Opinion
No. COA09-1469
Filed 7 December 2010 This case not for publication
Appeal by Defendants from judgment entered 1 June 2009 by Judge J. Thomas Davis in Rutherford County District Court. Heard in the Court of Appeals 13 May 2010.
Callahan Law Office, PLLC, by J. Christopher Callahan, for Plaintiff-Appellee Melvin Owensby. Whitmire Beeker, by Angela S. Beeker and C. Dawn Skerrett, for Defendant-appellants.
Rutherford County No. 08 CVD 1731.
Defendants Estate of Thelma E. Phillips, Heirs of the Estate of Thelma E. Phillips, Rita Swanson, Tyrone Dustan Phillips, and Larry Rocky Phillips appeal from an order denying their motion for attorneys' fees. After careful consideration of Defendants' challenges to the trial court's order in light of the record and the applicable law, we conclude that the trial court's order should be affirmed.
I. Factual Background
Plaintiff Melvin Owensby (Mr. Owensby) is a realtor licensed to conduct business in North Carolina. Plaintiff Lake Lure Realty is a closely held corporation formed by Mr. Owensby and Thelma Phillips for the purpose of engaging in the real estate business. Defendants include members of Lake Lure Realty's board of directors and the heirs of Thelma Phillips.
Plaintiff Lake Lure Realty Co., Inc., is not a party to this appeal.
On 24 November 2008, Thelma Phillips died. The following day, Mr. Owensby made the necessary filing with the North Carolina Real Estate Commission to become Lake Lure Realty's broker in charge. On 18 December 2008, Plaintiffs filed a complaint against Defendants in which they alleged that Defendants were interfering with Mr. Owensby's ability to conduct Lake Lure Realty's business and sought compensatory and punitive damages based on claims sounding in unjust action by minority shareholder, unfair and deceptive trade practices, trespass and trespass to chattels, and breach of lease. Plaintiffs also sought an injunction barring Defendants from entering the premises leased by Lake Lure Realty, requiring the return of certain corporate records, and ordering Defendants to cease and desist from any interference in the corporation's activities.
Attached to Plaintiffs' complaint were exhibits indicating that Mr. Owensby and Thelma Phillips were equal shareholders in Lake Lure Realty, that the two of them comprised Lake Lure Realty's board of directors, and that Thelma Phillips served as corporate President and Mr. Owensby served as corporate vice-president. More particularly, Plaintiffs attached a Certificate of Corporate Resolution dated 13 November 2007 to the complaint stating, in pertinent part, that:
I, Thelma Phillips, President of Lake Lure Realty Company, Inc., . . . hereby certify that the following is a true copy of resolutions adopted by the Board of Directors of the Corporation at a meeting convened and held on November 13, 2007, at which quorum was present . . . and that such resolution . . . is in accordance with the provisions of the Charter and By-Laws of the Corporation:
RESOLVED: That Melvin Owensby, now owner of 50% outstanding shares of the Corporation, is elected Vice-President.
. . .
RESOLVED: That in case of the death or incapacitation of Thelma Phillips, the business shall continue under the guidance of Melvin Owensby, who will at that time become President of the Corporation and will . . . become Broker in Charge with the North Carolina Real Estate Commission.
Thelma Phillips and Mr. Owensby signed the Certificate of Corporate Resolution as corporate directors.
On 18 December 2008, Judge Laura Powell entered an order granting Plaintiffs' request for a temporary injunction in which she found, in pertinent part, that:
8. Lake Lure Realty Co., Inc. was founded in 1964. It has 100 authorized shares. . . .
9. [O]n September 29, 2003 [an] agreement was reached between the Plaintiffs and Thelma E. Phillips. . . .
. . .
11. [T]he Certificate of Corporate Resolution names Plaintiff Melvin Owensby the owner of 50% of the shares of Lake Lure Realty Co., Inc. and clearly states where the corporation elected Melvin Owensby as President and Broker in Charge at the death of Thelma Phillips.
12. On November 24, 2008, Thelma E. Phillips died.
13. . . . . As of November 25, 2008, Mr. Owensby became the Broker-in-Charge of Lake Lure Realty Co., Inc. . . .
. . .
15. Since the date of Thelma E. Phillips' death, the Defendants have jointly and severally [done] the following:
a. Withheld all corporate books from the Plaintiffs, despite several demands for the same.
b. Installed a door in the leased premises and locked the Plaintiffs from the building.
c. Installed a dead-bolt in the door preventing the Plaintiffs from conducting business, putting real estate listings in jeopardy.
d. The Defendant Rita M. Swanson improperly used her position at the bank, Carolina First Bank, to deny the Plaintiffs from opening a bank account for the business. . . .
e. Attempted to lure the Plaintiffs into a meeting on December 17th, 2008 at 6:30 p.m. by promising the keys and books. The Plaintiffs were ambushed into what the Defendants called a "stock-holders meeting". The Plaintiff, through counsel, stated that there had been no notice. The Defendants, upon information and belief, have not received any shares of the company as of that date. The Defendant[s] the[n] became aggressive toward the Plaintiffs and the Plaintiffs were forced from the meeting.
f. Upon information and belief, [] at least two of the Defendants have real estate licenses, and have improperly taken exclusive possession of the real estate records for their personal benefit.
g. Otherwise made it impossible for the Plaintiffs to conduct business in a normal and routine manner, as to be shown at trial.
17. Mr. Owensby is the controlling president and owner of Lake Lure Realty Co., Inc. Any action to prevent Mr. Owensby from having any corporate records, or block[] his access to any building or part of any building leased by Lake Lure Realty Co., Inc. is a direct violation of the Plaintiff's authority and ability to conduct business.
