CUMBERLAND CNTY. HOSP. SYS., INC. v. WOODCOCK, 2023 NCBC 22

STATE OF NORTH CAROLINA
CUMBERLAND COUNTY
IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
22 CVS 5535
CUMBERLAND COUNTY
HOSPITAL SYSTEM, INC.,
individually and derivatively on
behalf of WOODCOCK CUSTOM
VISION, LLC,
Plaintiff,
v.
MICHAEL G. WOODCOCK,
Defendant,
v.
WOODCOCK CUSTOM VISION,
LLC,
Defendant and
Nominal
Defendant.
ORDER AND OPINION ON
DEFENDANTS’ JOINT MOTION TO
DISMISS
THIS MATTER comes before the Court on Defendants Michael G. Woodcock
and Woodcock Custom Vision, LLC’s Joint Motion to Dismiss Pursuant to N.C.R. Civ.
P. 12(b)(1) and 12(b)(6) (“Motion,” ECF No. 15).
THE COURT, having considered the Motion, the briefs of the parties, the
arguments of counsel, and all appropriate matters of record, CONCLUDES that the
Motion should be GRANTED, in part, and DENIED, in part, for the reasons set forth
below.
K&L Gates LLP, by Nathan A. Huff and Anderson M. Shackleford, for
Plaintiff Cumberland County Hospital System, Inc.
Douglas S. Harris for Defendant Michael G. Woodcock, and Krispen
Culbertson for Defendant Woodcock Custom Vision, LLC.
Davis, Judge.
Cumberland Cnty. Hosp. Sys., Inc. v. Woodcock, 2023 NCBC 22.

INTRODUCTION
1. 	In this dispute between the two owners of a limited liability company
(“LLC”), 	the 	Court 	must 	consider 	the 	applicability 	of 	the 	“irreparable 	injury”
exception to the statutory requirement that a derivative claim cannot be filed less
than ninety days following a demand letter. 	In addition, the Court is required to
determine whether the plaintiff, a minority member of the LLC, has stated valid
individual claims against the defendant, who is the majority member.
FACTUAL AND PROCEDURAL BACKGROUND
2. 	The Court does not make findings of fact on a motion to dismiss under
Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites those
facts contained in the complaint (and in documents attached to, referred to, or
incorporated 	by 	reference 	in 	the 	complaint) 	that 	are 	relevant 	to 	the 	Court’s
determination of the motion. See, e.g., Window World of Baton Rouge, LLC v. Window
World, Inc., 2017 NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 12, 2017).
3. 	Woodcock Custom Vision, LLC (“WCV”) is a North Carolina LLC owned
by Plaintiff Cumberland County Hospital System, Inc. (“CCHS”), a private, not-for-
profit health system operating in southeastern North Carolina, and Michael G.
Woodcock, an ophthalmologist in Fayetteville, North Carolina. 	(Verif. Compl. ¶¶ 1,
11–12, ECF No. 3.) 	Woodcock currently owns 2,000 Units (or 66.66%) of WCV, and
CCHS owns 1,000 Units (or 33.33%). (Verif. Compl. ¶¶ 1, 20.)

4. 	Woodcock conducts his medical practice through Vision International,
PA d/b/a Carolina Vision Center, a North Carolina professional corporation (“Vision
International”). (Verif. Compl. ¶ 13.)
5. 	Prior to 16 March 2018, Woodcock was the sole owner of WCV. 	(Verif.
Compl. ¶ 14.) 	He was also the sole shareholder of a corporation called Carolina
Optical Partners, Inc. (“COP”) and the sole member of a company called Woodcock
Investment Partners, LLC (“WIP”). (Verif. Compl. ¶¶ 15–16.)
6. 	The relationship between Woodcock, CCHS, and the above-referenced
entities is governed by five documents that were all executed on 16 March 2018: (1) a
Bill of Sale; (2) an Assignment; (3) WCV’s Operating Agreement; (4) a Management
Services Agreement; and (5) a Lease. (Verif. Compl. ¶¶ 17–18.)
7. 	Pursuant to the Bill of Sale, “COP sold and transferred to WCV all of
COP’s tangible and intangible assets utilized in the operation of COP’s business[,]”
retaining no assets of its own. (Verif. Compl. ¶ 18.)
8. 	In the Assignment, Vision International “sold and transferred to WCV
all of [its] tangible and intangible assets . . . except for several specifically excluded
assets[.]” (Verif. Compl. ¶ 19.)
9. 	By 	virtue 	of 	the Operating 	Agreement, in exchange for a capital
contribution of $5,236,366.41, CCHS purchased 1,000 Membership Units of WCV,
and the funds were distributed from WCV to Woodcock. (Verif. Compl. ¶¶ 20–21.)

