1. Contracts_business sale_multiple documents and parties_standing to sue
The trial court erred by granting a dismissal for failure to state a claim for breach of
contract in an action arising from the sale of an automobile dealership. The sale was effected
with multiple documents and multiple parties and defendant argued that plaintiff lacked standing
because he was not a party to two of those documents. However, plaintiff alleged that the entire
agreement was fashioned from all of the documents and, moreover, showed that he is a third
party beneficiary of the two documents.
2. Corporations_action by minority shareholders_breach of fiduciary duty
The trial court erred by granting a dismissal for failure to state a claim for breach of
fiduciary duty and unfair and deceptive trade practices arising from the sale of an automobile
dealership. No facts on the face of the complaint and attached exhibits necessarily defeated those
claims; the Court of Appeals has stated that minority shareholders in a closely held corporation
who allege wrongful conduct and corruption by the majority shareholders may bring an
individual action against those shareholders as well as a derivative action.
Bailey & Dixon, L.L.P., by Patricia P. Kerner and Hannah G.
Styron, and Hopkins & Associates, by Grover Prevatte Hopkins,
for plaintiff-appellant.
The Twiford Law Firm, P.C., by John S. Morrison and David R.
Pureza, for defendants-appellees Jonathan Davenport,
individually and d/b/a/ Davenport Ford Lincoln Mercury, Inc.;
Jonathan Davenport d/b/a Alliance Nissan, Inc.; and Alliance
Nissan, Inc.
Wayland J. Sermons, Jr., P.A., by Wayland J. Sermons, Jr., for
defendant-appellee Davenport Ford Lincoln Mercury, Inc.
ELMORE, Judge.
The dispute giving rise to this appeal concerns the parties'
attempt to effectuate the sale of the assets of an automobile
dealership, WSB Motor Company, Inc. d/b/a Williamston Motor Company
(WSB). Larry Woolard (plaintiff) contends he entered into an
enforceable agreement with the following individuals and entities,
for the purpose of ultimately transferring to defendant Davenport
Ford Lincoln Mercury, Inc. (DFLM) the assets of WSB:
(See footnote 1)
Jonathan
Davenport (Davenport), both in his individual capacity and d/b/a
Davenport Ford Lincoln Mercury, Inc. and d/b/a Alliance Nissan,
Inc.; DFLM; and Alliance Nissan, Inc. (Alliance) (collectively,
defendants). On 31 May 2000 plaintiff filed his complaint, alleging
that certain of defendants' actions in connection with the
transaction constituted breach of contract, breach of fiduciary
duty, and unfair and deceptive trade practices.
Plaintiff's complaint characterized the parties' agreement as
follows:
6. The Plaintiff and Defendants entered into
several contracts which effectuated the transfer of
assets and sale of the Plaintiff's business, [WSB]. . .
.
7. There was adequate consideration for all the
contracts entered into between the parties but only when
all the writings are taken together. Each individual
writing constitutes a portion of the agreement between
the parties. The entire agreement is fashioned in all
the writings and therefore they all must be viewed as one
contract with several writings evidencing a portion of
the agreement.
Attached as exhibits to the complaint, and incorporated therein by
reference, were the “several writings” that plaintiff alleges “all
must be viewed as one contract” and when “taken together” constitute
the “entire agreement” between the parties. Defendants assert that
two of these documents are of particular importance in the present
appeal: Exhibit C (the Sales Agreement), which sets forth such
essential terms of the subject transaction as the parties, the
assets to be transferred, the purchase price, and the closing date;
and Exhibit A (the Management Agreement), which, in addition to
identifying the parties, also defines certain rights and obligations
of both defendant Davenport and plaintiff in connection with the
transaction, both before and after the transaction's completion.
Exhibit C, the Sales Agreement, states by its terms that it “is
entered into effective as of February 9, 1999, by and between WSB
MOTOR COMPANY, INC., d/b/a WILLIAMSTON MOTOR COMPANY, a North
Carolina corporation, hereinafter referred to as 'Seller,' and
JONATHAN DAVENPORT, . . . hereinafter referred to as 'Buyer.'” The
Sales Agreement goes on to provide that “Seller is the owner of the
business known and operated as Williamston Motor Company (the
“Business”) . . . . Seller desires to sell to Buyer the assets of
the Business.” The Sales Agreement's signature block indicates it
is to be executed on behalf of “Seller” by WSB's president.
