Brady v. VlaanderenÂ

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-61
Filed: 21 August 2018
Cumberland County, No. 12 CVS 7552
PATRICIA M. BRADY, Plaintiff,
v.
BRYANT C. VAN VLAANDEREN; RENEE M. VAN VLAANDEREN; MARC S.
TOWNSEND; LINDA M. TOWNSEND; UNITED TOOL & STAMPING COMPANY
OF NORTH CAROLINA, INC.; UNITED REALTY OF NORTH CAROLINA, LLC;
ENTERPRISE REALTY, LLC; and WATERS EDGE TOWN APARTMENTS, LLC,
Defendants.
Appeal by plaintiff from order and opinion entered 25 July 2016 by Business
Court Judge James L. Gale in Cumberland County Superior Court. Heard in the
Court of Appeals 9 August 2018.
Bain & McRae, LLP, by Edgar R. Bain and Ryan McKaig, for plaintiff-
appellant.
Shanahan McDougal, PLLC, by Kieran J. Shanahan, Brandon S. Neuman and
Jeffrey M. Kelly, for defendants-appellees.
TYSON, Judge.
Patricia M. Brady (“Plaintiff”) appeals from the Business Court order granting
summary judgment in favor of Defendants. We affirm.
I. Background
United Tool & Stamping Company of North Carolina, Inc. (“United Tool”) is a
metal stamping business located in Fayetteville. In June 1996, United Tool was
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Opinion of the Court
incorporated in North Carolina. Anthony Moschella, Plaintiff’s father, served as
President. Day-to-day management was handled by Plaintiff’s brothers-in-law,
Defendants Bryant Van Vlaanderen and Marc Townsend.
In December 1996, United Tool amended its articles of incorporation and
created two classes of stock: 100 shares of Voting Common stock and 900 shares of
Non-Voting Common stock. The Non-Voting stock provided for pro-rata participation
in any dividends declared by United Tool, but contained no voting rights. The Non-
Voting stock was divided equally among three of Moschella’s daughters—Plaintiff
and Defendants Linda Townsend and Renee Van Vlaanderen—and their husbands,
with each taking a one-sixth interest. As part of her divorce settlement from her first
husband in 2002, Plaintiff acquired his shares. Anthony Moschella retained all of
United Tool’s Voting Common stock.
Plaintiff was initially employed by United Tool in 2001 and was paid a weekly
salary to work in the offices and assist with administrative tasks. Plaintiff worked
for United Tool until May 2005. She stopped going in to work once her second
husband, Tim Brady, was employed at United Tool. Moschella terminated Plaintiff’s
employment and medical insurance on 31 May 2005. Plaintiff continued to receive
her pro-rata share of United Tool’s dividend distributions, but received no salary or
other benefits.
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In March 2007, Moschella approved Plaintiff’s rehiring at United Tool.
Defendants Renee Van Vlaanderen and Linda Townsend were also hired to work at
United Tool at that time. In 2008, Plaintiff became “pretty sick” and was diagnosed
with a variety of medical problems, including seizures. Plaintiff was absent from
work for an extended period of time and did not come in to work regularly for years.
In December 2011, Moschella decided to sell his Voting Common stock to
United Tool. On 2 January 2012, United Tool acquired all of Moschella’s Voting
Common stock. All shares of Non-Voting Common stock became Voting Common
stock. Plaintiff and the individually named Defendants became the holders of Voting
Common stock.
Tim Brady was fired from United Tool and Plaintiff’s salary was increased.
After this salary increase, Plaintiff became more involved, coming in to the office
more frequently and participating in shareholder meetings. Plaintiff was told her
salary and benefits were dependent upon her work with the company.
Plaintiff requested access to the corporate records of Defendants Enterprise
Realty and United Realty. On 14 May 2012, Plaintiff’s counsel sent a letter
requesting a meeting where Plaintiff could review the corporate records. At the
meeting on 24 May 2012, Plaintiff and her counsel inquired into Plaintiff’s
employment status and salary. Plaintiff’s employment was terminated after the
meeting on 24 May 2012.