10. 	In the Management Services Agreement, Vision International agreed to
pay WCV $250,000 per month for administrative services and to “pay or reimburse
WCV for certain direct costs incurred by WCV[.]” (Verif. Compl. ¶ 24.)
11. 	Finally, through the Lease, WCV leased the premises previously utilized
by Vision International from WIP. (Verif. Compl. ¶ 25.)
12. 	WCV’s Operating Agreement provided options for both Woodcock and
CCHS to buy out the other member. “[T]he 1,000 Units of WCV held by CCHS were
deemed ‘Class A Units’ and CCHS was deemed the ‘Class A Member.’ ” (Verif. Compl.
¶ 28.) “[T]he 2,000 Units of WCV held by Woodcock were deemed ‘Class B Units’ and
Woodcock was deemed the ‘Class B Member.’ ” (Verif. Compl. ¶ 29.)
13. 	“The Class A Member Purchase Option conferred upon CCHS the option
to purchase 1,000 of Woodcock’s then owned 2,000 Units between August 1, 2019 and
August 31, 2019.” (Verif. Compl. ¶ 31.)
14. 	CCHS chose not to exercise its option to purchase Woodcock’s Units.
(Verif. Compl. ¶ 32.)
15. 	“Because CCHS declined to exercise the Class A Member Purchase
Option pursuant to Section 8.6(a) . . . , Section 8.7 [ ] conferred upon Woodcock . . .
the Class B Member Redemption Option.” (Verif. Compl. ¶ 33.) “Pursuant to Section
8.7, beginning on August 31, 2019 and continuing indefinitely thereafter, the Class B
Member Redemption Option allow[ed] Woodcock the right to purchase the 1,000
Units of WCV held by CCHS.” (Verif. Compl. ¶ 34.)

16. 	CCHS 	alleges 	that 	“rather 	than 	exercising 	his 	Class 	B 	Member
Redemption Option when it became available on August 31, 2019 (and thus buy out
CCHS from WCV), Woodcock resolved to drive down the value of WCV in anticipation
of exercising his Class B Member Redemption Option. Ostensibly, Woodcock desired
to minimize the price at which he would have to buy out CCHS.” (Verif. Compl. ¶ 35.)
17. 	The Operating Agreement provided CCHS and Woodcock with the right
to each appoint two managers of WCV. 	On 16 March 2018, Woodcock appointed
himself and his wife, Deborah Woodcock, as managers. CCHS, in turn, appointed its
Chief Operating Officer, Daniel Weatherly, and its Chief Executive Officer, Michael
Nagowski, as managers. 	(Verif. Compl. ¶ 26.) 	However, under Article III of the
Operating Agreement, once CCHS chose not to exercise its option to purchase
Woodcock’s shares, Woodcock thereafter acquired the authority to appoint three of
the company’s four managers, and CCHS retained the right to appoint only one
manager. (Verif. Compl. ¶ 37.) In accordance with Article III, Woodcock thereafter
appointed J. Mark McDaniel to replace Nagowski as a manager of WCV. 	(Verif.
Compl. ¶ 38.)
18. 	The Operating Agreement required that distributions be made to CCHS
and Woodcock in “proportion to their respective Percentage Interests . . . at least on
a yearly basis.” 	(Verif. Compl. ¶ 40.) 	However, although Woodcock approved and
directed a distribution of $2 million by WCV to himself in 2021, he only “provided
CCHS with a check in the amount of $150,000.00” on behalf of WCV for that year—
even though CCHS owned 33% of WCV as of that year. (Verif. Compl. ¶¶ 42–45.)

19. 	In or around January 2021, a meeting was convened by Woodcock and
the other managers of WCV appointed by him. 	No proper advance notice of the
meeting was given to Weatherly, the remaining manager appointed by CCHS. (Verif.
Compl. ¶ 51.) 	At this meeting, a motion amending the Management Services
Agreement was passed, which effectively reduced the amount owed by Vision
International to WCV under the Management Services Agreement from $250,000 per
month to zero. (Verif. Compl. ¶¶ 52–53.)
20. 	On 1 August 2022, Woodcock notified CCHS of his intent to purchase
CCHS’ ownership interest in WCV in accordance with Section 8.7 of the Operating
Agreement by means of a letter, which stated as follows:
In accordance with the Amended and Restated Operating Agreement of
WOODCOCK CUSTOM VISION, LLC, I hereby notice my intent to
exercise 	my 	Class B 	Member Redemption 	Option as 	codified and
delineated in Section 8.7.
We are currently compiling the necessary documentation from the
previous 12 month period and we are in the process of selecting an
independent expert to determine the calculation for the Redemption
Option to be completed.
(Verif. Compl. ¶ 54.)
21. 	Weatherly replied by letter to Woodcock on 18 August 2022, requesting
that he “be included in all discussions and correspondence relating to the selection of
an appraiser” regarding the value of CCHS’ Units and on “any correspondence or
documentation that has already been generated as part of the process of requesting
an appraiser.” (Verif. Compl. ¶¶ 56–57.)

