Bennett v. Bennett

2019 NCBC 18

BERT L. BENNETT III and TERRY BENNETT ALLEN, Plaintiffs, v. GRAHAM F. BENNETT; ANN BENNETT-PHILLIPS; JAMES H. BENNETT; and LOUISE BENNETT, Defendants, and BENNETT LINVILLE FARM, LLC; JOHN J. BENNETT; and JEANNE R. BENNETT, Nominal Defendants.

No. 18 CVS 48

Superior Court of North Carolina, Forsyth

March 15, 2019

Fitzgerald Litigation, by Andrew L. Fitzgerald, Lee Denton and D. Stuart Punger, for Plaintiffs.

Bell Davis & Pitt, P.A., by Allison B. Parker and Kevin G Williams, for Defendants Graham F. Bennett, Ann Bennett-Phillips, James H. Bennett, and Bennett Linville Farm, LLC.

Roberson Haworth & Reese, PLLC, by Andrew D. Irby, for Defendant Louise Bennett.

No counsel appeared for Nominal Defendants John J. Bennett and Jeanne R. Bennett.

ORDER AND OPINION ON MOTION TO DISMISS SECOND AMENDED COMPLAINT

Adam M. Conrad, Special Superior Court Judge.

1. This case arises out of a dispute between siblings, all of whom are members or former members of Bennett Linville Farm, LLC ("Bennett Farm"). Formed as an estate-planning vehicle, Bennett Farm's initial members included most of the Bennett family-both parents and six of their children. The family's intent, according to Plaintiffs, was for each of Bennett Farm's members to have an equal say in its affairs.

2. Instead, Plaintiffs contend, they have been denied a voice on nearly every company decision in recent years. In this action, they allege that three of the Bennett siblings-Graham Bennett, Ann Bennett-Phillips, and Jim Bennett-conspired to seize managerial authority without the other members' knowledge or approval. The three then fraudulently amended Bennett Farm's operating agreement to consolidate their control and, having done so, began taking actions on the company's behalf without member approval. Plaintiffs now claim that Graham, Ann, and Jim breached a fiduciary duty owed to the other members, seek declarations that their actions were unauthorized and invalid, and request a decree judicially dissolving Bennett Farm.

3. In response, Graham, Ann, and Jim seek to dismiss this action in its entirety. They contend that Plaintiffs lack standing to bring many of the asserted claims as direct claims, rather than as derivative claims on behalf of Bennett Farm. They also contend that Plaintiffs fail to state any claim upon which relief can be granted. For the reasons stated below the Court GRANTS in part and DENIES in part the motion.

I.

BACKGROUND ^[1]

4. The history of this case begins nearly 40 years ago with Bert Bennett, Jr., his wife Lillian Bennett, and their eight children: Bert III, Graham, Joy, John, Louise, Terry, Ann, and Jim. (Second Am. Compl. ¶ 12, ECF No. 25 ["Compl."].) In the early 1980s, the Bennett parents began giving real estate to their children. (Compl. ¶ 14.) Over the course of several years, each of the Bennett children received a one-eighth undivided interest in several parcels in Avery County-a tract that eventually grew to hundreds of acres. (Compl. ¶¶ 14, 15.)

5. Such was the status quo until 2001, when Joy gave up her interest in the property, transferring it to her seven siblings. (Compl. ¶ 16.) Around the same time, John and his wife, Jeanne, requested that they be given a portion of the property to own separate and apart from the others. (Compl. ¶ 17.) The Bennett parents agreed, and the other Bennett children deeded their interests in a 35-acre tract to John and Jeanne. (Compl. ¶ 19.) Although somewhat unclear, it appears that John in return gave up his interest in the rest of the Avery County property. (See Compl. ¶ 20.)

6. The second amended complaint says little about how the Bennett family managed the jointly held property at first. The Bennett parents, though having given the property to their children, seem to have exercised continued decision-making authority for a time. (See Compl. ¶¶ 18, 24.) That changed in 2007 with the creation of Bennett Farm, a limited liability company formed to facilitate the parents' estate planning. (See Compl. ¶ 24.) The founding members of Bennett Farm were the Bennett parents (each with a 23% interest), along with Bert III, Graham, Louise, Terry, Ann, and Jim (each with a 9% interest). (Compl. ¶ 24; see also Ex. 2 at Schedule I ["Op. Agr."].) All of the members transferred their ownership interests in the Avery County property to Bennett Farm. (Compl. ¶ 28.)