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Plaintiff filed a complaint on 24 August 2012. The case was designated as a
complex business case by the Chief Justice of North Carolina on 4 September 2012.
Defendants filed a motion to dismiss, which was partially granted on 1 August 2013.
Both parties filed motions for summary judgment. After hearing oral arguments, the
Business Court granted Defendants’ motion for summary judgment on 25 July 2016.
Plaintiff timely filed notice of appeal.
II. Jurisdiction
Appeal lies of right in this Court pursuant to N.C. Gen. Stat. § 7A-27(b) (2013).
This case was designated as a complex business case on 4 September 2012, prior to
the effective date of the 2014 amendments designating a right of direct appeal from
a final judgment of the Business Court to the Supreme Court of North Carolina. See
2014 N.C. Sess. Laws 621, ch. 102, § 1. This appeal is properly before us.
III. Issues
Plaintiff argues the Business Court erred by failing to apply the plain meaning
of N.C. Gen. Stat. § 55-14-30, and by failing to order judicial dissolution. Plaintiff
also argues the Business Court erred in considering equitable factors beyond the
equities of the shareholders.
IV. Standards of Review
“Our standard of review on appeal from summary judgment is de novo; such
judgment is appropriate only when the record shows that ‘there is no genuine issue
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as to any material fact and that any party is entitled to a judgment as a matter of
law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting
Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).
A defendant may show entitlement to summary judgment
by (1) proving that an essential element of the plaintiff’s
case is non-existent, or (2) showing through discovery that
the plaintiff cannot produce evidence to support an
essential element of his or her claim, or (3) showing that
the plaintiff cannot surmount an affirmative defense.
Draughon v. Harnett Cty. Bd. of Educ., 158 N.C. App. 705, 708, 582 S.E.2d 343, 345
(2003) (citation and internal quotation marks omitted), aff’d per curiam, 358 N.C.
131, 591 S.E.2d 521 (2004).
Judicial dissolution is a remedy that rests “within the trial court’s sound
discretion.” Royals v. Piedmont Elec. Repair Co., 137 N.C. App. 700, 704, 529 S.E.2d
515, 518 (2000). A finding that dissolution is not appropriate is reviewed for abuse
of discretion. Id.
V. Analysis
A. Judicial Dissolution
To secure a decree of judicial dissolution a plaintiff must demonstrate:
(1) [s]he had one or more substantial reasonable
expectations known or assumed by the other participants;
(2) the expectation has been frustrated; (3) the frustration
was without fault of the plaintiff and was in large part
beyond [her] control; and (4) under all of the circumstances
of the case, plaintiff is entitled to some form of equitable
relief.
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Meiselman v. Meiselman, 309 N.C. 279, 301, 307 S.E.2d 551, 564 (1983).
“When a minority shareholder . . . brings suit for involuntary dissolution or
alternative relief, [s]he has the burden of proving that [her] ‘rights or interests’ as a
shareholder are being contravened. Russell M. Robinson, II, Robinson on North
Carolina Corporation Law § 28.11 (7 ed. 2017). A plaintiff is not entitled to
dissolution “at the expense of the corporation and without regard to the rights and
interests of the other shareholders.” Meiselman, 309 N.C. at 297, 307 S.E.2d at 562
(emphasis supplied). A court possesses the authority to judicially dissolve a
corporation when “liquidation is reasonably necessary for the protection of the rights
or interests of the complaining shareholder.” N.C. Gen. Stat. § 55-14-30(2) (2017).
Plaintiff argues the evidence tends to show she held “substantial reasonable
expectations” to receive a salary and benefits, regardless of whether she performed
services for United Tool. See Meiselman, 309 N.C. at 301, 307 S.E.2d at 564.
Presuming Plaintiff did maintain such reasonable expectations, the Business Court
concluded such expectation “does not justify the equitable remedy of a decree
compelling judicial dissolution of United Tool.”
