OPINIONS

Continued From Page 15 back to the original complaint, including where, as in this case, the original complaint did not include the specialized pleading requirements for the newly added claims.

We affirm Judge Eric Levinson’s grant of defendant’s motion for partial summary judgment and judgment on the jury verdict for defendant. We dismiss the issue of the jury instruction as to “occurrence” as inadequately briefed.

Where Judge Trosch did not rule on whether plaintiff’s new claims would relate back to the filing of the complaint, Judge Levinson’s grant of partial summary judgment – ruling that the new claims did not relate back – did not overrule a decision by a fellow superior court judge in violation of the rule set out in Calloway v. Motor Co., 281 N.C. 496, 189 S.E.2d 484 (1972).

In any event, because plaintiff encouraged Judge Trosch to grant the motion to amend without resolving all issues related to the validity of the amendment and invited Judge Levinson to consider the issue of relation back at summary judgment, the issue was properly in front of Judge Levinson at the summary judgment hearing. The Calloway rule is inapplicable.

The defendant-insurer’s policy insuring plaintiff’s yacht excluded claims for rot, deterioration and delamination. Judge Levinson agreed to instruct the jury on this exclusion.

Plaintiff sought an instruction on estoppel based on evidence that, after the yacht struck a rock, the insurer’s contractor discovered moisture in the balsa core of the hull but did not inform plaintiff. Three years later, the yacht took on water and sank.

Judge Levinson properly declined to instruct the jury on estoppel. The doctrines of waiver and estoppel are not available to bring within the coverage of a policy risks that are not covered by its terms or risks expressly excluded.

In any event, since the jury concluded in issue “1A” that the loss of the yacht was not caused by an “occurrence” as that term was defined in the insurance policy, the verdict form directed them not to reach a conclusion on any remaining issues. Because the jury did not consider the policy’s rot exclusion (issue “1B”), plaintiff cannot demonstrate that the requested instruction would have resulted in a different outcome.

Affirmed in part; dismissed in part.

D&B Marine, LLC v. AIG Property Casualty Co. (Lawyers Weekly No. 011-03623, 26 pp.) (Allison Riggs, J.) Appealed from Mecklenburg County Superior Court (Eric Levinson, J.) Vernon Sumwalt, Robert Killeen and Robert Stern for plaintiff; Steven Bader, Roger Warin and John O’Connor for defendant. N.C. App.

Civil Rights

Damages Award – Prior Settlements & Payments – Collateral Source Rule – Wrongful Imprisonment

The district court instructed the jury to award the wrongfully imprisoned plaintiffs all their compensatory damages, without deductions for any amounts plaintiffs had received from settling parties. Consequently, the district court erred when it refused to reduce the jury’s award by the amounts the settling defendants had paid to plaintiffs. However, North Carolina’s collateral source rule may prevent a reduction in the damage award for the amounts paid to plaintiffs by the state for their wrongful imprisonment.

We affirm the district court’s denial of defendants’ motion for a new trial. We vacate the denial of defendants’ motion to reduce the compensatory damages award, and we direct the district court to reduce the award by $10 million and to determine whether the award should be reduced by another $1.5 million. We reverse the award of prejudgment interest. We affirm the award of attorneys’ fees and costs.

Plaintiffs are brothers with intellectual disabilities who served 31 years in prison for a rape and murder they did not commit. After their pardon and release, they sued several individuals and entities for their roles in plaintiffs’ convictions. Plaintiffs settled with everyone except two agents of the North Carolina State Bureau of Investigation.

A jury awarded plaintiffs $62 million in compensatory damages and $13 million in punitive damages. The district court awarded plaintiffs $36 million in prejudgment interest and $6.25 million in attorneys’ fees and costs.

Evidentiary Rulings

The issue in this case was not whether plaintiffs were innocent but whether plaintiffs’ convictions were attributable to the defendant-SBI agents’ misconduct. Consequently, the district court did not err by taking judicial notice of plaintiffs’ pardons or by prohibiting defendants from impeaching the pardons as evidence.

Even though the former district attorney was neither proffered as nor qualified as an expert, he could have been. The few instances when his testimony strayed into expert-witness territory were not prejudicial.

Post-Trial Motions

Where the district court specifically instructed the jury not to adjust any damages award to account for settlements, we must presume that the jury awarded plaintiffs all of the damages that they found appropriate by reason of defendants’ wrongs. The district court stated that this case was based on joint liability, such that all the culpable defendants were jointly liable to plaintiffs. Thus, when the district court denied the SBI agents’ motion to reduce the jury award by the amounts plaintiffs had already received, the court allowed plaintiffs a double recovery, violating the one satisfaction rule.

However, North Carolina has a collateral source rule to prevent a windfall to defendants when a portion of the plaintiffs’ damages have been paid by a collateral source.

Although the defendants in this case were state actors, they were sued in their individual capacities, and the state statutory compensation fund from which each plaintiff received a $750,000 payment appears to be entirely separate from them. Thus, while the collateral source rule might apply in this case, we nonetheless remand the issue for the district court to determine in the first instance whether it indeed does.