7. According to Bert III and Terry (the plaintiffs here), the family intended Bennett Farm to be a member-managed LLC. (Compl. ¶ 24.) They allege, though, that Graham and Ann designated Bennett Farm as a manager-managed LLC- without the knowledge of the other members-in certain Articles of Incorporation.^[2](Compl. ¶ 25.) The company's Operating Agreement was then executed in February 2007. (Compl. ¶ 26.) It also states that Bennett Farm "shall be managed by the Managers," a term defined as "those individuals set forth in Schedule II" or individuals "who are elected to act as Managers." (Op. Agr. §§ 2.1, 12.1(p).) As executed, though, the Operating Agreement included no Schedule II, and no election of managers ever took place. (See Compl. ¶¶ 26, 27.) Bert III and Terry allege that a document labeled as Schedule II, which lists Graham and Ann as managers, was added later without the approval of Bennett Farm's members. (Compl. ¶ 26.)

8. In 2010, Graham and Ann, joined by Jim, amended the Operating Agreement, again without the others' knowledge, to include new terms designed to consolidate their control. (See Compl. ¶ 30.) Among other changes, the Amended Operating Agreement designates Jim as a third manager, authorizes the managers to make capital calls without member consent, loosens the restrictions on a member's right to transfer his or her interest, and permits Bennett Farm to redeem any member's interest upon the consent of members owning at least 75% of the company. (See Compl. Ex. 4 §§ 7.2, 9.2, 9.6 ["Am. Op. Agr."].) Bert III and Terry signed the Amended Operating Agreement but allege that they were never provided a copy of the document apart from the signature page, that the terms were never disclosed, and that Graham falsely represented that their signatures were needed for administrative purposes. (Compl. ¶ 31.) They saw the new terms for the first time more than five years later. (See Compl. ¶ 33.)

9. In 2012, Lillian Bennett died. (Compl. ¶ 34.) She passed her interest in Bennett Farm to Bert III, Graham, Louise, Terry, Ann, and Jim-the six children with membership interests in the company. (Compl. ¶ 34.) Bert Bennett, Jr., though still living, did the same a few months later. (Compl. ¶ 35.) Thus, as of June 2012, Bennett Farm had six remaining members, all with equal interests. (Compl. ¶ 36.)

10. Not long after, Graham, Ann, and Jim asked John and Jeanne to give Bennett Farm a right of first refusal on their separate 35-acre tract. (Compl. ¶ 37.) John and Jeanne agreed. (Compl. ¶ 38.) When John later learned that the right of first refusal would interfere with his plan to incorporate his property into an adjacent subdivision, he requested that Bennett Farm terminate the then-unexercised right. (Compl. ¶ 40.) This prompted a heated family disagreement. Bert III, Terry, and Louise had received no notice of the right of first refusal in the first place and favored granting John's request to terminate it. (Compl. ¶¶ 39, 46.) Graham, Ann, and Jim disagreed and, claiming managerial authority, decided to exercise and enforce the right of first refusal even in the absence of majority approval of the members. (Compl. ¶¶ 46-48.) John and Jeanne responded by suing Bennett Farm. (Compl. ¶ 50.)

11. The litigation deepened the family divide. The siblings disputed who should pay for Bennett Farm's litigation expenses. (See Compl. ¶¶ 61, 78, 90(f).) Bert III's refusal to pay his share of the expenses prompted a backlash by Graham, Ann, and Jim, resulting in his exclusion from the Bennett Farm property. (See Compl. ¶¶ 78, 79.)

12. There were also discussions about how to pay for John and Jeanne's land if Bennett Farm succeeded in exercising the right of first refusal. Bert III and Terry now allege that the others used the issue as leverage to force Terry out of the company. In an e-mail to Graham and Ann, Jim expressed his "wish" to "find a way to get Terry to sell out of the entire property now." (Compl. ¶ 52.) Ann agreed and observed that Terry likely would not or could not pay her pro rata share of any cost to buy John and Jeanne's land. (See Compl. ¶ 52.) Graham later informed Terry that she would have to make such a contribution-an amount over $100, 000-or consider selling her interest in Bennett Farm to the other members. (Compl. ¶ 54.) To satisfy any capital call to buy out John and Jeanne, Terry would have needed access to funds in a trust that had been created by her mother's will. (Compl. ¶ 51.) Ann, one of the two trustees, refused to assure Terry that she would have access to the trust funds. (Compl. ¶ 57.) Unable to afford a capital call, Terry negotiated a sale of her membership interest in February 2016 to the other five remaining members of Bennett Farm. (Compl. ¶ 58.)

13. As the litigation with John lingered, Bert III commenced this action in January 2018 against Graham, Ann, Jim, and Louise along with Bennett Farm as a nominal defendant. (ECF No. 4.) His original complaint sought a declaration that Graham, Ann, and Jim are not managers of Bennett Farm and that many of their actions on the company's behalf were invalid. In addition, he brought claims for breach of fiduciary duty, civil conspiracy, constructive fraud, and judicial dissolution of Bennett Farm. The complaint was later amended to add Terry as a plaintiff. (ECF No. 5.) Terry joined in Bert III's original claims and added new allegations that Ann...