Opinion
No. COA11–798.
2012-07-17
M. Mark COLE, Plaintiff, v. Charles B. ERWIN, Dabney C. Erwin, Chelda, Inc., Barn Dinner Theatre, Inc., Theatre Properties, LLC and Three Scoops, LLC, Defendants.
Hagan Davis Mangum Barrett & Langley, PLLC, by J. Alexander S. Barrett and Jason B. Buckland, for plaintiff-appellee. William D. Harazin, PLLC, by William D. Harazin, for defendant-appellants Charles B. Erwin and Chelda, Inc.
Appeal by defendants from two orders entered 10 December 2010 by Judge A. Robinson Hassell in Guilford County Superior Court. Heard in the Court of Appeals 14 December 2011. Hagan Davis Mangum Barrett & Langley, PLLC, by J. Alexander S. Barrett and Jason B. Buckland, for plaintiff-appellee. William D. Harazin, PLLC, by William D. Harazin, for defendant-appellants Charles B. Erwin and Chelda, Inc.
Boydoh & Hale, PLLC, by Robert E. Boydoh, Jr., for defendant-appellants Barn Dinner Theatre, Inc. and Dinner Theatre Properties, LLC.
BRYANT, Judge.
Where defendants failed to demonstrate good cause to set aside entry of default, the trial court did not err in denying defendants' Motion to Vacate Entry of Default. Where the trial court's grant of Partial Default Judgment Awarding Declaratory Relief enforced the terms of the security agreement and did not affect the rights of the non-defaulting defendants, the trial court did not err in granting plaintiff's Motion for Default Judgment.
Facts and Procedural History
This case arises from a loan by plaintiff Mark Cole to defendants Charles B. Erwin (“C.Erwin”) and Dabney C. Erwin (together “the Erwins”). Evidence in the record tends to show that on or about 3 February 2003 the following three agreements were executed in connection with the loan: (1) the Erwins executed a promissory note in favor of plaintiff in the amount of $900,000.00; (2) the Erwins entered into a security agreement granting plaintiff a security interest in C. Erwin's ownership interests in Barn Dinner Theatre, Inc. (“Barn”), Theatre Properties, LLC (“Theatre”) (Barn and Theatre are referred to together hereafter as “Barn Defendants”), Charbuck, Inc., and Three Scoops, LLC (“Three Scoops”) to secure payment under the terms of the promissory note; and (3) C. Erwin and his business partner, William E. Baldwin (“Baldwin”), executed Consent Forms allowing plaintiff to either assume or sell C. Erwin's ownership interests in Barn Defendants as collateral for the loan. The security agreement before the court contained the following pertinent terms:
No relief is sought in this action as to Charbuck, Inc.
(1) SECURITY INTEREST. Debtor hereby grants to Creditor a continuing security interest in the Collateral (as defined in Section 2) to secure payment of the Debtor's Obligations (as defined in Section 3).
(2) COLLATERAL. When used herein, the term “Collateral” shall mean all of the Interest of Debtor in [Barn], [Theatre], Charbuck, Inc., and [Three Scoops], all accessions thereto, all substitutions therefor, and the replacements, products and proceeds thereof, whether now existing or hereafter acquired, as any of these terms are defined in the Uniform Commercial Code of North Carolina.
(4) COVENANTS, WARRANTIES, AND ADDITONAL AGREEMENTS. Debtor covenants and warrants to Creditor, and further agrees that: (c) Inspection and Records. Creditor shall at all times have free access to and the right of inspection of any part of all of the Collateral and any records of Debtor (and the right to copy and make extracts from such records), and Debtor shall deliver to Creditor the originals or true copies of such papers and instruments relating to any or all of the Collateral as Creditor may request from time to time.
