Rogers v. Rowland

William L. Rogers; WLR Investments, LP; William L. Rogers as trustee of the C & C Rogers Trust; and Point Farm Ventures, LLC, Plaintiffs, v. Thomas C. Rowland, III; P. Douglas, McMillan; L. Harris Chewning, IV; Defendants.

Civil Action No. 2:22-00279-RMG

United States District Court, D. South Carolina, Charleston Division

December 27, 2022

ORDER AND OPINION

RICHARD M. GERGEL, DISTRICT JUDGE

Before the Court is Thomas C. Rowland, III; P. Douglas McMillan; and L. Harris Chewning IV's (“Defendants”) motion to dismiss the amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6),12(b)(7), and 19. (Dkt No. 20). For the reasons stated below, the motion is denied.

I. Background

This action was brought by Plaintiffs to recover approximately $1,000,000.00 that Defendants allegedly unlawfully removed from Point Farm Ventures, LLC (“PFV”). Plaintiffs William L. Rogers (“Rogers”); WLR Investments, LP; and William L. Rogers as the trustee of the C & C Rogers Trust along with Defendants Thomas C. Rowland, III; P. Douglas McMillan; and L. Harris Chewning, IV were all members of PFV prior to the initiation of this action. (Dkt. No. 20 at 2); (Dkt. No. 14 ¶ 16). Plaintiffs allege PFV was formed in 2017 to acquire a 2,000-acre farm in Charleston, South Carolina. (Dkt. No. 14 ¶¶ 15-16). Plaintiffs allege PFV was a manager-managed LLC. (Id. ¶ 54). Plaintiffs allege American Timberlands Company, LLC (“ATC”), was the manager of PFV and Defendants managed ATC. (Id. ¶ 16). Plaintiffs allege that pursuant to an operating agreement, members could lend money to PFV, in which case PFV would not make any distribution to the members until the loans were paid back. (Id. ¶ 17). Plaintiffs allege they loaned over $2 million dollars to PFV. (Id. at ¶ 36). Plaintiffs allege they relied on the terms of the operating agreement that no distribution would be made to members until all member loans were paid back. (Id. ¶ 20). Plaintiffs allege Defendants executed personal guarantees for 50 % of Plaintiffs' loans to PFV that were documented in various promissory notes. (Id. ¶ 22-33).

Plaintiffs allege in October 2021, PFV sold its primary asset for $1,914,457 and executed two promissory notes due in 2024: a note secured by a second mortgage for $790,403 and another unsecured note for $154,054. (Id. ¶ 35). Plaintiffs allege Defendants did not use all of the money to partially satisfy the loans Plaintiffs made to PFV, but instead caused PFV to pay $914,457.00 toward the loans and disbursed the remainder of the money (approximately $1,000,000.00) to themselves and ATC. (Id. ¶ 37). Plaintiffs allege Defendants used the money “to fund personal expenses, including payments made by [Defendant] Rowland toward one or more mortgage loans secured by real property located at 58 Swan Point Trail, Georgetown, SC 29440.” (Id. ¶ 63).

In late December 2021, Defendants emailed a signed Assignment and Acceptance Agreement to Plaintiff Rogers whereby Defendants resigned from their positions at PFV and transferred and assigned all of their ownership interest in PFV to Plaintiff. (Dkt. No. 17-1 at 10). The agreement states it was effective December 31, 2021. (Id. at 10). Plaintiff alleges that on January 5, 2022, Defendant Rowland as CEO of ATC resigned as manager of PFV effective immediately. (Dkt. No. 14 ¶ 41). Rogers alleges he is the sole member of PFV. (Id. ¶¶ 41-42).

On January 28, 2022, Plaintiffs initiated the instant lawsuit. (Dkt. No. 1). On March 15, 2022, Plaintiffs filed an Amended Complaint that added PFV as a Plaintiff. (Dkt. No. 14). The amended complaint asserts four counts for: (I) breach of contract as to the operating agreement; liability for unlawful distributions pursuant to the South Carolina Uniform Limited Liability Act, SC Code Ann. § 33-44-407; (III) breach of contract as to guarantees in promissory notes; and (IV) constructive trust. Plaintiffs seek a money judgment as to Counts I -III. As to Count IV, Plaintiffs seek for the Court to impose a constructive trust over the $983,300.55 Defendants allegedly misappropriated. (Id. at p. 14). Defendants filed a motion to dismiss the amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 12(b)(7), and 19. (Dkt. No. 20). Plaintiffs filed a response in opposition. (Dkt. No. 24). Defendants filed a reply. (Dkt. No. 25). The matter is ripe for the Court's adjudication.

