Corporate – Breach of Contractual Duties – Piercing the Corporate Veil

The Court found no basis to pierce Nominal Defendant’s corporate veil in an effort to reach the individual Defendant.

The Court granted in part and denied in part Defendants’ and Nominal Defendant’s motions to dismiss.

Plaintiffs’ complaint asserted causes of action for (i) a declaratory judgment; (ii) breach of contract (direct and derivative); (iii) unjust enrichment (direct); (iv) unlawful distribution (derivative); (v) alter ego; (vi) fraud (direct and derivative); (vii) conversion (direct and derivative); (viii) tortious interference with contract (direct and derivative); (ix) facilitation of civil conspiracy (direct and derivative); and (x) negligent misrepresentation (direct and derivative). Defendants and Nominal Defendant corporation filed motions to dismiss the amended complaint.

Plaintiffs asserted that they submitted two separate demands on Nominal Defendant: one via email on June 17, 2024 and another on October 18, 2024, contemporaneously with the filing of the initial verified complaint. Defendants, on the other hand, argued that both communications were deficient and did not comply with applicable law. The Court agreed that the demands were deficient and that the putative derivative claims should therefore be dismissed.

Beyond these two letters, Plaintiffs did not argue, nor did the amended complaint allege, either that (i) they made any other demand that the company rejected before they filed suit or (ii) irreparable injury to Nominal Defendant would have resulted by waiting for expiration of the 90-day notice period. Without properly alleging one of these alternative bases for jurisdiction and without a proper demand and waiting period before filing suit, Plaintiffs lack standing to assert the putative derivative claims in this action, and they are appropriately dismissed for lack of subject matter jurisdiction. Accordingly, the Court dismissed without prejudice all putative derivative causes of action and claims asserted in this action.

Among other things, the Court further determined that with no substantive, non-declaratory claims against Nominal Defendant and, therefore, no “underlying legal claim to which liability may attach” as to Nominal Defendant, there is simply no basis to pierce Nominal Defendant’s corporate veil in an effort to reach the individual Defendant–– regardless of the merits of Plaintiffs’ allegations regarding potential control of Nominal Defendant. Therefore, the Court concluded that the motion to dismiss is properly granted on this basis. Finally, considering the allegations of the amended complaint and the plain language of the Operating Agreement, the Court dismissed plaintiffs’ cause of action for breach of contractual duties.

Granted in part, denied in part.

Tiller v. Phillips (Lawyers’ Weekly No. 020-063-25, 54 pp.) (Matthew T. Houston, J.) 2025 NCBC 63. James, McElroy & Diehl, P.A. by John R. Brickley and John R. Buric, for Plaintiffs Lisa Mackenzie Tiller, William Porter Tiller, and William Porter Tiller as trustee of the Tiller GST Investment Trust U/A/D February 8, 2021. Johnston, Allison & Hord, P.A. by Michael J. Hoefling, James Nathaniel Pierce, William D. McClelland, and Greg C. Ahlum, for Defendants Brian S. Phillips, Brian S. Phillips as Family Trustee of the Phillips Irrevocable Trust U/A/D August 20, 2007, and Brian S. Phillips, as Trustee of the Wayne E. Walcher Living Trust (Restated) Dated December 17, 1996 U/A/D September 30, 2004. Holland & Knight, LLP by Michael A. Grill and Nishma Patel, for Nominal Defendant MedShift, LLC. North Carolina Business Court