As a result, Judge Powell directed Defendants to "[r]eturn all corporate books to the Plaintiffs," to "[g]ive all keys to the leased building to the Plaintiffs," to "return any real estate records to the Plaintiff," and to "[c]ease and desist [from taking] any action that makes it difficult or impossible for the Plaintiffs to conduct business in a normal and routine manner." In addition, Defendants were ordered to refrain from returning to the premises of Lake Lure Realty, interfering with Plaintiffs' access to corporate bank accounts, or usurping business opportunities from Mr. Owensby.
On 29 December 2008, the trial court entered an order "upon the complaint of the Defendant" modifying the temporary restraining order entered by Judge Powell. The 29 December 2008 order reiterated that Mr. Owensby was the "controlling president and owner" of Lake Lure Realty, owned 50% of its shares, and served as its broker in charge. The trial court noted that, although Defendants had "made certain allegations" against Plaintiffs, they had not filed any pleadings. The modified order provided that all parties should have access to "[c]opies of all corporate documents," be provided with keys to the Lake Lure Realty building, and have "access to the leased premises in full." Finally, the modified order directed all parties to "[c]ease and desist [from] all actions preventing the corporation from conducting . . . business on the property." The trial court stated that its order would "remain in full force and effect until such time [as] a hearing on the merits may be had" and scheduled a hearing on Plaintiffs' preliminary injunction motion for 8 January 2009.
On 8 January 2009, the trial court entered an order noting that Defendants were now represented by counsel and continuing the hearing until 17 February 2009 at Defendants' request. On 10 February 2009, Plaintiffs filed a motion seeking to have Defendants required to show cause why they should not be held in contempt for violating the terms of the 29 December 2008 order. In their motion, Plaintiffs alleged, among other things, that Defendants had failed to provide them with access to corporate documents. On 16 February 2009, Defendants filed a motion seeking dismissal of Plaintiffs' complaint pursuant to N.C. Gen. Stat. § 1A-1, Rules 12(b)(1), (6), and (7). In their dismissal motion, Defendants alleged that Mr. Owensby lacked standing to bring an action on behalf of Lake Lure Realty or to assert the claims advanced on his own behalf. In support of their dismissal motion, Defendants referenced documents transmitted to Plaintiffs' counsel on or about 13 February 2009 tending to show that:
1. Lake Lure Realty was incorporated in 1994. On 29 November 1994, the corporation elected Thelma Phillips as president, Larry Phillips as vice president, and Ronald Swanson as secretary. The corporation's board of directors consisted of these three individuals.
2. On 16 November 2004, the Lake Lure Realty board held its second meeting, at which Ronald Swanson was replaced as a board member by Rita Swanson. In addition, Edward Robinson was elected treasurer.
3. On 16 November 2008, the board of directors held a third meeting to discuss the corporate implications of Thelma Phillips' failing health.
On 17 February 2009, a hearing was held for the purpose of considering Plaintiffs' show cause motion and their request that the 29 December 2008 order remain in effect. On 3 March 2009, Judge C. Randy Poole entered an order finding that there were "several matters in contention" between the parties and indicating that "certain documents . . . may need to be exchanged by the parties." As a result, Judge Poole ordered that the existing orders remain "in full force and effect," directed the parties to participate in mediation, and "stayed [this case] until mediation may be had or the 18th day of March, 2009, when this action may be reviewed[.]"
On 19 March 2009, a hearing was conducted on Plaintiffs' motions for a preliminary injunction and the issuance of a show cause order and on Defendants' dismissal motion. Although the parties submitted documents and presented arguments for the trial court's consideration, no oral testimony was presented.
At the hearing, Defendants' counsel stated that, in mid-February, they had provided Plaintiffs with corporate documents identifying the members of Lake Lure Realty's board of directors. Although Defendants acknowledged that Mr. Owensby was corporate president and owned 50% of its stock, they argued that he lacked authority to initiate a lawsuit on behalf of the corporation in the absence of authorization by the board of directors and that he lacked standing to advance the claims asserted in the complaint in his individual capacity on the theory that they should have been asserted against the corporation instead. In addition, Defendants contended that the November 2007 agreement between Mr. Owensby and Thelma Phillips lacked validity because it had not been approved by the board of directors.
In response, Plaintiffs' counsel stated that Plaintiffs did not stipulate to the authenticity of the corporate documents that Defendants had submitted and that Mr. Owensby did not have these records when the complaint was filed. According to Plaintiffs, the fact that Mr. Owensby was the corporation's sole shareholder following the death of Thelma Phillips provided him with the authority to act on behalf of the corporation or to suspend its bylaws. Plaintiffs also contended that the existing legal uncertainty stemmed, at least in part, from Defendants' failure to provide access to corporate documents in a timely manner and the absence of an "active board of directors." Finally, the parties discussed the possibility of mediation and the fact that, depending on the trial court's ruling, Mr. Owensby would have to file a new complaint.
After the hearing, the trial court entered an order dismissing Plaintiffs' claims without prejudice. In its order, the trial court stated that:
1. The Plaintiff, Melvin Owensby, filed this action on behalf of Lake Lure Realty, Corp.
2. The Plaintiff, Melvin Owensby, did not have standing to bring this action on behalf of Lake Lure Realty, Co. Inc.
3. All claims in this Complaint made by Mr. Owensby individually are against the Lake Lure Realty Co., Inc. who is not a defendant.
On 8 May 2009, Defendants filed a motion seeking an award of attorneys' fees from Mr. Owensby, but not from Lake Lure Realty or from Mr. Owensby's counsel. In support of their request for attorneys' fees, Defendants relied upon the following legal authorities:
1. [N.C. Gen. Stat. § 1A-1,] Rule 11 . . . in that the Complaint and subsequent Motion to Show Cause filed by the Plaintiff Melvin Owensby . . . were not well grounded in fact, were not warranted by existing law . . . and were filed for an improper purpose, that purpose being to gain control of Lake Lure Realty Co., Inc., . . . or in the alterative to extort money from the Defendants[.]