II. Legal Standards

a. Rule 12(b)(1)

Under Federal Rule of Civil Procedure 12(b)(1), a party may move to dismiss a cause of action based on lack of subject-matter jurisdiction. “Federal courts are not courts of general jurisdiction; they have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto.” Brickwood Contractors, Inc. v. Datanet Engineering, Inc., 369 F.3d 385, 390 (4th Cir. 2004) (quoting Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986)). Challenges to jurisdiction under Rule 12(b)(1) can be raised in two different ways: facial attacks and factual attacks. Thigpen v. United States, 800 F.2d 393, 401 n.15 (4th Cir. 1986) (citing Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)), disagreed with on other grounds, Sheridan v. United States, 487 U.S. 392 (1988). A facial attack questions the sufficiency of the complaint. Id. When presented with this argument, the court must accept the allegations in the complaint “as true, and materials outside the pleadings are not considered.” Id.

b. Rule 19

Rule 19 of the Federal Rules of Civil Procedure addresses the required joinder of parties and provides, in pertinent part:

“(a) Persons Required to Be Joined If Feasible.

(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(i) as a practical matter impair or impede the person's ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.. . .

(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. . . .

(b) When Joinder is Not Feasible. If a person who is required to be joined if feasible cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. . . .”

Fed. R. Civ. P. 19(a)-(b).

c. Rule 12(b)(7)

Rule 12(b)(7) provides that an action may be dismissed for failure to join a required party under Rule 19. See Fed.R.Civ.P. 12(b)(7). “The inquiry contemplated by Rule 19 is a practical one” which is left “to the sound discretion of the trial court.” Coastal Modular Corp. v. Laminators, Inc., 635 F.2d 1102, 1108 (4th Cir. 1980). First, the court must determine whether an absent party is “necessary” to the action, as detailed in Rule 19(a). Am. Gen. Life & Accident Ins. Co. v. Wood, 429 F.3d 83, 92 (4th Cir. 2005). If joinder is necessary, but infeasible, the court must then determine whether the party is “indispensable” under Rule 19(b), such that the action cannot continue in that party's absence. See id. If the person is not a necessary party under Rule 19, the inquiry ends. Mainstream Constr. Grp., Inc. v. Dollar Props., LLC, No. 7:09-cv-00148-BR, 2010 WL 2039671, at * 2 (E.D. N.C. May 20, 2010). “In general, federal courts are extremely reluctant to grant motions to dismiss based on nonjoinder, and dismissal will be ordered only when the defect cannot be cured and serious prejudice or inefficiency will result.” RPR & Assocs. v. O'Brien/Atkins Assocs., P.A., 921 F.Supp. 1457, 1463 (M.D. N.C. 1995), aff'd, 103 F.3d 120 (4th Cir. 1996).

On consideration of a Rule 12(b)(7) motion, the movant bears the burden of “show[ing] that the [absentee] is needed for just adjudication.” Am. Gen. Life & Accident Ins. Co., 429 F.3d at 92 (citation omitted). While all factual allegations in the complaint are accepted as true, and inferences are drawn in favor of the nonmoving party, the court may also consider materials outside the pleadings in making its determination. See Debbie's Staffing Servs., Inc. v. Highpoint Risk Servs., LLC, No. 1:17CV657, 2018 WL 6031207, at *2 (M.D. N.C. Nov. 16, 2018).

d. Rule 12(b)(6)

A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted "challenges the legal sufficiency of a complaint." Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943 952 (4th Cir. 1992) ("A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses."). To be legally sufficient a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A Rule 12(b)(6) motion should not be granted unless it appears certain that the plaintiff can prove no set of facts that would support her claim and would entitle her to relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a Rule 12(b)(6) motion, the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir. 1999); Mylan Labs., Inc., 7 F.3d at 1134. "To survive a motion to dismiss, a complaint must...