Yelverton v. Edmundson et al

Filing 67

ORDER adopting 63 Memorandum and Recommendation; overruling Plaintiff's 64 Objection; denying Plaintiff's motions for judical notice at 50 , 53 and 56 ; dismissing as moot Plaintiff's 57 Motion to Correct and Supplement; gra nting in part Plaintiff's 66 Motion for Leave to File. Defendant's 18 Motion to Dismiss is allowed. Plaintiff's claims against Defendant Edmundson and Yelverton Farms, Ltd. are DISMISSED with prejudice. Signed by Senior Judge James C. Fox on 10/12/2016. Copy sent to Stephen Thomas Yelverton, 3033 Wilson Blvd. #E-117, Arlington, VA 22201 via US Mail on 10/12/2016. (Grady, B.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
STEPHEN THOMAS YELVERTON,
Plaintiff,

v.
PHYLLIS Y. EDMUNDSON and
YELVERTON FARMS, LTD.,
Defendants.

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No. 5:15-CV-00134-F

____________________________ )
STEPHEN THOMAS YELVERTON,
Plaintiff,

v.
YELVERTON FARMS, LTD.
Defendant.

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No. 5:16-CV-00031-F

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ORDER
Before the court are the following motions: (1) the motion of Defendants Phyllis
Edmundson and Yelverton Farms, Ltd. to dismiss the amended complaint pursuant to Rules
12(b)(l) and 12(b)(6) ofthe Federal Rules of Civil Procedure [DE-18, No. 5:15-CV-134-F]; 1 and
(2) Plaintiffs motions for judicial notice [DE-50, -53, -56]. Pursuant to 28 U.S.C. § 636(b)(1)
and Federal Rule of Civil Procedure 72(b), United States Magistrate Judge Robert B. Jones, Jr.
entered a memorandum and recommendation ("M&R"), recommending Defendants' motion be
allowed pursuant to Rule 12(b)(l). [DE-63]. Plaintiff objected, Defendants responded, and

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On June 24,2016, the court consolidated cases 5:15-CV-134-F and 5:16-CV-31-F, designating case number 5:15CV-134-F as the lead case. This order addresses only the lead case.

Plaintiff replied. [DE-64, -65, -66]_2 For the reasons stated below, the court adopts the M&R as
its own and allows Defendants' motion. The court denies Plaintiffs motions for judicial notice.
I.

BACKGROUND

In the current action, Plaintiff seeks (1) judicial receivership, liquidation, and dissolution
of Yelverton Farms, Ltd., a North Carolina corporation; (2) an order estopping Defendant
Edmundson from disputing Plaintiffs ownership of 1,333.3 shares of Yelverton Farms, Ltd.
stock; and (3) damages flowing from violations ofNorth Carolina's Unfair and Deceptive Trade
Practices Act ("UDTP A"). The factual and procedural history of this case is fully and accurately
summarized in the M&R and will not be repeated here.

II.

STANDARD OF REVIEW

A district court may "designate a magistrate judge ... to submit ... proposed findings of
fact and recon:lmendations for the disposition" of a variety of motions. 28 U.S.C. § 636(b)(1)(B).
The court then must "make a de novo determination of those portions of the report or specified
proposed findings or recommendations to which objection is made." Id. § 636(b)(1). Upon
review of the record, "the court may accept, reject, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge." !d.
Rule 12 requires that a court dismiss an action over which it lacks subject matter
jurisdiction. F.ed.

R.

Civ. P. 12(b)(1 ). The plaintiff bears the burden of proving the existence of

subject matter jurisdiction. See, e.g., Jones v. Am. Postal Workers Union, 192 F.3d 417, 422 (4th
Cir. 1999). The court may not address the merits of the case until subject matter jurisdiction has
been established. Id. "In determining whether jurisdiction exists, the district court is to regard the
pleadings' allegations as mere evidence on the issue, and may consider evidence outside the

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Plaintiff's motion seeking leave to reply [DE-66] is ALLOWED to the extent the court considered the arguments
contained therein. No further briefmg on this issue will be accepted.

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pleadings without converting the proceeding to one for summary judgment." Richmond,
Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). Subject

matter jurisdiction does not exist where the plaintiff lacks standing to bring his claims. See, e.g.,
Long Term Care Partners, LLC v. United States, 516 F.3d 225, 230-31 (4th Cir. 2008).