2. [N.C. Gen. Stat.] § 6-21.5 in that there was a complete absence of a justiciable issue of either law or fact raised by the Plaintiff, Melvin Owensby, in the Complaint and the Motion to Show Cause . . . and that Plaintiff, Melvin Owensby continued to pursue this action and said Motion even after it became or should have become apparent that the Complaint and said Motion contained no justiciable issue of either law or fact.
3. [N.C. Gen. Stat.] § 75-16.1 in that Plaintiff, Melvin Owensby, knew, or should have known, that the . . . action filed by Plaintiff, Melvin Owensby, was frivolous and malicious, and that he continued to pursue said action even after he knew or should have known that such action was frivolous and malicious.
On 18 May 2009, a hearing was conducted on Defendants' motion for attorneys' fees. On 1 June 2009, the trial court entered an order denying Defendants' motion in which it stated, in part, that:
. . . [A]fter review of the file and hearing the contentions of the parties, the Court finds as follows:
1. The plaintiffs filed the complaint on December 18, 2008 against the defendants. The complaint makes certain claims against the individual defendants for interference with the corporate business.
2. On December 18, 2008 based on the verified complaint an ex parte temporary injunction was entered. On December 22, 2008 this ex parte injunction was modified and continued pending further hearing on the request for a preliminary injunction.
3. On February 10, 2009 the plaintiffs filed a motion to show cause for contempt against the defendants. On March 11, 2009 the defendants filed a motion to show cause for contempt against the plaintiff, Melvin Owensby.
4. On March 19, 2009 this action was dismissed by order finding that the plaintiff, Melvin Owensby, did not have standing to bring this action on behalf of the plaintiff, Lake Lure Realty Co., Inc., and that all claims in the complaint made by Mr. Owensby individually are against Lake Lure Realty Co., Inc. which was not a defendant in the action. No hearing has been held in regard to the contempt motions.
5. On May 8, 2009 the defendants filed a motion for attorney's fees pursuant to Rule 11 of the Rules of Civil Procedure, and pursuant to [N.C. Gen. Stat.] § 6-21.5 and § 75-16.1.
6. Defendants' claim for attorney's fees is primarily based on the premise that Melvin Owensby had no factual or legal authority to file an action against them on behalf of the corporation. The plaintiff, Melvin Owensby, at the time of the filing of the complaint, primarily as indicated by the attachments to the complaint, was under the belief that he was a fifty percent shareholder of the corporate plaintiff, was the broker in charge of the real estate business of the corporate plaintiff, was the president or vice-president of the corporate plaintiff, and was the guiding or managing authority of the corporation. These beliefs were created primarily by the combined written actions of all the shareholders of the corporation, being Melvin Owensby and Thelma Phillips. All shareholders may act without a meeting and may also amend corporate bylaws. (See [N.C. Gen. Stat.] § 55-7-04 and § 55-1O-20) Furthermore, lack of corporate authority may be raised only in limited circumstances, and by certain individuals or entities. (See [N.C. Gen. Stat.] § 55-3-04) While it was later judicially found that he did not have standing or authority to bring this action on behalf of the corporate plaintiff, it is reasonable both legally and factually for him to have taken a contrary position in this action. Further it is clear that the parties had a clear dispute over the control of the corporation.
BASED PRIMARILY ON THE FOREGOING the court is unable to conclude as a matter of fact or law that the plaintiff, Melvin Owensby, is responsible for attorney's fees pursuant to Rule 11 of the Rules of Civil Procedure, or [N.C. Gen. Stat.] § 6-21.5 or § 75-16.1.
Defendants noted an appeal to this Court from the trial court's order.
II. Legal Analysis A. Defendants' Rule 11 Motion
First, Defendants contend that the trial court erred by denying their motion for attorneys' fees pursuant to N.C. Gen. Stat. § 1A-1, Rule 11 (2009). Defendants' arguments in support of this contention lack merit.
1. Standard of Review
N.C. Gen. Stat. § 1A-1, Rule 11(a) provides, in pertinent part, that:
The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. . . .
"[A]ccording to [N.C. Gen. Stat. § 1A-1,] Rule 11, the signer certifies that three distinct things are true: the pleading is (1) well grounded in fact; (2) warranted by existing law, `or a good faith argument for the extension, modification, or reversal of existing law' (legal sufficiency); and (3) not interposed for any improper purpose. A breach of the certification as to any one of these three prongs is a violation of the Rule." Bryson v. Sullivan, 330 N.C. 644, 655, 412 S.E.2d 327, 332 (1992).
As a result of the fact that Mr. Owensby verified both the complaint and the show cause motion, he has not disputed that he is subject to the requirements of N.C. Gen. Stat. § 1A-1, Rule 11.
The trial court's decision to impose or not to impose mandatory sanctions under N.C. [Gen. Stat.] § 1A-1, Rule 11(a) is reviewable de novo as a legal issue. In the de novo review, the appellate court will determine (1) whether the trial court's conclusions of law support its judgment or determination, (2) whether the trial court's conclusions of law are supported by its findings of fact, and (3) whether the findings of fact are supported by a sufficiency of the evidence. If the appellate court makes these three determinations in the affirmative, it must uphold the trial court's decision to impose or deny the imposition of mandatory sanctions under N.C. [Gen. Stat.] § 1A-1, Rule 11(a).
Turner v. Duke University, 325 N.C. 152, 165, 381 S.E.2d 706, 714 (1989). We will now apply this standard of review in evaluating Defendants' challenge to the trial court's order.
