Jacobson v. Walsh

Jacobson v. Walsh, 2014 NCBC 2.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF
JUSTICE
COUNTY OF MECKLENBURG SUPERIOR COURT DIVISION
10 CVS 9619
STEVEN W. JACOBSON, individually
and derivatively on behalf of JWJ
Coastal Properties, LLC,

Plaintiff,

v. ORDER AND OPINION

JAMES F. WALSH, JR., ANDREW S.
JACOBSON, and JWJ COASTAL
PROPERTIES, LLC,

Defendants.

McAngus, Goudelock & Courie, LLC by John T. Jeffries for Plaintiff.

James, McElroy & Diehl, P.A. by John R. Buric and Harrison Lord for Defendants.

Murphy, Judge.
THIS MATTER is before the Court on James F. Walsh, Jr. (“Walsh”), Andrew
S. Jacobson (“A. Jacobson”), and JWJ Coastal Properties, LLC’s (“Coastal”)
(collectively, “Defendants”) Motion for Summary Judgment as to all claims,
pursuant to Rule 56 of the North Carolina Rules of Civil Procedure (“Motion I”).
As part of Motion I, Walsh seeks summary judgment on his counterclaims
for sanctions under Rule 11 of the North Carolina Rules of Civil Procedure and for
attorney’s fees pursuant to N.C.G.S. § 6-21.5. In North Carolina, a motion is the
appropriate vehicle by which a party requests sanctions under Rule 11. See N.C.
GEN. STAT. § 1A-1, Rule 11 (2013) (“If a pleading, motion, or other paper is signed in
violation of this rule, the court, upon motion or upon its own initiative, shall impose
upon the person who signed it . . . an appropriate sanction . . . .”). The same is true
for a party to receive attorney’s fees under N.C.G.S. § 6-21.5. See N.C. GEN. STAT. §
6-21.5 (2013) (“In any civil action . . . the court, upon motion of the prevailing party,
may award a reasonable attorney’s fee to the prevailing party . . . .”). To efficiently
resolve all matters raised herein, the Court considers Defendants’ motion for
summary judgment on Walsh’s counterclaims as a motion for sanctions pursuant to
Rule 11 (“Motion II”) and a motion for attorney’s fees pursuant to N.C.G.S. § 6-21.5
(“Motion III”).
Having considered the briefs and submissions of the parties, and the
arguments and contentions of counsel at the October 26, 2012, hearing, the Court
GRANTS Motion I, DENIES Motion II, and GRANTS in part and DENIES in part
Motion III, for the reasons that follow.
I.
JURISDICTIONAL PRE-REQUISITES
{1} Plaintiff Steven W. Jacobson (“S. Jacobson” or “Plaintiff”) is a citizen and
resident of the State of Florida.
{2} Defendant A. Jacobson is a citizen and resident of Mecklenburg County,
North Carolina.
{3} Defendant Walsh is a citizen and resident of Mecklenburg County, North
Carolina.
{4} Defendant Coastal is a limited liability company organized under the laws
of the State of North Carolina with its registered office located in Charlotte, North
Carolina.
II.
PROCEDURAL HISTORY
{5} Plaintiff filed his original, unverified Complaint in Mecklenburg County
Superior Court on April 30, 2010, alleging individual causes of action against A.
Jacobson and Walsh for unfair and deceptive trade practices, fraud, fraudulent
concealment, fraudulent misrepresentation, breach of contract, and breach of
fiduciary duty; and seeking punitive damages, and dissolution of Coastal.
{6} Plaintiff also alleges claims derivatively on behalf of Coastal against A.
Jacobson and Walsh for breach of fiduciary duty, negligence, negligent
misrepresentation, fraud, and fraudulent misrepresentation; and sought an
accounting, inspection of corporate records, and dissolution of Coastal.
{7} On July 1, 2010, Defendants A. Jacobson and Coastal filed their Answer to
the Complaint.
{8} On March 30, 2011, Defendant Walsh filed his Answer and Counterclaims,
and requested Rule 11 sanctions and attorney’s fees pursuant to N.C.G.S. § 6-21.5.
{9} Plaintiff answered Walsh’s counterclaims on May 31, 2011, and
Defendants filed their Motion for Summary Judgment as to all claims in the
Complaint, along with supporting brief, affidavit and deposition exhibits on May 31,
2012.
{10} Plaintiff filed a responsive brief, with supporting documents, on August 1,
2012, and Defendants filed their reply brief on August 10, 2012.
{11} The Court heard oral arguments on the Motions on October 26, 2012.
III.
FACTUAL BACKGROUND
{12} The Court recites material and uncontroverted facts from the record for
the purpose of deciding the motion and not to resolve issues of material fact. See
Collier v. Collier, 204 N.C. App. 160, 161–62, 693 S.E.2d 250, 252 (2010) (citing
Hyde Ins. Agency v. Dixie Leasing Corp., 26 N.C. App. 138, 142, 215 S.E.2d 162,
164–65 (1975)).
{13} Between July 25, 2005 and December 1, 2005, Defendants and their wives
purchased as investment properties four lots in Carteret County, North Carolina
(the “Cannonsgate” lots) and two lots in Beaufort County, South Carolina (the “Bull
Point” lots). All purchases were made with personal funds and on the individual
credit of the purchasers. (Pl.’s Resp. Mot. I 1–2). Only A. Jacobson and Walsh were
obligated to repay the loans secured by each of the lots. (Compl. ¶¶ 12, 18, 22, 28).
{14} A. Jacobson, Walsh, and Plaintiff (A. Jacobson’s brother) discussed setting
up an LLC with the three of them as members. (Defs.’ Br. Supp. Mot. I 2). Plaintiff
and A. Jacobson had previously been involved in several business ventures
together, most of them ending in failure or contention. (Dep. S. Jacobson pp. 44–86,
Nov. 16, 2010).
{15} Plaintiff alleges in his Complaint that A. Jacobson and Walsh represented
to him that they would create an LLC with three members, including Plaintiff; that
the LLC would own the lots; and that Plaintiff would own a one-third interest in the
lots. (Compl. ¶¶ 36–37; Pl.’s Resp. Mot. I 3). Interestingly, Plaintiff’s position
regarding the ownership interest promised to him appears to shift. In his breach of
contract claim, Plaintiff alleges that the parties “agreed to transfer the six Lots in
Cannonsgate and Bull Point into the name of [Coastal] and to subsequently provide
Plaintiff with a one-third interest in [Coastal].” (Compl. ¶ 136). However, in his
fraudulent misrepresentation claim, Plaintiff alleges that Defendants told him “on
several occasions that he would become a one-third (1/3) partner in the ownership of
the lots in Cannonsgate and Bull Point and in the operation of [Coastal].” (Compl. ¶
127).
{16} Defendants, on the other hand, assert that they were unwilling to transfer
title to the LLC because Walsh and Jacobson were individually obligated for the
costs of refinancing the lots; that Plaintiff was aware of this before making an
investment in the company; and the parties agreed that Defendants would pledge
