Barton and Mr. Boespflug as a matter of
law. In support of this assertion, plaintiffs point to the allegations in the amended
complaint stating that, “[s]ince 1986, [Mr.] Barton has acted as [Mr.] Boespflug’s deal
broker, recommending real estate investments and advising [Mr.] Boespflug,” and
that “[a] special relationship of trust was formed between [Mr.] Barton and [Mr.]
Boespflug because [Mr.] Barton held himself out as a real estate investment expert
generally and as [Mr.] Boespflug’s advisor specifically.” According to plaintiffs, these
allegations “show that [Mr.] Boespflug reposed special trust and confidence on [Mr.]
Barton as his real estate investment broker, property manager, and personal advisor,
thereby giving rise to a fiduciary relationship between [Mr.] Barton and [Mr.]
Boespflug as a matter of law.” We do not find plaintiffs’ argument persuasive.
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A careful examination of the record indicates that plaintiffs made no effort to
persuade the trial court that a fiduciary relationship existed between Mr. Barton and
Mr. Boespflug as a matter of law. Instead, the only argument that plaintiffs made
with respect to the fiduciary duty issue before the trial court involved an assertion
that such a relationship existed between the two men as a matter of fact. In addition,
the allegations contained in the amended complaint refer to Mr. Barton as a “deal
broker” rather than a real estate broker, with plaintiffs having failed to present any
authority defining a “deal broker,” much less establishing that such a relationship is
fiduciary in nature. Finally, even if plaintiffs did, in fact, allege that a real estate
brokerage relationship existed between Mr. Barton and Mr. Boespflug, plaintiffs’
hybrid constructive fraud and breach of fiduciary duty claim does not appear to rest
upon any conduct in which Mr. Barton engaged in the context of any such
relationship. As a result, for all of these reasons, we conclude that plaintiffs failed to
allege the existence of a fiduciary relationship as a matter of law between Mr. Barton
and Mr. Boespflug in their amended complaint.
Similarly, we are not persuaded that the allegations contained in the amended
complaint suffice to establish the existence of a fiduciary relationship between Mr.
Barton and Mr. Boespflug as a matter of fact. On the contrary, the amended
complaint lacks allegations suggesting the existence of the “confidence reposed on one
side, and the resulting superiority and influence on the other,” necessary to show the
existence of a fiduciary relationship as a matter of fact, Abbitt, 201 N.C. at 598, 160
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S.E. at 906, and seems to suggest, instead, that the opposite conclusion is more
appropriate. For example, plaintiffs’ allegation that “[Mr.] Boespflug placed [Mr.]
Barton in a position of trust and gave him some discretion to manage the Properties,
reporting to [Mr.] Boespflug intermittently on the state of the portfolio” tends to
suggest that Mr. Barton lacked the superior authority over the operation of the
investment entities necessary to establish the existence of a fiduciary relationship in
fact and, on the contrary, buttresses the trial court’s description of the relationship
between Mr. Barton and Mr. Boespflug as “one in which both men played a key role:
[Mr.] Boespflug contributed most of the capital while [Mr.] Barton contributed most
of the real estate expertise.”15 Thus, we hold that the trial court did not err by
dismissing plaintiffs’ hybrid constructive fraud and breach of fiduciary duty claim for
failure to state a claim upon which relief can be granted.
C. Unfair and Deceptive Practices Claim
The result that we reached with respect to plaintiffs’ challenge to the dismissal
of their hybrid constructive fraud and breach of fiduciary duty claim controls with
respect to their challenge to the dismissal of their unfair and deceptive practices
15 Although plaintiffs direct our attention to various allegations describing certain
actions in which Mr. Barton allegedly engaged, including the issuance of promissory notes in
exchange for Mr. Boespflug’s share in the investment entities, selling various properties, and
modifying certain investment entity operating agreements, these allegations, while relevant
to show that Mr. Barton breached any fiduciary duty that might have existed between Mr.
Barton and Mr. Boespflug, have no bearing upon the extent to which a fiduciary relationship
actually existed between the two men. See Watts, 317 N.C. at 115-16, 343 S.E.2d at 884(citations omitted).
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claim. “In order to establish a prima facie claim for unfair trade practices, a plaintiff
must show: (1) defendant committed an unfair or deceptive act or practice, (2) the
action in question was in or affecting commerce, and (3) the act proximately caused
injury to the plaintiff.” Dalton, 353 N.C. at 656, 548 S.E.2d at 711 (citing Spartan
Leasing Inc. v. Pollard, 101 N.C. App. 450, 460-61, 400 S.E.2d 476, 482 (1991)). In
support of their unfair and deceptive practices claim, plaintiffs alleged in the
amended complaint that defendants’ “conduct described herein and throughout this
complaint, including its numerous instances of fraud, constructive fraud, and fraud
by omission, has a tendency to deceive, is immoral, unethical, oppressive, and
unscrupulous.” In dismissing plaintiffs’ unfair and deceptive practices claim, the trial
court stated that, “[h]aving determined that [p]laintiffs did not adequately allege
facts to support their claims for constructive fraud and fraudulent conveyance (the
only ‘fraud’ claims asserted in their complaint),” “[p]laintiffs have not alleged facts to
show that Defendants committed an unfair or deceptive act under” N.C.G.S. § 75-
1.1.” The only basis upon which plaintiffs contend that the trial court erred by
dismissing their unfair and deceptive practices claim is that they “adequately alleged
a claim for constructive fraud.” Having already rejected the only arguments that
plaintiffs have advanced in support of their challenge to the trial court’s decision to
dismiss their hybrid constructive fraud and breach of fiduciary duty claim, we are
compelled to reject their challenge to the dismissal of their unfair and deceptive
practices claim as well. As a result, we hold that the trial court did not err by
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dismissing plaintiffs’ unfair and deceptive practices claim for failure to state a claim
upon which relief can be granted.
