IN THE COURT OF APPEALS OF NORTH CAROLINA No. COA 15

- 746 Filed: 2 August 2016 Caldwell County, No. 14 CVS 1250 RAYMOND JAMES CA PITAL PARTNERS, L.P., Plaintiff

v. HAZEL HAYES, Defendant
Appeal by plaintiff from order entered 23 February 2015 by Judge Robert C. Ervin in Caldwell County Superior Court. Heard in the Court of Appeals 2 December
2015

.
Si g mon, Clark, Mackie, Hanvey & Ferrell, P.A., by Forrest A. Ferrell and Amber Reinhardt Mueggenburg, for plaintiff

- appellant. Tin, Fulton, Walker & Owen, PLLC, by Sa m McGee, for defendant

- appellee

. CALABRIA, Judge.
Raymon d James Capital Partners, L.P. (“plaintiff”) appeals from an order granting Hazel Hayes’ (“defendant”) motion to dismiss all claims asserted against her . We affirm. I. Background P laintiff was a majority shareholder of Albion Medical Holdings, Inc. (“Albion”), a closely held corporat i on. Defendant was a minority shareholder of Albion. Greer Laboratories, Inc. (“Greer”)

— a North Carolina corporation and wholly

own ed subsidiary of Albion

— employed defendant for approximately forty

- five years

.R AYMOND J AMES C APITAL P ARTNERS V
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- In 2005, defendant became Assistant Control ler of Greer. Her job responsibilities included “performing monthly bank reconciliations, maintaining the general ledger, reviewing accounting entries and ma intaining physical possession over Greer’s manual checks.” In 2013, Albion , and by extension, Gree r , were sold pursuant to a Stock Purchase Agreement. A business valuation method known as EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was used to calculate the purchase price

. Albion was sold for 13.5 times th e trailing twelv e - month EBITDA. In addition, any excess cash of Albion was to be allocated to shareholders in the form of dividends or a pre - closing distribution. After the sale occurred, defendant continued to work as Greer’s Assistant Controller until she retired in S eptember
2014. Soon after defendant’s retirement, Greer uncovered evidence that indicated she had issued manual checks to herself and falsely recorded the funds as payments to banks and vendors in the general corporate ledger. After being confronted with this evidence, defendant allegedly admitted to embezzling funds f rom Greer beginning in May 2013; however, the results of an internal investigation suggested that the fraudulent check scheme dated back to 2004.R AYMOND J AMES C APITAL P ARTNERS V
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- Consequentl y, o n 7 November 2014, plaintiff filed a verified complaint 1 against defendant in Caldwell County Superior Court. Plaintiff alleged claims of embezzlement, conversion, fraud, breach of fiduciary duty, constructive fraud, unfair and deceptive trade practic es, and a violation of North Carolina’s Racketeer Influenced and Corrupt Organizations Act (“RICO”). According to plaintiff’s allegations, defendant embezzled approximately $839,878.00 from Gr eer. The verified complaint also contained a motion for a temp orary restraining order and a preliminary injunction. The trial court subsequently entered a preliminary injunct ion against defendant prohibiting her from , inter alia , selling, conveyin g, or liquidating her assets in order to protect plaintiff’s “ability to collect upon any judgment it ob tain[ed] in th[e] case.” Defendant responded by filing an answer and motion to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure for failure to st ate a claim based, in part, on p laintiff’s l ack of standing to bring indivi dual claims against defendant. After a hearing on the Rule 12(b) (6) motion , the trial court entered an order on 23 February 2015 granting defendant’s motio n to dismiss as to all claims. Plaintiff appeals.

II. Standard of Review

1 Greer also filed an action against defendant in Caldwell County but a settlement was eventually reached in that case. For reasons not contained in the record, none of Albion’s shareholders were parties to that action.R AYMOND J AMES C APITAL P ARTNERS V
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- Plaintiff contends the trial court erred in granting defendant’s motion to dismiss under Rule 12(b)(6) for failure to state a ny claim upon which relief could be granted

. We disagree.

