Court Opinion

ID: 2729017
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:38:18.888444+00
Date Added: 2024-06-11T10:10:47.601004
License: Public Domain

NO. COA13-773

                    NORTH CAROLINA COURT OF APPEALS

                          Filed: 4 March 2014

JOYCE FARMS, LLC
f/k/a HICKORY MOUNTAIN FARMS, LLC,

      Plaintiff,

      v.                                Forsyth County
                                        No. 12 CVS 2114
VAN VOOREN HOLDINGS, INC., STANNY
H. VAN VOOREN, and WARRY VAN
VOOREN

And

VAN VOOREN GAME RANCH, INC.
An Ontario, Canada corporation,

      Defendants.

      Appeal by defendants from order entered 18 April 2013 by

Judge William Z. Wood, Jr. in Forsyth County Superior Court.

Heard in the Court of Appeals 10 December 2013.

      Hendrick Bryant Nerhood & Otis, LLP, by Matthew H. Bryant,
      for plaintiff-appellee.

      Craige Brawley Liipfert & Walker,           LLP,   by    William   W.
      Walker, for defendants-appellants.

      HUNTER, Robert C., Judge.

      Defendants appeal from an order entered 18 April 2013 in

Forsyth County Superior Court by Judge            William Z. Wood, Jr.

granting   plaintiff’s   motion   for   partial   summary     judgment   and
                                          -2-
dismissing       defendants’   counterclaims.            Defendants      contend    on

appeal that the trial court erred by granting plaintiff’s motion

for partial summary judgment because defendants’ counterclaims

were not barred, and there was ambiguity in the receivership

sale documents as to whether liabilities were transferred, thus

creating     a    genuine   issue    of     material     fact.        Alternatively,

defendants argue that summary judgment was improper because they

fall under an exception to the general successor liability rule

as set out in Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App.

684, 687, 370 S.E.2d 267, 269 (1988).

      After careful review, we affirm the trial court’s order.

                                   I. Background

      This       action   arises     from       the   second     of    two     related

proceedings between the parties. The first proceeding involved a

civil action and arbitration leading to the judicial dissolution

of   Van   Vooren    Game   Ranch    USA,       LLC   (“VVGR   USA”).    The    second

proceeding, which gives rise to this appeal, involved a civil

action after VVGR USA was dissolved and sold at auction.

      Stan Van Vooren (“Stan”) formed Van Vooren Game Ranch, Inc.

(“VVGR Canada”) in Ontario, Canada in 1987 to grow and sell

pheasants for commercial consumption.                    VVGR Canada created a

breed of white pheasants especially suited for meat production
                                        -3-
and developed a market in North America and overseas.                  Ron Joyce

(“Joyce”) joined the family poultry distribution business, Joyce

Foods, Inc. (“JFI”) in Forsyth County, North Carolina in 1971,

became sole shareholder and manager in 1981, and formed Hickory

Mountain Farms, LLC (“HMF”) in 2003 to manage JFI’s farming

operation.

       In 2006, VVGR Canada sought a processor for its pheasants.

After negotiation, HMF and Joyce entered into an agreement with

Stan and Van Vooren Holdings Ltd. (“VVH”) to form VVGR USA.

VVGR USA was owned equally; HMF and Joyce owned 50% and Stan and

VVH owned 50%.     Joyce and Stan served as co-managers of the new

company.     VVGR USA was to purchase the assets of VVGR Canada for

$2,200,000.00.         In late 2006 VVGR Canada moved its assets to

North Carolina.         JFI provided office space and other services

for VVGR USA, and JFI’s chief financial officer administered

VVGR USA’s books and bank accounts.

       In March 2007, VVGR USA established a $300,000.00 line of

credit   with    SunTrust    Bank      (“the    SunTrust   loan”)      which   was

converted to a promissory note in 2008.               The note gave SunTrust

a   security    interest    in   all    of     VVGR   USA’s   assets     and   was

personally guaranteed by Joyce and Stan.              The SunTrust loan went

into   default    in    2009.    VVGR     USA    negotiated    a    forbearance
                                       -4-
agreement with SunTrust to keep SunTrust from seizing VVGR USA’s

assets while VVGR USA looked for other sources of income as it

paid interest on the note.            Out of the three parties liable on

the note – Joyce, Stan, and VVGR USA – Joyce was the only party

with sufficient assets to pay the debt.

