Orlando Residence, Ltd. v. Alliance Hospitality Mgmt., LLC

375 N.C. 140

846 S.E.2d 701

ORLANDO RESIDENCE, LTD.

v.ALLIANCE HOSPITALITY MANAGEMENT, LLC, Rolf A. Tweeten, Axis Hospitality, Inc., and Kenneth E. Nelson

No. 113A19

Supreme Court of North Carolina.

Filed August 14, 2020

No brief for plaintiff Orlando Residence, Ltd.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., by J. Gray Wilson and Jackson W. Moore Jr., Raleigh, for defendant-appellees Alliance Hospitality Management, LLC, Rolf A. Tweeten, and Axis Hospitality, Inc.

Kenneth Nelson, defendant-appellant, pro se.

DAVIS, Justice.

In this case, we address several issues relating to the ability of a defendant to assert crossclaims against a co-defendant pursuant to the North Carolina Rules of Civil Procedure. Based on our conclusion that the dismissal of the defendant's crossclaims here was proper, albeit on different grounds than those relied upon by the Business Court, we modify and affirm the decision of the Business Court.

Factual and Procedural Background

This appeal arises from the latest lawsuit in protracted litigation between Kenneth Nelson; Alliance Hospitality Management, LLC (Alliance); and Orlando Residence, Ltd. (Orlando). Alliance is a Georgia company that provides hotel management services with its principal place of business in North Carolina. Nelson is a former employee of Alliance who possesses an ownership interest in the company. Axis Hospitality, Inc. (Axis) is an Illinois corporation that is the majority owner of Alliance. Axis is wholly owned and managed by an individual named Rolf Tweeten. Orlando is a judgment creditor of Nelson.¹

In order to fully analyze the issues before us in this appeal, it is necessary to review in some detail the extensive factual and procedural history between the parties.

I. Nelson's Ownership Interest in Alliance

In 2007, Axis purchased a 51% interest in Alliance. Around this same time, Tweeten hired Nelson as a consultant to help him acquire the remainder of Alliance. In 2008, Tweeten reached an oral agreement with Nelson that granted him a limited ownership interest in Alliance. Nelson was also made a director of Alliance and later became Chief Financial Officer of the company. He served in that role until 31 January 2011.

On 25 February 2011, Nelson filed a lawsuit (the Nelson Action) in Superior Court, Wake County, against Alliance, Axis, and Tweeten (collectively, the Alliance Defendants) in which he asserted claims for (1) breach of fiduciary duty; (2) constructive fraud; (3) judicial dissolution of Alliance; (4) a declaratory judgment regarding the extent of Nelson's ownership in Alliance's "membership interest units"; and (5) wrongful termination.² All of Nelson's claims were dismissed prior to trial with the exception of the fourth claim seeking a declaratory judgment with regard to Nelson's ownership interest in Alliance. Nelson's declaratory judgment claim asserted that he owned 10 of the existing 61 membership units in Alliance, thereby giving him a 16.4% ownership interest. The Alliance Defendants, conversely, contended that Nelson had been granted only a 10% interest.

A trial was held on the declaratory judgment claim beginning on 16 March 2015, and at the close of the evidence, the jury was tasked with answering—along with an additional question not relevant to this appeal—the following question: "Did Alliance's board of directors issue 10 membership units to Kenneth E. Nelson?" The jury answered in the affirmative. The jury was not asked, however, to determine the total number of membership units existing in Alliance, thereby leaving unanswered the precise percentage of Nelson's ownership interest in Alliance. On 27 March 2015, the Business Court entered an order declaring Nelson to be "the holder of 10 membership units in Alliance ...." The Business Court further ordered that Alliance's Board of Directors "adopt a resolution, or otherwise amend the corporate records, to reflect that Kenneth E. Nelson owns 10 membership units." Nelson appealed the Business Court's pre-trial dismissal of his damages claims, and the Court of Appeals affirmed the Business Court's ruling. See Nelson v. Alliance Hosp. Mgmt. , LLC , 2016 WL 1566140, 2016 N.C. App. LEXIS 412 (N.C. Ct. App. 2016) (unpublished).

II. Orlando's Enforcement of Foreign Judgments Against Nelson in North Carolina

As a result of a failed business venture dating back to the late 1980s, Orlando secured two money judgments against Nelson³ during the years preceding the filing of the present lawsuit. The first judgment was issued by the Chancery Court for Davidson County, Tennessee on 7 October 2004 in the amount of $797,615. In an effort to enforce this judgment against Nelson in North Carolina, Orlando filed a motion for a "charging order" in Superior Court, Wake County. On 12 May 2011, the superior court issued such an order, finding that Orlando's judgment had not been completely satisfied and stating, in part, that "any distribution, allocations, or payments in any form otherwise due from Alliance ... to Kenneth E. Nelson up to $121,127.85 ... shall instead be paid to Orlando Residence, Ltd."

