JT RUSSELL AND SONS, INC. v. RUSSELL, 2024 NCBC 14

JT Russell and Sons, Inc. v. Russell, 2024 NCBC 14.
STATE OF NORTH CAROLINA
STANLY COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
23 CVS 363
JT RUSSELL AND SONS, INC.,
Plaintiff,
v.
ATLAS JAMES RUSSELL; THE
TILLERY TRADITION, INC.; and
MID-EASTERN ASPHALT, LLC,
Defendants.
ATLAS JAMES RUSSELL,
individually and derivatively on
behalf of JT RUSSELL AND SONS,
INC., Counterclaim
Plaintiff,
v.
JT RUSSELL AND SONS, INC.;
ROBERT E. RUSSELL; RAYMOND
RUSSELL; and TONY W. RUSSELL,
Counterclaim
Defendants.
ORDER AND OPINION ON MOTIONS
TO DISMISS ATLAS JAMES
RUSSELL’S COUNTERCLAIMS
1. JT Russell and Sons, Inc. (“JT Russell”) began this lawsuit by suing Atlas
James Russell (“Jim”)—a shareholder, former officer, and former director—for
self-dealing and other misconduct. Jim denies JT Russell’s allegations and has
counterclaimed to dissolve the company. He has also asserted derivative
counterclaims on the company’s behalf against Robert E. Russell (“Bob”), Raymond
Russell, and Tony W. Russell, all of whom are current or former officers and, as their
names suggest, members of Jim’s family.

2. This opinion addresses two motions to dismiss Jim’s counterclaims, one by
JT Russell and another by Bob, Raymond, and Tony. For the following reasons, the
Court GRANTS in part and DENIES in part JT Russell’s motion and GRANTS
Bob, Raymond, and Tony’s motion.1
Troutman Pepper Hamilton Sanders LLP, by William C. Mayberry,
Daniel Prichard, William J. Farley, and Jacquelyn Arnold, for Plaintiff
JT Russell and Sons, Inc.
Ellis & Winters LLP, by Pamela S. Duffy and Tyler Jameson, for
Defendant Atlas James Russell.
Fox Rothschild LLP, by Ashley Barton Chandler and Neale T. Johnson,
for Defendants The Tillery Tradition, Inc. and Mid-Eastern Asphalt,
LLC.
Bell, Davis & Pitt, P.A., by Edward B. Davis, for Counterclaim
Defendants Robert E. Russell, Raymond Russell, and Tony W. Russell.
Conrad, Judge.
I.
BACKGROUND
3. The Court does not make findings of fact on a motion to dismiss. The
following background assumes that the allegations of the amended counterclaims are
true.
4. JT Russell’s shareholders hail from two branches of the Russell family. One
branch comprises Jim and his four siblings; together, they own fifty percent of the
company. The other branch comprises Jim’s uncle Bob and cousins Raymond and
1 Jim and his fellow defendants have also moved to dismiss some of JT Russell’s claims. A
separate opinion addresses those motions.

Tony; they own the remaining fifty percent. (See Am. Countercls. ¶¶ 1, 17, 19, ECF
No. 53.)
5. According to Jim, this equal division of ownership carries with it a shared
expectation that both branches of the Russell family will have employment privileges
and a say in management. So, for example, Jim served as secretary, treasurer, and
director, and nearly all his siblings worked for JT Russell at one time or another.
Likewise, Bob was JT Russell’s president until Raymond succeeded him. (See Am.
Countercls. ¶¶ 18, 20–23.)
6. But the balance of power shifted in 2018. That February, the board of
directors dismissed Jim from his positions as secretary and treasurer and replaced
him with Tony’s daughter. Then, at a special meeting in March, the shareholders
(excluding Jim) voted to amend the bylaws to increase the size of the board and to
allow nonshareholders to serve on it. Later, at another shareholder meeting in
December, Raymond successfully moved to expel Jim from the board and to fill the
open seats with his own stepbrother and Tony’s daughter, neither of whom are
shareholders. Jim challenges the validity of these actions, citing inadequate notice
and other procedural irregularities, and alleges that Raymond and Tony’s takeover
of the board has upset the family’s settled power-sharing arrangement. (See Am.
Countercls. ¶¶ 24, 25, 31–34, 40.)
7. Jim also alleges that Raymond and Tony—and their father, Bob—do not
have JT Russell’s best interests in mind. Raymond and Tony have supposedly
mismanaged the company: slashing revenues, driving up expenses, and cancelling