The standard of review of an order granting a 12(b)(6) motion is whether the complaint states a claim for which relief can be granted under some legal theory when the complaint is liberally construed and all the allegations inclu ded therein are taken as true. On a motion to dismiss, the complaint’s material factual allegations are taken as true. Legal conclusions, however, are not entitled to a presumption of validity. Dismissal is proper when one of the following three conditions is satisfied: (1) the complaint on its face reveals that no law supports the plainti ff’s claim; (2) the complaint on its face reveals the absence of facts sufficient to make a good claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s claim. Wells Fargo Bank, N.A. v. Corneal , __ N.C. App. __, __, 767 S.E.2d 374, 377 (2014) (citation omitted). Ultimately, t his Court “conducts a de novo review of the pleadings to determine their legal sufficiency and to determine whether the trial court’s ruling on the motion to dismiss was correct.” Page v. Lexington Ins. Co. , 177 N.C. App. 246, 248, 628 S.E.2d 427, 428 (2006) (citation , quotation marks, and brackets omitted).

III. Shareholder ActionsR AYMOND J AMES C APITAL P ARTNERS V
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- Plaintiff, as a shareholder of Albion, seeks to bring individual causes of action against defendant , a former officer of Greer, 2 to recover for loss es related to plaintiff’s investment and the re duction of certain dividends as well as pre - distribution payments to which it was purportedly entitled. Under North Carolina law , corporate officers with discretionary a uthority must discharge their duties in good faith, with due care, and in a manner they believe to be in the corporation’s best interests. N.C. Gen. Stat. § 55

- 8

- 42(a) (2015); see also i d

. § 55

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- 30(a) (2015) (same with respect to corporate directors). W hen these fiduciary duties are breached, the issue of whether the resulting injuries should be litigated in an individual or a derivative action arises. “A derivative proceeding i s a civil action brought . . . in the right of a corporation, . . . while an individual action is . . . [brought] to enforce a right which belongs to [ a plaintiff] personally. ” Morris v. Thomas , 161 N.C. App. 680, 684, 589 S.E.2d 419, 422 (2003) (citation and internal quotation marks om itted). “S hareholders . . . of corporations generally may not bring individual actions to recover what they consider their share of the damage s suffered by the corporation.” Barger v. McCoy Hillard & Parks , 346 N.C . 650, 660, 488 S.E.2d 215, 220

- 21 (1997) (citations and quotation marks omitted). A similar, “ well

established general rule is that shareholders cannot pursue individual causes of

2 We note that defendant does not concede that she was actually an officer of Greer. The trial court also question ed plaintiff’s c haracterization of defendant as a corporate officer. In any event, since the essence of the verified complaint is that defendant was an officer and that she owed specific fiducia ry duties to plaintiff, we assume for purposes of this appeal that defendant was an officer.R AYMOND J AMES C APITAL P ARTNERS V
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- action against third parties for wrongs or injuries to the corporation that result in the diminution or destruction of the value of their stock.” Id. at 658, 488 S.E.2d at 219 (citations omitted). Since the loss of an investment “ ‘is [typically] identical to the injury suffered by’ the corporate entity as a whole[,]” claims arising from injuries to the corporation are properly asser ted in derivative suits. Green v. Freeman , 367 N.C. 136, 144, 749 S.E.2d 262, 269 (2013) (citation omitted); Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 17.01 et seq. (7th ed. 2015) (explaining that corporate shareholders may normally enforce a claim that belongs to the corporation only through a derivative suit brought on behalf of the corporation)

. A s uit against corporate officers or di rectors for breach of fiduciary duty is

“ [o]ne of the clearest examples of a derivative action. . . .” Id. at § 17.02[1]. As explained by the United States Supreme Court, shareholder derivative suits exist to remedy “those situations where the management through fraud, neglect of duty or other cause declines to take the proper and necessary steps to assert th e rights which the corporatio n has.” Meyer v. Fleming , 327 U.S. 161 , 167, 90 L. Ed. 595, 600 (1946). The general prohibition against individual shareholder suits is understandable, for “the duties, the breaches of which constitute the ground of action, a re duties to the corporation, considered as a legal entity, and no t duties to any particular [share] holder.” Coble v. Beall , 130 N.C. 533, 536, 41 S.E. 793, 794 (1902). Thus, “any damages [recovered from derivative suits ] flow back to the corporation, no t to the individual shareholders bringing the action.” Green , 367 N.C.R AYMOND J AMES C APITAL P ARTNERS V
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- at 142, 749 S.E.2d at 268 . Furthermore, the procedural requirements for derivative suits protect shareholders and the corporation itself by avoiding a “multiplicity of lawsuits,” by l imiting “who should properly speak for the corporation [,] ” and by preventing “self