The record indicates United Tool continues to operate at a profit, and Plaintiff
continues to receive “substantial dividends” as a shareholder. As such, Plaintiff’s
evidence fails to forecast evidence tending to show or suggest United Tool’s
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management is deadlocked, the company is unprofitable, or its assets are being
mismanaged, to support an order for dissolution. See id.
Plaintiff contends the Business Court incorrectly interpreted the plain
meaning of N.C. Gen. Stat. § 55-14-30 and failed to recognize it had the authority to
grant the relief she sought: to appoint a receiver and to sell the company. In its
opinion and order the Business Court stated: “The Court need not consider whether
it might award any alternative equitable remedy, because it does not have the power
to do so.” The Court was responding to Plaintiff’s general comment that realistically
she was not seeking a dissolution of United Tool, but prefers an alternative remedy,
such as United Tool buying out her ownership interest.
The only equitable remedy a trial court may award is dissolution. N.C. Gen.
Stat. § 55-14-30(2). A forced buyout of shares by the corporation could be triggered
only if and after the court concludes judicial dissolution is an appropriate remedy.
N.C. Gen. Stat. § 55-14-31(d) (2017). No equitable remedial powers allow a judge to
compel Defendants to reinstate Plaintiff’s employment, as Plaintiff’s counsel
conceded at oral argument. See Coleman v. Coleman, 2015 NCBC 110, 2015 WL
8539036, at *3 (citing Robinson on North Carolina Corp. Law § 28.11).
Plaintiff spoke at length about what may happen to the corporation after
dissolution, claiming the court had failed to recognize its authority. This assertion is
not supported by the record. Instead, the record shows the court found and concluded
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a decree of judicial dissolution was not justified because Plaintiff had received
substantial dividends, and that dissolution would harm “the rights and interests of
the other shareholders.” Meiselman, 309 N.C. at 297, 307 S.E.2d at 562. The court
found in the exercise of its discretion that judicial dissolution of United Tool was not
justified. Plaintiff’s assertions or forecasts of what may occur following a purported
dissolution is immaterial.
Nothing in the record indicates Plaintiff is precluded from selling her shares
or interest. There are no restrictions imposed upon Plaintiff to prevent her from
selling her shares, and the individual Defendants reached an agreement allowing the
disclosure of information to potential buyers.
Plaintiff failed to show the Business Court abused its discretion in declining to
order judicial dissolution of United Tool in this case. Plaintiff’s arguments are
overruled.
B. Additional Equitable Factors
Plaintiff argues the Business Court erred in considering the possible effects of
dissolution on United Tool’s employees. Under the Meiselman standard, she asserts
the court should have only considered the impact of dissolution upon the
shareholders. See Meiselman, 309 N.C. at 297, 307 S.E.2d at 562. Plaintiff contends
the issue of whether the trial court should consider equitable factors beyond the
equities between and concerning the shareholders is a question of law to be reviewed
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de novo. There is little appellate guidance on what this Court should consider on
appeal when reviewing the equities of judicial dissolution analysis.
Plaintiff continues to argue that her proposed remedy, the dissolution and sale
of the entire company, would preserve the jobs of the employees, as whoever
purchases the company would want to retain the employees to preserve the profits
from United Tool. Further, Plaintiff contends the General Assembly and the
Supreme Court of North Carolina only intended to protect the rights and interests of
the minority shareholder, not to “provide job security for every employee of a company
in which minority oppression is occurring.”
Defendants reject and counter this argument and analysis. They argue it is
reasonable for the court to at least nominally consider key stakeholders in the
dissolution determination in addition to the equities of the company and all
shareholders. Defendants contend the proper application of Meiselman requires “the
familiar balancing process and flexible remedial resources of courts of equity” in
establishing its test for dissolution, considering whether “under all of the
circumstances of the case plaintiff is entitled to some form of equitable relief.”
Meiselman, 309 N.C. at 297, 301, 307 S.E.2d at 562, 564 (citation and internal
quotation marks omitted).
