Under Those Blue Ridge Mountain Skies

by Brooks Pierce
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 If you dip in to Judge Murphy's Wednesday opinion in Blue Ridge Pediatric & Adolescent Medicine, Inc. v. First Colony Healthcare, LLC, 2012 NCBC 51, you'll find a little bit of everything. It's a ruling on a Motion to Dismiss a Complaint that alleged everything under the sun. Here are the high points:

Quick Facts

The Plaintiffs entered into a deal with the Defendants for them to develop office space for the Plaintiffs' medical practice. Plaintiffs were to share in the profits from the sale of the property, but none were ever paid. There were also allegations of misrepresentations by the Defendants as to their financial stability and claims of unauthorized changes to the transaction documents.

The Complaint sets out 23 causes of action against multiple defendants.

Piercing the Corporate Veil

The lesson here is that rote pleading won't get you there on a piercing the corporate veil claim. Plaintiffs recited the bare bones of the "instrumentality rule" in their Complaint, but Judge Murphy said that "these bare legal conclusions are not entitled to the presumption of truth afforded factual allegations on a motion to dismiss." Op. 37. Plaintiffs needed to point to specific acts of control or domination to state a valid claim.

Fraud

Plaintiffs said they relied on Defendants' representations of their financial stability. The truth was that Defendants were teetering on the brink of insolvency.

Judge Murphy nevertheless dismissed the claims for fraud, fraud in the inducement, negligent misrepresentation and negligence. He found that the Plaintiffs had failed to show reasonable reliance because they had failed "to allege facts in support of their own investigation and due diligence." Op. 48.

Securities Fraud

After determining that the Plaintiffs had stated a claim for securities fraud under the North Carolina Securities Act, Judge Murphy ruled that the individual defendants, employees of the corporate defendants, could be personally liable for the securities fraud, notwithstanding their argument that they had acted as corporate agents.

He held:

Defendants misapprehend the well-settled rule that 'one is personally liable for all torts committed by him, including negligence, notwithstanding that he may have
acted as agent for another or as an officer for a corporation.' Strang v. Hollowell, 97 N.C. App. 316, 318, 387 S.E.2d 664, 666 (1990) (citing Palomino Mills, Inc. v.
Davidson Mills Corp
., 230 N.C. 286, 52 S.E.2d 915 (1949)).

Op. 64.

What about the lack of justifiable reliance which doomed the common law fraud claim, you may be thinking. Judge Murphy disposed of that in a footnote, saying: "The Court is unaware of any case law asserting that the common law fraud requirement for alleging justifiable reliance extends to statutory claims for securities fraud. And, the Court declines to extend such a requirement to this claim at this stage." Op. 63 & n.2.

Derivative Action

A member of an LLC who wants to file a derivative action is required by statute to allege "with particularity the efforts, if any, made by [him] to obtain the action [he] desires from the managers, directors, or other applicable authority and the reasons for [his] failure to obtain the action, or for not making the effort." N.C. Gen. Stat. §§ 57C-8-01(a)–(b) (2011).

The efforts of these Plaintiffs to make the LLC aware of their claims were limited to sending a letter outlining their claims along with the contemporaneously filed Complaint. Judge Murphy found that to be "insufficient" to meet the requirements of the statute and he therefore dismissed the derivative claims.

And More

There are many more claims discussed in this Opinion, including an unfair and deceptive practice claim, a civil conspiracy claim, and a constructive trust claim. There is also discussion of equitable estoppel and a request for an accounting.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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