- selected advocate[s] pursuing individual gain rather than the interests of the corporation or the shareholders as a group, [from] bringing costly and potentially meritless s trike suits.” Norman v. Nash Johnson & Sons’ Farms, Inc. , 140 N.C. App. 390, 396, 537 S.E.2d 248, 253 (2000) (citation and internal quotation marks omitted). Given these principles, a shareholder generally has no standing to bring individual actions agai nst a corporation. Standing, which “is a necessary prerequisite to a court’s proper exercise of subject matter jurisdiction[,]” generally refers “to a party’s right to have . . . the merits of [its] dispute ” decided by a judicial tribunal. Neuse River Fo und., Inc. v. Smithfield Foods, Inc. , 155 N.C. App. 110, 113, 574 S.E.2d 48, 51

- 52 (2002) (citations omitted). Nevertheless, a “shareholder may maintain an individual action against a third party for an injury that directly affects the shareholder, even i f the corporation also has a cause of action arising from the same w rong,” under two circumstances: (1) where “the wrongdoer owed [the shareholder] a special duty[,]” and (2) where the shareholder suffered a personal injury

— one that is “ separate and distinct f rom the injury sustained by the other shareholders or the corporation itsel f.” Barger , 34 6 N.C. at 659, 488 S.E.2d at 219 (citation omitted)

. Accordingly, an evaluation of [plaintiff’s] standing in this matter re quires an analysis of: (1) [pla intiff’s] alleged injury, and (2)R AYMOND J AMES C APITAL P ARTNERS V
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- the relationship between [plaintiff] and defendant[] with respect to each claim.” En ergy Investors Fund, L.P. v. Metric Constructors, Inc. , 351 N.C. 331, 335, 525 S.E.2d 441, 444 (2000)

. A. Special Duty All of plaintiff’s claims for relief are based on the same c ore of operative facts, to wit: that defendant recorded false transactions in Greer’s ledger and misappropriated corporate funds for her own personal gain. However, p laintiff insists that Albion existed merely as a holding company for its subsidiaries, which included Greer. 3 Based on this characterization, plaintiff argues that defendant owed it a “special duty” individually. Specifically, plaintiff contends that “[d]ue to [d]efendant’s position, authority[,] and familiarity with the financial affairs of Greer, [she] owed a heightened duty to shareholders [of Albion] to act in good faith and with due care with regards to said financial affairs.” We disagree. In Barger , our Supreme Court explained and illustrated the special duty exception as follows:

The special duty may arise from contract or otherwise. To support the right to an individual lawsuit, the duty must be one that the alleged wrongdoer owed directly to th e

3 We note that plaintiff asks us to ignore the corporate form relevant to this case. As the trial court point ed out, the duties that defendant allegedly owed wou ld run to the shareholders of Greer, which was Albion itself. According to the trial court, t he duti es would not run to defendants as shareholders of Albion. Plaintiff has not cited any case law supporting the general proposition that North Carolina cour ts d isregard the separate existence of a parent corporation and its wholly

- owned subsidiary. Apart from case s presenting circumstances that would justify veil piercing or a conclusion that a wholly

- owned subsidiary was its parent’s agent, the trial court’ s analysis appears to be sound

. In any event, for purposes of this appeal, we assume that any duties defendant may have owed to Greer flowed directly to the shareholders of Albion.R AYMOND J AMES C APITAL P ARTNERS V
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- shareholder as an individual. The existence of a special duty thus would be established by facts showing that defendants owed a duty to plaintiffs that was personal to plaintiffs as shareholders and was separate and distinct from the duty defendants owed the corporation. A special d uty therefore has been found wh en the wrongful actions of a party induced an individual to become a shareholder; when a party violated its fiduciary duty to the shareholder; when the party performed individualized services directly for the shareholder; and when a party undertook to advise shareholders independently of the corporation. Id. at 659, 488 S.E. 2d at 220 (citations omitted). The Barger Court then explained:

