Opinion
No. COA98-962.
June 15, 1999.
Jurisdiction — standing — action by limited partner for injuries to partnership
The trial court correctly dismissed plaintiff's claims for negligence, negligent misrepresentation, and breach of warranty for lack of standing where plaintiff, one of several limited partners, alleged that it had relied on representations by defendants in investing in the limited partnership and that defendants caused the project to fail and plaintiff to lose its investment. The proper analysis of plaintiff's standing requires analogy to the law of shareholders, which allows the special duty and unique injury exceptions to the general rule that a shareholder cannot sue a third party for causing harm to the corporation. The complaint, taken as true, did not allege facts from which one might reasonably infer a special duty between defendants and this particular limited partner, and the damages of which plaintiff complains are common to all of the\ partners.
Judge HORTON dissenting.
Appeal by plaintiff from order entered 10 February 1998 by Judge Knox V. Jenkins in Cumberland County Superior Court. Heard in the Court of Appeals 31 March 1999.
Adams Kleemeier Hagan Hannah Fouts, by W. Winburne King, III, and R. Harper Heckman; and Gadsby Hannah L.L.P., Boston, Massachusetts, by Richard K. Allen and Michael B. Donahue, for plaintiff-appellant. Moore Van Allen, P.L.L.C., by Gregory J. Murphy and Alan W. Pope; and Beaver, Holt, Richardson, Sternlicht, Burge Glazier, P.A., by H. Gerald Beaver, for defendant-appellees Metric Constructors, Inc., Kvaerner ASA, Kvaerner Environmental Technologies, Inc., Metric/Kvaerner Fayetteville, J.V., and J.A. Jones, Inc.
Murray, Craven, Inman McCauley, L.L.P., by Richard T. Craven; and Gibbes, Gallivan, White Boyd, P.A., Greenville, South Carolina, by Frank H. Gibbes, III, and Stephanie H. Burton, for defendant-appellee Lockwood Greene Engineers, Inc.
Plaintiff Energy Investors Fund, L.P. ("EIF"), is a limited partner in BCH Energy Limited Partnership ("BCH"), a Delaware limited partnership organized to develop "waste-to-energy" projects in North Carolina. During 1992 and 1993, BCH was planning to construct and operate a project in Cumberland and Bladen counties that would receive waste from several counties, incinerate it, and thereby generate steam and electricity. Plaintiff alleges that several times in 1992 and 1993 defendants represented to plaintiff and others that defendants had knowledge and experience to allow them to design and construct the facility to meet performance criteria. These representations allegedly were made after the formation of BCH, but before plaintiff had invested funds in the project. Plaintiff claims that it relied on these representations, which allegedly were made to induce investment in the project, and invested over $16 million in the project. Plaintiff further contends that defendants did not in fact have such expertise or ability and that defendants designed and constructed the facility in a negligent fashion. Plaintiff alleges that defendants caused the project to fail to meet performance criteria and plaintiff to lose its investment.
Plaintiff asserted claims against defendants for negligence, negligent misrepresentation, and breach of warranty. The trial court dismissed all claims after determining that plaintiff "lack[ed] standing to assert claims against the Defendants" and that plaintiff failed to state a claim upon which relief might be granted. Plaintiff appeals from the order of dismissal, and we affirm.
Plaintiff is one of several limited partners in a limited partnership. We believe that the proper analysis of plaintiff's standing in this case requires analogy to our law of shareholders. Our Supreme Court recently outlined the circumstances under which a shareholder may sue for injuries to his corporation. The Court adopted two exceptions to the general rule that a shareholder cannot sue a third party for causing harm to the corporation and held:
[A] shareholder may maintain an individual action against a third party for an injury that directly affects the shareholder, even if the corporation also has a cause of action arising from the same wrong, if the shareholder can show that the wrongdoer owed him a special duty or that the injury suffered by the shareholder is separate and distinct from the injury sustained by the other shareholders or the corporation itself.