lucrative deals that Jim had struck before his ouster. And they have allegedly used
JT Russell’s resources to build and heat their homes, to pave their driveways, and for
other personal purposes, while Bob similarly used JT Russell’s fuel, equipment, and
employees to operate his personal farm. JT Russell’s other shareholders and directors
never approved these activities and weren’t aware of their extent, partly because they
were “falsely booked to customer jobs.” By contrast, Jim alleges that he and his
branch of the family fastidiously and transparently documented their own uses of JT
Russell’s resources for other business ventures. (Am. Countercls. ¶¶ 6, 41, 42, 45,
48–53, 56, 67, 71.)
8. These disputes came to a head in 2022, and the parties agreed to mediate
their differences in the hopes of avoiding litigation. The mediation was unsuccessful.
JT Russell then began this action by suing Jim (along with two companies in which
he holds an interest) for breach of fiduciary duty, breach of contract, unjust
enrichment, and more. (See ECF No. 3.) Jim has denied those allegations and
asserted counterclaims against JT Russell for judicial dissolution, to remove
Raymond and Tony as directors, and for an accounting of corporate assets that Bob,
Raymond, and Tony have diverted for personal use. Jim has also asserted derivative
claims on JT Russell’s behalf against Bob, Raymond, and Tony for breach of fiduciary
duty, constructive fraud, conversion, and unjust enrichment.
9. JT Russell and Bob, Raymond, and Tony have separately moved to dismiss
most of these counterclaims. (See ECF Nos. 64, 68.) The motions have been fully

briefed, and the Court held a hearing on 17 January 2024. The motions are ripe for
resolution.
II.
ANALYSIS
10. Taken together, the motions to dismiss challenge every counterclaim other
than the one to remove Raymond and Tony as directors of JT Russell. The Court
begins with the parties’ arguments regarding the derivative counterclaims before
turning to the direct counterclaims.
A. Derivative Counterclaims
11. JT Russell and Bob, Raymond, and Tony challenge Jim’s derivative
counterclaims on several independent grounds. The Court need not address them all.
Jim’s failure to comply with the presuit demand requirement of N.C.G.S. § 55-7-42 is
dispositive and necessitates dismissal of his derivative counterclaims.
12. “No shareholder may commence a derivative proceeding” without having
first made a “written demand . . . upon the corporation to take suitable action.”
N.C.G.S. § 55-7-42. This demand requirement allows the corporation, as the real
party in interest, “a chance to investigate the claim and, if it chooses, to vindicate its
own rights before freeing its members to seek relief on its behalf.” Al-Hassan v.
Salloum, 2020 NCBC LEXIS 22, at *5 (N.C. Super. Ct. Feb. 20, 2022) (discussing
analogous demand requirement for derivative actions on behalf of LLCs). Compliance
is “necessary to confer standing on shareholders in a derivative action.” Anderson v.
Seascape at Holden Plantation, LLC, 241 N.C. App. 191, 203 (2015). Thus, failure to
make a proper presuit demand deprives the plaintiff of standing and the trial court

