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Creditor of a Corporation? No Special Duty Exists Merely Because of Your Status

Where a shareholder of dissolved company claimed to be a creditor, that position alone did not impose a special duty running from one co-owner to the shareholder/creditor so as to create a fiduciary duty.  Normet v. Rabon, 2022 NCBC 32 (J. Davis).  As a result, the shareholder could not maintain his individual fiduciary duty claim related to the dissolution of the company.

Plaintiff and Defendant Miklosko were 50/50 owners of Cavalier Mortgage Group, Inc. (“Company”), which served as a licensed mortgage broker in North Carolina.  In 2014, Plaintiff and Mikloso agreed to do business with Advantage Lending, LLC (“Advantage”).  In exchange for each contributing $1 million to Advantage, each would obtain a 1/3 ownership in Advantage.  To facilitate their contributions, Plaintiff and Miklosko agreed to dissolve the Company, sell its assets and use the capital to fund their required contributions. Miklosko handled the dissolution and distribution.  In 2015, having each made the required $1 million contribution, Plaintiff and Miklosko began working for Advantage. Plaintiff eventually had a falling out with Miklosko and the other owner of Advantage and resigned from Advantage in 2016.  Plaintiff eventually filed suit against Miklosko and others alleging, inter alia, an individual claim for breach of fiduciary duty against Miklosko for how he handled the Company’s dissolution.  Miklosko filed a motion for summary judgment, contending that Plaintiff lacked standing to assert an individual fiduciary duty claim related to the Company’s dissolution.

The Business Court agreed.  Recognizing that ordinarily a shareholder may not maintain an individual breach of fiduciary duty claim to recover “their share of the damages suffered by the corporation,” the Business Court looked to determine whether Plaintiff satisfied either of the two general exceptions to that rule: the existence of a special duty (running from the defendant to the shareholder) or an injury to the shareholder that was unique from the injury suffered by the corporation. (Opinion, ¶45-46).  Plaintiff claimed that because he was a creditor of the Company, it necessarily followed that he met the “special duty” exception. (Id., ¶45).  The Business Court disagreed, noting that the Supreme Court “has made clear” that a creditor, like a shareholder, must prove one of the two exception and that simply being a creditor does not satisfy either exception. (Id., ¶46-47).  Because Plaintiff failed to prove how Miklosko owed him a special duty as a creditor of the Company, the Business Court granted summary judgment on this claim.

Additional Legal Points

  • Where the parties failed to become members of an organization, the law may recognize a de facto common law partnership and the fiduciary duties that run between the partners. (Opinion, ¶21, 42).
  • While two or more minority shareholders may collectively exercise a majority interest and thus owe fiduciary duties to other minority shareholders, the Business Court again declined to extend those precedents to LLCs. (Id., ¶52).
  • Dissolution, accounting, winding up and request to appoint a receiver are often individual claims or forms of relief by a shareholder/member and need not be asserted derivatively.  (Id., ¶57).
  • While the Business Judgment Rule (“BJR”) applies to both corporations and LLCs, it does not apply in cases involving bad faith, conflict of interest or disloyalty, and it is not a defense to a breach of contract claim.  (Id., ¶70).

Categories: Uncategorized

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