“ This list is illustrative; it is not an exclusive list of all factual situations in wh ich a special duty may be found. ” Id. D espite this qualification, the special duty exception clearly requires an articulation of some duty owed to a plaintiff that is distinct from the general fiduciary duties directors and of ficers owe to the corporatio n . In the instant case, t he special, or heightened, duties identified by plai ntiff do not support its purported right to seek individual recovery in a direct action against defendant. T he verified complaint alleges that (1) shareholders in a closely hel d corporation owe a fiduciary duty to one another , and (2) officers owe a fiduciary duty to shareholders

. Unfortunately for plaintiff, the former is a misstatement of North Carolina corporation law and the latter fails to meet the threshold set out in Barger

. “As a general rule, shareholders do not owe a fiduciary duty to each other or to the corporation.” Freese v. Smith , 110 N.C. App. 28, 37 , 428 S.E.2d 841, 847 (1993) (citation omitted). However, “[a]n exception to this rule is that a controlling shareholder owes a fiduciary duty to minority shareholders.” Kaplan v. O.K. Techs. ,R AYMOND J AMES C APITAL P ARTNERS V
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- L.L.C., 196 N.C. App. 469, 473, 675 S.E.2d 133, 137 (2009). To that end, our courts have extended special protections to minority shareholder s in closely held corporatio ns. See, e.g. , Norman , 140 N.C. App. at 407, 537 S.E.2d at 260 (noting that North Carolina’s “cases have consistently held that majority shareholders in a close corporation owe a ‘special duty’ and obligation of good faith to minority shareholders”). How ever, p laintiff was not a minority shareholder of Greer ; it was a

m ajority shareholder in Albion

. Furthermore, while corporate officers generally “owe a fiduciary duty to the corporation and [its] shareholders[,]” T

- WOL Acquisition Co. v. ECDG South , LLC , 220 N.C. App. 189, 208, 725 S.E.2d 605, 6 17 (2012) (emphasis added), the breach of that duty rarely creates an individual cause of action. See Keener Lumber Co. v. Perry , 149 N.C. App. 19, 2 6, 560 S.E.2d 817, 822 (2002) (“ Under North Carolina law, direct ors of a corporation generally owe a fiduciary duty to the corporation, and where it is alleged that directors have breached this duty, the action is properly maintained by the corporation rather than any individual creditor or stockholder.”) (citation omi t ted). As the commentary to section 55

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- 30 explains, the prior version of the law “provided that officers and directors stand in a fiduciary relation ‘to the corporation and its shareholders,’ ” but the amended version does not reference a fiduciary duty to shareholders. Our Supreme Court has recognized that this amendment was intended “ ‘to avoid an interpretation [of section 55

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- 30] . . . that would give shareholders a direct right of action on claims that shou ld be asserted derivatively[.]’ ”R AYMOND J AMES C APITAL P ARTNERS V
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- Green , 367 N.C. at 141, 749 S.E.2d at 268 (quoting N.C. Gen. Stat. § 55

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- 30 (2011)). When the fiduciary duties of due care, loyalty, and good faith are breached, a shareholder may sue the offending director or officer in a derivative action

. N.C. Gen. Stat. § 55

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- 41 (2015)

. Here, all of plaintiff’s causes of action are based upon defendant’s violation of her core fiduciary duties to the corporation (Greer). As a result, plaintiff has failed to allege any duty that was individualized or otherwise “special.” Absent from the verified complaint is an y allegation that plaintiff was a party to a contract with defendant that created distinct duties personal to plaintiff, or that defendant induced plaintiff to become a shareholder. There is also no allegation tha t defendant advised

or dealt with plaintiff outside of the officer

- shareholder relationship. In fact, there is no indication that plaintiff and defendant had particular dealings w ith each other in any context. Green , 367 N.C. at 143