22. 	The Complaint asserts that Woodcock ultimately planned to sell WCV
and that his intentions were reflected in a memorandum prepared by a broker hired
by him to assist in that process. 	The memorandum stated “that Woodcock ‘plans to
exercise and deliver the Class B Member Redemption Option [to CCHS] at a time he
feels comfortable that the contemplated deal will be consummated (i.e. the purchase
agreement is finalized (ready to sign) and funds are escrowed for the ensuing
Transaction [to sell WCV to a third party].’ ” (Verif. Compl. ¶ 36.)
23. 	On or about 31 August 2022, WCV transferred $600,000 to Vision
International at Woodcock’s direction, and Vision International paid Woodcock a
“[b]onus for performance” in the amount of $685,295.52. (Verif. Compl. ¶ 64.)
24. 	On 28 September 2022, CCHS received a letter from McDaniel, one of
the managers of WCV appointed by Woodcock, which purported to redeem CCHS’
Units in WCV and enclosed a check made payable to CCHS in the amount of
$1,132,738.00. 	The letter did not provide any explanation of how the $5,236,366.41
investment CCHS made in WCV on 16 March 2018 had decreased in value to only
$1,132,738.00. (Verif. Compl. ¶¶ 65–69.)
25. 	WCV’s Operating Agreement set out certain steps to be taken in the
event of the transfer of ownership interests in WCV. 	Section 8.10 provided for a
closing to be conducted upon the sale of any interest in the company. (Verif. Compl.
Ex. A [“Operating Agreement”], ECF No. 3, at 25.) In addition, Section 8.11 required
that “[e]ach party . . . execute and agree[] to be bound by the terms of a transfer

agreement, in a form substantially similar to that set forth” in an exhibit to the
Operating Agreement. (Operating Agreement, at 25.)
26. 	Despite these provisions, no transfer agreement has ever been presented
to or executed by CCHS, and no closing has occurred. (Verif. Compl. ¶¶ 76–78.)
27. 	On 3 October 2022, CCHS, through its attorney, sent a letter to WCV
pursuant to N.C.G.S. § 57D-8-01 demanding that WCV and/or Woodcock pay CCHS
the full value of its 1,000 Units. 	The letter also contained a brief statement
demanding that WCV initiate legal proceedings against Woodcock. 	(Verif. Compl.
Ex. F [“3 October 2022 Demand Letter”], ECF No. 3, at 1–2.)
28. 	Nine days later, on 12 October 2022, counsel for CCHS sent WCV an
“[u]pdated” letter that was intended to “replace[ ] and supersede[ ]” the 3 October
letter. (Verif. Compl. Ex. G [“12 October 2022 Demand Letter”], ECF No. 3, at 1.)
29. 	The 12 October letter added greater detail regarding the events that had
transpired between the parties over the previous four years, including Woodcock’s
failure to pay appropriate distributions to CCHS and to properly comply with the
redemption option as set out in the Operating Agreement. 	In this letter, CCHS
demanded that it be paid all of the distributions to which it was entitled as well as
the full value of its Units in connection with Woodcock’s exercise of the redemption
option. In addition, the letter enclosed a draft complaint and stated that CCHS would
file the complaint the following day unless its demands were met. (12 October 2022
Demand Letter, at 1.)

30. 	One 	day 	later, 	CCHS 	filed 	its 	Complaint 	in 	Cumberland 	County
Superior Court—naming as Defendants both Woodcock and WCV. (ECF No. 3.)1
31. 	In the Complaint, CCHS asserts the following claims: (1) individual and
derivative claims for breach of operating agreement against Woodcock and WCV;
(2) individual and derivative claims against Woodcock for breach of fiduciary duty;
(3) an individual claim against Woodcock for constructive fraud; and (4) individual
and derivative claims for declaratory judgment against Woodcock and WCV.
32. 	The case was designated a mandatory complex business case on 14
October 2022 and assigned to the undersigned the same day. (ECF Nos. 1, 2.)
33. 	On 20 December 2022, Defendants jointly filed the present Motion.
34. 	The Court held a hearing on the Motion on 28 February 2023. 	The
Motion is now ripe for decision.
LEGAL STANDARD
35. 	Defendants’ 	Motion 	challenges 	CCHS’ 	standing 	to 	assert 	both 	its
derivative and individual claims pursuant to Rule 12(b)(1) of the North Carolina
Rules of Civil Procedure. 	In addition, Defendants seek the dismissal of several of
CCHS’ individual claims based on Rule 12(b)(6) for failure a state a claim upon which
relief can be granted.
36. 	“A plaintiff’s standing to assert its claims may be challenged under
either Rule 12(b)(1) or Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.”
Raja v. Patel, 2017 NCBC LEXIS 25, at *11 (N.C. Super. Ct. Mar. 23, 2017). A Rule
1 WCV is named as both a “Defendant” and a “Nominal Defendant” in the Complaint.