any proceeds from the lots to the LLC. (Defs.’ Br. Supp. Mot. I 3). In his deposition,
Plaintiff admitted he knew the properties would not be transferred into the LLC’s
name before he invested any money. (Dep. S. Jacobson pp. 200–02, 205–06, 254).
{17} On June 24, 2007, Articles of Organization for Coastal were filed with the
North Carolina Secretary of State (Compl. ¶ 44), designating the entity as a
manager-managed LLC. The Articles identified A. Jacobson as the registered agent
and his business office as the registered office for Coastal. (Pl.’s Resp. Mot I 4).
{18} A. Jacobson circulated a draft Operating Agreement to Walsh and Plaintiff
that named A. Jacobson as the sole manager and listed A. Jacobson, Plaintiff and
Walsh as members. (Compl. ¶¶ 49, 51, 53).
{19} Plaintiff contends he neither consented to nor signed the draft Operating
Agreement. Nonetheless, in reliance upon the representations of Defendants, he
“contributed a total of $210,322.64 to A. Jacobson and Walsh pursuant to the ‘real
estate’ investment opportunity” they offered him. (Compl. ¶¶ 57, 82). Plaintiff
insists that “Walsh fraudulently misrepresented the facts of the financing on the
lots . . . in an effort to induce him to continue funding the carrying costs on the lots.”
(Compl. ¶ 81). In his deposition, however, Plaintiff acknowledged that he was
aware of the carrying costs before he made his investment in the venture (Dep. S.
Jacobson pp. 112, 258), and admits that his only evidence of Defendants’ statements
being misrepresentations is his suspicion that Defendants knew the statements
were false when they made them. (Dep. S. Jacobson pp. 99–100).
{20} Defendants contend that A. Jacobson presented the draft Operating
Agreement to Plaintiff and, in A. Jacobson’s presence, Plaintiff signed Exhibit B to
the Operating Agreement, which was not the appropriate signature page; and that
shortly thereafter in June 2007, Plaintiff wired approximately $150,000.00 to invest
in Coastal. (Defs.’ Br. Supp. Mot. I 2–3). In sworn deposition testimony, Plaintiff
acknowledged it was possible he signed Exhibit B thinking he was executing the
Operating Agreement, but did not think that was the case. (Dep. S. Jacobson pp.
190–92).
{21} Plaintiff never received an ownership interest in the lots and alleges that:
(i) he was never consulted about any decision-making or the operation of Coastal;
and (ii) Defendants unilaterally made decisions regarding the property, including
modification of the loans, without his approval. (Compl. ¶¶ 64–67).
{22} Although Plaintiff now seeks an accounting and inspection of Coastal’s
corporate records, he admittedly has never requested any information from A.
Jacobson regarding his investment. (Dep. S. Jacobson p. 204). Defendants counter
that from the time Plaintiff made his initial investment of cash, he acted as though
he was a member of Coastal until “the real estate bubble burst,” when Plaintiff
“abruptly decided that he was not, and had never been, a member of [Coastal].”
(Defs.’ Br. Supp. Mot. I 3). Defendants also assert that, thereafter, Plaintiff refused
to contribute further to the costs and expenses of Coastal, “leaving Defendants to
pay [his] share.” (Defs. Br. Supp. Mot. I 3). It is uncontested that Plaintiff has
made no capital contribution to Coastal since 2008. (Dep. S. Jacobson pp. 220–24).
{23} In response to Plaintiff’s Complaint, Walsh filed counterclaims for
sanctions under Rule 11 and for attorney’s fees pursuant to N.C.G.S. § 6-21.5, based
principally on Plaintiff’s admission that he had never had any prior business
dealings with Walsh, and his concession that there was no fiduciary relationship
between the two of them. (Walsh Answer pp. 16–17; Dep. S. Jacobson pp. 105, 256–
58).
IV.
LEGAL STANDARD
{24} “Summary judgment is appropriate 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 any party is entitled
to a judgment as a matter of law.’” Variety Wholesalers, Inc. v. Salem Logistics
Traffic Servs., LLC, 365 N.C. 520, 523, 723 S.E.2d 744, 747 (2012) (quoting N.C.
GEN. STAT. § 1A-1, Rule 56(c) (2013)). Here, the Court considers the facts in the
light most favorable to Plaintiff. See Ron Medlin Constr. v. Harris, 364 N.C. 577,
580, 704 S.E.2d 486, 488 (2010).
V.
ANALYSIS
A.
INDIVIDUAL CLAIMS
1.
BREACH OF FIDUCIARY DUTY
{25} A breach of fiduciary duty requires, at the very least, the existence of a
fiduciary relationship owing from one party to the other. Green v. Freeman, 749
S.E.2d 262, 268 (N.C. 2013) (quoting Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d
704, 707 (2001)). This relationship exists
in all cases where 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] “extends
to any possible case in which a fiduciary relation exists in fact, and in
which there is confidence reposed on one side, and resulting domination
and influence on the other.”
Abitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931) (citation omitted).
Such domination and influence is “an essential component of any fiduciary
relationship.” Dalton, 353 N.C. at 652, 548 S.E.2d at 708 (citation omitted). “‘The
existence of a fiduciary relationship is a question of fact.’” Curry v. Mitchell, 202
N.C. App. 558, 562, 688 S.E.2d 825, 828 (2010) (citation omitted).
{26} Plaintiff’s claim for breach of fiduciary duty is premised upon previous
business ventures between Plaintiff and A. Jacobson. According to Plaintiff, he
became involved in the subject of this litigation “as a result of [his] confidence in A.
Jacobson based on past investment experiences” and that he, a person who did not
“invest in real estate with regularity, placed confidence and trust in the [sic] A.
Jacobson and Walsh, and relied on their expertise to direct him to a viable and
lucrative investment.” (Pl.’s Resp. Mot. I 12; Compl. ¶ 144).
{27} Plaintiff alleges a confidence and trust in A. Jacobson, but he does not
direct the Court to specific facts of such in the record. While the record
demonstrates a history of unrelated, failed and contentious business and
investment ventures between Plaintiff and A. Jacobson before Plaintiff’s
involvement in Coastal (Dep. S. Jacobson pp. 44–86), Plaintiff points to no evidence
of domination or control by A. Jacobson in past ventures, and nothing in the record
leads the Court to conclude that A. Jacobson figuratively “held all the cards” in the
Coastal transaction; nor does it appear that Plaintiff was left in the dark regarding
the Coastal transaction.