    Joyce    and     Stan    were     unable     to     work   together      as    co-

owners/managers of VVGR USA due to myriad disputes related to

VVGR USA’s relationship with JFI.               In July 2011, JFI sent VVGR

USA a demand letter for $100,548.62 owed for product sold and

delivered.        VVGR   USA    contended       that,     because     of     improper

charges,   JFI    actually     owed   VVGR     USA    funds    in   excess    of   the

amount demanded by JFI.          Joyce, JFI, Stan, and VVGR USA agreed

in August 2011 to submit their disputes to arbitration.

                 A. Arbitration and Judicial Dissolution

    In the arbitration, Stan and VVGR USA filed, among other

claims, a request for judicial dissolution of VVGR USA pursuant

to N.C. Gen. Stat. § 57-6-02.            Because judicial dissolution of

VVGR USA would trigger default of the SunTrust note and Joyce’s

guaranty would be called upon, Joyce began a plan to protect his

personal obligation in the note.             Joyce determined that he would

be paying off the note “one way or the other” and decided he

would rather have control of the VVGR USA assets than lose them
                                                      -5-
in    a       bank    auction,    which          he    believed      would      not   realize    the

assets’         value.       2011 Asset Acquisition, LLC (“2011 AA”) was

formed         by     Todd   Tucker,         a    JFI       shareholder      and      officer,    to

purchase the SunTrust note from the bank.                             Art Pope, another JFI

shareholder and creditor, loaned the funds to 2011 AA to buy the

SunTrust note for $299,589.42.                              Joyce agreed, through HMF, to

underwrite and fund 2011 AA’s costs of purchasing the SunTrust

note and take control of the VVGR USA collateral.

          On 3 October 2011, Joyce and HMF commenced the dissolution

action in Forsyth County Superior Court seeking (1) judicial

dissolution of VVGR USA; (2) an order allowing the other VVGR

USA owners to buy Stan and VVGR Canada’s interest in VVGR USA;

(3)       a     declaratory       judgment             determining        the    scope    of     the

arbitration agreement; and (4) an order staying the arbitration

proceeding.            HMF specifically alleged management deadlock, that

HMF was not a party to the arbitration agreement, and that VVGR

USA should be “dissolved, its assets liquidated and creditors

paid.”               On 5 October 2011, the attorney for Joyce and JFI

informed         Stan    and     VVGR    USA          that    2011   AA    had     purchased     the

SunTrust         note.         2011     AA       demanded      immediate        payment    of    the

$299,589.42 balance on the SunTrust note and took possession of

all       of    VVGR    USA’s    assets          pursuant       to   the     original     security
                                         -6-
agreement.

    On 10 October 2011, Stan and VVGR USA filed a counterclaim,

a third-party complaint, and a motion for injunctive relief in

the dissolution action.             They argued that there was no factual

or legal difference between Joyce, JFI, HMF, Tucker, and 2011 AA

and that the acts of any one of them was the act of the others,

meaning    that      all   were     subject    to    the    arbitration     agreement

entered into by Joyce and JFI as part of their dispute with Stan

and VVGR USA.          Alternatively, they asked the court to enjoin

Joyce,    JFI,    HMF,     Tucker,     and    2011     AA   from    pursuing    claims

outside the arbitration proceeding, and for the court to appoint

a receiver to manage VVGR USA.