III. DISCUSSION
A. Plaintifrs M&R Objections

Plaintiff raises eight objections: (1) bankruptcy courts have no constitutional authority to
make determinations of property interests within the Debtor Estate under state law; (2) the
bankruptcy court made no determination as to the Debtor's stock ownership; (3) the ownership
of the stock in Yelverton Farms, Ltd., must be determined by the District Court in the Eastern
District of North Carolina; (4) the M&R overlooked Plaintiffs equitable ownership of the stock;
(5) the M&R is an incomplete resolution of the claims in this consolidated case, as it does not
address Plaintiffs standing as an investor in Yelverton Farms, Ltd.; (6) Plaintiffs amended
complaint properly asserts equitable defenses; (7) Burford abstention is inapplicable to statutory
claims for monetary compensation; and (8) the M&R must be vacated because the Plaintiff was
not allowed a hearing on his objections to judicial notice.
1. Objections One through Four

Plaintiffs first four objections dispute the M&R's conclusions regarding ownership of
the Yelverton Farms, Ltd. stock. The facts relevant to this issue are described in the M&R thusly:
Plaintiff originally filed for Chapter 11 Bankruptcy, but on August 20, 2010, his
case was converted to Chapter 7 and a Bankruptcy Trustee was appointed. In re
Yelverton, No. 09-00414 (Bankr. D.C.), Aug. 20, 2010 Order [DE-323]. As a
result of the conversion of Plaintiffs bankruptcy case, this court in Yelverton I
determined that Plaintiff lacked standing to pursue his claims and ordered that the
case be dismissed unless the Bankruptcy Trustee filed a notice of substitution.
Webster v. Yelverton Farms, Ltd. [(Yelverton 1)], No. 5:09-CV-00331-FL
(E.D.N.C.) Mar. 7, 2011 Order [DE-120]. Ultimately, the Bankruptcy Trustee did
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file a Notice of Substitution and prosecuted the case on behalf of the estate. Id.
[DE-122].
On December 7, 2009, prior to the conversion of his case to Chapter 7,
Plaintiff instituted an adversary proceeding against Atkinson, asserting claims of
misrepresentation and tortious interference and seeking $400,000.00 in
compensatory damages and $200,000.00 in punitive damages. Yelverton v.
Atkinson, No. 09-10051 (Bankr. D.C.) Compl. [DE-l]. Plaintiff and Atkinson
entered into a settlement agreement on August 17, 201 0, whereby Plaintiff agreed
to dismiss his claims against Atkinson in exchange for Atkinson renouncing any
interest in any stock or interest in Yelverton Farms, Ltd., effective as of May 30,
2008, and the bankruptcy court entered a judgment approving the settlement on
January 25, 2011.Jd., Jan. 11, 2011 Order [DE-50].
Thereafter, the Bankruptcy Trustee reached a settlement agreement with
Defendants (who were named in an adversary proceeding along with other
individuals) on March 23, 2012, whereby the parties agreed that the trustee would
dismiss all claims against the defendants and transfer the stock from the
bankruptcy estate to the defendants in exchange for a payment of $110,000.00,
and this settlement agreement was approved by the Bankruptcy Court on June 19,
2012. !d. June 19, 2012 Order [DE-477]. Based on the settlement agreement,
Yelverton was dismissed in this court. Webster v. Yelverton Farms, Ltd., No.
5:09-CV-00331-FL (E.D.N.C.) July 17, 2012 Order [DE-142]. Plaintiff sought to
have the settlement agreement in the bankruptcy court set aside through the filing
of various motions, but was unsuccessful. On appeal, the United States District
Court for the District of Columbia and the United States Court of Appeals for the
District of Columbia Circuit both affirmed the settlement agreement. In re
Yelverton, No. 1:12-CV-01539-CRC (D.D.C. Aug. 6, 2014) [DE-8, -9]; In re
Yelverton, No. 14- 7149 (D.C. Cir. Mar. 9, 2015) (per curiam).
The court reviewed the public records and finds this summary to be accurate. From the facts
contained in the public record, it is clear Atkinson relinquished any claim to the Yelverton
Farms, Ltd. stock effective May 30, 2008. Accordingly, the stock belonged to the bankruptcy
estate such that it could properly be transferred from the estate to the Defendants. Because the
stock was transferred to the Defendants pursuant to the settlement agreement approved by the
bankruptcy court on June 19, 2012 and affirmed by both the United States District Court for the
District of Columbia and the United States Court of Appeals for the District of Columbia Circuit,