12(b)(1) motion challenges a court’s jurisdiction over the subject matter of the
plaintiff’s claims. 	N.C.R. Civ. P. 12(b)(1). 	“Subject matter jurisdiction is the
indispensable foundation upon which valid judicial decisions rest,” In re T.R.P., 360
N.C. 588, 590 (2006), and “has been defined as ‘the power to hear and to determine a
legal controversy; to inquire into the facts, apply the law, and to render and enforce
a judgment,’ ” High v. Pearce, 220 N.C. 266, 271 (1941). “[T]he proceedings of a court
without jurisdiction of the subject matter are a nullity.” Burgess v. Gibbs, 262 N.C.
462, 465 (1964) (citation omitted).
37. 	“As the party invoking jurisdiction, plaintiff[] ha[s] the burden of
establishing standing.” 	Queen’s Gap Cmty. Ass’n v. McNamee, 2011 NCBC LEXIS
37, at **3 (N.C. Super. Ct. Sept. 23, 2011). 	In determining the existence of subject
matter jurisdiction, the Court may consider matters outside the pleadings. Emory v.
Jackson Chapel First Missionary Baptist Church, 165 N.C. App. 489, 491 (2004).
However, “if the trial court confines its evaluation [of standing] to the pleadings, the
court must accept as true the [claimant]’s allegations and construe them in the light
most favorable to the [claimant].” 	Munger v. State, 202 N.C. App. 404, 410 (2010)
(quoting DOT v. Blue, 147 N.C. App. 596, 603 (2001)).
38. 	“It is well-established that dismissal pursuant to Rule 12(b)(6) is proper
when ‘(1) the complaint on its face reveals that no law supports the plaintiff’s 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 plaintiff’s
claim.’ ” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood

v. Guilford Cnty., 355 N.C. 161, 166 (2002)). The Court may also “reject allegations
that 	are 	contradicted 	by 	the 	documents 	attached, 	specifically 	referred 	to, 	or
incorporated by reference in the complaint.” 	Laster v. Francis, 199 N.C. App. 572,
577 (2009).
ANALYSIS
I. 	Lack of Standing Based on Rule 12(b)(1)
A. 	Derivative Claims
39. 	Defendants initially argue that CCHS lacks standing to assert its
derivative claims in this action because it failed to fully comply with N.C.G.S. § 57D-
8-01.
40. 	Pursuant to N.C.G.S. § 57D-8-01(a)(2), a member of an LLC may bring
a derivative action on the company’s behalf if, among other things,
[t]he member made written demand on the LLC to take suitable action,
and either (i) the LLC notified the member that the member’s demand
was rejected, (ii) 90 days have expired from the date the demand was
made, or (iii) irreparable injury to the LLC would result by waiting for
the expiration of the ninety-day period.
N.C.G.S. § 57D-8-01(a)(2) (2021).
41. 	This Court has recognized that “[a] party’s standing to bring a derivative
claim depends on compliance with the demand requirement in N.C. Gen. Stat. § 57D-
8-01(a)(2).” Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *20 (N.C. Super.
Ct. Oct. 2, 2017), aff’d, 371 N.C. 579 (2018) (cleaned up). 	“ ‘Standing’ refers to the
issue of whether a party has a sufficient stake in an otherwise justiciable controversy
that he or she may properly seek adjudication of the matter.” 	Creek Pointe