{28} Plaintiff’s Complaint also includes a claim for breach of fiduciary duty
against Walsh. The parties now agree that Walsh did not owe Plaintiff a fiduciary
duty. Accordingly, summary judgment is appropriate for Walsh on the breach of
fiduciary duty claim.
{29} The Court concludes, therefore, that there is no genuine issue of material
fact regarding Plaintiff’s breach of fiduciary duty claim. Accordingly, the Court
GRANTS Motion I and DISMISSES Plaintiff’s individual breach of fiduciary duty
claim as to all Defendants.
2.
FRAUD AND FRAUDULENT MISREPRESENTATION
{30} “While actual fraud has no all-embracing definition, . . . the following
essential elements of actual fraud are well established: (1) [f]alse representation or
concealment of a material fact, (2) reasonably calculated to deceive, (3) made with
intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the
injured party.” Ragsdale v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974)
(citations omitted). Further, any reliance on the allegedly false representations
must be reasonable. See Johnson v. Owens, 263 N.C. 754, 757, 140 S.E.2d 311, 313
(1965). “The reasonableness of a party's reliance is a question for the jury, unless
the facts are so clear that they support only one conclusion.” Forbis v. Neal, 361
N.C. 519, 527, 649 S.E.2d 382, 387 (2007) (citing Marcus Bros. Textiles, Inc. v. Price
Waterhouse, LLP, 350 N.C. 214, 224–25, 513 S.E.2d 320, 327 (1999)).
{31} Because Plaintiff’s claim for fraud is similar to his claim for fraudulent
misrepresentation, as a matter of convenience, the Court considers them together.
Defendants’ alleged misrepresentations include statements that the investment
would “garner a nice return on [Plaintiff’s] investment and would be a good way to
make some cash,” and that Plaintiff would “become a one-third (1/3) partner in the
ownership of the lots in Cannonsgate and Bull Point and in the operation of
[Coastal].” (Compl. ¶¶ 126–27).
{32} Plaintiff admits in his deposition that his only reason for believing the
statements that the investment would “garner a nice return,” and would “be a good
way to make some cash” were misrepresentations was his suspicion that
Defendants knew they were false when they made them. (Dep. S. Jacobson pp. 98–
100). Plaintiff points to no particular evidence to support Defendants’ actual
knowledge that the statements were false. Mere suspicion or conjecture is
insufficient to overcome summary judgment. See Marcus Bros. Textiles, Inc. v.
Price Waterhouse, LLP, 350 N.C. 214, 224, 513 S.E.2d 320, 327 (1999) (citation
omitted).
{33} The Court now turns to the alleged statement that Defendants told
Plaintiff he would become a one-third partner in the ownership of the lots and in
the operation of the LLC. (Compl. ¶¶ 112, 127). To be actionable, Defendants must
have made false statements with the intent to deceive Plaintiff, Plaintiff must have
in fact been deceived, and his reliance upon the misrepresentations must have been
reasonable. There are limited ways by which Plaintiff could have become a one-
third partner in interest: (1) by transfer of title to the lots directly to Plaintiff, or (2)
by transfer of title to Coastal, of which Plaintiff was a member.
{34} Addressing first a transfer of a one-third interest in the lots directly to
Plaintiff personally to induce his investment, when asked about his understanding
at deposition, Plaintiff made it clear that, before investing in the deal, he
understood the lots were not going to be transferred to him individually and that
there was an issue with transferring the lots to Coastal. (Dep. S. Jacobson p. 254).
Furthermore, Plaintiff points the Court to no evidence that Defendants ever told
him he would receive a security interest in the lots, nor is there any evidence before
the Court that any statement Defendants allegedly made directly to Plaintiff
regarding a transfer of the lots deceived him in fact or caused him damage.
{35} Second, Plaintiff admitted in his deposition testimony that before he
invested any money in the venture, A. Jacobson made him aware that the lots were
titled in the individual names of Defendants and their wives and that the properties
would not be transferred into Coastal’s name. (Dep. S. Jacobson pp. 200–02, 254).
Plaintiff further admitted in his deposition that A. Jacobson never made any
representations to him that were inconsistent with the ownership arrangement set
out in the draft operating agreement. (Dep. S. Jacobson p. 205). Knowing this,
Plaintiff nonetheless wired investment money to Defendants. (Dep. S. Jacobson pp.
200–02).
{36} In deposition testimony, Plaintiff also stated he did not know whether
anyone told him he’d be given a voice in decision-making for Coastal. (Dep. S.
Jacobson p. 127). To succeed on a claim for fraudulent misrepresentation on this
basis, Plaintiff must first offer facts to support his contention that Defendants did
in fact tell him he would be given a voice in decision-making for Coastal. Plaintiff
has failed to do so.
{37} By his own admissions, Plaintiff defeats this claim. Therefore, the Court
GRANTS Motion I. Plaintiff’s claims for fraud and fraudulent misrepresentation
are DISMISSED with prejudice.
3.
FRAUDULENT CONCEALMENT
{38} “A claim for fraud may be based on . . . ‘a failure to disclose a material fact
relating to a transaction which the parties had a duty to disclose.’” Hardin v. KCS
Int’l, Inc., 199 N.C. App. 687, 696, 682 S.E.2d 726, 733 (2009) (quoting Harton v.
Harton, 81 N.C. App. 295, 297, 344 S.E.2d 117, 119 (1986)). In addition to the
elements for fraud, a claim for fraudulent concealment requires that the Defendant
have a duty to disclose material information to [Plaintiff], “as silence is fraudulent
only when there is a duty to speak.” Lawrence v. UMLIC–Five Corp., 2007 NCBC
20 ¶ 34 (N.C. Super. Ct. June 18, 2007), http://www.ncbusinesscourt.net/opinions/
2007_NCBC_ 20.pdf (granting motion to dismiss based on failure to satisfy the
pleading requirements of Rule 9(b)) (citing Griffin v. Wheeler-Leonard & Co., 290
N.C. 185, 198, 225 S.E.2d 557, 565 (1976)). A duty to speak may arise: (1) in the
context of a fiduciary relationship, (2) where “a party has taken affirmative steps to
conceal material facts from the other,” or (3) “where one party has knowledge of a
latent defect in the subject matter of the negotiations about which the other party is
both ignorant and unable to discover through reasonable diligence.” Harton, 81 N.C.
App. at 297–98, 344 S.E.2d at 119.
{39} Plaintiff bases Defendants’ duty to speak on an alleged fiduciary