Barger v. McCoy Hillard Parks, 346 N.C. 650, 658-59, 488 S.E.2d 215, 219 (1997).
To proceed under the special duty exception, a plaintiff "must allege facts from which it may be inferred that defendants owed plaintiff a special duty." Id. at 659, 488 S.E.2d at 220. The special duty must be one owed to the shareholder, separate and distinct from any duty owed to the corporation. See id. Special duties have been found when, for instance, a third party advised shareholders separately from the corporation, a third party induced the shareholder to buy stock in the first place, and a third party violated its fiduciary duty to the shareholder. See id., (citing Bankruptcy Estate of Rochester v. Campbell, 910 S.W.2d 647, 652 (Tex.Ct.App. 1995), aff'd in part, rev'd in part sub nom. Murphy v. Campbell, 964 S.W.2d 265 (Tex. 1997); Howell v. Fisher, 49 N.C. App. 488, 498, 272 S.E.2d 19, 26 (1980), disc. review denied, 302 N.C. 218, 277 S.E.2d 69 (1981); and FTD Corp. v. Banker's Trust Co., 954 F. Supp. 106, 109 (S.D.N.Y. 1997)). In Barger, the plaintiff shareholders personally guaranteed corporate loans after asking an accounting firm whether the corporation was financially solvent and being assured that it was. When the corporation thereafter went bankrupt, the shareholders sued the accounting firm, both for the diminished value of their investment as shareholders and for their losses as guarantors of the loans. The Court held that the plaintiffs had alleged no special duty as shareholders because "[a]ll of the allegations indicate that any duty defendants owed plaintiffs was purely derivative of defendants' duty to provide non-negligent services to [the corporation]." Id. at 660, 488 S.E.2d at 220. However, as in Howell, the plaintiffs as guarantors could sue the accounting firm since the plaintiffs alleged they were induced, separately from any duty defendants owed the corporation, to guarantee the loans. See id. at 662, 488 S.E.2d at 222.
To proceed under the distinct injury exception, a plaintiff must allege an injury that is "peculiar or personal to the shareholder." Id. at 659, 488 S.E.2d at 220. A plaintiff must allege "an individual loss, separate and distinct from any damage suffered by the corporation." Howell, 49 N.C. App. at 492, 272 S.E.2d at 23. In Barger, the plaintiffs as shareholders suffered "precisely the injury suffered by the corporation" and so were precluded from recovering their lost investment. See Barger, 346 N.C. at 659, 488 S.E.2d at 220.
Because this case comes to us as a result of a motion to dismiss, we must view the facts alleged in the complaint as true. See McAllister v. Ha, 347 N.C. 638, 640, 496 S.E.2d 577, 579-80 (1998). Plaintiff here alleges that defendants negligently performed their engineering duties, negligently misrepresented their ability to build the project, and breached warranties regarding the project. Plaintiff was a limited partner in a limited partnership formed to build and operate the project and already was a partner at the time of each of the alleged bad acts of defendants. The complaint alleges defendants "communicated with, among others, representatives of EIF,"; "intended EIF, among others, to rely on such representations,"; and made representations "intended for the Project's investors, including but not limited to EIF" (emphasis added).
However, nowhere does the complaint allege facts from which one might reasonably infer a special duty existed between defendants and this particular limited partner. To the contrary, the complaint alleges representations made to plaintiff and others, after plaintiff was a partner. None of the types of special duty noted by the Barger court are indicated by the facts as pled. See Barger, 346 N.C. at 659, 488 S.E.2d at 220. Furthermore, the damages — loss of its investment — of which plaintiff complains, are common to all of the partners. That different partners invested different amounts does not qualify as a unique injury; to hold otherwise would eviscerate the general rule in all cases except those where partners or shareholders invest exactly equal amounts. Because plaintiff fails to allege facts sufficient to infer either exception under Barger, plaintiff has no standing to bring this action.