Homeowner’s Ass’n, Inc. v. Happ, 146 N.C. App. 159, 165 (2001) (citation omitted).
Standing is therefore “a necessary prerequisite to the court’s proper exercise of
subject 	matter 	jurisdiction.” 	Id. 	at 	164 	(citation 	omitted). 	Accordingly, 	any
“challenge to the adequacy of any pre-suit demand is, inter alia, a challenge to the
Court’s subject matter jurisdiction over the derivative claims.” Barefoot v. Barefoot,
2022 NCBC LEXIS 8, at **9 (N.C. Super. Ct. Feb. 2, 2022) (citations omitted).
42. 	As we have previously noted, “[t]he demand requirement gives the LLC
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, 2020). Its purpose is thus “to ‘allow[ ] the
[company] the opportunity to remedy the alleged problem without resort to judicial
action, or, if the problem cannot be remedied without judicial action, to allow the
[company], as the true beneficial party, the opportunity to bring suit first against the
alleged wrongdoers.’ ” Zoutewell v. Mathis, 2018 NCBC LEXIS 95, at *18 (N.C. Super.
Ct. Sept. 13, 2018) (quoting Bridges v. Oates, 167 N.C. App. 459, 467–68 (2004)).
43. 	In the present case, the Court concludes that CCHS has failed to satisfy
N.C.G.S. § 57D-8-01(a)(2) for two reasons.
44. 	First, its assertion of derivative claims in this action did not comply with
the ninety-day requirement set out in the statute. 	CCHS filed its Complaint on 13
October 2022—just ten days after CCHS’ initial demand letter and only one day after
CCHS’ amended demand letter.

45. 	Although CCHS concedes that its Complaint was filed well before the
expiration of the ninety-day period, it contends that the “irreparable injury” exception
to this requirement renders the filing of its Complaint timely. 	See Emrich Enters.,
LLC v. Hornwood, Inc., 2020 NCBC LEXIS 45, at *21 (N.C. Super. Ct. Apr. 8, 2020)
(“N.C.G.S. § 57D-8-01(a)(2) provides that the 90-day waiting period is excused by a
finding of irreparable injury that would result from imposing such a waiting period.”
(cleaned up)).
46. 	However, the Court is not persuaded. 	CCHS has failed to show that
WCV was under threat of immediate injury unless CCHS filed its lawsuit at the time
it did so. CCHS attempts to argue that its actions were justified by the memorandum
prepared by Woodcock’s broker, which revealed Woodcock’s stated intent to exercise
his redemption option (by purchasing CCHS’ shares at a substantially reduced price)
and then sell WCV to a third party. 	But even assuming arguendo that such an
imminent sale of the company would satisfy the “irreparable injury” exception, CCHS
conceded in its own Complaint that after receipt of the 12 October letter “Woodcock
‘temporarily’ withdrew his attempt to exercise the Class B Redemption Option” and
that “[i]t remains unclear whether or if he will unilaterally reinstate his exercise.”
(Verif. Compl. ¶ 83.) 	Thus, by CCHS’ own admission, at the time this lawsuit was
filed Woodcock’s plans were speculative. 	Accordingly, it simply cannot be said that
the sale of WCV was imminent.2
2 The Court observes that upon filing its complaint CCHS did not seek a temporary
restraining order or a preliminary injunction against Woodcock to prevent any of the actions
that it claims would have resulted in irreparable injury.

47. 	Indeed, CCHS has failed to cite any cases in which North Carolina
courts have held that the “irreparable injury” exception was triggered under facts
even remotely similar.
48. 	CCHS also argues that the issue of whether it complied with the ninety-
day requirement is moot because more than ninety days have now passed since its
demand letters were sent, and as of this date WCV has failed to initiate legal action
against Woodcock. 	However, the Court cannot accept this “no harm, no foul”
argument. 	The ninety-day requirement is not a mere formality that a litigant can
avoid by means of an end run. 	Rather, it reflects a determination by our General
Assembly that a company should be given ninety days in which to fully investigate a
demand by one of its members that the company file suit against an alleged
wrongdoer. Such legislative intent would routinely be thwarted if CCHS’ argument
was allowed to carry the day. In almost every case, more than ninety days will have
elapsed between the date of a demand letter and the date the defendant’s motion to
dismiss the derivative claims on timeliness grounds is heard by the court. 	As such,
the rule would be honored more in its breach than in its observance.
49. 	Second, CCHS’ demand letter was also deficient for an additional
reason. N.C.G.S. § 57D-8-01(a)(2) requires that a member make “written demand on
the LLC to take suitable action” before filing suit. N.C.G.S. § 57D-8-01(a)(2) (2021).
This Court has noted that assessing the sufficiency of a demand requires comparing
“the derivative claims asserted in a complaint against the specific demands a plaintiff