2. Findings of Fact
According to well-established North Carolina law, "[f]indings of fact that are not challenged on appeal are binding on this Court." Strezinski v. City of Greensboro, 187 N.C. App. 703, 706, 654 S.E.2d 263, 265 (2007), disc. review denied, 362 N.C. 513, 668 S.E.2d 783 (2008) (citing Johnson v. Herbie's Place, 157 N.C. App. 168, 180, 579 S.E.2d 110, 118, disc. review denied, 357 N.C. 460, 585 S.E.2d 760 (2003), and Myers v. BBF Printing Solutions, 184 N.C. App. 192, 195, 645 S.E.2d 873, 875-76 (2007)). Although Defendants contend in a conclusory fashion that the trial court's "findings and conclusions are patently in error," they have not attacked any specific finding as lacking adequate evidentiary support. "Since [Defendants have] not challenged any of the trial court's findings of fact, they are binding on us for purposes of appeal. As a result, our review of the trial court's order is limited to determining whether the trial court's findings of fact support its conclusions of law and whether its conclusions of law rest on a correct understanding of the applicable statutory provisions." In re Will of Durham, ___ N.C. App. ___, ___, 698 S.E.2d 112, 124 (2010) (citing Static Control Components, Inc. v. Vogler, 152 N.C. App. 599, 603, 568 S.E.2d 305, 308 (2002)).
3. Complaint a. Improper Purpose
Initially, Defendants argue that the trial court failed "to determine whether the Complaint was filed for an improper purpose" and "to consider the totality of the circumstances" in addressing the improper purpose issue. "An improper purpose is `any purpose other than one to vindicate rights . . . or to put claims of right to a proper test.'" Brown v. Hurley, 124 N.C. App. 377, 382, 477 S.E.2d 234, 238 (1996) (quoting Mack v. Moore, 107 N.C. App. 87, 93, 418 S.E.2d 685, 689 (1992). In challenging the trial court's order, Defendants point to certain "circumstances" that they believe to be relevant including, for example, their contention that Mr. Owensby sought to "gain complete control" of Lake Lure Realty; their view that the agreement between Mr. Owensby and Thelma Phillips was inequitable; and the implications they derive from the timing of and circumstances surrounding other actions taken by Mr. Owensby and his wife. Based on these "circumstances," Defendants argue that the trial court must have failed to consider the "totality of the circumstances" because, "[h]ad it done so," it "could only have concluded that the lawsuit was, in fact, filed for an improper purpose."
A careful reading of Defendants' argument suggests that we are being asked to reweigh the evidence bearing on the "improper purpose" issue, which is a step that we have no authority to take under the applicable standard of review. In addition, the only "improper purpose" that Defendants have attributed to Mr. Owensby is his alleged desire to obtain complete control of Lake Lure Realty. However, when Defendants argued at the hearing that Mr. Owensby acted "to either get money or to take over the business," the trial court responded by inquiring "what's wrong with that?" Furthermore, Defendants concede that the trial court's "order can be read to imply that he found that the Complaint was not filed for an improper purpose[.]" Although Defendants admit that there was nothing inherently "improper" about Mr. Owensby's desire to take over the business, they argue that the "impropriety" in Mr. Owensby's conduct stems from his lack of standing. However, Defendants have not explained how Mr. Owensby's lack of standing demonstrates the existence of an "improper motive" or why this argument should not instead be evaluated solely under the "legal sufficiency" prong of N.C. Gen. Stat. § 1A-1, Rule 11. Thus, Defendants have not demonstrated that the trial court erred by failing to sanction Mr. Owensby for filing the complaint under the "improper purpose" prong of N.C. Gen. Stat. § 1A-1, Rule 11.
Defendants also assert that Plaintiff tried to "extort" money or control of Lake Lure Realty from Defendants. However Defendants neither identify evidence of Mr. Owensby's alleged "extortion" nor explain how his alleged actions constituted such conduct. As a result, this argument lacks merit.
b. Legal Sufficiency
Next, Defendants contend that the trial court erred by failing to determine that Plaintiffs' complaint was legally insufficient. The Supreme Court has adopted a "two-part analysis" for use in determining the legal sufficiency of a complaint, under which the trial court "looks first to the facial plausibility of the pleading and only then, if the pleading is implausible under existing law, to the issue of `whether to the best of the signer's knowledge, information, and belief formed after reasonable inquiry, the complaint was warranted by the existing law.'" Bryson, 330 N.C. at 661, 412 S.E.2d at 336 (quoting dePasquale v. O'Rahilly, 102 N.C. App. 240, 246, 401 S.E.2d 827, 830 (1991), and citing Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse § 17(B)(1) at 94-95 (Supp. 1991)). We do not find Defendants' logic persuasive.
Defendants have not clearly argued in their brief that Plaintiffs' complaint was factually insufficient, so we see no need to address that issue.
In addressing the legal sufficiency issue, we have kept in mind the Supreme Court's admonition that "[i]t is not the role of the appellate courts . . . to create an appeal for an appellant." Viar v. N.C. Dept. of Transp., 359 N.C. 400, 402, 610 S.E.2d 360, 361 (2005). As a result, we have addressed only those challenges to the trial court's order that have been advanced in Defendants' brief.