Plaintiff, therefore, is not a party to the Sales Agreement;
instead, the corporate entity WSB is defined as the “seller” of theassets to be acquired in the subject transaction by defendant
Davenport.
(See footnote 2)
Nor is plaintiff a party to Exhibit A, the Management
Agreement, which by its terms is “entered into by and between WSB
Motor Company, Inc., D/B/A Williamston Motor Company, a North
Carolina corporation, . . . and Jonathan Davenport,” and was signed
by plaintiff in his capacity as WSB's president. Pursuant to the
Management Agreement, defendant Davenport “commence[d] service as
the principle dealership management officer [of WSB] effective
January 25, 1999” pending completion of the subject transaction.
The Management Agreement obligated Davenport to “operate the
dealership in an ethical and prudent manner . . . and otherwise
maintain the goodwill and integrity of the dealership.” Plaintiff's
complaint alleges, inter alia, that defendants, through various acts
and omissions, failed to so operate the dealership.
It is, however, undisputed that plaintiff is, and that WSB is
not, a party to exhibits D through H attached to plaintiff's
complaint. These exhibits include: exhibit D, which granted to
defendant Davenport an option to purchase plaintiff's interest in
certain real property; exhibit E, which set forth the terms by which
defendant DFLM would lease from plaintiff and others the real
property upon which the dealership was situated; exhibit F, which
set forth the terms of plaintiff's participation in the operationof defendant DFLM; exhibit G, by which defendant DFLM agrees to
timely service certain of plaintiff's loans; and exhibit H, a
promissory note by which defendant DFLM agreed to make certain
payments to plaintiff. In addition to the allegations regarding
defendants' operation of the dealership, plaintiff's complaint also
alleges that defendants breached various terms of the agreement set
forth in exhibits D through H.
Defendants collectively answered plaintiff's complaint on 15
September 2000, denying generally plaintiff's allegations and
asserting that plaintiff's complaint should be dismissed for failure
to state a claim upon which relief can be granted, pursuant to N.C.
Gen. Stat. § 1A-1, Rule 12(b)(6). The affirmative defenses asserted
by defendants in their answer did not include failure to join a
necessary party, failure to prosecute the action in the name of the
real party in interest, or lack of standing by plaintiff.
(See footnote 3)
The Rule
12(b)(6) motion contained in defendants' answer did not specify the
grounds upon which the motion was premised. At the hearing on
defendants' motion to dismiss, defendants argued, apparently for the
first time, that because WSB, and not plaintiff, was signatory to
the Sales Agreement and the Management Agreement - i.e., two of the
several documents alleged in plaintiff's complaint to collectively
constitute “one contract” and the parties' “entire agreement” _
plaintiff lacked standing to sue on any claims arising from theagreement, and WSB was the real party in interest, in whose name any
such claims must be prosecuted.
By order entered 23 September 2002, the trial court dismissed
plaintiff's complaint with prejudice pursuant to Rule 12(b)(6),
concluding that “the Complaint and the documents attached thereto
and incorporated therein disclose facts that necessarily defeat
Plaintiff's claims.” On 7 October 2002, plaintiff filed a motion
to alter or amend the judgment pursuant to N.C. Gen. Stat. § 1A-1,
Rules 59(a) and (e) and 60(a) and (b). On 9 October 2002, plaintiff
filed a motion to amend his complaint and join, pursuant to N.C.
Gen. Stat. § 1A-1, Rules 17(a), 19, 20, and 21, WSB as a party
plaintiff. Each of plaintiff's motions were denied by order entered
21 October 2002. Plaintiff now appeals (1) the 23 September 2002
order dismissing his complaint with prejudice for failure to state
a claim, and (2) the 21 October 2002 order denying each of his post-
judgment motions.
[1] By his first assignment of error, plaintiff contends the
trial court erred in dismissing, with prejudice, his claims for
failure to state a claim upon which relief may be granted.
Plaintiff specifically argues that his claims are not defeated by
any facts disclosed on the face of his complaint and the several
documents attached thereto as exhibits. After careful review, we
agree.
The question presented by a Rule 12(b)(6) motion to dismiss is
whether, as a matter of law, the allegations of the complaint,
treated as true, state a claim upon which relief can be granted.