has made prior to filing suit.” 	Miller v. Burlington Chem. Co., LLC, 2017 NCBC
LEXIS 6, at *30 (N.C. Super. Ct. Jan. 27, 2017) (cleaned up).
50. 	A careful reading of CCHS’ 12 October demand letter reveals that its
focus was to protect not WCV but rather its own financial interests. 	The key
“demand” language in the letter stated as follows:
In order to effectively exercise his Class B Member Redemption Option,
Dr. Woodcock must pay CCHS $5,236,366.41 to purchase all of CCHS’s
Units 	of 	WCV, 	along 	with 	an 	additional 	amount 	equal 	to 	the
appreciation in value of such Units that would have obtained but for Dr.
Woodcock’s systematic efforts to artificially deflate the value of WCV.
Additionally, WCV must immediately make all pro rata distributions to
which CCHS is entitled, including without limitation the $1 million
CCHS should have received at the time Dr. Woodcock approved and
issued a $2 million distribution from WCV to himself in 2021, and the
$300,000 	CCHS 	should 	have 	received 	at 	the 	time 	Dr. 	Woodcock
approved and issued a $600,000 distribution from WCV to himself in
August 2022.
(12 October 2022 Demand Letter, at 3.) As such, this is not a proper demand within
the meaning of the statute.
51. 	CCHS contends that any deficiency in the letter itself was mitigated by
the fact that attached to the letter was a draft complaint. 	CCHS asserts that the
inclusion of the draft complaint put WCV on direct notice of the claims it intended to
assert if WCV failed to take action against Woodcock. However, CCHS has failed to
cite any North Carolina case law standing for the proposition that attaching a draft
complaint to a demand letter is a valid substitute for making a proper demand for
suitable action by the company in the letter itself. 	The absence of such case law is
not surprising as the statute contemplates a demand upon the company to take
appropriate and tangible action rather than the member simply providing the

company with a list of legal claims for relief to be asserted by the member in a
forthcoming lawsuit.
52. 	The Court therefore GRANTS Defendants’ Motion based on lack of
standing as to the derivative claims asserted by CCHS, which are DISMISSED
without prejudice.3
B. 	Individual Claims
53. 	Defendants next contend that CCHS also lacks standing to assert the
individual, or direct, claims contained within its Complaint—albeit for a different
reason. 	Defendants argue that the claims set out in the Complaint can only be
asserted derivatively because any injuries CCHS suffered due to Woodcock’s alleged
wrongful acts are the same as the injuries incurred by WCV.
54. 	“It is a well-settled principle of North Carolina law that ‘shareholders of
corporations generally may not bring individual actions to recover what they consider
their share of the damages suffered by the corporation.’ ” 	Barefoot, 2022 NCBC
LEXIS 8, at **20 (quoting Barger v. McCoy Hillard & Parks, 346 N.C. 650, 660
(1997)). 	The underlying rationale for this rule is that “the loss of an investment is
identical to the injury suffered by the corporate entity as a whole.” 	Atkinson v.
Lackey, 2015 NCBC LEXIS 21, at *13 (N.C. Super. Ct. Feb. 27, 2015) (cleaned up).
“This concept loosely has come to be known as the Barger rule.” Gusinsky v. Flanders
Corp., 2013 NCBC LEXIS 43, at **12 (N.C. Super. Ct. Sept. 25, 2013).
3 “A dismissal for lack of jurisdiction is generally a dismissal without prejudice.” 	N.C.
Acupuncture Licensing Bd. v. N.C. Bd. of Physical Therapy Exam’rs, 2016 NCBC LEXIS 33,
at **27 n.8 (N.C. Super. Ct. Apr. 26, 2016).

55. 	“Our courts recognize two exceptions to this rule: shareholders may
bring an individual action when (1) the wrongdoer owed them a special duty or (2)
they suffered a personal injury distinct from the injury sustained by the corporation
itself.” 	Barefoot, 2022 NCBC LEXIS 8, at **20 (cleaned up). 	This Court has made
clear that “[b]oth the general rule and its exceptions are equally applicable in the
LLC context.” Id. (cleaned up).
56. 	Here, CCHS contends that both exceptions to the Barger rule apply.
However, the Court need not determine the applicability of the special duty exception
because it is satisfied that the special injury exception is invoked by CCHS’
allegations.
57. 	In order for a plaintiff’s claims “to fall under the second exception to
Barger, they must allege ‘an individual loss, separate and distinct from any damage
suffered by the corporation.’ ” 	Harris v. Wachovia Corp., 2011 NCBC LEXIS 8, at
**28 (N.C. Super. Ct. Feb. 23, 2011) (quoting Barger, 346 N.C. at 659).
58. 	A review of the Complaint in this action makes clear that CCHS has
sufficiently 	alleged 	personal 	injury 	under 	the 	Barger 	framework. 	Indeed, 	a
substantial portion of CCHS’ allegations concern Woodcock’s acts in (1) thwarting
CCHS’ ability to receive distributions in proportion to its ownership interest in WCV;
and (2) refusing to comply with certain provisions of the Operating Agreement
providing safeguards to CCHS in connection with Woodcock’s ability to purchase
CCHS’ Units in WCV. 	These allegations are sufficient to fall within the second
Barger exception. See, e.g., Emrich, 2020 NCBC LEXIS 45, at *27 (“When a member