Defendants also cite to the Business Court’s consideration of third parties in
similar cases. The Business Court has considered, inter alia, the nature of the
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business, impacts on employees and others, the relationships between the parties,
and recent corporate actions. See Royals v. Piedmont Elec. Repair Co., 1999 NCBC 1,
1999 WL 33545516, at *6, aff’d on other grounds, 137 N.C. App. 700, 529 S.E.2d 515
(2000).
The Business Court’s analytic framework in Royals cites to a Mississippi law
journal article as persuasive authority, and has applied that consistent framework to
many other cases when addressing Meiselman claims. See John Henegan, Comment,
Oppression of Minority Shareholders: A Proposed Model and Suggested Remedies, 47
Miss. L.J. 476, 488-93 (1976); see also Joalpe-Industria de Expositores, S.A. v. Alves,
2015 NCBC 9A, 2015 WL 428333, at *8; see also High Point Bank & Tr. Co. v. Sapona
Mfg. Co., 2010 NCBC 11, 2010 WL 2507524, at *13, aff’d on other grounds, 212 N.C.
App. 148, 713 S.E.2d 12 (2011).
Other long standing equitable and discretionary factors include: the party’s
clean hands, the adequacy of remedies at law, the person who seeks equity must do
equity, and the avoidance of long-term entanglement of judicial resources. See Creech
v. Melnik, 347 N.C. 520, 529, 495 S.E.2d 907, 913 (1998) (“One who seeks equity must
do equity. The fundamental maxim, ‘He who comes into equity must come with clean
hands,’ is a well-established foundation principle upon which the equity powers of the
courts of North Carolina rest.” (citation omitted)); see also Moore v. Moore, 297 N.C.
14, 16, 252 S.E.2d 735, 737 (1979) (“Equity seeks to reach and do complete justice
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where courts of law, through the inflexibility of their rules and want of power to adapt
their judgments to the special circumstances of the case, are incompetent so to do.”
(citation and internal quotation marks omitted)).
Defendants also cite to this Court’s prior treatment of the equitable balancing
of third parties by the trial courts. In Foster v. Foster Farms, this Court concluded
the trial court had “carefully weighed the consequences of each course of action it was
authorized to take before deciding to liquidate the corporation.” 112 N.C. App. 700,
711, 436 S.E.2d 843, 850 (1993). The trial court found and concluded liquidation was
appropriate because ongoing operations would cause “stress on [the] families[.]” Id.
Further, in Royals, this Court considered the interests of a testamentary trust
beneficiary and acknowledged “[t]he only way these shares will ever produce any
money for her is if they are liquidated.” 137 N.C. App. at 709, 529 S.E.2d at 521.
Plaintiff requests this Court to independently address and answer this
question, and not to rely upon business court cases and “law review articles from
foreign jurisdictions.” Plaintiff contends that the “North Carolina model,” as
embodied in Meiselman and its progeny, should focus solely on the shareholders, and
not third parties. She asserts the only people possibly harmed by the dissolution of
the company would be the individual Defendants, and they could avoid such harm by
buying out her shares. Plaintiff’s argument on this issue relies upon her arguments
in the previous issue. As noted, Plaintiff is free to sell her shares in a profitable and
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going concern, and is not under any restrictions to prevent her from doing so. Plaintiff
has failed to show any abuse of discretion by the trial court in declining to order
judicial dissolution.
VI. Conclusion
Under de novo review on summary judgment, this Court is empowered to
further establish the legal analysis and considerations to guide the trial court’s
decisions in judicial dissolutions. It is unnecessary for us to do so under these facts,
as Plaintiff has failed to show any basis for us to conclude the Business Court abused
its discretion in not ordering judicial dissolution of United Tool.
The court’s exercise of discretion and conclusion to decline dissolution is
supported by the unrefuted evidence, even without considering the impact upon the
employees and other third parties. The judgment appealed from is affirmed. It is so
ordered.
AFFIRMED.
Judges DIETZ and BERGER concur.
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