Wood v. Guilford Cty., 355 N.C. 161, 166, 558 S.E.2d 490, 494(2002). The effect of a motion to dismiss under Rule 12(b)(6) is
to test the legal sufficiency of the complaint by presenting the
question of whether the complaint's allegations are sufficient to
state a claim upon which relief can be granted under any recognized
legal theory. Isenhour v. Hutto, 350 N.C. 601, 604, 517 S.E.2d 121,
124 (1999). It is well-settled that a plaintiff's claim is properly
dismissed under Rule 12(b)(6) when one of the following three
conditions is satisfied: (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 valid claim; or (3) the
complaint discloses some fact that necessarily defeats the claim.
Oates v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).
Documents attached as exhibits to the complaint and incorporated
therein by reference are properly considered when ruling on a
12(b)(6) motion. Property Owners Assoc. v. Curran and Property
Owners Assoc. v. Williams, 55 N.C. App. 199, 284 S.E.2d 752 (1981),
disc. review denied, 305 N.C. 302, 291 S.E.2d 151 (1982).
In the present case, plaintiff asserted claims against
defendants for breach of contract, breach of fiduciary duty, and
unfair and deceptive trade practices. “The elements of a claim for
breach of contract are (1) existence of a valid contract and (2)
breach of the terms of [the] contract.” Poor v. Hill, 138 N.C. App.
19, 26, 530 S.E.2d 838, 843 (2000). This Court has held that where
the complaint alleges each of these elements, it is error to dismiss
a breach of contract claim under Rule 12(b)(6). Toomer v. Garrett,
155 N.C. App. 462, 481-82, 574 S.E.2d 76, 91, disc. review denied,
357 N.C. 66, 579 S.E.2d 576 (2003). Despite the trial court's conclusion to the contrary, we fail
to discern any fact disclosed on the face of the complaint or the
documents attached thereto which necessarily defeats plaintiff's
claim for breach of contract. Plaintiff alleges the existence of
an agreement to effectuate the transfer of WSB's assets to
defendants, and attaches to the complaint a copy of the several
individual writings of which the complaint alleges “[e]ach . . .
constitutes a portion of the agreement between the parties. The
entire agreement is fashioned in all the writings and therefore they
all must be viewed as one contract with several writings evidencing
a portion of the agreement.” Plaintiff's complaint also contains
allegations which, if taken as true, are sufficient to allege breach
of this agreement.
We are not persuaded by defendants' argument that because
plaintiff is not a party to two of these individual writings,
plaintiff either lacks standing or is not the proper party to
prosecute a claim for breach of the entire agreement. While the
trial court's order does not specify which facts disclosed on the
face of the complaint and attached exhibits it concluded
“necessarily defeat Plaintiff's claims” for breach of contract, the
parties have focused their appellate arguments on the fact that
plaintiff is not a party to two of the several individual contracts
which plaintiff alleges, when taken together, are supported by
adequate consideration and constitute the entire agreement between
the parties _ namely, exhibit A, the Management Agreement, and
exhibit C, the Sales Agreement. First, it is undisputed that plaintiff is a party to the five