relationship. Having concluded above that no such duty existed, the Court
GRANTS Motion I and DISMISSES Plaintiff’s fraudulent concealment claim.
4.
BREACH OF CONTRACT
{40} To establish a prima facie claim for breach of contract, a plaintiff must
show: “(1) existence of a valid contract and (2) breach of the terms of that contract.”
Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000) (citation omitted). “A
contract is ‘an agreement, upon sufficient consideration, to do or not to do a
particular thing.’” N. & W. Overall Co. v. Holmes, 186 N.C. 428, 431, 119 S.E. 817,
818 (1923) (citation omitted). An agreement requires the concurrence of at least
two minds. The understanding of one party, alone, has no legal consequence.
Prince v. McRae, 84 N.C. 674, 675 (1881).
{41} Defendants contend the only valid contract between themselves and
Plaintiff was the written Operating Agreement that provided Plaintiff an interest in
Coastal. (Defs.’ Br. Supp. Mot. I 14; Defs.’ Reply Br. Supp. Mot. I 8). They assert
that Plaintiff signed the Operating Agreement, thereby binding himself, and that
they complied with its terms. (Defs.’ Br. Supp. Mot. I 14–15). In contrast, Plaintiff
contends that the contract between himself and Defendants was the understanding
that he would be provided some interest in the Lots in consideration for his
monetary contribution. (Pl.’s Resp. Mot. I 13).
{42} Regarding the Operating Agreement, Plaintiff admits that it is a
possibility he signed Exhibit B thinking he was executing the Operating Agreement,
but contends he does not think that was the case and does not recall ever signing it.
(Dep. S. Jacobson pp. 190–92). Plaintiff’s position does not constitute an admission
that he actually executed the Operating Agreement and reasonable minds might
disagree about whether he did or did not sign it. However, as the Court
understands Plaintiff’s Complaint, the agreement he relies upon is not the
Operating Agreement to which Defendants refer, but a separate understanding
wherein Defendants agreed to transfer the six Lots in Cannonsgate and Bull Point
into the name of Coastal, and to subsequently provide Plaintiff with a one-third
interest in Coastal. (Compl ¶136). Defendants deny that they were party to any
agreement other than the fully executed written Operating Agreement.
{43} Whether Plaintiff premises his claim upon the draft operating agreement
to which he refers in the Complaint, upon a fully executed operating agreement as
Defendants contend, or upon a verbal agreement with Defendants, resolution of this
issue would ordinarily require the Court to weigh evidence and determine
credibility, which is inappropriate for summary judgment.
{44} But here, there is more. Although Plaintiff avers in the Complaint that
Defendants breached the alleged contract by failing to put the properties in
Coastal’s name, in his Response in Opposition to Motion I, he states that
[i]nitially, all parties believed that [Plaintiff] would be provided an
ownership interest in the Lots, but due to financing issues, it was later
learned that an alternate interest must be provided to [Plaintiff], such
as a security interest in the Lots. Defendants never provided this
security interest to the Plaintiff, and as a result, breached the terms of
the parties’ contract.
(Pl.’s Resp. Mot. I 13). The Court interprets this statement to mean that, from
Plaintiff’s perspective, the alleged operative contract between the parties was for
Defendants to provide Plaintiff with a security interest in the lots, not an ownership
interest. This position belies Plaintiff’s breach of contract claim, made upon
information and belief. Plaintiff defeats his breach of contract claim by this
substantial contradiction regarding the contract and its breach.
{45} Plaintiff directs the Court to no facts or other evidence from which the
Court could conclude that Defendants ever agreed to provide Plaintiff a security
interest in the properties. The Court concludes, therefore, that there is no genuine
issue of fact as to whether there existed a mutual understanding between the
parties that the six lots would be transferred to Coastal or that Plaintiff would
receive a security interest in them.
{46} Based on the foregoing, the Court GRANTS Motion I as to Plaintiff’s
individual claim for breach of contract, and DISMISSES the claim with prejudice.
5.
UNFAIR AND DECEPTIVE PRACTICES
{47} To prevail on a claim for unfair and deceptive practices under section 75-
1.1 of the North Carolina General Statutes, a plaintiff must demonstrate the
existence of three factors: “(1) an unfair and deceptive act or practice . . ., (2) in or
affecting commerce, and (3) which proximately caused actual injury to the plaintiff
or his business.” Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 9, 472
S.E.2d 358, 362 (1996) (citations omitted). In the Unfair and Deceptive Practices
Act (the “Act”), the term “unfair” means “a practice which offends established public
policy, and which can be characterized by one or more of the following terms:
‘immoral, unethical, oppressive, unscrupulous or substantially injurious to
consumers.’” Id. “Commerce” includes “[t]he business of buying, developing and
selling real estate.” Trantham v. Michael L. Martin, Inc., 745 S.E.2d 327, 334 (N.C.
Ct. App. 2013) (citation omitted).
{48} The North Carolina General Assembly did not intend for the Act to apply
to the internal conduct of a single business. White v. Thompson, 364 N.C. 47, 53,
691 S.E.2d 676, 680 (2010).
{49} While the Court’s resolution of Plaintiff’s fraud-related claims might
arguably serve to defeat the unfair and deceptive practices claim, there is an
additional hurdle that Plaintiff has failed to overcome.
{50} Plaintiff posits that the transaction was “in commerce” because
Defendants “were in the business of buying and selling real estate, not residences.”
(Pl.’s Resp. Mot. I 9). Plaintiff relies on Governor’s Club, Inc. v. Governors Club
Ltd. P’ship, 152 N.C. App. 240, 567 S.E.2d 781 (2002), for the proposition that “[t]he
business of buying, developing and selling real estate is an activity ‘in or affecting
commerce’ for the purposes of N.C. Gen. Stat. § 75-1.1.” (Pl.’s Resp. Mot. I 9).
However, Governor’s Club involved an actual agreement between the plaintiff and
the defendants for the construction and sale of real estate, unlike the case at hand.
Id. at 242, 567 S.E.2d at 783. Here, Defendants were not selling or leasing real