of an LLC seeks to enforce its own rights under the LLC’s operating agreement, not
the rights of the LLC, in an effort to remedy its own injury, that member has standing
to bring its [individual] breach of contract claim.”).
59. 	The Court therefore DENIES Defendants’ Motion under Rule 12(b)(1)
based on lack of standing as to CCHS’ individual claims.
II. 	Dismissal Under Rule 12(b)(6)
60. 	Having determined that standing exists as to CCHS’ individual claims,
the Court must now turn its attention to Defendants’ arguments under Rule 12(b)(6).
Although each of the four claims asserted in the Complaint are brought—at least in
part—individually, the only specific arguments contained in Defendants’ brief in
support of their Motion based on Rule 12(b)(6) relate to CCHS’ claims for breach of
fiduciary duty and constructive fraud. The Court will discuss each in turn.
A. 	Breach of Fiduciary Duty
61. 	“To establish a claim for breach of fiduciary duty, a plaintiff must show
that: (1) the defendant owed the plaintiff a fiduciary duty; (2) the defendant breached
that fiduciary duty; and (3) the breach of fiduciary duty was a proximate cause of
injury to the plaintiff.” Sykes v. Health Network Sols., Inc., 372 N.C. 326, 339 (2019).
62. 	A fiduciary relationship
has been broadly defined . . . as one in which there has been a special
confidence reposed in one who in equity and good conscience is bound to
act in good faith and with due regard to the interests of the one reposing
confidence . . . [and] it extends to any possible case in which a fiduciary
relationship exists in fact, and in which there is confidence reposed on
one side, and resulting domination and influence on the other.
Dalton v. Camp, 353 N.C. 647, 651–52 (2001) (cleaned up).

63. 	Our Supreme Court has held that “[a] fiduciary relationship may exist
in law or in fact.” Azure Dolphin, LLC v. Barton, 371 N.C. 579, 599 (2018) (citation
omitted).
64. 	In the present case, Woodcock “wore two hats”—serving as both a
manager of WCV and as the majority member of the LLC. 	The Complaint does not
clearly state whether CCHS’ fiduciary duty claim is based on Woodcock’s actions as
a manager, as the controlling majority member, or as a combination of both.
Therefore, it is necessary to review key principles from our case law regarding the
potential existence of fiduciary duties stemming from both roles.
65. 	The general rule is that “managers of a limited liability company . . . owe
a fiduciary duty to the company, [ ] not to individual members.” 	Kaplan v. O.K.
Techs., L.L.C., 196 N.C. App. 469, 474 (2009). 	Likewise, as a general proposition,
LLC members do not owe fiduciary duties to each other or to the LLC itself. Emrich,
2020 NCBC LEXIS 45, at *29. 	As we have often noted, “[t]he rights and duties of
LLC members are ordinarily governed by the company’s operating agreement, not by
general principles of fiduciary relationships.” 	Strategic Mgmt. Decisions v. Sales
Performance Int’l, 2017 NCBC LEXIS 69, at *10–11 (N.C. Super. Ct. Aug. 7, 2017).
66. 	However, in some circumstances, “a holder of a majority interest who
exercises control over the LLC owes a fiduciary duty to minority interest members.”
Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *17 (N.C. Super. Ct.
June 19, 2019) (citation omitted).
This Court in Vanguard specified several actions which, if taken by a
majority member, indicate an exercise of control potentially sufficient to

create a fiduciary duty, including: (1) managerial control over a board of
directors or other managers; (2) the ability to dissolve the company; (3)
the ability to declare bankruptcy; and (4) the ability to amend the
operating 	agreement without approval 	from 	other members. 	The
exercise of control through any of these actions weigh in favor of the
majority member owing minority members a fiduciary duty.
Merrell v. Smith, 2023 NCBC LEXIS 3, *23 (N.C. Super. Ct. Jan. 11, 2023) (cleaned
up).
67. 	The Court must now apply these principles to the present case. 	With
regard to acts taken by Woodcock in his capacity as a manager of WCV, it is clear
that he owed no fiduciary duty to CCHS. 	Indeed, Section 3.5 of WCV’s Operating
Agreement expressly provides that “[e]xcept as otherwise provided herein, Managers
shall have no fiduciary duties with respect to the Company or any Member.”
(Operating Agreement, at 11 (emphasis added).)
68. 	However, neither Section 3.5 nor any other provision of the Operating
Agreement appears to address the potential existence of fiduciary duties owed by
members to other members. Thus, the Operating Agreement does not eliminate the
fiduciary duty that a controlling majority member would otherwise owe to a minority
member under the circumstances discussed in Vanguard.
69. 	Therefore, the only remaining question is whether CCHS has alleged
facts that would give rise to such a duty based on a theory of majority member control.
Based on its thorough review of the Complaint, the Court is satisfied that CCHS’
allegations are sufficient in this regard. Viewed in the light most favorable to CCHS,
the Complaint alleges a number of examples of ways in which Woodcock has used his
position as the majority member of WCV to assert absolute control over the company.