In seeking to establish that Plaintiffs' complaint was legally insufficient, Defendants argue that the trial court's decision to dismiss Plaintiffs' complaint for lack of standing was "a judicial determination that the Complaint was facially implausible," making it "evident" that the complaint was not warranted by existing law and necessitating an examination of whether Mr. Owensby adequately researched the relevant legal issues before filing the complaint. Admittedly, the filing of a complaint by a party that clearly lacks standing could support an award of sanctions pursuant to N.C. Gen. Stat. § 1A-1, Rule 11. Will of Durham, ___ N.C. App. at ___, 698 S.E.2d at 126 (stating that, "[a]n even more fundamental problem with the filing of the revocation petition is that Caveator lacked standing to file it"). However, the trial court dismissed Plaintiffs' complaint on the basis of its analysis of Plaintiffs' complaint and Defendants' responsive filings, including the corporate documents that Defendants proffered in support of their contentions. In describing the analysis appropriately utilized under the "legal sufficiency" prong of N.C. Gen. Stat. § 1A-1, Rule 11, the Supreme Court has stated "that reference should be made to the document itself," that "the reasonableness of the belief that it is warranted by existing law should be judged as of the time the document was signed," and that "[r]esponsive pleadings are not to be considered." Bryson at 656, 412 S.E.2d at 333 (citing Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 395, 110 L. Ed. 2d 359, 375, 110 S. Ct. 2447, 2455 (1990) (additional citations omitted). As a result, the trial court's decision to dismiss Plaintiffs' complaint, which rested to a significant extent upon the information set out in Defendants' filings, does not make it "evident" that Plaintiff's complaint was not warranted by existing law at the time of filing.
For example, the documents attached to Plaintiffs' complaint suggest that Lake Lure Realty's board of directors consisted of Thelma Phillips and Mr. Owensby. On the other hand, the documents attached to Defendants' filings suggest that Lake Lure Realty's board consisted of Thelma Phillips and Defendants Larry Phillips, Edward Robinson, and Rita Swanson. Although there has been no challenge to the trial court's decision concerning the standing issue, the parties clearly possessed differing information concerning the identity of Lake Lure Realty's board of directors at the time that the complaint was filed. Under the test established for deciding "legal sufficiency" issues under N.C. Gen. Stat. § 1A-1, Rule 11, the fact that Defendants ultimately prevailed on the issue of the composition of Lake Lure Realty's board is not determinative of the legal sufficiency of Plaintiffs' complaint at the time that it was filed.
Defendants cite Ward v. Jett Properties, LLC, 191 N.C. App. 605, 663 S.E.2d 862, disc. review denied, 362 N.C. 481, 667 S.E.2d 463 (2008), in seeking to persuade us to reach a contrary result. In Ward, we stated that, "[t]hough `the mere fact that a cause of action is dismissed upon a Rule 12(b)(6) motion does not automatically entitle the moving party to have sanctions imposed[,]' it is often indicative that sanctions are proper." Ward, 191 N.C. App. at 608, 663 S.E.2d at 865) (quoting Harris v. Daimler Chrysler Corp., 180 N.C. App. 551, 561, 638 S.E.2d 260, 268 (2006)). According to Defendants, "[t]he same reasoning applies when a Complaint is dismissed pursuant to Rule 12(b)(1)." However, Defendants cite no authority in support of this proposition and the trial court specifically rejected Defendants' contention by stating that a dismissal for failure to state a claim, unlike a dismissal for lack of subject matter jurisdiction, amounted to a determination that "there's just not a claim here." Moreover, the scope of the materials that a trial judge is entitled to consider in evaluating a motion lodged pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1) differs from the scope of the materials that a trial judge is entitled to consider in evaluating a motion lodged pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6). Tart v. Walker, 38 N.C. App. 500, 502, 248 S.E.2d 736, 737 (1978) (stating that "matters outside the pleadings . . . may be considered and weighed by the court in determining the existence of jurisdiction over the subject matter"). Thus, the trial court's decision to dismiss Plaintiffs' complaint for lack of standing does not establish that it was legally insufficient at the time it was filed.
Next, Defendants challenge the trial court's legal sufficiency decision on the grounds that the trial court "failed to apply the objective reasonableness standard" set out in Turner, 325 N.C. 152, 381 S.E.2d 706. Defendants appear to base this argument on the trial court's finding that Mr. Owensby "was under the belief" that he had certain legal rights based on documents executed by Mr. Owensby and Thelma Phillips. However, the trial court's order also states that:
. . . While it was later judicially found that he did not have standing or authority to bring this action on behalf of the corporate plaintiff, it is reasonable both legally and factually for him to have taken a contrary position in this action. Further it is clear that the parties had a clear dispute over the control of the corporation.
The reference to the "reasonableness" of Mr. Owensby's decision to take "a contrary position" from that espoused by Defendants clearly involves the use of an objective, rather than a subjective standard. Thus, the trial court applied the appropriate standard in making its legal sufficiency determination.
Finally, Defendants argue that the trial court failed to determine whether Mr. Owensby made a "reasonable inquiry" into the legal sufficiency of the complaint. However, we do not believe that the trial court was required to make this determination. As we have already discussed, the trial court "looks first to the facial plausibility of the pleading and only . . . if the pleading is implausible under existing law" should it consider the issue of "`whether to the best of the signer's knowledge . . . after reasonable inquiry, the complaint was warranted by the existing law.'" Bryson at 661, 412 S.E.2d at 336. In this case, the trial court concluded that the position taken in the complaint was "reasonable both legally and factually," a determination that we believe to be tantamount to a conclusion that Plaintiffs' complaint was facially plausible. Having determined that the complaint was legally sufficient on its face, the trial court was not required to reach the issue of whether Mr. Owensby undertook a reasonable inquiry into its legal sufficiency. As a result, none of Defendants' attacks upon the trial court's conclusion that Mr. Owensby should not be required to pay attorneys' fee pursuant to N.C. Gen. Stat. § 1A-1, Rule 11 predicated on the filing of the complaint have merit.
4. Show Cause Motion
Next, Defendants argue that the trial court erred by denying their motion for attorneys' fees pursuant to N.C. Gen. Stat. § 1A-1, Rule 11 stemming from the filing of the show cause motion. Although we agree with Defendants' contention that the trial court erroneously failed to address this issue in its order, we are able, in light of the nature of the arguments that Defendants have advanced, to address the merits and conclude that the trial court did not err by rejecting this aspect of Defendants' attorneys' fee claim.
