York v. East Coast Development II, LLC et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
EAST COAST DEVELOPMENT II, LLC,
Debtor
CHAPTER 11
CASE NUMBER: 11-02792-8-RDD
CINDY YORK,
Plaintiff
v.
EAST COAST DEVELOPMENT II,
LLC, JAMES A. McFARLAND, JR.,
Defendants
ADVERSARY PROCEEDING
NUMBER: 11-00268-8-RDD
ORDER DENYING MOTION TO DISMISS
Pending before the Court is the Motion to Dismiss filed by James A. McFarland on June 26,
2012 (the “Motion”) and Plaintiff’s Response to Defendant’s Motion to Dismiss Complaint filed by
Cindy York on July 16, 2012 (the “Response”). The Court conducted a hearing on the Motion and
the Response on August 2, 2012 in Greenville, North Carolina.
SO ORDERED.
SIGNED this 09 day of August, 2012.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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BACKGROUND
East Coast Development II, LLC filed a voluntary petition under Chapter 11 of the United
State Bankruptcy Code on April 8, 2011. East Coast Development II, LLC, along with James A.
McFarland, Jr. (the “Defendant”) filed the Notice of Removal of Pending State Court Civil Action
to United States Bankruptcy Court, Eastern District of North Carolina on July 18, 2011, removing
a pending state court civil action filed by Cindy York (the “Plaintiff”) from the Superior Court in
New Hanover County, North Carolina to the United States Bankruptcy Court for the Eastern District
of North Carolina.
The complaint alleges that East Coast Development II, LLC and the Defendant are liable to
the Plaintiff based on causes of action for breach of contract, fraud, and unjust enrichment/quantum
meruit. The Plaintiff claims she and the Defendant entered into an oral agreement in 2006 by which
she would perform all legal work for the Defendant and the entities he owned in exchange for a
monthly retainer of $10,000.00 and payment of all overhead and expenses of her law practice. The
basis of the adversary proceeding is breach of the oral agreement and damages stemming from
breach. The Plaintiff alleges that based on her agreement with the Defendant, she ended her
representation of all other clients in order to devote her practice to providing legal services for the
Defendant and the numerous companies he owned or in which he held an interest. The Plaintiff also
asserts that on several occasions the Defendant used her legal services for personal matters relating
to himself and his family.
The Defendant filed the Motion requesting the Court dismiss the complaint as to him
individually. In the Motion, the Defendant states that the Plaintiff filed a Motion for Leave to File
First Amendment to Complaint, seeking to amend the complaint to comply with Federal Rule of
Civil Procedure 9(b) and assert that the Defendant alone, and not East Coast Development II, LLC,
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is liable for the alleged fraud. The Defendant argues that there is no basis for the Plaintiff to assert
a claim of fraud against him individually. In support of the Motion, the Defendant argues that in her
deposition, the Plaintiff failed to establish that she did any work for the Defendant personally. With
the exception of one real estate closing, the Defendant contends all work done by the Plaintiff was
on behalf of entities owned by the Defendant. As such, the Defendant asserts that Plaintiff’s claims
against him personally are not plausible or provable and should be dismissed.
In the Response, the Plaintiff claims that in all communications with her, the Defendant
represented himself and all of the entities that he owned as one in the same. The Plaintiff references
statements the Defendant made at a deposition indicating he viewed his companies and himself as
a single entity to support the allegations that the Defendant is personally liable for breach of contract
and fraud. Specifically, the Plaintiff argues that when the Defendant was asked whether he treated
all the limited liability companies he owned as one big entity, the Defendant responded that he did.
Pl.’s Resp. To Def.’s Mot. to Dismiss Compl. Ex. D, ¶ 12-16.
DISCUSSION
The Motion fails to assert under what grounds the Defendant seeks relief. Because the
Motion asserts the complaint fails to adequately plead facts alleging the Defendant’s personal
liability for the claims asserted, the Court will construe the Motion as one brought under Federal
Rule of Civil Procedure 12(b)(6). However, because the Motion references information contained
in the depositions of the parties, the Motion is more properly addressed as a motion for summary
judgment under Federal Rule of Civil Procedure 56, made applicable to adversary proceedings by
Federal Rule of Bankruptcy Procedure 7056. Fed. R. Civ. Pro. 12(d); D&B Swine Farms, Inc. v.
Murphy-Brown, L.L.C. (In re D & B Swine Farms, Inc.), 430 B.R. 737, 741 (Bankr. E.D.N.C. 2010)
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(finding a motion to dismiss supported by matters outside the pleadings is properly addressed as a
motion for summary judgment).
“[S]ummary judgment is proper ‘if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law.’” Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). In making this determination, conflicts are resolved by viewing
all facts and all reasonable inferences in the light most favorable to the non-moving party. United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962). If there is no genuine issue of material fact, and
the issue to be decided is a matter of law, a ruling on a motion for summary judgment is appropriate.
However, if there are genuine issues of material fact, then summary judgment is not appropriate.
The Motion does not address the merits of the claims raised in the complaint, but argues that
the Plaintiff has no basis to assert that the Defendant is individually liable to her. The Court notes
that generally a member or manager of a limited liability company is not liable to third parties solely
by reason of being a member or manager. N.C. Gen. Stat. § 57C-3-30 (2011). However, the
complaint alleges that the Defendant, “acting in his individual capacity . . . repeatedly asked Plaintiff
to close her existing practice and to provide services solely for Defendants and the other McFarland
entities.” Compl. 2 ¶ 7, July 18, 2011. Further, the complaint alleges that at all relevant times,
“Defendants and the other McFarland entities acted in unison, for and on behalf of each other, and
acting as alter egos of and for each other, with [the Defendant] being the sole member or principal
of each entity named herein, as well as acting in his individual capacity.” Id. 2 ¶ 8.
Additionally, the Plaintiff presented evidence suggesting that she performed at least one
service on behalf of the Defendant personally during the parties employment relationship.
Furthermore, the Plaintiff’s deposition testimony suggested that in her interactions with the
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Defendant, she found it difficult to determine whether the work she performed was for the Defendant
individually or for his companies. Finally, the Defendant’s testimony at his deposition tended to
indicate he treated the entities he was owner or manager of as an extension of himself. Pl.’s Resp.
To Def.’s Mot. to Dismiss Compl. Ex. D, ¶ 12-16. When viewing this evidence in the light most
favorable to the Plaintiff, the Court finds there is a genuine issue of material fact as to whether the
Defendant should be held personally liable for breach of contract, fraud, and unjust enrichment.
Therefore, the Motion is DENIED.
SO ORDERED.
END OF DOCUMENT
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