estate to Plaintiff, but were, instead, jointly participating in a real estate venture.
{51} The facts of this case are more similar to those in Carcano v. JBSS, LLC,
200 N.C. App. 162, 684 S.E.2d 41 (2009), than to those in Governor’s Club. In
Carcano, the parties were all involved in a joint venture to purchase and develop
lots. 200 N.C. App. at 164, 684 S.E.2d at 45. The conflict concerned the defendants’
failure to form the agreed-upon LLC. Id. at 165, 684 S.E.2d at 45–46. The plaintiffs
alleged that the defendants had “‘marketed membership in a fictional LLC’ which
involved ‘deception, lies, and misrepresentations.’” Id. at 173, 684 S.E.2d at 50.
The North Carolina Court of Appeals held that “[a]ny ‘marketing’ of membership in
order to raise capital for purchasing real estate was handled either directly between
defendants and plaintiffs or involved . . . an intermediary and had no impact on
consumers or the marketplace.” Id. at 175, 684 S.E.2d at 52. Therefore, the
“[p]laintiffs failed to show that defendants’ actions had any effect on commerce.” Id.
{52} Like the parties in Carcano, Plaintiff and Defendants were involved in a
joint venture to invest in and develop real estate. All transactions at issue occurred
between the parties and did not affect any consumers in the real estate
marketplace. Accordingly, the Court concludes that the transaction was not “in or
affecting commerce” as required by N.C.G.S. §75-1.1, a fatal deficit for Plaintiff.
{53} Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s unfair
and deceptive practices claim.
6.
PUNITIVE DAMAGES
{54} “To prevail on a claim for punitive damages, Plaintiff[] must succeed on a
claim for compensatory damages, and prove by clear and convincing evidence that
one or more of the following aggravating factors were present: (a) fraud, (b) malice,
or (c) willful or wanton conduct.” BOGNC, LLC v. Cornelius NC Self-Storage, LLC,
2013 NCBC 26 ¶ 104 (N.C. Super. Ct. May 1, 2013),
http://www.ncbusinesscourt.net/opinions/2013_NCBC_26.pdf (dismissing the
plaintiffs’ claim for punitive damages) (citation omitted).
{55} Defendants premise their entire argument for summary judgment as to
Plaintiff’s punitive damages claim on their belief that Plaintiff can support no
underlying claim for relief. (Defs.’ Br. Supp. Mot. I 17). Defendants are correct.
None of Plaintiff’s individual claims have survived summary judgment. Defendants
are, therefore, entitled to the relief they seek as a matter of law.
{56} The Court GRANTS Motion I as to Plaintiff’s punitive damages claim, and
the same is hereby DISMISSED with prejudice.
7.
DISSOLUTION
{57} The Court may dissolve an LLC upon request of a member
if it is established that (i) the managers, directors, or any other persons
in control of the [LLC] are deadlocked in the management of the affairs
of the [LLC], the members are unable to break the deadlock, and
irreparable injury to the [LLC] is threatened or being suffered, or the
business and affairs of the [LLC] can no longer be conducted to the
advantage of the members generally, because of the deadlock; (ii)
liquidation is reasonably necessary for the protection of the rights or
interests of the complaining member; (iii) the assets of the [LLC] are
being misapplied or wasted; or (iv) the articles of organization or a
written operating agreement entitles the complaining member to
dissolution of the [LLC].
Mitchell, Brewer, Richardson, Adams, Burge & Boughman, PLLC v. Brewer, 209
N.C. App. 369, 390, 705 S.E.2d 757, 772 (quoting N.C. GEN. STAT. § 57C-6-02
(2013)).
{58} The parties disagree about the state of affairs at Coastal. Defendants
claim that dissolution of Coastal would be inequitable and that it is in the best
interest of both parties for the company to continue operating. (Defs.’ Br. Supp.
Mot. I 18). Plaintiff alleges that Coastal’s assets are being mismanaged, as
evidenced by the foreclosure of real estate valued in excess of $1,000,000.00 and the
loss of about $750,000.00 of investments. (Pl.’s Resp. Mot. I 16).
{59} Other than his allegations, Plaintiff does not direct the Court to any
specific acts of mismanagement, or to acts of Defendants’ misapplication or waste of
Coastal’s assets; nor does Plaintiff otherwise specify evidence in support of his
contention that dissolution is necessary to protect his interests. The mere fact of
foreclosure and the loss of investments, standing alone, is insufficient evidence of
mismanagement. In fact, such are not uncommon business occurrences in the
absence of mismanagement.
{60} Plaintiff has made no capital contribution to Coastal since 2008 and does
not claim that he will be required to do so in the future. (Dep. S. Jacobson pp. 220–
24). Plaintiff has presented mere allegations of the loss he suffered, but has offered
no evidence of its cause.1 The Court perceives no genuine issue of material fact as
to whether the assets of Coastal are being misapplied or wasted.
{61} Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s
individual dissolution claim.
B.
DERIVATIVE CLAIMS
{62} N.C.G.S. § 57C-8-01(a) authorizes a member of an LLC to bring an action
on behalf of the LLC if the plaintiff lacks the authority to cause the LLC to sue on
its own behalf and
[t]he plaintiff (i) is a member of the [LLC] at the time of bringing the
action, and (ii) was a member of the [LLC] at the time of the transaction
of which the plaintiff complains, or the plaintiff’s status as a member of
the [LLC] thereafter devolved upon the plaintiff pursuant to the terms
of the operating agreement from a person who was a member at such
time.
N.C. GEN. STAT. § 57C-8-01(a) (2013).
1.
BREACH OF FIDUCIARY DUTY
{63} As a general rule, members of an LLC do not owe the LLC a fiduciary duty.
Kaplan v. O.K. Techs., LLC, 196 N.C. App. 469, 473, 675 S.E.2d 133, 137 (2009)
(citation omitted). However, “[t]he LLC Act imposes certain default duties upon the
manager of [an LLC] to ‘discharge his duties as manager in good faith, with the care
an ordinary prudent person in a like position would exercise under similar
circumstances, and in the manner the manager reasonably believes to be in the best
interests of the [LLC].’” BOGNC, 2013 NCBC 26 at ¶ 52 (quoting N.C. GEN. STAT. §
57C-3-22(b) (2013)).
{64} A. Jacobson is a member and the sole manager of Coastal. (Aff. A.
Jacobson ¶ 2). As manager, the LLC Act imposed upon A. Jacobson the duty to act
in good faith and to utilize ordinary care in discharging his managerial duties.
Because Walsh owed no duty to the company as member or otherwise, summary