- 44, 749 S.E.2d at 269 (holding that the special duty exception did not apply where “the most contact plaintiffs had with [the defendant] was seeing her a handful of times and saying nothing more than “ ‘hello’ ”). Although the Barger scenarios are not exclusive, this case doe s not present a situation where the recognition of a special duty would be proper or justified. In sum, plaintiff has not “set forth any allegations which, even taken as true, support a special duty between it and defendant[] .” Energy Investors , 351 N.C. at 336, 525 S.E.2d at 444. B
. Separate and Distinct InjuryR AYMOND J AMES C APITAL P ARTNERS V
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- Plaintiff next argues that its injuries were “separate and distinct” from those suffered by Greer and that, therefore, its individual claims fall under the second Barger exception. Once again, we disagree. To proceed un der the second, special injury exception to the general rule against individual actions, a plaintiff must allege an injury “peculiar and personal ” to itself as a shareholder. Barger , 346 N.C. at 659, 488 S.E.2d at 220. Specifically, a plaintiff must show that its particular injury was “ separate and distinct from the injury sustained by the other shareholders or the corporation itself.” Id. at 659, 488 S.E.2d at 219

. As to plainti ff’s claim for embezzlement, the verified complaint contains the following statement s of injury and damages :

28. [Defendant’s] actions as set forth herein resulted in the diminution in value of Albion’s stock and the decrease in the purchase price of Albi on. 29. [Defendant’s] actions as set forth herein further resulted in th e decrease in the value of excess cash available for distribution either as dividen d s or a pre closing distribution to [plaintiff] and the other shareholders of Albion. (Emphasis ad ded). The verified complaint is replete with virtually identical allegations as to each of plaintiff’s additional causes of action. Plaintiff’s arguments on appeal are also consistently couch ed in terms of injuries sustained by it and “the shareholders.” Thus, b y plaintiff’s own account, it has not suffered a unique, personal injury. G iven the nature of its allegations at the trial level and its arguments onR AYMOND J AMES C APITAL P ARTNERS V
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- appeal, plaintiff has failed to show that its injury is separate and distinct from that

s uffered by other shareholders. Furthermore, t he heart of plaintiff’s verified complaint is that it and Albion’s other shareholders received inadequate

— or more precisely, reduced

— payments based upon the diminution of the value of their shares. Yet the all eged reduction in distributions or dividends is directly tied t o a decrease in Albion’s shares: plaintiff ultimately lost the full benefit of its investment only because Albion’s shares in Greer lost value. Consequently , any reduced payments received by plaintiff were likewise received by all other shareholders. Nevertheless, plai ntiff contends that its injury is separate and distinct from that suffered by Greer because Greer was never entitled to “(1) the multiplied amount constituting the purchase pric e pursuant to the Stock Purchase Agreement, (2) the
pre - closing distribution amo unt, or (3) yearly dividends.” This argument ignores that the allegedly embezzled funds were taken directly from Greer’s corporate coffers. As a result , plaintiff is simply p ositing a dis t inction without a difference: plaintiff’s claims for reduced payments are base d upon its ownership of shares, and these claims derive from the same underlying injury suffered by the corporation itself. Since
p laintiff’s losses are inextrica bly linked to the value of its investment, t he appropriate reasoning is as follows: (1) defendant’s embezzlement of Greer’s funds r educed the value of all shares held in Albion and (2) caused Greer and Albion to be purchased for a reduced price, which (3) resulted in plaintiff ’s and the other shareholders’R AYMOND J AMES C APITAL P ARTNERS V
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- diminished compensation after the sale

. Consequently , plaintiff’s injury for reduced payments is the functional equivalent of a claim for diminution of the value of shares held by all of Albion’s shareholders. See, e.g. , Energy Investors , 351 N.C. at 336, 525 S.E.2d at 444 (finding no individualized injury where the plaintiff’s “injury [ was] the loss of its investment, which is identical to the injury suffered by other limited partners and by the partne rship as a whole”); Barger , 346 N.C. at 659, 488 S.E.2d at
220 (“ The only injury plaintiffs as shareholders allege is the diminution or de struction of the value of their sha res as the result of defendants’ negligent or fraud ulent misrepresentations of TFH’ s financial status. This is precisely the injury suffered by the corporation itself. ”). Thus , plaintiff has failed to allege any injury t hat is separate and distinct from the harm suffered by Greer or all of Albion’s shareholders collectively. IV. Conclusion Plaintiff’s individual claims , derivative in nature, do not fall under either one of the Barger exce ptions to the general rule prohib iting individual shareholder suits

. Therefore, plaintiff lacks standing to maintain a direct action seeking individual
recovery against defendant. Accordingly, the trial court properly granted defendant’s motion to dismiss all claims against her

. AFFIRMED

. Judges ELMORE and ZACHARY concur .