More Than Hurt Feelings Are Needed to Dissolve a Company

Where members merely allege acrimony between members and confusion over the size of each member’s ownership but nothing more, such allegations are insufficient to dissolve a corporation.  Vanguard Pai Lung, LLC v. Moody, 2022 NCBC 48 (J. Conrad).  As a result, the Business Court denied the defendant-members’ request to dissolve the corporation based upon impracticability.

Plaintiff Vanguard makes and sells high-speed circular knitting machines. Vanguard sued its minority member, Defendant Nova Trading and Nova’s owner, Defendant Moody, alleging that Moody orchestrated a long-running scheme of self-dealing.   Defendants filed counterclaims, accusing Vanguard’s majority owner, Pai Lung, of using its position to force Moody out of Vanguard.  Nova Trading also sought judicial dissolution of Vanguard based upon impracticability and a claim that its rights were not being protected. After many of the claims and counterclaims were dismissed pre-trial, a jury returned a verdict in favor of Plaintiffs. Having reserved the question of dissolution for the Court to determine post-trial, Nova Trading filed its motion to dissolve Vanguard.             

The Business Court denied the motion.  Recognizing that Nova Trading contended that “acrimony between the members and confusion over the size of each member’s ownership existed,” the Business Court nonetheless held that more was required to dissolve a corporation. (Opinion, ¶9). Noting that Nova Trading had failed to present any evidence of deadlock and that all parties had stipulated to size of each member’s interest, the Business Court further found that there was ample protection within Vanguard’s operating agreement which would be contrary to a finding that Nova Trading was “powerless” to act (as Nova Trading contended).  (Id., ¶10).  And while it was true that Pai Lung “controls day-to-day operations” of the profitable company, and has a three-to-one advantage on the board of managers, merely “[b]eing outvoted is not, by itself, a basis for dissolution.” Id.

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