(6) REMEDIES. Upon the occurrence of any event of default and at any time thereafter, Creditor may, without demand or notice, declare all Obligations secured by the Security Agreement immediately due and payable and may proceed to enforce payment and realize on its security interest in the Collateral in any manner permitted by law, and shall have, without limitation, the remedies of a secured party provided by Chapter 25, Article 9, of the General Statutes of North Carolina, as well as any and all other rights and remedies possessed by Creditor at law or in equity. Creditor may thereupon enter Debtor's premises without legal process and without incurring liability to Creditor and remove the Collateral and any and all books and records relating to the Collateral to such place as Creditor may deem advisable; Creditor may require Debtor to make the Collateral available to Creditor at a convenient place.
In addition to the agreements entered into on or about 3 February 2003, on 20 June 2007, the Erwins executed a second promissory note in favor of plaintiff in the amount of $436,988.26 to signify the remaining balance on the loan.
On 11 May 2010, plaintiff filed a Verified Complaint against the Erwins for breach of contract and also filed a complaint against the Erwins, Chelda, Inc. (“Chelda”) (C. Erwin and Chelda are referred to together hereafter as “Erwin Defendants”), Three Scoops, and Barn Defendants seeking a declaratory judgment. Defendants were served with the Civil Summons and Verified Complaint on or about 18 May 2010. In his complaint, plaintiff sought monetary damages for the breach of contract claim and requested the following relief in a declaratory judgment:
(a) That [plaintiff] may assume lawful ownership and control of the disputed ownership interest in [Barn], [Theatre] and Three Scoops;
(b) In the event of such assumption by [plaintiff], to immediate execution by [d] efendants of any and all instruments and other documents as may be necessary or required to effectuate the transfer of ownership to [plaintiff] of the disputed ownership interests in [Barn], [Theatre] and Three Scoops;
(c) In the event of such assumption by [plaintiff], to immediate correction and notation in all relevant books and records of [Barn], [Theatre] and Three Scoops to refelect [plaintiff's] ownership interests once assumed;
(d) To immediate custody and control of the accounts, books and records of [Barn], [Theatre] and Three Scoops;
(e) To a full and complete accounting of the books, records and affairs of [Barn], [Theatre] and Three Scoops from [d] efendants; and
(f) Judgment against the [d]efendants, jointly and severally, for any and all amounts wrongfully obtained by such [d] efendants or others to which [plaintiff] was and is entitled.
Barn Defendants answered plaintiff's Verified Complaint on 16 July 2010. Erwin Defendants and Three Scoops failed to answer plaintiff's complaint and the Clerk of Guilford County Superior Court granted plaintiff's Motion for Entry of Default against Erwin Defendants and Three Scoops on 19 July 2010. Plaintiff then filed a Motion for Partial Default Judgment against C. Erwin on 28 July 2010 for the breach of contract claim. The Clerk of Guilford County Superior Court entered Partial Default Judgment in the amount of $561,627.93 against C. Erwin on 30 July 2010.
On 10 August 2010, plaintiff filed a Motion for Default Judgment against Erwin Defendants and Three Scoops. On 9 September 2010, the trial court declined to hear Erwin Defendants' Motion to Vacate Entry of Default and also denied, without prejudice, plaintiff's Motion for Default Judgment against Erwin Defendants and Three Scoops. However, the trial court stated in its order that “[t]he Motion for Default Judgment and Motion to Vacate may come on for later hearing[.]” Chelda filed an answer to plaintiff's Verified Complaint on 5 November 2010 and moved for Summary Judgment, as did Barn Defendants.
After a hearing on 6 December 2010, the trial court denied Barn Defendants' Motion for Summary Judgment, denied Erwin Defendants' Motion to Vacate Entry of Default, and granted plaintiff's Motion for Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops. The trial court also ordered that Chelda's answer be stricken in its entirety and that Chelda's Motion for Summary Judgment not be heard or considered by virtue of the court's denial of the Motion to Vacate Entry of Default.
Erwin Defendants appeal the Partial Default Judgment Awarding Declaratory Relief and the order denying their Motion to Vacate Entry of Default. Barn Defendants appeal the Partial Default Judgment Awarding Declaratory Relief.
Three Scoops did not appeal the orders of the trial court.