1 Plaintiff is not foreclosed from availing himself of the statutory mechanism put in place for the

cessation of LLC membership. See N.C. GEN. STAT. § 57C-3-02 (2013).
judgment is appropriate as to Plaintiff’s derivative breach of fiduciary duty claim
against him. Accordingly, the Court addresses Plaintiff’s derivative breach of
fiduciary duty claim solely as it applies to A. Jacobson.2
{65} Plaintiff alleges that A. Jacobson breached his fiduciary duty to Coastal by
(i) failing to disclose the carrying costs associated with maintaining the lots; (ii)
allowing Coastal to invest in property with declining fair market value; and (iii)
failing to aggressively market the lots for sale in order to satisfy the outstanding
loans. (Compl. ¶¶ 160–62). Plaintiff argues that he sought information about an
exit strategy from Defendants on numerous occasions and Walsh told him “that
they were limited with regard to the actions that could be taken because [those]
actions could destroy their credit.” (Pl.’s Resp. Mot. I 17–18). A. Jacobson contends
that Plaintiff’s allegations are based solely on conjecture and are not supported by
the evidence. (Defs.’ Br. Supp. Mot. I 20).
{66} In his deposition, Plaintiff admitted he knew of the carrying costs involved
in the properties and he only suspected that A. Jacobson knew of the declining real
estate market. (Dep. S. Jacobson pp. 112, 258). Regarding his allegation that A.
Jacobson failed to aggressively market the lots for sale, Plaintiff presented evidence
that he repeatedly offered suggestions about how to get rid of the lots but was met
with responses ranging from “we need to weather this temporary storm,” to “I say
that we put all lots for sale at this point at the price we paid for them and see if we
can get an offer.” (Dep. S. Jacobson Ex. 14). However, each of the statements in
response to Plaintiff’s suggestions was made by Walsh, not by A. Jacobson. (Dep. S.
Jacobson Ex. 14). The Court has before it no evidence that A. Jacobson failed to
aggressively market the lots for sale. Moreover, Plaintiff has failed to offer any
evidence, or point to particular facts, that A. Jacobson knew or should have known
the property was declining in value when he allowed Coastal to invest in it. At his
deposition, Plaintiff confirms that he merely suspected A. Jacobson knew of the lots’

2 The same is true for all Plaintiff’s derivative claims that require a duty as an essential element.

This includes Plaintiff’s derivative claims for negligence and negligent misrepresentation discussed
herein.
declining value when he offered Plaintiff the investment opportunity. (Dep. S.
Jacobson p. 258).
{67} For the reasons given, the Court GRANTS Motion I and DISMISSES
Plaintiff’s derivative breach of fiduciary duty claim as to all Defendants.
2.
ACCOUNTING AND INSPECTION OF CORPORATE RECORDS
{68} A member of an LLC may make “reasonable demand” for “information
regarding the status of the business and the financial condition of the [LLC].” The
demand, however, must “(i) be in writing, (ii) be made in good faith and for a proper
purpose, and (iii) describe with reasonable particularity the purpose and the record
or information desired.” N.C. GEN. STAT. § 57C-3-04 (2013).
{69} In his Complaint, Plaintiff requests a full accounting and an inspection of
all Coastal corporate records (Compl. ¶¶ 166–67), and bases his request on
allegations that “A. Jacobson and Walsh took actions clearly in conflict with the
interests of [Coastal] and entered into transactions from which they derived an
improper personal benefit.” (Compl. ¶ 165). Defendants argue that the requested
information has always been available to Plaintiff had he demanded it. (Defs.’ Br.
Supp. Mot. I 20–21). Plaintiff does not argue or contend that he made a written
demand upon Defendants for information, rather that such a request would have
been futile because “[t]he manager of [Coastal] and the only member other than
[himself] were the parties against whom [he] intended to proceed with legal action.”
(Pl.’s Resp. Mot. I 18). Furthermore, in his deposition, Plaintiff stated that he
“didn’t feel [he] needed to make an affirmative request for information to get
information on [his investment].” (Dep. S. Jacobson p. 204).
{70} Having failed to meet the prerequisite of a proper request to inspect
Coastal’s records and for an accounting, Plaintiff is not entitled to the relief sought.
{71} Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s claim
for full accounting and inspection of corporate records.
3.
NEGLIGENCE
{72} “‘The essential elements of any negligence claim are the existence of a legal
duty or standard of care owed to the plaintiff by the defendant, breach of that duty,
and a causal relationship between the breach of duty and certain actual injury or
loss sustained by the plaintiff.’” Harris v. DaimlerChrysler Corp., 180 N.C. App.
551, 555, 638 S.E.2d 260, 265 (2006) (quoting Peace River Elec. Coop. v. Ward
Transformer Co., 116 N.C. App. 493, 511, 449 S.E.2d 202, 214 (1994)).
{73} As manager of Coastal, A. Jacobson is the only member who owed an
obligation to the company. See BOGNC, 2009 NCBC 26 at ¶ 52.
{74} Plaintiff alleges that, as manager, A. Jacobson was negligent in that he:
(a) [f]ailed to draft the necessary corporate documents to effectively
establish [Coastal];
(b) [f]ailed to provide the members of [Coastal] with the necessary
reporting forms for tax purposes;
(c) [f]ailed to hold annual meetings of [Coastal];
(d) [f]ailed to file annual reports for [Coastal] with the North Carolina
Secretary of State;
(e) [a]llowed the North Carolina Secretary of State to begin
administratively dissolving [Coastal];
(f) [m]ade decisions about marketing the lots that were to the detriment
of [Coastal];
(g) [f]ailed to exercise reasonable care in the selection and hiring . . . of
realtors to sell the lots; and
(h) [was] otherwise careless and negligent in breaching legal duties owed
to the members of [Coastal].
(Compl. ¶ 172).
{75} In partial support of his claim, Plaintiff relies on his contention that
Defendants did not file an annual report for the year 2011. (Pl.’s Resp. Mot. I 19).
The Complaint was filed in 2010. Although in his response to Motion I Plaintiff
claims that Defendants failed to file an annual report in 2011, because this event
necessarily occurred after 2010, it could not have been contemplated in the
Complaint. No North Carolina Court has, to date, recognized the relation-back of
allegations of fact without amending the complaint. See Gadsden v. George H.
Crafts & Co., 175 N.C. 358, 361, 95 S.E. 610, 611 (1918) (“In suits founded on
negligence, allegations of fact tending to establish the same general acts of
negligence may properly be added by amendment.”) (citation omitted). Plaintiff has
not sought to amend his Complaint. Consequently, Plaintiff’s allegation that
Defendants failed to file an annual report for the year 2011 cannot serve as
evidence to support his contention.
{76} Further, Plaintiff rests his negligence claim on mere allegation and
suspicion, neither of which are sufficient to overcome a motion for summary
judgment. In addition, Plaintiff has not demonstrated any injury to Coastal
proximately caused by one or more of the alleged failings attributed to A. Jacobson
as manager of Coastal; nor has plaintiff offered or forecasted evidence of a breach of
duty, an essential element of his negligence claim.
{77} Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s
derivative negligence claim as to all Defendants.
4.
NEGLIGENT MISREPRESENTATION
{78} “To establish a claim for negligent misrepresentation, a party must show
that he: ‘[(1)] justifiably relies [(2)] to his detriment [(3)] on information prepared
without reasonable care [(4)] by one who owed the relying party a duty of care.’”
Hospira Inc. v. AlphaGary Corp., 194 N.C. App. 695, 700, 671 S.E.2d 7, 12 (2009)
(quoting Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 206,
367 S.E.2d 609, 612 (1988), rev’d on other grounds, 329 N.C. 646, 407 S.E.2d 178
(1991)) (alteration in original). Unlike fraudulent misrepresentation, Plaintiff must
prove that A. Jacobson should have known the statements he made were false. See
Whitehurst v. Life Ins. Co., 149 N.C. 273, 278, 62 S.E. 1067, 1068 (1908) (“A
misrepresentation, however, is a fraud at law, although made innocently, and with
an honest belief in its truth, if it be made by a man who ought in the due discharge
of his duty to have known the truth, or who formerly knew, and ought to have
remembered, the fact which negatives the representation . . . .”).
{79} Plaintiff identifies no evidence of any misrepresentation relied on by
Coastal to its detriment. The purpose of a derivative action is to enforce the rights
of the LLC, not those of its individual members. See N.C. GEN. STAT. § 57C-8-01 (“A
member may bring an action in the superior court of this State in the right of any . .
. [LLC] to recover a judgment in its favor . . . .”). Plaintiff directs the Court to no
evidence in support of his derivative claim for negligent misrepresentation.3
{80} Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s
derivative negligent misrepresentation claim as to all Defendants.
5.
FRAUD AND FRAUDULENT MISREPRESENTATION
{81} “To survive a motion for summary judgment on the charge of fraud, the
record must show evidence of the following: ‘(1) false representation or concealment
of a material fact, (2) reasonably calculated to deceive, (3) made with intent to
deceive, (4) which does in fact deceive, and (5) resulting in damage to the injured
party.’” Hospira, 194 N.C. App. at 699, 671 S.E.2d at 11 (citation omitted).
{82} Similar to Plaintiff’s derivative negligent misrepresentation claim,
Plaintiff provides no evidence of any misrepresentation made to or relied upon by
Coastal, the party in interest in the derivative fraud and fraudulent
misrepresentation claims. Plaintiff argues only that A. Jacobson’s representations
deceived members of Coastal into personally investing in Defendants’ real estate
project, not that Coastal, itself, was deceived into investing in the project. (Compl.
¶ 184). Accordingly, the Court GRANTS Motion I and DISMISSES Plaintiff’s
derivative fraud and fraudulent misrepresentation claims.