    On     4     November    2011,     the     trial    court:      (1)   denied    the

preliminary injunction motion; (2) found that HMF and 2011 AA

were not parties to the arbitration agreement; (3) found that

VVGR USA was deadlocked; and (4) ordered that a receiver be

appointed to dissolve VVGR USA.                The receiver operated VVGR USA

until he made a motion to sell VVGR USA’s assets, which was

granted on 15 December 2011.                 Neither the order appointing the

receiver       nor     the    order     approving           the    receiver’s      sale

specifically mention any contract-based claims that Stan, his

father    Warry      Van   Vooren    (“Warry”),      VVH     or    VVGR   Canada   held
                                               -7-
against VVGR USA.              The bill of sale and motion to sell were

silent with regard to the transfer of liabilities; however, an

attached asset protection agreement explicitly stated that the

sale would not transfer liabilities.

      The receiver conducted an auction of VVGR USA’s assets,

where HMF submitted the highest bid of $510,000.00.                                The court

approved the sale in an order dated 16 December 2011, with the

details of the sale attached.                  The order approving sale provided

that “[t]he Purchased Assets shall be sold free and clear of all

liens, interests and encumbrances whatsoever[.]”                             With the sale

complete, the receiver asked Tucker to specify all amounts VVGR

USA owed to 2011 AA on the SunTrust note and security agreement

purchased       by     2011    AA.         Tucker      claimed        2011    AA    was     due

$485,630.00 from VVGR USA, and the receiver paid the requested

amount to 2011 AA.                 Tucker subsequently transferred his sole

ownership       of    2011    AA   to     Joyce      for   no   consideration.            Joyce

therefore       controlled         all    of   VVGR        USA’s   assets     through       the

auction sale to HMF, and had the SunTrust note paid off to 2011

AA,     which    Joyce       now    solely        owned.        The    arbitrator         later

conducted a hearing in March 2013 and entered a ruling on 2

April 2013 denying Stan’s and VVH’s claims against Joyce for

money    owed        from    unpaid      capital      contributions      at    VVGR       USA’s
                                               -8-
creation.

                                B. The Present Action

       HMF commenced this action against Stan, Warry, VVH, and

VVGR    Canada     (collectively              “defendants”)         claiming      they      were

liable to HMF as assignee for legal claims previously held by

VVGR    USA      related        to     unapproved           distributions       and      unpaid

invoices, among other things.                     Defendants counterclaimed that

HMF, as the owner of VVGR USA’s contracts and goodwill, was

liable to defendants for, inter alia, money owed from VVGR USA’s

initial     purchase       of        assets     from       VVGR   Canada    in     2006      and

subsequent       loans   defendants           made     to    VVGR    USA   throughout        the

course of the business.                 After discovery, HMF filed a partial

summary judgment motion claiming that the liabilities of VVGR

USA were not transferred in the dissolution sale, and therefore

all of defendants’ counterclaims should be dismissed.

       The trial court denied HMF’s motion for summary judgment as

to   its   own    claims    but        granted       the    motion    as   to    defendants’

counterclaims,      concluding           that    the       receivership     sale      did    not

transfer VVGR USA’s liabilities to the buyer, HMF.                               The parties

settled all remaining claims shortly after jury selection.                                  The

settlement specified that it was a “final determination of the

rights of the parties” and that “[d]efendants’ right to appeal
                                    -9-
the dismissal of [d]efendants’ counterclaims [was] not waived or

abridged by [the] settlement.”

      Defendants filed timely notice of appeal from the trial

court’s order.

                            II. Discussion

      Defendants contend that summary judgment was improper for

three reasons: (1) their counterclaims were not barred by the

dissolution because a genuine issue of material fact existed as

to whether the trial court ordered a sale free and clear of

defendants’    contract   claims   against      VVGR   USA;   (2)    the   order

approving the sale of VVGR USA’s assets to HMF was ambiguous,

and thus its effect could not be determined as a matter of law;

and (3) the evidence raises genuine issues of material fact as

to whether any exceptions to the general successor liability

rule apply.     After careful review, we affirm the trial court’s

order dismissing defendants’ counterclaims.

