In this lawsuit alleging a “scheme” carried out by two defendants in relation to the sale of two real estate projects, the Preserve at Woods Lake in Greenville, S.C., and Raefield Village in Charlotte, N.C., a Norfolk Circuit Court overrules defendant’s demurrers to plaintiffs’ claims for aiding and abetting a breach of fiduciary duty, statutory and common law conspiracy and unjust enrichment.
Aiding and abetting
Defendant Paul Van states there is no such cause of action as aiding and abetting a breach of fiduciary duty, citing ample case law. He does acknowledge that courts have been in conflict on this question.
Recognizing also that some courts have allowed an aiding and abetting claim to support recovery on the theory of joint liability – even if it is not a standalone claim – Van states that plaintiffs have nonetheless failed to allege two of three elements required by such a theory – Van’s knowledge of defendant Charles Patty Jr.’s breach of duty and his participation in Patty’s putative breach.
Admittedly, plaintiffs do not describe in great detail the scheme Van and Patty allegedly undertook. The complaints do, however, allege that Van knew that Patty was the manager of both entities and held a fiduciary duty to those entities; and that Van had knowledge both that plaintiff Fortress Holdings II LLC (FH2) was not required or even permitted to pay either of the two disposition fees and that there was no basis for plaintiff FWLMGR to be stripped of the diverted funds. It is not stated how Van came to possess this knowledge, but the court nonetheless must admit the truth of all facts properly pleaded in the complaints.
The lynchpin of this scheme was Patty’s transfers of FHW and FWLMGR funds to defendant Fortcap Partners LLC. As Patty was FH2’s manager, he would have presumably been able to perform these acts on his own. The complaints do allege that Patty and Van acted “in concert” and that the two “concocted a scheme.” The complaints further allege that, in an attempt to cover their tracks, Patty and Van then transferred to MGAW LLC and Beach Capital Investors LLC an amount designed to mimic some or all of the distribution which each of those entities would have received had FWLMGR not been looted. While details of Van’s participation are not alleged in exacting detail, the complaints repeatedly assert that the plan was executed by Van and Patty.
The allegations are sufficient to support a claim that Van aided and abetted Patty’s alleged breach of his fiduciary duties to FH2 and FWLMGR. If these allegations are proven true, Van will be jointly liable along with Patty. The demurrers to this count are overruled.
Van demurs to the conspiracy counts on four bases: the intracorporate immunity doctrine bars the conspiracy counts; plaintiffs have failed to allege an underlying tortious act; plaintiffs did not allege that Van acted with the legal malice required for statutory conspiracy claims; the allegations lack details regarding the alleged scheme.
The complaints do not allege, directly or impliedly, that Patty was an agent of Fortcap – only that Patty was a member. Even assuming he was an agent of Fortcap, it is not at all clear that any of his alleged action – which implicate his agency under FH2 and FWLMGR – were performed within the scope of that putative Fortcap agency. The demurrer cannot be sustained on the ground that the intracorporate immunity doctrine applies.
The question of whether Patty made transfers of funds belonging to each entity outside of his authorization goes to the very heart of the action at bar. If such transfers are found to constitute a breach of fiduciary duty, an underlying tort is present to support a conspiracy charge.
FH2 has pleaded the requisite legal malice to state a claim for statutory business conspiracy. One element of the alleged scheme may suggest a motive to harm vis-à-vis FH2: the fact that after the project members refused Van’s request for a disposition fee for the Preserve property in the amount of .75 percent of the property’s sale price, Patty paid to Fortcap disposition fees of 1.0 percent for both projects.
Plaintiffs also have alleged the elements of conspiracy with requisite particularity. As the sole members of two LLCs, Van and Patty obviously had a significant and ongoing business relationship. Moreover, it is specifically alleged that Van had made a request to project owners for a disposition fee from the sale of the preserve and that – after the request was denied – Patty eventually paid two similar fees to Fortcap, an entity in which Van had a 50 percent interest.
The court overrules the demurrers to the statutory and common law conspiracy claims. Finally, the court also overrules the demurrer to the claim for unjust enrichment. Assuming as true the facts of the complaint, FH2 conferred to Fortcap the benefit of two large transfers of funds; Fortcap received the funds and – as Van was actually an instigator of the transfer – could not have been unaware of this benefit; and if the transfers of funds were without any basis and constituted a breach of fiduciary duty by Patty – aided by Van – it would be unjust to allow Fortcap to retain such an unwarranted benefit. FH2 has thus properly pleaded the elements of an unjust enrichment claim.
Fortress Holdings II LLC v. Patty (Atkins) No. CL 16-9593, April 27, 2017; Norfolk Cir.Ct.; John D. McIntyre, Benjamin L. Hatch, John C. Lynch for the parties. VLW 017-8-045, 11 pp.