For example, the Complaint alleges that Woodcock exercised majority control over
WCV’s board.
70. 	Moreover, the Complaint likewise asserts that Woodcock breached his
fiduciary duty to CCHS as a minority member in a number of respects. Among other
examples, CCHS alleges that Woodcock (1) used his position of control to improperly
withhold distributions owed to CCHS; (2) refused to provide CCHS with information
regarding his appraisal of the value of its Units in connection with his decision to
exercise the Class B Member Redemption Option; and (3) ignored a number of
provisions in WCV’s Operating Agreement at the expense of CCHS. 	(Verif. Compl.
¶¶ 93–99.)
71. 	Accordingly, with respect to CCHS’ individual breach of fiduciary duty
claim, Woodcock’s Motion is GRANTED as to actions taken by Woodcock in his
capacity as a manager of WCV. 	However, the Motion is DENIED as to Woodcock’s
actions taken in his capacity as a controlling majority member of WCV.4
B. 	Constructive Fraud
72. 	Finally, Defendants seek the dismissal of CCHS’ individual claim for
constructive fraud.
73. 	“Although the elements of constructive fraud and breach of fiduciary
duty overlap, each is a separate claim under North Carolina law.” 	Chisum v.
4 For purposes of the present Motion, the Court declines to engage in the task of parsing the
Complaint to ascertain which allegations are based on Woodcock’s actions as a manager of
WCV and which acts were undertaken by him as a majority member. Such an analysis, if
necessary, will be more efficiently conducted with the benefit of a factually developed record
at the summary judgment stage.

Campagna, 	376 	N.C. 	680, 	706 	(2021) 	(cleaned 	up). 	“A 	successful 	claim 	for
constructive fraud requires proof of facts and circumstances ‘(1) which created the
relation of trust and confidence [between the parties], and (2) [which] led up to and
surrounded the consummation of the transaction in which defendant is alleged to
have taken advantage of his position of trust to the hurt of plaintiff.’ ” Id. at 706–07
(quoting Terry v. Terry, 302 N.C. 77, 83 (1981)). 	Thus, “[t]he primary difference
between pleading a claim for constructive fraud and one for breach of fiduciary duty
is the intent and showing that the defendant benefitted from his breach of duty.”
Ironman Med. Props. v. Chodri, 268 N.C. App. 502, 513 (2019) (citation omitted).
74. 	CCHS’ claim for constructive fraud is based on its allegations that
(1) Woodcock stood in a position of trust and confidence in relation to CCHS; and
(2) he used this position to benefit himself and the entities he owned at CCHS’
expense (as discussed above).
75. 	In arguing for the dismissal of the constructive fraud claim, Defendants
do not contend that CCHS has failed to adequately allege the elements set out above.
Instead, they assert that constructive fraud is not a viable claim in a case such as
this one in which monetary damages are adequate to fully compensate the plaintiff.
In making this argument, however, Defendants appear to be laboring under the
misapprehension that constructive fraud is a claim that is equitable in nature. 	As
made clear above, that is not the case. 	In any event, they have failed to offer any
valid basis for dismissal of this claim.

76. 	Accordingly, Woodcock’s Motion is DENIED as to CCHS’ individual
claim for constructive fraud.
CONCLUSION
THEREFORE, IT IS ORDERED that Defendants’ Motion to Dismiss is
GRANTED, in part, and DENIED, in part, as follows:
1. 	With regard to Defendants’ Motion based on Rule 12(b)(1):
a. 	the 	Motion 	is 	GRANTED 	as 	to 	the 	derivative 	claims
contained in the Complaint, which are dismissed without
prejudice; and
b. 	the Motion is DENIED as to the individual claims contained
in the Complaint.
2. 	With regard to Defendants’ Motion based on Rule 12(b)(6) as to the
individual claims contained in the Complaint:
a. 	Defendants’ Motion is GRANTED with prejudice with respect
to CCHS’ claim for breach of fiduciary duty based on actions
taken by Woodcock as a manager of WCV; and
b. 	Defendants’ Motion is DENIED in all other respects.
SO ORDERED, this the 21st day of March, 2023
/s/ Mark A. Davis
Mark A. Davis
Special Superior Court Judge
for Complex Business Cases