Contract – Partnership & LLC – Breach of Fiduciary Duty – Labor & Employment – Wages – Business Opportunities

In this lawsuit arising from a failed business venture, plaintiff’s claim of breach of fiduciary duty fails because the parties’ purported partnership was subsumed into their limited liability company.

The parties’ cross-motions for summary judgment are granted in part and denied in part.

Fiduciary Duty

While partners owe one another a fiduciary duty, members of a limited liability company do not owe fiduciary duties to each other. Where plaintiff himself testified at deposition that his purported partnership with defendant Neill to redevelop historic mills was wrapped up into defendant Reclamation, LLC, when it was formed and that the partnership and Reclamation were “one and the same,” any partnership that existed between the parties was subsumed into Reclamation.

Although defendants Neill and Berry, combined, owned more than half of Reclamation, there is no evidence that they exercised actual domination and control over Reclamation. In fact, plaintiff controlled almost all aspects of Reclamation’s business. Since Neill and Berry were not controlling members, they did not owe fiduciary duties to plaintiff.

Even if the parties pursued mill redevelopment opportunities “for their mutual benefit” as plaintiff alleges, plaintiff has not shown that they agreed to share profits; therefore, he has not come forward with sufficient evidence of a partnership to support his claim of breach of fiduciary duties.

Wages

There are genuine issues of fact as to whether defendants agreed, but failed, to pay plaintiff a $1,000-per-week salary. However, the Wage and Hour Act has a two-year statute of limitations, so plaintiff’s claim thereunder is limited to the two years prior to his filing of the complaint. The statute of limitations for breach of contract is three years, so plaintiff’s claim of breach of contract for unpaid salary extends back three years before the filing of the complaint.

Neill’s company, Hollar Hosiery Investments, LLC (HHI), bought Hollar Hosiery Mill in Catawba County and hired design and development company RedClay, PLLC, to perform architectural and engineering services at Hollar. RedClay subcontracted some segments of the work to plaintiff.

HHI agreed to pay RedClay $17,500 for the construction administration segment of work in the HHI-RedClay contract. Plaintiff contends RedClay subcontracted that part of the contract out to him. However, HHI cancelled that part of the contract, as permitted by the contract language. RedClay never paid plaintiff the $17,500 he claims he is owed for construction administration.

There is a dispute of fact as to whether Neill himself ever promised to pay plaintiff the $17,500. However, a promise to answer for the debt of another, for which the other remains liable, must be in writing. G.S. § 22-1. Plaintiff has not come forward with any evidence of a writing wherein Neill promised to pay plaintiff $17,500; accordingly, enforcement of any oral promise by Neill to pay plaintiff $17,500 is barred by the statute of frauds.

The “main purpose rule” exception to the statute of frauds applies when the promisor has the requisite personal, immediate, and pecuniary interest in the transaction in which a third party is the primary obligor, rendering the promise original, rather than collateral. The exception does not apply here because any promise by Neill occurred after plaintiff had completed the work at issue and thus was not an original promise outside the scope of the statute of frauds.

Moreover, it is undisputed that the $17,500 was for services allegedly performed prior to 2011 and, after 2011, plaintiff was no longer involved in and performed no further work on Hollar. Past consideration is not adequate to support a contract; therefore, Neill’s alleged October 2012 promise to pay plaintiff $17,500 is unenforceable as a matter of law for lack of consideration.

Corporate Opportunities

Plaintiff claims that defendants usurped Reclamation’s corporate opportunities by using other companies to redevelop the Moretz and Lyerly mills. This claim must be dismissed because it is a derivative claim that must be brought on behalf of Reclamation, so plaintiff lacks standing to assert this as an individual claim.

There is no evidence that defendants owed plaintiff a special duty or that plaintiff suffered a special injury such that he may bring an individual claim for misappropriation of the mill redevelopment opportunities. Because plaintiff did not make a pre-suit demand on Reclamation, he does not have standing to pursue this claim on behalf of Reclamation.

Quasi Contract

It is undisputed that plaintiff had an express contract with non-party RedClay to be paid for his work on Hollar, which included construction administration services. Therefore, plaintiff cannot recover on an implied contract theory for services he performed on Hollar.

Although plaintiff provided development plans and drawings to defendants, he did not confer a benefit on defendants so as to support an unjust enrichment claim because defendants did not use plaintiff’s plans or drawings as they did not meet the National Park Service requirements for historic tax credits.

Plaintiff also worked on development plans with Neill, Ed Neill, and architect Beau Welling for a development called Little Mountain. The evidence is undisputed that plaintiff was to receive a percentage of the sales price as compensation; however, the proper never sold. As there is an express contract relating to the development drawings plaintiff prepared for Little Mountain, plaintiff cannot recover for such work under an implied contract theory.

Purchase Agreement

In a purchase agreement, plaintiff and Dean Pritchett agreed to buy Neill and Berry’s interest in Reclamation by paying the amounts Neill and Berry had advanced to Reclamation and by paying off the loans they incurred to try to keep Reclamation afloat. Since plaintiff and Pritchett failed to make the payments required by the purchase agreement, the court grants defendants’ motion for summary judgment and declares that Neill, Berry and plaintiff each own a one-third ownership interest in Reclamation.

The agreement expressly provides that Neill and Berry are no longer responsible for repaying the notes, but it does not say who is responsible therefor. As the agreement states that plaintiff and Pritchett were to be the sole owners of Reclamation upon repayment of the notes and cash advancements, and that plaintiff and Pritchett were to repay the cash advancements, the agreement can reasonably be interpreted as obligating plaintiff and Pritchett to repay the notes and, therefore, is ambiguous.

Motions granted in part, denied in part.

Zagaroli v. Neill (Lawyers Weekly No. 020-024-18, 54 pp.) (Michael Robinson III, J.) Matthew Rogers for plaintiff; Paul Culpepper and Timothy Swanson for defendants. 2018 NCBC 25