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On appeal, defendants raise the following issues: whether the trial court erred in (I) denying Erwin Defendants' Motion to Set Aside Entry of Default; (II) granting plaintiff's Motion for Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops; and (III) ordering Barn Defendants to produce all corporate and financial records and allowing plaintiff to assume ownership of Barn Defendants based solely on a finding of Erwin Defendants' liability.
Chelda first contends that the trial court erred in denying its Motion to Set Aside Entry of Default because good cause existed to support its motion. We disagree.
At the 6 December 2010 hearing, Chelda acknowledged that they intended to set aside, not vacate, the entry of default. Furthermore, Chelda acknowledged that this motion was only to set aside entry of default as to Chelda and not C. Erwin.
The trial court may set aside an entry of default “[f]or good cause shown,” pursuant to N.C. Gen.Stat. § 1A–1, Rule 55(d) (2011). The following factors should be considered “when determining if the defendant has shown good cause: (1) was defendant diligent in pursuit of this matter; (2) did plaintiff suffer any harm by virtue of the delay; and (3) would defendant suffer a grave injustice by being unable to defend the action.” Luke v. Omega Consulting Group, LC, 194 N.C.App. 745, 748, 670 S.E.2d 604, 607 (2009) (internal quotation marks and citation omitted).
“The determination of whether an adequate basis exists for setting aside the entry of default [for good cause shown] rests in the sound discretion of the trial judge.” Byrd v. Mortenson, 308 N.C. 536, 539, 302 S.E.2d 809, 812 (1983). Therefore, we will not reverse a trial court's ruling denying a Motion to Set Aside Entry of Default unless the trial court's ruling is “manifestly unsupported by reason.” RC Associates v. Regency Ventures, Inc., 111 N.C.App. 367, 374, 432 S.E.2d 394, 398 (1993) (citing Clark v. Clark, 301 N.C. 123, 271 S.E.2d 58 (1980)). While it is true “that default judgments are not favored in the law [,] ... it is also true that rules which require responsive pleadings within a limited time serve important social goals, and a party should not be permitted to flout them with impunity.” Howell v. Haliburton, 22 N.C.App. 40, 42, 205 S.E.2d 617, 619 (1974). It is well settled that “[d]efendant has the burden of establishing good cause to set aside entry of default.” RC Associates at 374, 432 S.E.2d at 398.
In the case sub judice, Chelda contends that we should apply the holding in Atkins v. Mortenson in which this Court affirmed the trial court's order setting aside an entry of default despite the fact that the defendant failed to address the lawsuit against him in a timely manner. 183 N.C.App. 625, 644 S.E.2d 625 (2007). However, we decline to accept Chelda's argument as the facts of this case are inapposite to those in Atkins.
In Atkins, the plaintiff argued that the trial court abused its discretion in setting aside the entry of default because the defendant failed to demonstrate good cause. Id. at 627, 644 S.E .2d at 627. The evidence in Atkins revealed that the defendant's insurance company was notified of the suit but never actually received the summons, the complaint, the motion for entry of default, or the motion for default judgment and failed to assign an attorney to respond to the action. Id. at 626, 644 S.E.2d at 626–27. While the Court in Atkins recognized that the defendant may have been less than diligent in defending the suit, the Court stated that “[g]iven the circumstances ... defendant's diligence cannot be determinative as to the issue of setting aside the entry of default. Rather, [the court] must weigh defendant's diligence against any harm to plaintiff from the delay or injustice to defendant if he is not allowed to defend the case.” Id. at 628, 644 S.E.2d at 628.
After weighing the evidence, the Court concluded that the defendant demonstrated good cause since the plaintiff would not be significantly harmed by the delay if the entry of default were set aside, whereas defendant would suffer grave injustice if it were not. Id. at 629, 644 S.E.2d at 628 (“[D]efendant filed an answer only four days after what would have been required had he obtained an initial thirty-day extension. Therefore, the lapse of time ... was not so great as to cause harm to plaintiff if the entry of default were set aside. Additionally, if the entry of default were not set aside defendant would be deprived of the opportunity to present a meritorious defense and would be subject to a substantial monetary judgment as well as a diminished reputation in the medical community.”).