Plaintiffs’ complaint did not request prejudgment interest. This is understandable since prejudgment interest serves to compensate for the loss of use of money and plaintiffs’ claims sounded in tort. Moreover, the jury was instructed to compensate plaintiffs for all injuries, including future damages.

In view of the nature of the injuries and the jury’s general verdict, any “calculation” of interest on amounts as they accrued could only be the product of speculation and not compensation for the loss of use of money. Because the court simply did not have a basis to calculate interest, the $36 million award it added to the jury’s verdict was functionally a double recovery or punitive or both. The district court’s award of prejudgment interest was based on error and constituted an abuse of discretion.

Affirmed in part, reversed in part, vacated in part, and remanded.

Gilliam v. Allen (Lawyers Weekly No. 001034-23, 37 pp.) (Paul Niemeyer, J.) No. 21-2313. Appealed from USDC at Raleigh, N.C. (Terrence Boyle, J.) Scott Douglas MacLatchie, Adam Peoples, Austin Atkinson and Pearson Cunningham for appellants; Catherine Emily Stetson, Desmond Hogan, David Maxwell, Elizabeth Lockwood, Matthew Higgins and Patrick Valencia for appellees. 4th Cir.

Corporate

Derivative Action – Demand Letter – 90-Day Period – Tort/Negligence –Breach of Fiduciary Duty

Even though more than 90 days passed between plaintiff’s delivery of its demand letter to the nominal defendant-limited liability company and the hearing on defendants’ motion to dismiss, this does not excuse plaintiff’s failure to wait the 90 days required by G.S. § 57D-8-01(a)(2) before filing suit. Furthermore, plaintiff’s attachment of its proposed complaint to the demand letter does not make up for the lack of specificity in the demand letter.

Defendants’ motion to dismiss is granted in part and denied in part.

Pursuant to G.S. § 57D-8-01(a)(2), a member of a limited liability company may bring a derivative action on the company’s behalf if, among other things, the member made a written demand on the LLC to take suitable action and 90 days have expired from the date the demand was made or irreparable injury to the LLC would result by waiting for the expiration of the 90-day period.

Here, plaintiff filed its complaint just ten days after its initial demand letter and only one day after its amended demand letter.

Even if the defendant-majority member’s (defendant’s) “imminent” plans – first to redeem plaintiff’s ownership interest and then to sell the LLC – would satisfy the “irreparable injury” exception to the statute’s 90-day requirement, plaintiff conceded in its own complaint that, after receipt of its amended demand letter, defendant “temporarily” withdrew his attempt to exercise his redemption option. Accordingly, it cannot be said that the sale of the LLC was imminent.

It is true that more than 90 days have now passed since the demand letters were sent, and the LLC has failed to initiate legal action against defendant. However, the court cannot accept plaintiff’s “no harm, no foul” argument. The 90-day requirement reflects a legislative determination that a company should be given 90 days in which to fully investigate a demand that the company file suit against an alleged wrongdoer. In almost every case, more than 90 days will have elapsed between the date of a demand letter and the date the defendant’s motion to dismiss the derivative claims on timeliness grounds is heard by the court. As such, the rule would be honored more in its breach than in its observance.

Moreover, the demand letter seeks payment of distributions and an increase in the price offered for redemption of plaintiff’s interest. The letter thus seeks to protect not the interests of the LLC, but those of plaintiff. This is not a proper demand within the meaning of the statute.

Plaintiff has failed to cite any North Carolina case law standing for the proposition that attaching a draft complaint to a demand letter is a valid substitute for mak- ing a proper demand for suitable action by the company in the letter itself.

The court grants the motion to dismiss plaintiff’s derivative claims.

Generally, an LLC member may not bring an individual action to recover what they consider their share of damages suffered by the LLC. However, a substantial portion of plaintiff’s allegations concern defendant’s acts in (1) thwarting plaintiff’s ability to receive distributions in proportion to its ownership interest in the LLC and (2) refusing to comply with certain provisions of the operating agreement providing safeguards to plaintiff in connection with defendant’s ability to purchase plaintiff’s ownership interest in the LLC. These allegations fall within the “special injury” exception to the general rule. Barger v. McCoy Hillard & Parks, 346 N.C. 650 (1997). Plaintiff has standing to bring its individual claims.

The LLC’s operating agreement makes it clear that defendant owed no fiduciary duties in his role as manager.

However, the operating agreement does not eliminate the fiduciary duty that a controlling majority member would otherwise owe to a minority member under Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *17 (N.C. Super. Ct. June 19, 2019). The complaint alleges a number of ways in which defendant has used his position as the majority member to assert absolute control over the LLC.

Moreover, the complaint asserts that defendant breached his fiduciary duty to plaintiff as a minority member in several respects. For example, plaintiff alleges that defendant (1) improperly withheld distributions owed to plaintiff; (2) refused to provide plaintiff with information regarding his appraisal of the value of its units in connection with his decision to exercise his redemption option; and (3) ignored a number of provisions in the LLC’s operating agreement at the expense of plaintiff. Plaintiff has stated a breach of fiduciary duty claim against defendant in his capacity as majority member.

Motion granted in part, denied in part.

Cumberland County Hospital System, See Page 18