3 It is unnecessary to consider the nature of A. Jacobson’s statements or whether A. Jacobson should

have known of their falsity because Plaintiff has neither alleged nor provided evidence of any
information provided to Coastal that it could have relied on. Plaintiff’s derivative claim is based
entirely on alleged wrongs committed against him, which have already been addressed in Plaintiff’s
individual claims.
6.
DISSOLUTION AND FRUSTRATION OF MEMBER EXPECTATIONS
{83} Plaintiff and Defendants summarily repeat their arguments for and
against dissolution of Coastal that are discussed in Plaintiff’s individual dissolution
claim. Therefore, the Court GRANTS Motion I and DISMISSES Plaintiff’s
dissolution and frustration of member expectations claim.
7.
VERIFICATION
{84} All complaints initiating shareholder derivative actions must be verified.
N.C. GEN. STAT. § 1A-1, Rule 23(b) (2013); Blythe v. Bell, 2013 NCBC 7 ¶ 45 (N.C.
Super. Ct. Feb. 4, 2013), http://www.ncbusinesscourt.net/opinions/
2013_NCBC_7.pdf (denying the defendants’ motions for summary judgment in
part). Because the Court has dismissed all of Plaintiff’s remaining claims, it is
unnecessary to address this claim.
VI.
RULE 11 SANCTIONS
{85} “Rule 11 requires that pleadings, motions, and other papers filed with the
court . . . be well-grounded in fact, warranted by existing law or a good faith
argument for the extension, modification, or reversal of existing law, and not filed
for any improper purpose, such as to harass or cause unnecessary delay or increase
in the costs of litigation.” McKinnon v. CV Indus., 2012 NCBC 36 ¶ 36 (N.C. Super.
Ct. June 11, 2012), http://www.ncbusinesscourt.net/opinions/2012_NCBC_36.pdf
(granting in part and denying in part the defendant’s motion for attorney’s fees
under Rule 11 and N.C.G.S. § 6-21.5), remanded in part, 745 S.E.2d 343 (N.C. Ct.
App. 2013). The Rule 11 analysis considers three requirements: “(1) factual
sufficiency, (2) legal sufficiency, and (3) proper purpose.” Static Control
Components, Inc. v. Vogler, 152 N.C. App. 599, 603, 568 S.E.2d 305, 308 (2002)
(citation omitted). A failure to meet any one of these requirements obligates the
Court to impose sanctions. Id.
{86} “Analysis of the factual sufficiency of a complaint requires the court to
determine ‘(1) whether the plaintiff undertook a reasonable inquiry into the facts
and (2) whether the plaintiff, after reviewing the results of his inquiry, reasonably
believed that his position was well grounded in fact.’” Id. at 603–04, 568 S.E.2d at
308 (citation omitted). “An inquiry is reasonable if ‘given the knowledge and
information which can be imputed to a party, a reasonable person under the same
or similar circumstances would have terminated his or her inquiry and formed the
belief that the claim was warranted under existing law.’” Id. at 604, 568 S.E.2d at
308 (citation omitted).
{87} “[I]n determining whether a pleading was warranted by existing law at the
time it was signed the court must look at the face of the pleading and must not read
it in conjunction with responsive pleadings . . . .” Bryson v. Sullivan, 330 N.C. 644,
656–57, 412 S.E.2d 327, 333 (1992). A threshold determination for the Court is
whether the pleading is “facially plausible.”
If the pleading is not facially plausible, . . . the [C]ourt must ask whether
the pleading party failed to “conduct reasonable inquiry into the law or
did not reasonably believe that the [pleading] was warranted by existing
law” or “a good faith argument for the extension, modification, or
reversal of existing law.”
McKinnon, 2012 NCBC 36 ¶ at 39 (citations omitted).
{88} Applying an objective standard, the Court’s analysis should take into
account whether the pleading, motion, or other paper was filed for “‘any purpose
other than one to vindicate rights . . . or to put claims of right to a proper test.’”
Brown v. Hurley, 124 N.C. App. 377, 382, 477 S.E.2d 234, 238 (1996) (quoting Mack
v. Moore, 107 N.C. App. 87, 93, 418 S.E.2d 685, 689 (1992)). Upon completion of the
analysis, the non-moving party “‘will be held responsible if his evident purpose is to
harass, persecute, otherwise vex his opponents or cause them unnecessary cost or
delay.’” Id. (citation omitted).
{89} Here, Walsh premises his motion for Rule 11 sanctions on his belief that
Plaintiff continued with litigation even though “many, if not all, of his allegations
were baseless.” (Defs.’ Reply Br. Supp. Mot. I 11). Walsh also claims that “Plaintiff
has continued his lawsuit for more than a year after admitting in his deposition
that it is without basis in fact.” (Defs.’ Br. Supp. Mot. I 25).
{90} Plaintiff has never admitted that his lawsuit was “without basis in fact” as
Walsh suggests. The only claims Plaintiff admits are without bases in fact are his
individual claims against Walsh for breach of fiduciary duty and fraudulent
concealment. (Dep. S. Jacobson pp. 105, 256–58).
{91} Walsh has presented no evidence tending to prove that Plaintiff’s entire
lawsuit was not warranted by existing law at the time the pleading was filed, nor
does he direct the Court to specific facts or evidence that the lawsuit was filed for an
improper purpose. As the movant, Walsh bears the burden of proving that Plaintiff
has violated Rule 11 in a manner that entitles him to sanctions from the Court. The
