Tort/Negligence – Breach of Fiduciary Duty – Corporate Purchase – Environmental Liabilities – Officer & Board Members

Plaintiffs allege that defendants Walker and Sanderson, as well as defendant-executor Yates’ decedent, W.I. Warren, concealed environmental problems at Warren Oil Company, Inc. (Warren Oil), both before and after plaintiffs purchased Warren Oil and after Walker, Sanderson and Warren started to serve as either board members or officers of the resulting company, plaintiff Warren Oil Company, LLC. Plaintiffs also allege that Sanderson and Warren benefited from their successful efforts to have plaintiffs release escrow funds. Although a limited liability company’s operating agreement can limit the liability of board members and officers, since plaintiffs did not attach the LLC’s operating agreement to their complaint, the court must rely on the default rule and assume these defendants owed fiduciary duties to the LLC. Plaintiffs have stated claims against these defendants for breach of fiduciary duty and against Warren’s estate and Sanderson for constructive trust.

Defendants’ motion to dismiss is denied as to plaintiffs’ claims for breach of fiduciary duty and for constructive trust as to Warren’s estate and Sanderson. The motion is granted with prejudice as to plaintiffs’ claim for negligent misrepresentation. The motion is granted without prejudice as to plaintiffs’ claims under the North Carolina Securities Act and for fraud, rescission, breach of confidentiality agreements, obstruction of justice and civil conspiracy. The court defers ruling as to plaintiffs’ breach of contract claim.

The allegations that form the backbone of plaintiffs’ breach of contract claim – that the representations made in the warranties and disclosure sections of the parties’ Equity Interest Purchase Agreement were not true – are the same allegations forming the basis of the negligent misrepresentation claim. The economic loss rule bars such recovery on a tort theory.

The complaint’s allegations in support of plaintiffs’ claims of fraud and violation of the North Carolina Securities Act are too vague to comply with N.C. R. Civ. P. 9(b). Plaintiffs’ allegations in support of their claims of breach of confidentiality agreements, obstruction of justice and civil conspiracy are also lacking in specificity.

Rescission is a remedy rather than a claim for relief.

Trail Creek Investments, LLC v. Warren Oil Holding Co., LLC (Lawyers Weekly No. 020-036-23, 42 pp.) (Mark Davis, J.) 2023 NCBC 36. Denis Jacobson, Jeffrey Southerland, Brandy Mansouraty, Daniel Stratton and Shauna Baker-Karl for plaintiffs; David Wright, Stephen Feldman, Melissa Romanzo, Andrew Wagner and Emma Perry for defendants. North Carolina Business Court