      “Our standard of review of an appeal from summary judgment

is de novo; such judgment is appropriate only when the record

shows that ‘there is no genuine issue as to any material fact

and that any party is entitled to a judgment as a matter of

law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,

576   (2008)   (quoting   Forbis   v.   Neal,    361   N.C.   519,    524,   649
                                         -10-
S.E.2d 382, 385 (2007)).               “An issue is material if the facts

alleged would constitute a legal defense, or would affect the

result of the action, or if its resolution would prevent the

party    against     whom   it    is    resolved       from       prevailing       in    the

action.”     Koontz v. City of Winston-Salem, 280 N.C. 513, 518,

182 S.E.2d 897, 901 (1972).             On summary judgment, facts must be

viewed in the light most favorable to the non-moving party.

Caldwell    v.   Deese,     288   N.C.       375,    378,    218       S.E.2d    379,    381

(1975).

         A. Effect of Dissolution on Defendants’ Contract Claims

    Defendants first argue that a genuine issue of material

fact exists as to whether the trial court actually ordered that

VVGR USA’s assets were to be sold free and clear of defendants’

contract claims against VVGR USA.               We disagree.

    Under the general successor liability rule, “a corporation

which    purchases    all    or   substantially         all       of    the     assets   of

another     corporation      is    not       liable”        for    the      transferor’s

liabilities.       Budd Tire, 90 N.C. App. at 687, 370 S.E.2d at 269.

Defendants’      counterclaims         all    stem    from        alleged       breach    of

contractual agreements defendants held with VVGR USA.                             Contract

claims     are   liabilities      that       generally       do    not      transfer     to

successor corporations.           See Becker v. Graber Builders, Inc.,
                                   -11-
149 N.C. App. 787, 791, 561 S.E.2d 905, 909 (2002).          Thus, under

the general rule, when plaintiff purchased all of VVGR USA’s

assets at the receivership sale, it did not acquire VVGR USA’s

liabilities, which included defendants’ contract claims against

it.

      Despite the general successor liability rule, defendants

argue that there is a genuine issue of material fact as to

whether the judicial dissolution court specifically ordered VVGR

USA’s assets to be sold free and clear of defendants’ contract

claims.   Because neither the order appointing the receiver nor

the   order   approving   the   receiver’s   sale   specifically   mention

defendants’ contract claims against VVGR USA, defendants argue

that there is a genuine issue of material fact as to whether

these liabilities were transferred.          We disagree.     Though the

trial court’s orders do not expressly indicate that defendants’

contract claims against VVGR USA were excluded in the receiver’s

sale of VVGR USA’s assets, they do indicate that VVGR USA’s

assets were to be sold “free and clear of all liens, claims and

encumbrances[.]”     Furthermore, as is discussed in more detail

below, all relevant documents related to the receivership sale

indicate that it was intended to be a sale of assets only, with

no liabilities included.
                                             -12-
       Absent any indication to the contrary, we hold that the

trial   court,       consistent       with     the   general       successor       liability

rule, ordered a sale of VVGR USA’s assets and did not order the

transfer      of     VVGR    USA’s     liabilities,         including        any    contract

claims defendants may have had against it.

                       B. Ambiguity of Order Approving Sale

       Defendants next argue that the order approving the sale of

VVGR    USA’s       assets    was    ambiguous       and    therefore       could    not    be

determined as a matter of law.                 We disagree.

       At the outset, we note that defendants’ argument as to this

issue    amounts       to    an     impermissible        collateral       attack     on    the

receivership         sale     of    VVGR     USA’s      assets.       “Attacks       on    the

validity       of     receiverships          by     collateral       actions        are    not

permissible         under    North     Carolina      law.”         Hudson    v.    All     Star

Mills, Inc., 68 N.C. App. 447, 451, 315 S.E.2d 514, 517 (1984).

The method of attacking a public sale of assets must be direct,

either by motion in the cause or appeal, not through a separate

action.       See Brown v. Miller, 63 N.C. App. 694, 697, 306 S.E.2d

502,    504     (1983).             “[T]he     court       being    one     of     competent

jurisdiction in receivership proceedings, and having acquired

jurisdiction         of      the     parties      and      the     subject        matter    in

controversy, it may not be interfered with by any other court of
                                                -13-
co-ordinate authority[.]”                  Hall v. Shippers Exp., 234 N.C. 38,

40, 65 S.E.2d 333, 335 (1951).