Initially, Defendants assert that the trial court "fail[ed] to determine" whether the filing of Plaintiffs' show cause motion violated N.C. Gen. Stat. § 1A-1, Rule 11. According to well-established North Carolina law, "[a] court's failure to enter findings of fact and conclusions of law on [sanctions] issue[s] is error which generally requires remand in order for the trial court to resolve any disputed factual issues." McClerin v. R-M Industries, Inc., 118 N.C. App. 640, 644, 456 S.E.2d 352, 355 (1995). "However, remand is not necessary when there is no evidence in the record, considered in the light most favorable to the movant, which could support a legal conclusion that sanctions are appropriate." Sholar Bus. Assocs. v. Davis, 138 N.C. App. 298, 304, 531 S.E.2d 236, 240 (2000) (citation omitted).
As Defendants point out, the trial court's order simply failed to address the extent to which the filing of the show cause motion violated N.C. Gen. Stat. § 1A-1, Rule 11. For that reason, the trial court erred in the manner in which it addressed Defendants' attorneys' fee request. The only arguments that Defendants have advanced in support of their contention that Mr. Owensby should have been sanctioned pursuant to N.C. Gen. Stat. § 1A-1, Rule 11, however, are that he acted for the allegedly improper purpose of obtaining complete control of Lake Lure Realty at the time that he filed the show cause motion, and that he improperly persisted in litigating the show cause motion despite his own non-compliance with the trial court orders that he was seeking to have enforced. As a result of the fact that we have already determined that a desire to obtain complete control over Lake Lure Realty was not an improper purpose for purposes of N.C. Gen. Stat. § 1A-1, Rule 11; the fact that the propriety of Mr. Owensby's show cause motion should be determined as of the date of filing rather than on the basis of subsequent events, Bryson at 656, 412 S.E.2d at 333; and the fact that Mr. Owensby's alleged failure to comply with the orders that he sought to enforce has no logical relationship to the question of whether Defendants had violated those orders, we are able to determine that Defendants' request for sanctions pursuant to N.C. Gen. Stat. § 1A-1, Rule 11 relating to the filing and litigation of the show cause motion lacks merit, despite the trial court's failure to adequately address that issue in its order.
B. N.C. Gen. Stat. § 6-21.5 Motion
Secondly, Defendants argue that the trial court erred by denying their request for attorneys' fees pursuant to N.C. Gen. Stat. § 6-21.5 (2009). After carefully reviewing Defendants' challenges to the trial court's order concerning this issue, we conclude that they lack merit.
N.C. Gen. Stat. § 6-21.5 provides, in pertinent part, that:
In any civil action . . . the court, upon motion of the prevailing party, may award a reasonable attorney's fee to the prevailing party if the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party in any pleading. . . .
"We review a denial of a motion for attorneys' fees under N.C. Gen. Stat. § 6-21.5 for abuse of discretion." Free Spirit Aviation v. Rutherford Airport, ___ N.C. App. ___, ___, 696 S.E.2d 559, 563 (2010) (citing Willow Bend Homeowners Ass'n v. Robinson, 192 N.C. App. 405, 417, 665 S.E.2d 570, 577 (2008)). "A ruling committed to a trial court's discretion is to be accorded great deference and will be upset only upon a showing that it was so arbitrary that it could not have been the result of a reasoned decision." White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985) (citing Clark v. Clark, 301 N.C. 123, 271 S.E.2d 58 (1980)). We will now proceed to examine the relevant portions of the trial court's order utilizing this standard of review.
1. Plaintiffs' Complaint
Defendants contend that the trial court abused its discretion in denying their request for an award of attorneys' fees pursuant to N.C. Gen. Stat. § 6-21.5 by (1) failing to determine whether the complaint as filed asserted a justiciable issue and (2) failing to determine whether Mr. Owensby "persisted in litigation of this action after he reasonably should have been aware that his Complaint no longer contained a justiciable issue." We are unable to agree with either of Plaintiffs' contentions.
In its order, the trial court concluded that:
. . . While it was later judicially found that he did not have standing or authority to bring this action on behalf of the corporate plaintiff, it is reasonable both legally and factually for him to have taken a contrary position in this action. Further it is clear that the parties had a clear dispute over the control of the corporation.
Although Defendants acknowledge that the trial court made this determination, they argue that it "fail[ed] to address w]hether there was a justiciable issue in the Complaint in the first place." However, Defendants fail to explain how a complaint could be "reasonable both legally and factually" if it failed to assert any justiciable issue. Moreover, Defendants' argument does not address the fact that certain of the documents attached to Plaintiffs' initial complaint indicated that Mr. Owensby and Thelma Phillips, rather than Defendants, were Lake Lure Realty's directors, thereby indicating that Mr. Owensby might conceivably have been authorized to assert claims on behalf of Lake Lure Realty. As a result, Defendants' argument lacks merit.
In addition, Defendants argue that they should have been awarded attorneys' fees because Mr. Owensby "persisted" in litigation after he "should have become aware" that his complaint failed to raise a justiciable issue. "In deciding a motion under N.C. Gen. Stat. § 6-21.5, `the trial court is required to evaluate whether the losing party persisted in litigating the case after a point where he should reasonably have become aware that the pleading he filed no longer contained a justiciable issue.'" Free Spirit, ___ N.C. App. at ___, 696 S.E.2d at 563 (quoting Sunamerica Financial Corp. v. Bonham, 328 N.C. 254, 258, 400 S.E.2d 435, 438 (1991)). As we have previously noted, Defendants provided documents pertaining to Lake Lure Realty's corporate history in February 2009. According to Defendants, Mr. Owensby should, upon receipt of these documents, have accepted that his complaint did not assert a justiciable issue and taken a voluntary dismissal. Instead, Plaintiffs allowed the trial court to resolve the outstanding issues at the 19 March 2009 hearing, thereby "persist[ing] in litigating this cause of action" after he should reasonably have known that there was no justiciable issue before the court.