The second judgment was entered by a federal court in the District of South Carolina on 15 August 2012 in the amount of $4,000,000. Seeking to enforce this judgment against Nelson in North Carolina, on 11 September 2012 Orlando filed the judgment in Superior Court, Wake County, and once again sought a charging order. On 14 February 2013, the superior court issued a charging order providing that "any distributions, allocations, or payments in any form otherwise due from Alliance Hospitality Management, LLC, to Kenneth E. Nelson up to $4,000,000 plus post judgment interest, shall not be paid to Nelson, but shall instead be paid to Orlando Residence, Ltd. ..."

On 3 September 2015, Orlando filed—under the same case number utilized in the second charging order proceeding—a motion for civil contempt against Alliance in Superior Court, Wake County, for its alleged failure to make distribution payments in the appropriate amounts as required pursuant to the charging orders. In this motion, Orlando asserted that between 12 May 2011—the date of the first charging order—and 1 September 2015, Alliance had paid Orlando only $716,708.61 of the $7,167,086 in total distributions that Alliance had disbursed to its owners during that time frame. Orlando contended that Alliance's calculation of the amounts of Nelson's distributions was based on Alliance's erroneous position that Nelson held only a 10% membership interest in Alliance. Orlando maintained that, in actuality, Alliance had a total of 61 membership units—10 of which were owned by Nelson—and that, as a result, Orlando was entitled to receive 16.4% of past and future Alliance distributions pursuant to the charging orders.

A hearing was held on the motion for contempt on 9 November 2015. The superior court issued an order denying Orlando's motion on 24 November 2015, ruling that "there has been no judicial determination ... that there were 61 total membership units in Alliance or that Nelson owned 16.4% of Alliance .... The only judicial determination that has been made is the jury's verdict that Nelson holds 10 membership units in Alliance." The superior court concluded that "Alliance acted appropriately to distribute the $716,708.62⁴ to [Orlando] that corresponded to a 10% ownership interest by Nelson" and that "Alliance has not failed to comply with a court order ...."

III. The Present Action

On 15 March 2017, Orlando filed the present lawsuit in Superior Court, Wake County, against the Alliance Defendants and Nelson⁵ seeking "recovery of funds Alliance wrongfully transferred to Tweeten and/or Axis in violation of two charging orders previously entered." The complaint alleged that the charging orders required distributions to be calculated on the basis of Nelson holding a 16.4% membership interest in Alliance rather than merely a 10% interest. In its complaint, Orlando asserted claims for (1) civil contempt; (2) violation of the Uniform Fraudulent Transfers Act; (3) constructive trust; (4) conversion; (5) accounting; and (6) a declaratory judgment that "there are 61 units outstanding in Alliance, that Nelson owns 16.4% of Alliance, and that Alliance was and in the future is required to pay 16.4% of all distributions to [Orlando] until such time as [Orlando's] judgments against Nelson are satisfied." The case was designated a mandatory complex business case and transferred to the Business Court on 16 March 2017.

On 3 May 2017, the Alliance Defendants filed a motion to dismiss the claims contained in Orlando's complaint based on lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the North Carolina Rules of Civil Procedure and failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). In this motion, the Alliance Defendants argued that Orlando's claims should be dismissed on the grounds that (1) Orlando lacked standing to pursue claims concerning the internal corporate governance of Alliance; (2) certain claims asserted by Orlando were barred by the doctrines of res judicata and collateral estoppel; and (3) the statute of limitations also served to bar a number of Orlando's claims.

Prior to the filing of a responsive pleading by the Alliance Defendants, on 4 April 2017, Nelson, appearing pro se, filed a document entitled "Answer, Defenses, and Crossclaims of Kenneth E. Nelson," in which he asserted eighteen crossclaims against the Alliance Defendants seeking damages and various forms of equitable relief. Specifically, Nelson asserted claims for (1) conversion against Tweeten, Alliance, and Axis; (2) wrongful taking against Tweeten, Alliance, and Axis; (3) common law conspiracy against Tweeten; (4) statutory conspiracy under Wis. Stat. § 134.01 against Tweeten; (5) conspiracy to slander title against Tweeten; (6) aiding and abetting slander of title against Tweeten; (7) breach of fiduciary duty against Tweeten; (8)...