individual writings attached to the complaint as exhibits D through
H. Plaintiff's complaint alleges that (1) exhibits D through H each
set forth various terms of the parties' agreement to effectuate the
sale of WSB's assets, and, when taken together with exhibits A and
C, collectively set forth the terms of the entire agreement and are
supported by adequate consideration; and (2) defendants breached
this agreement by, inter alia, violating many of the terms set forth
in exhibits D through H. As discussed supra, plaintiff has
therefore alleged each element of breach of contract, see Poor, 138
N.C. App. at 26, 530 S.E.2d at 843, such that dismissal of this
claim under 12(b)(6) is error. See Toomer, 155 N.C. App. at 481-82,
574 S.E.2d at 91.
Second, our Supreme Court has stated that for purposes of
reviewing a 12(b)(6) motion made on the grounds that the plaintiff
lacked standing, “[a] real party in interest is a party who is
benefitted or injured by the judgment in the case. An interest
which warrants making a person a party is not an interest in the
action involved merely, but some interest in the subject-matter of
the litigation.” Energy Investors Fund, L.P. v. Metric
Constructors, Inc., 351 N.C. 331, 337, 525 S.E.2d 441, 445 (2000)
(quoting Parnell v. Insurance Co., 263 N.C. 445, 448-49, 139 S.E.2d
723, 726 (1965)). In the present case, plaintiff's complaint
specifically alleges that (1) his claims are predicated upon the
entire agreement, which is the subject matter of the litigation; (2)
he has a substantial interest in this subject matter; and (3) he
stands to either benefit, or suffer injury, from any judgmentultimately rendered on his claims, as evidenced by the following
portion of his pleading:
31. Integral to the entire transaction, all of the
documents, all of the contracts and all of the
negotiations between the parties was the Plaintiff's
desire to honorably discharge certain indebtedness due to
creditors in a timely and regular manner.
32. [DFLM] undertook to discharge these obligations and
provide an income stream to the Plaintiff for the
discharge . . . .
33. [DFLM], by and through its agents and directors
Davenport, Lattermore and Edwards, have conspired to
frustrate the intent and completion of this critical
consideration as hereinabove set out and the transfer of
properties; such action being civil conspiracy and an
unethical and deceitful practice in trade and commerce.
34. Davenport, Lattermore and Edwards have actively or
by inattention and improper supervision and management of
the corporate affairs, permitted unwarranted and
inappropriate erosions to the corporate economy and trade
practices which jeopardized the solidity of the
corporation directly and the bargained for result of the
Plaintiff.
Accordingly, we are not persuaded by defendants' argument that
plaintiff is not the proper party to prosecute a claim for breach
of contract on these facts.
Finally, even ascribing arguendo any significance to the fact
that plaintiff was not a party to either the Management or Sales
Agreements, we are unable to conclude that the disclosure of these
facts on the face of the complaint and the exhibits attached thereto
constitutes an “insurmountable bar to recovery” on plaintiff's
breach of contract claims such that these claims are properly
dismissed under Rule 12(b)(6). Sutton v. Duke, 277 N.C. 94, 102,
176 S.E.2d 161, 166 (1970) (stating Rule 12(b)(6) “generally
precludes dismissal except in those instances where the face of the
complaint discloses some insurmountable bar to recovery.”). Ourappellate courts have previously stated that “[t]o withstand a
motion to dismiss for failure to state a claim in a breach of
contract action, a plaintiff's allegations must either show it was
in privity of contract, or it is a direct beneficiary of the
contract.” Lee Cycle Ctr., Inc. v. Wilson Cycle Ctr., Inc., 143
N.C. App. 1, 8, 545 S.E.2d 745, 750, aff'd, 354 N.C. 565, 556 S.E.2d
293 (2001) (emphasis added). In North Carolina, a third party
beneficiary to an agreement may properly maintain an action for its
breach, where the agreement is made for the third party's direct
benefit and the benefit accruing to him is not merely incidental.
Carding Developments, Inc. v. Gunter & Cooke, 12 N.C. App. 448, 454-
55, 183 S.E.2d 834, 838 (1971). Moreover, “[a] party to a contract
is ordinarily not a necessary party in a suit brought against the
other contracting party by a beneficiary who claims the contract has
been breached.” Id. at 452, 183 S.E.2d at 837.
In the present case, plaintiff's complaint does not
specifically allege that he was a third party beneficiary with
respect to either the individual Management or Sales Agreements.
However, we conclude that plaintiff, by the allegations of his
complaint as set forth above and by the facts disclosed on the face
of the exhibits attached thereto, has shown that he is a third party
beneficiary to both the Management and Sales Agreements
individually, as well as a direct party to the parties' entire
agreement, of which the Management and Sales Agreements are but a
part. As such, plaintiff is a proper party to maintain an action
for breach of the parties' agreement, and while WSB may also be aproper party to do so, WSB is not a necessary party to the
maintenance of such an action.
We hold that no facts disclosed on the face of the complaint
and attached exhibits either necessarily defeat, or prove an
insurmountable bar to plaintiff's claims for breach of contract.
[2] Plaintiff also asserted claims against defendants for
breach of fiduciary duty and unfair and deceptive trade practices,
which claims were also dismissed under Rule 12(b)(6) by the trial
court's order. As with the breach of contract claim, we fail to
discern any fact disclosed on the face of the complaint or the
documents attached thereto which necessarily defeats these claims.