Conversely, here Chelda argues that it has good cause to set aside entry of default because it was “fully consumed and focused on another litigation involving Chelda's subsidiary ... [and] inadvertently failed to respond to Plaintiff's Complaint. Had Chelda ... not been so involved in the Bankruptcy matter of its subsidiary it would have responded to Plaintiff's Complaint.” Finding this argument less than convincing, the trial court stated that:
[I]n its discretion [the trial court] is not in a position to find that the inactivity the parties complained of is equivalent to inadvertence. And further and independent of that, [the trial] [c] ourt is constrained—is not to be able to find that inactivity to rise to the level of good cause shown. And therefore, in [the trial] [c]ourt's discretion, the motion to set aside the entry of default is denied.
Just like the trial court, “we find the degree of attention or inattention shown by the defendant to be a particularly compelling factor [in our consideration to set aside Entry of Default].” Brown v. Lifford, 136 N.C.App. 379, 384, 524 S.E.2d 587, 590 (2000). Here, the record reveals that there was a significant lapse of time, far greater than in Atkins, between when the initial complaint was filed on 11 May 2010 and when Chelda filed its answer on 5 November 2010. In between these dates, plaintiff filed a Motion for Entry of Default on 16 July 2010 and the Clerk entered an Entry of Default on 19 July 2010, nearly eight weeks after the complaint was served. It was not until plaintiff filed a Motion for Default Judgment on 10 August 2010 that Chelda was spurred to action and, subsequently, moved to vacate the Entry of Default on 1 September 2010.
Further, Chelda acknowledges in its Motion to Vacate Entry of Default that the reason it failed to respond was because it was “fully consumed and focused” on other litigation. This fact also distinguishes Atkins in that defendant's failure to act was not the result of a mistake by counsel or even lack of notice. Rather, Chelda confesses that it would have responded had it “not been so involved in the Bankruptcy matter of its subsidiary....” Therefore, the record reveals that Chelda chose not to act based on its current involvement in a more pressing legal matter. As a result, Chelda's conscious choice does not indicate mere inadvertence but rather neglect, and “this Court generally has upheld the denial of a motion to set aside entry of default where the evidence shows defendant simply neglected the matter at issue.” Granville Med. Ctr. v. Tipton, 160 N.C.App. 484, 488, 586 S.E.2d 791, 795 (2003).
In addition to Chelda's inadvertence argument, it also contends that:
[W]hat constitutes “good cause” depends on the circumstances in a particular case, and ... an inadvertence which is not strictly excusable may constitute good cause, particularly where the plaintiff can suffer no harm from the short delay involved in the default and grave injustice may be done to the defendant.
Peebles v. Moore, 48 N.C.App. 497, 504, 269 S.E.2d 694, 698 (1980), aff'd and modified, 302 N.C. 351, 275 S.E.2d 833 (1981) (internal quotation marks and citation omitted). While we agree with this contention, Chelda has not demonstrated that plaintiff will not be prejudiced by the additional delay nor has it demonstrated that it will suffer grave injustice if the Entry of Default is not set aside.
Accordingly, the evidence in the record does not compel this Court to conclude that the trial court abused its discretion in denying Chelda's Motion to Set Aside Entry of Default. See RC Associates, 111 N.C.App. at 375, 432 S.E.2d at 399 (finding no abuse of discretion where “defendants never filed an answer and made no attempt to defend their case after their attorney withdrew until filing their responsive pleading to plaintiff's motion for default judgment or, alternatively, for summary judgment.”). Thus, Chelda has failed to demonstrate good cause shown, and, as a result, defendant's argument is overruled.
II and III
Erwin Defendants and Barn Defendants next contend that the trial court erred in granting plaintiff's Motion for Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops when Barn Defendants were not in default. Furthermore, Barn Defendants contend that the trial court erred in obligating them to produce all corporate and financial records to plaintiff and allowing plaintiff to assume ownership of C. Erwin's interests in Barn Defendants based solely on a finding of Erwin Defendants' liability. Because these issues are inextricably intertwined, we address them together.
