Contract — Reasonable Time – Sufficient Allegations – Piercing the Veil – Incidental Beneficiary

Although the complaint does not recite the magic words “within a reasonable time,” the complaint’s allegations (1) put defendant Foss N.C. Mill Credit 2014 Fund I, LLC (Foss 2014) on notice that plaintiffs contend Foss 2014 unreasonably delayed its payment in breach of the parties’ contract and (2) would permit a reasonable factfinder to conclude that Foss 2014 made its payment unreasonably late and thereby breached the contract. The complaint states a claim for breach of contract against Foss 2014.

Defendants’ motion for judgment on the pleadings is granted in part and denied in part.

Piercing the Veil

In reliance on Copley Triangle Associates v. Apparel America, Inc., 96 N.C. App. 263 (1989), the court will apply North Carolina law to plaintiffs’ request to pierce the corporate veil of foreign corporations.

Plaintiffs allege that George Barry was both defendant Foss & Co.’s (Foss’s) president and the chief manager of North Carolina Housing Partners, LLC (NCHP), which served as manager of Foss 2014. Plaintiffs have alleged facts showing that Barry directed Foss 2014 to engage in various activities while he was the chief manager of Foss 2014’s manager, that he occasionally received Foss 2014 communications at his Foss email address, that Foss and Foss 2014 employed the same legal counsel, and that Foss provided investment and operating funds to Foss 2014.

Such allegations, especially without any factual allegations of fraudulent or inequitable conduct, are insufficient to permit a reasonable factfinder to conclude that Foss 2014 had no separate mind, will or existence of its own and was therefore the mere instrumentality or tool of Foss. As a result, particularly considering our courts’ admonition that veil piercing is rare and severe, a drastic remedy, and should be invoked only in an extreme case where necessary to serve the ends of justice, the court concludes that plaintiffs have failed to allege facts sufficient to permit the veil piercing remedy.

Plaintiffs’ claims against Foss premised upon piercing Foss 2014’s veil to reach Foss as Foss 2014’s alter ego should be dismissed.

Statute of Limitations

Plaintiffs allege that the contract between plaintiff Loray Master Tenant, LLC, and Foss 2014 (the Agreement) was breached either on 23 March 2016 or 22 April 2016. These are the same dates plaintiffs allege that Foss was unjustly enriched by withholding payment, and that Foss breached its fiduciary duty to plaintiffs to make timely The action against Foss, however, was not filed until 28 July 2020, over four years later. Accordingly, accepting either of plaintiffs’ pleaded dates for the accrual of its claims as true, plaintiffs’ claims for breach of contract, unjust enrichment, and breach of fiduciary duty, as well as plaintiffs’ attendant claims for breach of the covenant of good faith and fair dealing and civil conspiracy, accrued more than three years before plaintiffs asserted these claims against Foss. As such, these claims are time-barred.

Breach of Contract

Apart from statute of limitations grounds, plaintiffs’ claim for breach of contract must be dismissed against Foss because it is a non-party to the Agreement.

However, the court finds without merit defendants’ contention that plaintiffs’ claims against Foss 2014 fail because they did not specifically plead that Foss 2014 did not make payment within a reasonable time. Although defendants correctly note that because the Agreement does not contain a “time is of the essence” clause, North Carolina law implies that performance must be completed within a reasonable time, defendants fail to accord plaintiffs’ pleading the reasonable inferences required by N.C. R. Civ. P. 12(c).

Not only does plaintiffs’ complaint contain numerous allegations which, when viewed in the light most favorable to plaintiffs, permit a reasonable factfinder to conclude that Foss 2014 made its payment unreasonably late and thereby breached the Agreement, but plaintiffs’ allegations also put defendants on notice that plaintiffs contend that Foss 2014 unreasonably delayed its payment in breach of the Agreement. Plaintiffs’ failure to specifically plead that Foss 2014’s payment was not made “within a reasonable time” is without consequence because plaintiffs have pleaded facts and made allegations that effectively convey the very same thing.

Breach of Fiduciary Duty

Apparently recognizing that neither G.S. Chapter 57D nor North Carolina common law imposes a fiduciary duty running from Foss 2014 to Loray, plaintiffs argue that such a duty is nevertheless imposed by contract through Loray’s Operating Agreement—specifically its indemnity provision. That provision states, in relevant part, “The Managing Member and the Company, jointly and severally, shall defend, indemnify, and save harmless the State Investor Member and its members, managers, employees, agents, and other representatives … from any and all liability for Company obligations … other than those occasioned by [Foss 2014’s] gross negligence, fraud, willful misconduct, malfeasance, material breach of any representation, warranty, covenant, or agreement set forth in this Exhibit F, or breach of its fiduciary duty.”

The Operating Agreement’s indemnity provision cannot be read to create a fiduciary duty. Rather, the indemnity provision speaks solely to the breach, not the creation, of a fiduciary duty, and the Operating Agreement otherwise does not impose a fiduciary duty on Foss 2014.

Plaintiff Lenihan

Defendants move to dismiss all claims asserted by Lenihan for lack of standing, contending that Lenihan was neither a party to either the Operating Agreement or the Agreement nor an intended beneficiary of the latter and thus is without an enforceable interest as a party plaintiff.

While Lenihan undoubtedly benefits from the Agreement’s mechanism for payment of Loray’s $8.3 million loan from Central State Bank (CSB), that Agreement contemplates that Foss 2014 will make payment directly to CSB to pay off the loan without any mention of Lenihan’s role as guarantor or any provision for the cancellation of his guaranty.

The fact that Lenihan benefited from the Agreement’s performance is not discussed or contemplated by the Agreement’s plain terms, and the fact that Lenihan anticipated a benefit from the parties’ entry into the Agreement does not show an intent by the parties for Lenihan to receive a benefit that is enforceable in the courts. Lenihan is merely an incidental, not an intended or direct, beneficiary of the Agreement, and he has no right to enforce the Agreement.

Motion granted in part, denied in part. Certified for immediate appeal.

Loray Master Tenant, LLC v. Foss N.C. Mill Credit 2014 Fund I, LLC 2022 NCBC 1.pdf (nccourts.gov) (Lawyers Weekly No. 020-001-22, 44 pp.) (Louis Bledsoe, C.J.) Erik Rosenwood, Nancy Litwak and Carl Burchette for plaintiffs; Peter Juran and Chad Archer for defendants. 2022 NCBC 1