In addressing this issue, it is helpful to review the procedural history of this case:
18 December 2008: Plaintiffs filed a complaint and obtained a temporary restraining order from Judge Powell.
29 December 2008: Judge Davis modified the temporary restraining order and scheduled a hearing for 8 January 2009.
6 January 2009: Defendants' counsel noted an appearance in this case.
8 January 2009: The trial court granted Defendants' motion to continue the preliminary injunction hearing until 17 February 2009.
10 February 2009: Plaintiffs filed a motion seeking to have Defendants show cause why they should not be held in contempt for failing to comply with Judge Davis' order.
12 February 2009: Counsel for Defendants sens a letter to counsel for Plaintiffs indicating that she would overnight the documents that Plaintiffs had been requesting relating to the corporate history of Lake Lure Realty.
16 February 2009: Defendants filed a motion seeking dismissal of Plaintiffs' complaint.
17 February 2009: Judge Poole convened a hearing on Plaintiffs' show cause and preliminary injunction motions and Defendants' dismissal motion.
3 March 2009: Judge Poole directed the parties to participate in mediation, continued the previous orders in effect, and scheduled a hearing for 18 March 2009.
11 March 2009: Defendants filed a motion seeking to have Plaintiffs be required to show cause why they should not be held in contempt.
19 March 2009: The trial court held a hearing and dismissed Plaintiffs' claims without prejudice.
A careful examination of this time line reveals that Plaintiffs' complaint was dismissed approximately one month after Defendants transmitted the documents supporting their standing argument to Plaintiffs' trial counsel and sought dismissal of Plaintiffs' complaint. Moreover, the record reflects that Mr. Owensby had questions about the authenticity of the documents provided by Defendants, an issue that he should have been given time to investigate given the existence of other documents suggesting a different composition for the Lake Lure Realty board. Finally, we note that, prior to the dismissal of Plaintiffs' complaint on 19 March 2009, three different judges had reviewed Plaintiffs' complaint at three separate hearings without questioning the viability of that pleading, a fact that we believe has some relevance to a determination as to whether Mr. Owensby unreasonably "persisted" in litigating his claims. Thus, we conclude that, given the facts of this case, the trial court did not abuse its discretion by failing to conclude that Defendants were entitled to attorneys' fees under N.C. Gen. Stat. § 6-21.5.
Defendants were represented by counsel during at least one of these hearings.
Defendants also argue that Plaintiffs' claims for unjust action by a minority shareholder and unfair and deceptive trade practices failed to assert a justiciable issue because no claim for unjust action by minority shareholder exists under North Carolina law and because unfair and deceptive trade practice claims are not available in cases arising from intracorporate disputes. White v. Thompson, 364 N.C. 47, 53, 691 S.E.2d 676, 680 (2010) (stating that "[o]ur prior decisions have determined that the General Assembly did not intend for the Act's protections to extend to a business's internal operations"). However, given that a close corporation is little more than an "incorporated partnership," Meiselman v. Meiselman, 309 N.C. 279, 289, 307 N.C. 551, 557 (1983), and that unfair and deceptive trade practice claims stemming from internal business disputes with ramifications for broader markets had been recognized by this Court as of the time of the filing of Plaintiffs' complaint, Compton v. Kirby, 157 N.C. App. 1, 19-20, 577 S.E.2d 905, 916-617 (2003), we are unable to say, on the basis of the legal materials presented for our review and the information contained in the record, that the particular claims asserted in Plaintiffs' complaint did not raise justiciable issues for purposes of N.C. Gen. Stat. § 6-21.5.
2. Motion for Show Cause Order
Defendants also argue that the trial court erred by "failing to determine" whether Plaintiffs' show cause motion asserted a justiciable issue or whether Plaintiff "persisted in litigating" the motion after he should have known that it no longer raised such an issue. Once again, we conclude that Defendants' contentions are without merit.
Attorneys' fees are only available under N.C. Gen. Stat. § 6-21.5 to a "prevailing party." The record clearly reflects that no decision was ever made in the court below on the merits of Plaintiffs' show cause motion. However, given our ultimate decision with respect to this issue, we need not address the extent to which Defendants "prevailed" with respect to Plaintiffs' show cause motion and express no opinion concerning that issue.
In support of their argument that Plaintiffs' show cause motion did not contain a justiciable issue, Defendants assert that they "never refused to comply" with the order and that they "did turn over the corporate records[.]" However, the show cause motion alleged Defendants' failure, rather than their refusal, to comply with the trial court's earlier order. Moreover, Defendants had not, in fact, delivered the documents in question to Plaintiffs at the time the show cause motion was filed. Although Defendants argue that Plaintiffs had not complied with the trial court's order either, they have failed, as we already noted, to articulate any viable connection between Plaintiffs' alleged non-compliance with the trial court's order and the merits of Plaintiffs' show cause motion. Finally, Defendants do not dispute the factual accuracy of any of the specific allegations in Plaintiffs' motion. Thus, Defendants have not established the absence of a justiciable issue relating to the show cause motion.
Furthermore, Defendants argue that the trial court failed to undertake the appropriate analysis in refusing to award attorneys' fees pursuant to N.C. Gen. Stat. § 6-21.5 relating to Plaintiffs' show cause motion and that, "[h]ad it done so, it could only have concluded" that Defendants were entitled to an award of attorneys' fees. As discussed above, this contention amounts to a challenge to the manner in which the trial court weighed the available information, an approach that would represent a deviation from the standard of review that we are required to utilize. Moreover, our review of the record suggests that the trial court reached a reasonable conclusion with respect to this issue given the information available for its consideration. Thus, we conclude that Defendants failed to demonstrate that the show cause motion lacked any justiciable issue.