“A trial court's decision to enter a default judgment, like entry of default, is reviewable for abuse of discretion. As such, we only find abuse of discretion where the trial court's judgment is manifestly unsupported by reason'.” Lowery v. Campbell, 185 N.C.App. 659, 665, 649 S.E.2d 453, 456 (2007) (internal citation omitted); see also State v. Hennis, 323 N.C. 279, 285, 372 S.E.2d 523, 527 (1988) (“Abuse of discretion results where the court's ruling is manifestly unsupported by reason or is so arbitrary that it could not have been the result of a reasoned decision.”).
Erwin Defendants and Barn Defendants argue that the trial court erred in granting plaintiff's Motion for Default Judgment against Erwin Defendants and Three Scoops because the default judgment was entered against fewer than all defendants. In support of their argument defendants look to Frow v. De La Vega, in which the United States Supreme Court stated:
The true mode of proceeding where a bill makes a joint charge against several defendants, and one of them makes default, is simply to enter a default and a formal decree pro confesso against him, and proceed with the cause upon the answers of the other defendants. The defaulting defendant has merely lost his standing in court.
82 U.S. 552, 554, 21 L.Ed. 60, 61 (1872). Following the trend in federal jurisdictions, our Supreme Court has limited the Frow holding to cases “where the defendants have been alleged only as jointly liable.” Harlow v. Voyager Communications V, 348 N.C. 568, 571, 501 S.E.2d 72, 74 (1998); see also In re Uranium Antitrust Litig., 617 F.2d 1248, 1257–58 (7th Cir.1980) (“The result in Frow was clearly mandated by the Court's desire to avoid logically inconsistent adjudications as to liability. However, when different results as to different parties are not logically inconsistent or contradictory, the rationale for the Frow rule is lacking.”), Int'l Controls Corp. v. Vesco, 535 F.2d 742, 746–47 n. 4 (2d Cir.1976), cert. denied, 434 U.S. 1014, 98 S.Ct. 730 (1978) (“[A]t most, Frow controls in situations where the liability of one defendant necessarily depends upon the liability of the others.”), Whelan v. Abell, 953 F.2d 663, 674–75 (D.C.Cir.1992) (“[A] default order that is inconsistent with a judgment on the merits must be set aside only when liability is truly joint—that is, when the theory of recovery requires that all defendants be found liable if any one of them is liable—and when the relief sought can only be effective if judgment is granted against all.”).
When two or more obligors are alleged jointly, it means that they are “undivided” and “must therefore be prosecuted in a joint action against them all.” Black's Law Dictionary 837 (6th ed.1990). Because the liability cannot be divided, the matter can be decided only in a like manner as to all defendants. Therefore, if one is liable, then all must be liable, and if one is not liable, then all are not liable.
Where the plaintiff has alleged the defendants to be jointly and severally liable, the Frow principle will not apply because the defendants are not so closely tied that the judgment against each must be consistent. “A liability is said to be joint and several when the creditor may demand payment or sue one or more of the parties to such liability separately, or all of them together at his option.” Id. Thus, the matter can be decided individually against one defendant without implicating the liability of other defendants.
Harlow, 348 N.C. at 571, 501 S.E.2d at 74.
In accordance with the forgoing law, our primary inquiry in determining whether the trial court abused its discretion in granting plaintiff's Motion for Default Judgment against Erwin Defendants and Three Scoops is whether defendants are jointly liable-that is whether plaintiff's claim for relief necessarily requires all defendants to be determined liable if any individual defendant is determined liable.
Erwin Defendants and Barn Defendants argue that defendants are truly jointly liable. To support their argument, Erwin Defendants and Barn Defendants rely on Jackson v. Culbreth, 199 N.C.App. 531, 681 S.E.2d 813 (2009).