of jurisdiction. See Town of Midland v. Harrell, 385 N.C. 365, 371 (2023) (“If a
plaintiff does not have standing to assert a claim for relief, the trial court lacks subject
matter jurisdiction over the claim.”).
13. Jim alleges that he made a written demand upon JT Russell in October 2022
“as part of an agreed process on exchanging claims” to facilitate a voluntary
mediation. (Am. Countercls. ¶ 73.) But that document, which is attached to his
pleading,2 isn’t styled as a demand and doesn’t demand any action by JT Russell. All
it contains is a list of potential “Claims”—including both personal claims against JT
Russell and “Derivative claims” on its behalf—that Jim might assert in a future
lawsuit. (Am. Countercls. Ex. A, ECF No. 55.)
14. Our courts have held with crystal clarity that a list of claims, without more,
is not a proper demand. “[T]he statute contemplates a demand upon the company to
take appropriate and tangible action,” not a mere “list of legal claims for relief to be
asserted by the [shareholder] in a forthcoming lawsuit.” Cumberland Cnty. Hosp.
Sys. v. Woodcock, 2023 NCBC LEXIS 43, at *18 (N.C. Super. Ct. Mar. 21, 2023)
(discussing analogous LLC statute); see also Bourgeois v. LaPelusa, 2022 NCBC
LEXIS 111, at *28 (N.C. Super. Ct. Sept. 23, 2022) (“Despite listing these grievances,
nowhere does the letter specify what action Bourgeois is seeking.”); Miller v.
Burlington Chem. Co., 2017 NCBC LEXIS 6, at *30 (N.C. Super. Ct. Jan. 27, 2017)
(“Such complaints and allegations of injury, however, are not demands to take
2 A trial “court may consider matters outside of the pleadings” when deciding whether subject
matter jurisdiction exists. Keith v. Wallerich, 201 N.C. App. 550, 554 (2009). There is no
need to do so here, however, because the document that Jim holds out as his written demand
is attached to his pleading and deemed to be part of it. See N.C. R. Civ. P. 10(c).

suitable action.”); Garlock v. Hilliard, 2000 NCBC LEXIS 6, at *10 (N.C. Super. Ct.
Aug. 22, 2000) (“That letter made no specific demand and did not request that the
Board of Directors take any action or bring any lawsuit.”).
15. Jim argues that a shareholder can satisfy the demand requirement without
expressly asking the corporation to sue the purported wrongdoer. That’s true: a
demand to take suitable action is not limited to a demand to commence a lawsuit.
But the defect here is not that Jim failed to demand that JT Russell sue Bob,
Raymond, and Tony. Rather, it is that he failed to demand that JT Russell take any
action at all.
16. He goes on to argue that his list of claims put JT Russell on notice of the
misconduct by Bob, Raymond, and Tony and gave the company a chance to redress
that misconduct during their presuit mediation. Again, though, the statute requires
a written demand for suitable action, not an implied demand. See Cumberland Cnty.
Hosp. Sys., 2023 NCBC LEXIS 43, at *17–18 (concluding that sending a draft
complaint was not “a valid substitute for making a proper demand for suitable
action”). And in any event, Jim’s threat to assert both personal and derivative claims
did not fairly put JT Russell on notice of the action that he wanted it to take. The
implication, if any, is that Jim was looking out for his own interests as much as or
more than JT Russell’s. See id. at *16–17 (holding that a shareholder’s demand to
protect “its own financial interests” was “not a proper demand”); Bourgeois, 2022
NCBC LEXIS 111, at *28 (“Compounding the problem, the demand letter includes

personal claims that Bourgeois might have brought directly and that cannot be the
basis for a derivative action.”).
17. Absent a clear and specific demand for suitable action to right wrongs to the
corporation, Jim has not satisfied section 55-7-42 and lacks standing to pursue a
derivative action on JT Russell’s behalf. For this reason, the Court dismisses his
derivative counterclaims without prejudice for lack of subject matter jurisdiction.
B. Direct Counterclaims
18. JT Russell moves to dismiss two of Jim’s direct counterclaims for failure to
state a claim. See N.C. R. Civ. P. 12(b)(6). Dismissal is proper when “(1) the
complaint on its face reveals that no law supports the . . . claim; (2) the complaint on
its face reveals the absence of facts sufficient to make a good claim; or (3) the
complaint discloses some fact that necessarily defeats the . . . claim.” Corwin v. Brit.
Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (citation and quotation marks omitted).
In deciding the motion, the Court must treat all well-pleaded allegations as true and
view the facts and permissible inferences in the light most favorable to the nonmoving
party. See, e.g., Sykes v. Health Network Sols., Inc., 372 N.C. 326, 332 (2019).
19. Dissolution. Jim alleges that he reasonably expected to work for and
participate in the management of JT Russell’s family business and that those
expectations have been frustrated. He also alleges that Bob, Raymond, and Tony
have mismanaged JT Russell and misused its assets for personal gain. Based on
these allegations, he seeks to dissolve JT Russell. See N.C.G.S. § 55-14-30(2)
(authorizing a court to dissolve a corporation when “(ii) liquidation is reasonably