      Here, defendants attempted to challenge the order approving

the receivership sale in a new action brought in a trial court

of coordinate authority as that which conducted the dissolution.

The   trial    court       in       the    dissolution       action       concluded,        and

defendants do not contest, that it had proper subject matter

jurisdiction        to    oversee         the    receivership      sale.            Defendants

failed to file any claims, motions, objections, or appeals in

the dissolution action or otherwise challenge the receivership

proceedings     or       the    order      authorizing       the       sale    in    any    way.

Therefore, because the trial court in the judicial dissolution

case had proper subject matter jurisdiction over the parties

with regard to the receivership sale, and defendants now contest

the   receivership         sale      before       a    new   judge      with    co-ordinate

authority,     we     hold         that    this    argument       is    an    impermissible

collateral attack.

      However, even if this were not an impermissible collateral

attack, we would hold that defendants’ argument fails.                                Whether

ambiguity exists in a court order is a question of law.                                    Emory

v. Pendergraph, 154 N.C. App. 181, 186, 571 S.E.2d 845, 848

(2002).       “[W]here         a    judicial      ruling     is    susceptible         of   two
                                      -14-
interpretations, the court will adopt the one which makes it

harmonize with the law properly applicable to the case.” Kniep

v. Templeton, 185 N.C. App. 622, 631, 649 S.E.2d 425, 431-32

(2007) (citations and quotation marks omitted).

    Defendants’ contention that the order approving the sale

was ambiguous arises from the order’s provision that VVGR USA’s

“contracts”   would    be    sold     with   its   assets    but   that     “[t]he

[p]urchased [a]ssets shall be sold free and clear of all liens,

interests and encumbrances whatsoever.”               Defendants argue that

because their contract claims against VVGR USA were not “liens,

interests or encumbrances,” and that VVGR USA’s “contracts” were

transferred     to   plaintiff,      ambiguity     existed    as   to     whether

liability on defendants’ contract claims were sold to plaintiff

and this issue should have been decided by a trier of fact.                    We

disagree.

    The     receiver’s      report    and    motion   to    sell   assets    both

indicate that the receiver intended to conduct an asset sale

exclusive of liabilities.            An “Asset Purchase Agreement” form,

which the receiver attached to the motion as a template for the

sale, specifically excluded transfer of VVGR USA’s liabilities

to the buyer:

            NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO
            THE CONTRARY, THE PURCHASER SHALL NOT ASSUME
                                             -15-
              ANY LIABILITIES OR OBLIGATIONS (FIXED OR
              CONTINGENT, KNOWN OR UNKNOWN, MATURED OR
              UNMATURED),     INCLUDING   ANY   AND    ALL
              ENVIRONMENTAL LIABILITIES, OF THE COMPANY OR
              ITS MEMBERS OR SHAREHOLDERS WHETHER OR NOT
              ARISING OUT OF OR RELATING TO THE PURCHASED
              ASSETS OR THE BUSINESS OR ANY OTHER BUSINESS
              OF   THE    COMPANY   OR  ITS   MEMBERS   OR
              SHAREHOLDERS, ALL OF WHICH LIABILITIES AND
              OBLIGATIONS SHALL, AT AND AFTER THE CLOSING,
              REMAIN THE EXCLUSIVE RESPONSIBILITY OF THE
              COMPANY OR ITS MEMBERS OR SHAREHOLDERS (AS
              APPLICABLE).

Furthermore, the bill of sale refers only to the sale of assets

and is silent with regard to liabilities.                        The receiver filed an

affidavit      in    which       he    stated   that       the   auction    sale   was   for

assets only, not liabilities.                   Finally, the order itself states

that “[t]he Purchased Assets shall be sold free and clear of all

liens, interests and encumbrances whatsoever.”                         In short, all of

the evidence related to the receivership sale clearly indicates

that    it   was     a    sale    of    assets,      not    liabilities.       Defendants

produced no evidence indicating that the parties, the receiver,

or    the    trial       court   intended       to   contravene       the   long-standing

general       successor          liability       rule       by    selling     defendants’

unspecified contract claims together with VVGR USA’s assets.