D. Amendment Motion
Finally, plaintiffs contend that the trial court erred by denying their second
motion to amend their complaint. According to well-established North Carolina law,
after the time for answering a pleading has expired, “a motion to amend is addressed
to the discretion of the court, and its decision thereon is not subject to review except
in case of manifest abuse.” Calloway v. Ford Motor Co., 281 N.C. 496, 501, 189 S.E.2d
484, 488 (1972) (citations omitted). A trial court abuses its discretion in the event
that its decision “ ‘is manifestly unsupported by reason’ or ‘so arbitrary that it could
not have been the result of a reasoned decision.’ ” Frost v. Mazda Motors of Am., Inc.,
353 N.C. 188, 199, 540 S.E.2d 324, 331 (2000) (quoting Little v. Penn Ventilator Co.,
317 N.C. 206, 218, 345 S.E.2d 204, 212 (1986) (first quoting White v. White, 312 N.C.
770, 777, 324 S.E.2d 829, 833 (1985); and then quoting State v. Wilson, 313 N.C. 516,
538, 330 S.E.2d 450, 465 (1985))). “Among proper reasons for denying a motion to
amend are undue delay by the moving party and unfair prejudice to the nonmoving
party.” News & Observer Publ’g. Co. v. Poole, 330 N.C. 465, 485, 412 S.E.2d 7, 19
(1992) (citing Patrick v. Ronald Williams, P.A., 102 N.C. App. 355, 360, 402 S.E.2d
452, 455 (1991)).
In challenging the denial of their second amendment motion, plaintiffs note
that N.C.G.S. § 1A-1, Rule 15(a) provides that “leave [to amend] shall be freely given
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when justice so requires” and contend that the trial court erroneously placed the
burden of proof upon them to establish that their amendment motion should be
allowed rather than requiring defendants to establish why their amendment motion
should not be allowed, citing Mauney v. Morris, 316 N.C. 67, 72, 340 S.E.2d 397, 400
(1986) (stating that “[t]he burden is upon the opposing party to establish that that
party would be prejudiced by the amendment” (citing Roberts v. William N. & Kate
B. Reynolds Mem’l Park, 281 N.C. 48, 58, 187 S.E.2d 721, 727 (1972))). We do not
find plaintiffs’ argument persuasive.
Aside from the fact that the record contains no reason to believe that the trial
court’s order denying plaintiffs’ second amendment motion rested upon an
impermissible placement of the burden upon plaintiffs rather than defendants, a
careful review of the relevant provisions of the trial court’s order demonstrates that
it had ample justification for denying plaintiffs’ second amendment motion. As an
initial matter, the trial court noted that it had already allowed plaintiffs to file an
amended complaint while admonishing plaintiffs to comply with the applicable
Business Court rules in the future. However, instead of filing the amended complaint
which had been attached to their amendment motion within the time specified in the
trial court’s amendment order, plaintiffs sought an extension of time within which to
make the required filing. After the trial court, despite denying plaintiffs’ extension
motion, gave plaintiffs a new deadline within which to file their amended complaint,
plaintiffs filed an amended complaint that differed from the amended complaint that
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had been attached to their amendment motion. Even so, the trial court allowed
plaintiffs to file the amended complaint that had been attached to their amendment
motion and treated it as their complaint for purposes of future proceedings in this
case. Within only a few weeks after the filing of their amended complaint, plaintiffs
sought leave to file a second amended complaint that was not accompanied by a brief
or a statement of opposing counsels’ position, and that essentially “undid” a
significant number of the changes that had been made to their original complaint in
their amended complaint. In light of these determinations, which plaintiffs concede
are relevant to a proper analysis of whether an amendment motion should be allowed
or denied and which provide ample support for the trial court’s conclusion that
plaintiffs’ second amendment motion involved “undue delay,” suggested a “dilatory
motive,” and was neither accompanied by a brief nor a statement of the position of
opposing counsel as required by the applicable Business Court Rules, we have no
hesitation in concluding that the trial court did not abuse its discretion by denying
plaintiffs’ second amendment motion.
III. Conclusion
Thus, for all of these reasons, we conclude that the trial court did not err by
dismissing plaintiffs’ amended complaint and denying plaintiffs’ second amendment
motion. As a result, the challenged trial court orders are affirmed.
AFFIRMED.
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