In Jackson, the trial court entered a default judgment against the defaulting individual defendants declaring plaintiff to be the owner of a one-half, undivided interest in the real property in question and determining a deed of trust executed by the individual defendants in favor of the non-defaulting defendant lender was null and void. Id. at 533, 681 S.E.2d at 815. On the defendant lender's appeal, our Court held that it was improper for the trial court to have entered a default judgment in favor of plaintiff where the default judgment effectively “extend[ed] the judgment in favor of plaintiff and against the [defaulting defendants] to [the non-defaulting defendant] and end [ed] any potential rights [the non-defaulting defendant] may have had in the property.” Id. at 537, 681 S.E.2d at 817.
Comparing Jackson to the case sub judice, Erwin Defendants and Barn Defendants argue that the Partial Default Judgment Awarding Declaratory Relief against C. Erwin, Chelda, and Three Scoops infringes upon Barn Defendants' rights and defenses and binds Barn Defendants to the Partial Default Judgment because it effectively grants plaintiff the relief he sought against all defendants. We disagree.
First, plaintiff's complaint does not allege that defendants are jointly liable. In plaintiff's second claim for relief against all defendants, plaintiff sought a “[declaratory] [j]udgment against the Defendants, jointly and severally, for any and all amounts wrongfully obtained by such Defendants or others to which [plaintiff] was and is entitled.” (emphasis added). Therefore, under Harlow, “the Frow principle will not apply[.]” Harlow, 348 N.C. at 571, 501 S.E.2d at 74 (“Where the plaintiff has alleged the defendants to be jointly and severally liable, the Frow principle will not apply....”). Additionally, the only liabilities truly at stake in this case are the Erwins' obligation under the promissory note and C. Erwin's interests in Barn Defendants and Three Scoops securing the Erwins' debt. Plaintiff has not yet exercised his rights to acquire C. Erwin's interests in Barn Defendants and therefore, where Barn Defendants were neither parties to the promissory note nor the security agreement, they are not liable for any debt owed plaintiff.
The trial court.s 10 December 2010 Partial Default Judgment Awarding Declaratory Relief against Barn Defendants and Three Scoops did not address the “amounts wrongfully obtained” portion of the relief sought.
Second, the default judgment is only entered as to the defaulting defendants. Barn Defendants contend that, although the default judgment is entered only as to Erwin Defendants and Three Scoops, the default judgment prejudices their rights because it “erroneously obligate[s] [them] to produce all corporate and financial records and allow[s] plaintiff to assume ownership of shares of stock and member interests based on a finding of [Erwin Defendants' and Three Scoops'] liability.” We disagree.
The Partial Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops does not infringe upon the rights of Barn Defendants where it only instructs Erwin Defendants and Three Scoops to produce records to plaintiff or make a request to Barn Defendants for the records. The pertinent part of the Partial Default Judgment reads:
Immediately upon entry of this Judgment, ... Defendants Charles B. Erwin; Chelda, Inc.; and Three Scoops, LLC, shall deliver to Plaintiff's counsel, ... or provide Plaintiff's counsel access to, all books, records and statements of Barn Dinner Theatre, Inc.; Theatre Properties, LLC; and Three Scoops, LLC as are or may be in their care, custody or within their control, ... including but not limited to all tax, accounting, and banking records of Barn Dinner Theatre, Inc.; Theatre Properties, LLC; and Three Scoops, LLC (“the Records”). Defendants Charles B. Erwin, Chelda, Inc. and Three Scoops, LLC shall, upon entry of this Order, issue oral and written instructions to all persons and entities as have possession, custody or control of the Records to provide them to Plaintiff's counsel as provided in this Paragraph.... The obligation set forth in this Paragraph to provide the Records is ongoing and Defendants Charles B. Erwin, Chelda, Inc. and Three Scoops, LLC shall, upon request of Plaintiff, provide such additional materials as may fall within the definition of the Records as may be created from and after the initial production ordered herein. (emphasis added). Nowhere in the order are Barn Defendants required to produce corporate and financial records to plaintiff.