Lastly, Defendants argue that Plaintiff "persisted" in litigating the show cause motion "after he received the [corporate] documents." However, given that Plaintiffs' complaint was dismissed approximately one month after the filing of Defendants' dismissal motion and the delivery of the corporate documents in Defendants' possession to Plaintiffs, and given that Plaintiffs were not required to accept the authenticity of the documents proffered by Defendants without some opportunity for investigation, we conclude that the trial court did not commit an error of law by failing to award attorneys' fees based on Plaintiffs' alleged persistence in litigating the show cause motion. Thus, the trial court did not err by denying Defendants' motion for attorneys' fees pursuant to N.C. Gen. Stat. § 6-21.5.
C. Unfair and Deceptive Trade Practices
Finally, Defendants argue that the trial court erred by failing to award them attorneys' fees pursuant to N.C. Gen. Stat. § 75-16.1 (2009). This statute provides, in pertinent part, that:
In any suit instituted by a person who alleges that the defendant violated [N.C. Gen. Stat. § ] 75-1.1, the presiding judge may, in his discretion, allow a reasonable attorney fee to the duly licensed attorney representing the prevailing party, . . . upon a finding by the presiding judge that . . . [t]he party instituting the action knew, or should have known, the action was frivolous and malicious.
"The award of attorneys' fees under [N.C. Gen. Stat. § ] 75-16.1 is within the sound discretion of the trial judge." Borders v. Newton, 68 N.C. App. 768, 770, 315 S.E.2d 731, 732 (1984). "A trial court may be reversed for abuse of discretion only upon a showing that its actions are manifestly unsupported by reason." Castle McCulloch, Inc. v. Freedman, 169 N.C. App. 497, 504, 610 S.E.2d 416, 421-22, aff'd, 360 N.C. 57, 620 S.E.2d 674 (2005) (citing Smith v. Beaufort County Hosp. Ass'n, 141 N.C. App. 203, 210, 540 S.E.2d 775, 780 (2000), aff'd, 354 N.C. 212, 552 S.E.2d 139 (2001).
According to Defendants, the trial court abused its discretion by "failing to undertake the analysis required" in connection with a motion for attorneys' fees pursuant to N.C. Gen. Stat. § 75-16.1. In essence, Defendants assert that the trial court improperly used "a subjective reasonableness standard" in denying their motion. For the reasons outlined in our discussion of Defendants' request for an award of attorneys' fees pursuant to N.C. Gen. Stat. § 1A-1, Rule 11, we conclude that the trial court did not use an impermissibly subjective standard of review in denying Defendants' request for an award of attorneys' fees pursuant to N.C. Gen. Stat. § 75-16.1.
In addition, Defendants argue that Plaintiffs' unfair and deceptive trade practice claim was frivolous, since no facts asserted in the complaint support that claim. According to Defendants, because the complaint alleged a conflict among shareholders of a corporation, Defendants' alleged conduct did not affect commerce and so cannot, as a matter of law, give rise to a claim for unfair and deceptive trade practices. White, 364 N.C. at 53, 691 S.E.2d at 680. Aside from our earlier discussion of this issue in connection with Defendants' claim for attorneys' fees pursuant to N.C. Gen. Stat. § 6-21.5, we note that Defendants' evidence in support of this contention consisted of documents that were not provided to Plaintiffs until 60 days after the filing of Plaintiffs' complaint and approximately 30 days prior to the trial court's dismissal order. Defendants have not explained how these documents tend to show that Plaintiffs' complaint was frivolous at the time of filing. Moreover, even if Plaintiffs' complaint failed to state sufficient facts to support a valid unfair and deceptive trade practices claim, Defendants have not cited authority indicating that this fact necessarily renders Plaintiffs' claim "malicious" given the existence of a bona fide dispute between the parties over the right to control Lake Lure Realty. A contrary holding would be tantamount to deciding that, every time that a claim brought pursuant to N.C. Gen. Stat. § 75-1.1 rests upon conduct that is found to be outside the contours of the relevant statutory provisions, the plaintiff would be subject to an attorneys' fees award. We are unwilling to construe N.C. Gen. Stat. § 75-16.1 to mandate such a result.
In addition, Defendants assert that Plaintiffs' complaint was filed "for the purpose of strong-arming the heirs of Thelma Phillips to turn over all control of the company" and that Plaintiff included a claim for unfair and deceptive trade practices in an "attempt to scare" Defendants into acquiescence. In light of the absence of any support for Defendants' specific claim that Plaintiff tried to "strong-arm" or "scare" Defendants, we interpret this contention as a general allegation that Plaintiff asserted an unfair and deceptive trade practices claim against Defendants for the purpose of gaining control over Lake Lure Realty, a purpose that we have already held not to be improper and that does not strike us an inherently malicious.
Finally, Defendants contend that Plaintiffs' assertion of a claim for unfair and deceptive trade practices "can only be said to be malicious and thus the trial judge abused his discretion when he found otherwise." As previously discussed, the mere fact that the trial court ruled against a party is not evidence that it erred or failed to properly analyze an issue, necessitating rejection of Defendants' implicit request that we reweigh the evidence and reach a different result than that deemed appropriate by the trial court. Furthermore, for the reasons set forth above, we do not agree that Plaintiffs' unfair and deceptive trade practices claim "can only be said" to be malicious. As a result, we conclude that the trial court did not abuse its discretion by denying Defendants' motion for attorneys' fees pursuant to N.C. Gen. Stat. § 75-16.1.
III. Conclusion
Thus, we conclude that the trial court did not err by denying Defendants' motion for attorneys' fees under N.C. Gen. Stat. § 1A-1, Rule 11; N.C. Gen. Stat. § 6-21.5,; or N.C. Gen. Stat. § 75-16.1. As a result, the trial court's order should be, and hereby is, affirmed.
AFFIRMED.
Judges BRYANT and ELMORE concur.
Report per Rule 30(e).