This Court has previously stated that “minority shareholders
in a closely held corporation who allege wrongful conduct and
corruption against the majority shareholders in the corporation may
bring an individual action against those shareholders, in addition
to maintaining a derivative action on behalf of the corporation.”
Norman v. Nash Johnson & Sons' Farms, Inc., 140 N.C. App. 390, 405,
537 S.E.2d 248, 259 (2000) (emphasis added), disc. review denied,
353 N.C. 378, 547 S.E.2d 14 (2001). In Norman, the plaintiffs, who
were minority shareholders in a corporation, asserted claims against
the individual majority shareholders for, inter alia, breach of
fiduciary duty and unfair and deceptive trade practices. The trial
court dismissed the plaintiffs' complaint under Rule 12(b)(6), on
the grounds that their claims were derivative in nature and
plaintiffs therefore lacked standing to prosecute the claims. This
Court reversed, reasoning that
[i]t seems particularly appropriate to allow minority
shareholders to file individual actions when a disputearises within the context of a family owned corporation,
or other corporation in which all shares of stock are
held by a relatively small number of shareholders . . .
. When the close relationships between the shareholders
in a “family” or closely held corporation tragically
break down, the majority shareholders are obviously in a
position to exclude the minority shareholders from
management decisions, leaving the minority shareholders
with few remedies.
Norman, 140 N.C. App. at 404, 537 S.E.2d at 258.
In the present case, with respect to the ownership of shares
in defendant DFLM and the respective participation of defendant
Davenport and plaintiff therein, plaintiff's complaint alleges as
follows:
2. Defendant Davenport . . . on information and belief,
is the major and dominating stockholder and President of
Defendant [DFLM] and Defendant [Alliance] . . . .
. . .
4. The Defendant [DFLM] is a corporation organized by
Defendant Davenport as his alter ego for the purpose of
running Williamston Motor Company, the Plainitff's
automobile dealership. Defendant Davenport, as the alter
ego of said corporation, is and has been conducting,
managing, and controlling the affairs of [DFLM] since its
incorporation . . . as though it were his own business .
. . .
. . .
39. On information and belief, Willie Edwards and George
Lattermore are stockholders of [DFLM] . . . .
. . .
42. The corporation [DFLM], since its inception . . .
has not held a Board of Directors Meeting or a
Shareholder's Meeting of which the Plaintiff is aware;
therefore, as twenty-five percent (25%) Shareholder and
Treasurer of [DFLM], the Plaintiff has not been allowed
to participate in the business transactions of the
corporation.
The complaint further alleges that defendant Davenport, acting
in concert with Lattermore and Edwards, the other two shareholdersin DFLM, committed a series of acts and omissions which resulted in
diversion of corporate funds and opportunities from DFLM, and by
which plaintiff, as the remaining shareholder in DFLM, suffered
harm. We conclude that plaintiff's complaint alleges claims for
breach of fiduciary duty and unfair and deceptive trade practices
which are sufficient to survive a 12(b)(6) motion. Moreover, our
Supreme Court has stated that:
there are two major, often overlapping, exceptions to the
general rule that a shareholder cannot sue for injuries
to his corporation: (1) where there is a special duty,
such as a contractual duty, between the wrongdoer and the
shareholder, and (2) where the shareholder suffered an
injury separate and distinct from that suffered by other
shareholders.
Barger v. McCoy Hillard & Parks, 346 N.C. 650, 658, 488 S.E.2d 215,
219 (1997). As noted supra, plaintiff's complaint further alleges
that defendants' conduct caused him to suffer harm separate and
distinct from that suffered by DFLM, in the form of, inter alia,
diminished income stream and failure to repay certain of plaintiff's
personal indebtedness.
We hold that no facts disclosed on the face of the complaint
and attached exhibits either necessarily defeat, or prove an
insurmountable bar to plaintiff's claims for breach of fiduciary
duty or unfair and deceptive trade practices.
In sum, we reverse the trial court's order dismissing, with
prejudice, plaintiff's complaint for failure to state a claim upon
which relief may be granted, and remand this matter to the trial
court for further proceedings not inconsistent with this opinion.
In light of our resolution of this issue, we do not reachplaintiff's assignments of error regarding the trial court's denial
of his post-judgment motions.
Reversed.
Judges TIMMONS-GOODSON and HUDSON concur.
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