Plaintiff's reliance on Howell is misplaced. In Howell, a geologist hired by a mining corporation told plaintiffs before they were shareholders that land the corporation intended to mine was favorable for mining. See Howell, 49 N.C. App. at 489-90, 272 S.E.2d at 21. The complaint in Howell alleged that the defendant geologist told plaintiffs, "[A]n investment in the capital stock of Howell would be a good investment and would return a substantial profit to the investor." Id. at 490, 272 S.E.2d at 21. Plaintiffs thereafter bought stock. In holding that the corporation was not a necessary party in an action between plaintiffs and the geologist, we concluded that plaintiffs stated an individual claim in negligence against the geologist. See id. at 498, 272 S.E.2d at 26. We noted that a derivative action was not possible because when the alleged negligence occurred, plaintiffs were not yet shareholders. See id. We held that the corporation was not a necessary party when plaintiff shareholders allege misrepresentation " before they were stockholders for the purpose of inducing their investment." Id. (emphasis added). Plaintiff here, however, was already a partner when each of defendants' alleged bad acts occurred.
Plaintiff also points to Browning v. Levien Co., 44 N.C. App. 701, 262 S.E.2d 355, disc. review denied, 300 N.C. 371, 267 S.E.2d 673 (1980), pulling sentences from separate paragraphs to support its position that plaintiff here has standing. In Browning, limited partners in a partnership formed to build an apartment complex sued an architect for negligence in overcertifying work by the contractor. They sued "on their own behalf and in the alternative, derivatively on behalf of the Partnership." Id. at 703, 262 S.E.2d at 357. At the time of the suit, both general partners were bankrupt, and the partnership had been dissolved. See id. at 704, 262 S.E.2d at 357. We first held that the limited partners' right to a dissolution did not include a right to sue on behalf of the limited partnership. See id. We noted that the limited partners were suing for damages to their own interest, so they had no real need to sue on behalf of a defunct entity. See id. We next held that the defendant architect could have reasonably foreseen that the individual plaintiffs would rely on the certifications. See id. at 705, 262 S.E.2d at 358. Although not expressly stated, this holding is tantamount to a determination that defendant had a special duty to the plaintiffs. Therefore, we said, "The plaintiffs have standing to bring this action." Id.
Browning's facts differ greatly from the facts of this case, as the partnership in Browning had been dissolved prior to the lawsuit. There was no risk of double recovery to the plaintiff partners in Browning as there is under the facts of this case. We believe the Barger exceptions are limited in scope to allow a shareholder to recover for unique injuries, whether unique in how they occurred or unique in type. The exceptions prevent, however, a shareholder or limited partner from recovering twice for the same injury — once as a shareholder or partner and once individually — when the injury suffered is of the same type and suffered in the same manner as the injury to all other shareholders or partners. This philosophy was served in Browning as it is by our holding here.
Plaintiff fails to set forth any allegations which, even taken as true, support a special duty between it and defendants or support an injury unique compared to the injury suffered by other limited partners. Plaintiff does not allege it was induced to become a partner by defendants, see Howell, nor does it allege a contract between defendants and plaintiff, nor does it allege defendants advised plaintiff separately from the partnership as a whole or its other members. See Barger, 346 N.C. at 659, 488 S.E.2d at 220. Plaintiff alleges an injury common to all limited partners but alleges no special duty. Plaintiff therefore lacks standing to sue the third party on its own behalf. Accord, Kenworthy v. Hargrove, 855 F. Supp. 101, 106 (E.D. Pa. 1994) (approving cases from New York requiring a limited partner who alleges acts against the limited partnership that diminished the value of his interest to sue derivatively).
Because plaintiff lacks standing to assert individual claims against defendants, we need not reach the other assignments of error.
Affirmed.
Judge TIMMONS-GOODSON concurs.
Judge HORTON dissents.