     Based on these facts, we agree with plaintiff that the order

unambiguously        transferred         VVGR    USA’s      assets    and   excluded     all

liabilities,         including         defendants’         contract    claims,     in    the
                                          -16-
receivership        sale.          Therefore,           defendants’            argument      is

overruled.

         C. Exceptions to the General Successor Liability Rule

       Defendants’     final       argument      is     that        a    genuine    issue    of

material     fact    existed       as    to    whether        any       exceptions    to    the

general successor liability rule apply.                   We disagree.

       Defendants rely on the four exceptions enunciated in Budd

Tire to support their argument.                  In Budd Tire, the Court dealt

with     a   private        sale    of        company     assets           for     inadequate

consideration       where    the    purchaser         would     be       protected    by    the

general successor liability rule.                     Budd Tire, 90 N.C. App. at

684, 370 S.E.2d at 267.                  The Court was forced to carve out

exceptions to the general successor liability rule to provide an

equitable    remedy    to     a    creditor      in     the    face       of   a   fraudulent

transaction.        Id. at 689, 370 S.E.2d at 270.                         Thus, the Court

held that the general successor liability rule does not apply

where:

             (1) there is an express or implied agreement
             by the purchasing corporation to assume the
             debt or liability; (2) the transfer amounts
             to   a   de   facto   merger   of  the   two
             corporations; (3) the transfer of assets was
             done for the purpose of defrauding the
             corporation’s   creditors,   or;   (4)   the
             purchasing    corporation    is   a    “mere
             continuation” of the selling corporation in
             that the purchasing corporation has some of
                                           -17-
            the   same         shareholders,           directors,       and
            officers.

Id. at 687, 370 S.E.2d at 269.

     However, the structured court-ordered sale of assets in the

present    case    is    distinguishable            from   the   type   of    fraudulent

private    transaction         in   Budd       Tire    that      involved     inadequate

consideration and shielding the insolvent company from creditors

without the creditors having legal remedies prior to the sale.

See id.         Defendants cite to no caselaw, and we find none,

supporting the contention that these exceptions are applicable

to a court-ordered and supervised public sale.                      In this context,

statutory safeguards are already in place to ensure that the

trial   court     and    the   receiver        conduct      dissolution      fairly   and

without fraud.          See N.C. Gen. Stat. § 1-505 (2013) (“Sales of

property [by receivers] shall be upon such terms as appear to be

to   the   best     interests       of        the    creditors     affected     by    the

receivership.”).         Furthermore, unlike the private sale in Budd

Tire, defendants here could have protected their interests by

bidding on VVGR USA’s assets.                 The Budd Tire exceptions were put

in place to prevent fraudulent transfers in private sales.                            Id.

at 689, 370 S.E.2d at 270.               The need to protect creditors from

fraud   through     application          of    these       exceptions   is     minimized

where, as here, statutory safeguards were already in place to
                                           -18-
ensure dissolution without fraud and the creditors could have

protected their own interests by participating in the public

sale.

      For these reasons, we decline to extend the exceptions to

the   general       successor    liability        rule   to    the   new    context    of

court-ordered        and   supervised       public   sales      of   company    assets.

Defendants’ contention that there existed a genuine issue of

material fact as to whether the exceptions apply is overruled.

                                    III. Conclusion

      Because the trial court unambiguously ordered VVGR USA’s

assets    to    be    sold     at    the    receivership        sale   free    of     all

liabilities, and the general successor liability rule applies,

there    is    no    genuine    issue      of   material      fact   and    defendants’

counterclaims against plaintiff based on alleged contracts with

VVGR USA are barred as a matter of law.                       Furthermore, we hold

that the Budd Tire exceptions to the general successor liability

rule put in place to prevent fraudulent transfers in private

sales of company assets are inapplicable here.                             As such, we

affirm the trial court’s order.

      AFFIRMED.

      Judges MCGEE and ELMORE concur.