Moreover, a request by C. Erwin to Barn Defendants to produce corporate and financial documents creates no more of an obligation than their existing duties under North Carolina law. North Carolina law, both by statute and common law, affords shareholders of a corporation and members of a limited liability company a right to inspect corporate records. SeeN.C. Gen.Stat. 55–16–02(a) and (g) (2011) (A qualified shareholder, a person who has been a shareholder for at least six months immediately preceding his demand or holds at least five percent (5%) of the corporation's outstanding shares, is entitled to inspect and copy records of the corporation provided that the corporation is given written notice at least five business days in advance.); N.C. Gen.Stat. 57C–3–04(a) (A person with a membership interest in a limited liability company may, upon reasonable demand, obtain from the limited liability company documents related to the business and finances of the limited liability company); Parsons v. Jefferson–Pilot Corp., 333 N.C. 420, 424, 426 S.E.2d 685, 688 (1993) (“Under common law, a shareholder of a corporation has a right to make reasonable inspection of its books and records.”). Thus, the trial court's order does not infringe on Barn Defendants' rights because they are already obligated to produce records to C. Erwin, as C. Erwin owns a fifty percent (50%) interest in both Barn and Theatre.
Barn Defendants further contend that the trial court's order granting Partial Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops was improper because the security agreement only grants plaintiff access to the records of C. Erwin. This argument fails for two reasons. First, a reading of Section 4(c) of the security agreement reveals that plaintiff was granted:
“ free access to and the right of inspection of any part of all the [c] olla teral and any records of [C. Erwin] (and the right to copy and make extracts from such records), and [C. Erwin] shall deliver to [plaintiff] the originals or true copies of such papers and instruments relating to any or all of the [c]ollateral as [plaintiff] may request from time to time.”
(emphasis added). Second, the records of Barn Defendants belong to C. Erwin as a shareholder and member of Barn Defendants. See Parsons, 333 N.C. at 424, 426 S.E.2d at 688 (“[T]he rationale behind the common law right of inspection is that those in charge of the corporation are merely agents of the shareholders, and a shareholder's right to inspect a corporation's books and records is only the right to inspect and examine that which is his own.” (citation omitted)).
Furthermore, the Partial Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops does not infringe upon the rights of Barn Defendants by allowing plaintiff to assume ownership of Barn Defendants where the order enforces the terms of the security agreement that was consented to by Barn Defendants. The pertinent part of the Partial Default Judgment reads:
Plaintiff may, at his option, assume binding and lawful ownership and control of the ownership interests of [C. Erwin] in [Barn]; [Theatre]; and/or [Three Scoops]. Such assumption of ownership and control shall be binding upon Defendants effective upon the sending of written notice of such assumption by [p] laintiff to [Barn]; [Theatre]; and/or [Three Scoops].... Upon the sending of such notice of assumption of ownership and control, Plaintiff shall become the lawful owner of the ownership interests in [Barn]; [Theatre]; and/or [Three Scoops]; which interests were formerly owned by [C. Erwin].
Thus, in accordance with the security agreement, plaintiff may exercise his rights to take control of C. Erwin's ownership interests in Barn Defendants if he chooses. Barn Defendants argue that the Consent Forms do not bind them to the terms of the security agreement. We disagree. Where both C. Erwin and Baldwin, the only two shareholders and members of Barn Defendants, executed Consent Forms allowing plaintiff to either assume or sell C. Erwin's 50% ownership interests in Barn Defendants as collateral for the loan, and where the written consents specifically reference the security agreement, we cannot find that the lower court abused its discretion in enforcing the terms of the security agreement.
Accordingly, where plaintiff alleged joint and several liability and the trial court's order enforces the terms of the security agreement without affecting the rights of the non-defaulting defendants, the trial court did not abuse its discretion in granting plaintiff's Motion for Default Judgment Awarding Declaratory Relief against Erwin Defendants and Three Scoops. We affirm the judgment of the trial court.
Affirmed. Judge CALABRIA concurs.
Judge STROUD concurs in result only.
Report per Rule 30(e).