Court concludes that Walsh has carried his burden only with respect to Plaintiff’s
individual claims for breach of fiduciary duty and fraudulent concealment.
However, because the Court grants relief under N.C.G.S. § 6-21.5, the Court need
not impose sanctions under Rule 11. See Overcash v. Blue Cross & Blue Shield, 94
N.C. App. 602, 618, 381 S.E.2d 330, 340 (1989) (citing Zaldivar v. City of Los
Angeles, 780 F.2d 823, 830 (9th Cir. 1986)).
{92} Therefore, the Court DENIES Motion II.
VII.
VIOLATION OF N.C.G.S. § 6-21.5
{93} “N.C.G.S. § 6-21.5 allows a court, upon motion of the prevailing party, to
award [attorney’s] fees if the court finds that there was a ‘complete absence of a
justiciable issue of either law or fact raised by the losing party in any pleading.’”
McKinnon, 2012 NCBC 36 at ¶ 42. The purpose of N.C.G.S. § 6-21.5 is to prevent
frivolous lawsuits. Persis Nova Constr. v. Edwards, 195 N.C. App. 55, 66, 671
S.E.2d 23, 30 (2009). A grant of summary judgment, standing alone, is not
sufficient to support an award of attorney’s fees under N.C.G.S. § 6-21.5.
McKinnon, 2012 NCBC 36 at ¶ 42. Because the statute detracts from the common
law, it must be strictly construed. Persis Nova Constr., 195 N.C. App. at 65, 671
S.E.2d at 29 (citation omitted).
{94} In a claim for attorney’s fees under N.C.G.S. § 6-21.5, “the first issue is
whether the pleading, when read in conjunction with all the responsive pleadings,
facially presents a justiciable issue of law.” Depasquale v. O’Rahilly, 102 N.C. App.
240, 246–47, 401 S.E.2d 827, 831 (1991) (citing Bryson, 102 N.C. App. at 16, 401
S.E.2d at 656). “If not, then the second issue is ‘whether the losing party should
reasonably have been aware that the pleading he filed contained no justiciable’
issue of law.” Id. The Court must determine whether “the losing party persisted in
litigating the case after a point where he should reasonably have become aware that
the pleading he filed no longer contained a justiciable issue.” Sunamerica Fin.
Corp. v. Bonham, 328 N.C. 254, 258, 400 S.E.2d 435, 438 (1991).
{95} Walsh bases his motion for attorney’s fees on Plaintiff’s failure to dismiss
his breach of fiduciary duty claims against Walsh after Plaintiff stated in his
deposition that the two had never had a previous business relationship. (Defs.’ Br.
Supp. Mot. I 25–26). In his deposition, Plaintiff admits that he had no prior
association with Walsh and that he alleged a prior association with him as “an
oversight.” (Dep. S. Jacobson p. 105). Plaintiff even admits that there was no
fiduciary relationship between him and Walsh. (Dep. S. Jacobson pp. 256–58).
Plaintiff’s oversight caused Walsh to incur the costs and inconvenience of defending
against two claims that wholly lacked a justiciable issue of law or fact. Plaintiff has
yet to dismiss his individual claims of breach of fiduciary duty and fraudulent
concealment against Walsh.4 The Court concludes that there was a complete
absence of a justiciable issue of law or fact as to the individual claims of breach of
fiduciary duty and fraudulent concealment raised against Walsh in the Complaint.
{96} Although Walsh seeks attorney’s fees regarding all of Plaintiff’s claims, he
is not entitled to such relief.
{97} Therefore, the Court GRANTS Motion III, but only as to Plaintiff’s
individual claims of breach of fiduciary duty and fraudulent concealment. Walsh

4 Although Plaintiff also filed a derivative breach of fiduciary duty claim against Walsh, Plaintiff’s

deposition statements that Walsh relies on in his argument were all made in reference to Plaintiff’s
individual claims against Walsh involving a fiduciary relationship. (See Defs.’ Br. Supp. Mot. I 25–
26; see also Dep. S. Jacobson pp. 105, 256–58).
may submit to the Court an accounting of attorney’s fees reasonably incurred in
defending against Plaintiff’s individual breach of fiduciary duty and fraudulent
concealment claims. The Court will conduct a hearing on the matter and afford
Plaintiff an opportunity to be heard before setting an appropriate amount of
attorney’s fees to be assessed against him.
VIII.
CONCLUSION
{98} The Court GRANTS Motion I, DENIES Motion II, and GRANTS in part
and DENIES in part Motion III.
{99} WHEREFORE, the Court hereby DISMISSES Plaintiff’s (i) individual
claims for fraud, fraudulent misrepresentation, fraudulent concealment, unfair and
deceptive practices, breach of contract, breach of fiduciary duty, punitive damages,
and dissolution; and (ii) derivative claims for breach of fiduciary duty, accounting
and inspection of corporate records, negligence, negligent misrepresentation, fraud,
fraudulent misrepresentation, and dissolution and frustration of member purpose.
{100} The Court does not address Motion I with respect to its verification claim,
as such is superfluous.
{101} Having been determined in Motion II, the Court DISMISSES Walsh’s
counterclaims for sanctions pursuant to Rule 11, and GRANTS in part as Motion III
the counterclaim/motion for sanctions for violation of N.C.G.S. § 6-21.5.
{102} Within 45 days from entry of this Order, Walsh shall submit to the Court
an accounting of attorney’s fees reasonably incurred by him in defending against
Plaintiff’s individual breach of fiduciary duty and fraudulent concealment claims.
SO ORDERED, this the 22nd day of January, 2014.