necessary for the protection of the rights or interests of the complaining shareholder”
or “(iv) the corporate assets are being misapplied or wasted”).
20. At the hearing, JT Russell’s counsel conceded that Jim has adequately
stated a claim for relief. Even so, JT Russell moves for partial dismissal on the
ground that some of the actions that Jim cites to support his claim occurred during
his tenure as an officer and director, that he failed to object to them at that time, and
that he cannot seek dissolution based on them now.
21. At best, this appears to be an argument to dismiss a handful of paragraphs
in Jim’s pleading, rather than to dismiss the claim for dissolution. That is not how
Rule 12(b)(6) operates. As federal courts have noted, “a court dismisses claims, not
allegations.” Surgical Instrument Serv. Co. v. Intuitive Surgical, Inc., 571 F. Supp.
3d 1133, 1140 (N.D. Cal. 2021); see also United States ex rel. Cooley v. ERMI, LLC,
2023 U.S. Dist. LEXIS 196605, at *9 n.3 (N.D. Ga. Nov. 2, 2023) (“If the allegations
that ERMI makes are sufficient to state a claim as a whole, the fact that some of its
allegations may not contribute to a breach of fiduciary duty does not doom an
otherwise sufficiently pled claim.” (cleaned up)); Mitchell v. Muncie Cmty. Schs., 2016
U.S. Dist. LEXIS 92043, at *14 (S.D. Ind. July 15, 2016) (“In ruling on a motion to
dismiss, the Court dismisses parties or claims, but not allegations.”).
22. Moreover, what Jim knew and did when he was JT Russell’s secretary and
treasurer are issues for discovery. For now, the Court must take Jim’s allegations as
true, including his allegation that “he was not aware of all instances or the full extent

of” misconduct by Bob, Raymond, and Tony while he was serving as an officer and
director. (Am. Countercls. ¶ 70; see also Am. Countercls. ¶¶ 52, 59.)
23. The Court therefore denies JT Russell’s motion to dismiss Jim’s dissolution
counterclaim.
24. Accounting. “[A]n equitable accounting may be available when a plaintiff
has asserted a valid claim for relief in equity and an accounting is necessary to compel
discovery of information regarding accounts held exclusively by the defendant.”
Gottfried v. Covington, 2014 NCBC LEXIS 26, at *16 (N.C. Super. Ct. June 25, 2014)
(quoting Mkt. Choice, Inc. v. New Eng. Coffee Co., 2009 U.S. Dist. LEXIS 73627, at
*35–36 (W.D.N.C. Aug. 18, 2009)). “It is a remedy, not an independent cause of
action, and is available only if the plaintiff first shows that he lacks an adequate
remedy at law and alleges facts in the complaint to that effect.” Elhulu v. Alshalabi,
2021 NCBC LEXIS 44, at *20 (N.C. Super. Ct. Apr. 29, 2021). The Court therefore
grants the motion to dismiss Jim’s accounting counterclaim to the extent it is pleaded
as an independent cause of action but does so without prejudice to his right to seek
an accounting as a remedy, if appropriate, at a later stage.
III.
CONCLUSION
25. For all these reasons, the Court GRANTS Bob, Raymond, and Tony’s motion
to dismiss and GRANTS in part and DENIES in part JT Russell’s motion to
dismiss as follows:
a. The Court DISMISSES Jim’s derivative counterclaims without
prejudice for lack of jurisdiction.

b. The Court DISMISSES Jim’s accounting counterclaim without
prejudice to his right to seek an accounting as a remedy.
c. The Court DENIES the motion to dismiss Jim’s dissolution
counterclaim.
SO ORDERED, this the 28th day of February, 2024.
/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases