Corporate – Unauthorized Cash Distributions – Judicial Dissolution of Family Businesses

The Court granted an injunction against unauthorized distributions and ordered partial dissolution of the family businesses’ interests.

The Court granted in part and denied in part both motions.

This case arose from a management dispute in two closely held family businesses, AJAL Investments, LLC and C-Gas, LLC, involving Plaintiff, Jay and his wife Ann, and their brother-in-law, Armistead. Plaintiffs alleged Defendant Armistead breached the operating agreements of both companies by making unauthorized cash distributions. Defendant counterclaimed and crossclaimed, seeking judicial dissolution of the companies. Both parties filed motions for summary judgment.

AJAL has four members—Jay, Ann, Armistead, and Louise Mauck—and Jay and Armistead are its only managers. C-Gas has only two members, Jay and Armistead, who also serve as its sole managers. Each company’s operating agreement grants managers authority to conduct day-to-day business but reserves decisions on major structural matters and distributions for the members. Notably, C-Gas’s agreement contains a deadlock provision allowing dissolution if the two members cannot resolve disputes and neither opts to buy the other’s interest. Both AJAL and C-Gas generate nearly all revenue through leases to Cherry Oil Company, another family-owned business, and had historically made monthly distributions split equally between the two family branches.

Disputes escalated after the Maucks sued over Cherry Oil in 2021, with tensions spilling over to AJAL and C-Gas. In 2024, Plaintiffs attempted a special AJAL meeting to address deferred maintenance and expense reimbursements, but the Maucks did not attend. Plaintiffs then attempted to withhold consent for further distributions, yet Armistead continued making monthly payments, prompting Plaintiffs to void checks and withhold inter-company rent. Plaintiffs subsequently sued for breach of contract, seeking to enjoin Armistead from further distributions. The Court granted a preliminary injunction, later converting it to a permanent injunction and awarding nominal damages, but denied Plaintiffs’ request for repayment of prior distributions or specific performance, as they had not suffered personal financial harm.

Armistead sought dissolution of AJAL under N.C.G.S. § 57D-6-02(2) and a declaratory judgment that C-Gas was dissolved under its deadlock provision. The Court found that C-Gas’s deadlock provision was triggered by disagreements over reimbursements and distributions, neither member exercised the buyout option, and therefore dissolution was mandatory. Regarding AJAL, Plaintiffs consented to the dissolution claim under subsection (ii), which allows members to purchase Armistead’s interest at fair value instead of liquidating the company. The Court granted summary judgment accordingly, denying relief under subsection (i) and declining to dissolve AJAL outright.

In conclusion, the Court granted summary judgment in part for both parties: Plaintiffs succeeded on liability, nominal damages, and a permanent injunction, while Armistead obtained a declaratory judgment of C-Gas’s dissolution and a ruling on AJAL’s dissolution under subsection (ii), with no claims remaining for trial.

Granted in part and denied in part.

Cherry v. Mauck (Lawyers’ Weekly No. 020-074-25, 21 pp.) (Adam M. Conrad, J.) 2025 NCBC 74. Womble Bond Dickinson (US) LLP, by Pressly M. Millen and Samuel B. Hartzell, for Plaintiffs Julius P. “Jay” Cherry, Jr., and Ann B. Cherry. Williams Mullen, by Walter L. Tippett, Jr., and Lewis H. Hallowell, for Defendant Armistead B. Mauck. No counsel appeared for Nominal Defendants AJAL Investments, LLC and C-Gas, LLC. North Carolina Business Court