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Plaintiff has no ownership interest in the stock. Accordingly, Plaintiff lacks standing and his
claims must be dismissed.
2. Objection Five
Next, Plaintiff objects that the M&R addresses his claims based only on his status as a
stockholder in Yelverton Farms, Ltd. and fails to address his standing as an investor.
Specifically, Plaintiff argues that his status as a "past 'investor'" entitles him to "Article III and
statutory 'standing' for his claims under the UDTPA." Pl.'s Obj. [DE-64]

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33. Plaintiffs claim

under the UDTP A alleges that Defendant Edmundson "breach[ed] her fiduciary duties to
Yelverton ... and thereby Edmundson has violated N.C.G.S, Section 75-1.1 of the Unfair and
Deceptive Trade Practices Act, where a breach of fiduciary duties in a business context is such a
violation."
Generally, a corporation's officers and directors owe a fiduciary duty to the corporation
and its shareholders. See, e.g., 3 Fletcher Cyclopedia of the Law of Corporations § 837.50. In
appropriate circumstances, a shareholder of a corporation may bring a derivative suit on behalf
of the corporation alleging violations of those fiduciary duties. Green v. Freeman, 367 N.C. 136,
142, 749 S.E.2d 262, 268 (2013). Here, because Plaintiff is not a shareholder of Yelverton
Farms, Ltd., he lacks standing to bring a derivative suit.
Nevertheless, a non-shareholder, just like a shareholder, may bring suit in his individual
capacity against corporate officers and directors if he sufficiently alleges (1) the wrongdoer owed
him a special duty, and (2) he suffered a personal injury "distinct from the injury sustained
by ... the corporation itself' (the Barger test). Green, 367 N.C. at 142, 749 S.E.2d at 268
(quoting Barger v. McCoy Hillard & Parks, 346 N.C. 650, 661, 488 S.E.2d 215, 221 (1997)).
Under the first prong, a special duty is established "by facts showing that defendants owed a duty

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to plaintiffs that was personal to plaintiffs ... and was separate and distinct from the duty
defendants owed the corporation." Barger, 346 N.C. at 661, 488 S.E.2d at 221. Under the second
prong, the loss of an investment is not considered a personal injury because it "'is identical to the
injury suffered by' the corporate entity as a whole." Id at 144, 749 S.E.2d at 269 (quoting
Energy Investors Fund, L.P. v. Metric' Constructors, Inc., 351 N.C. 331, 336, 525 S.E.2d 441,

444 (2000)). This is true "[e]Ven when one person contributes a disproportionate amount of the
investment and thus bears a correspondingly greater loss." I d. Here, Plaintiff fails to allege facts
in support of either Barger factor. Accordingly, he lacks standing to pursue his claims as a nonshareholder.

3. Objection Six
Next, Plaintiff argues that invocation of judicial estoppel, equitable estoppel, and quasiestoppel against Defendant Edmundson is proper. Under each theory, Plaintiff requests the court
estop Edmundson from disputing Plaintiffs ownership of the Yelverton Farms, Ltd. stock on the
basis that she has made contrary arguments and representations in previous cases. As the M&R
points out, however, the court is independently obligated to assess whether subject matter
jurisdiction exists, and must dismiss any case where subject matter is lacking. Fed. R. Civ. P.
12(h)(3). The lack of subject matter jurisdiction is abundantly clear from the public record,
independent of any arguments by Defendant Edmundson.

4. Objection Seven
In Plaintiff's seventh objection, he argues Burford abstention is inappropriate in this case
because it is inapplicable to statutory claims for monetary compensation. As the M&R correctly
observes, however, the relief Plaintiff seeks in his first claim-judicial dissolution, receivership,

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and liquidation-are inherently equitable and discretionary remedies. For the reasons discussed
below, Burford abstention is appropriate here.
Under the Burford doctrine, "[a] federal court may abstain from hearing a case or claim
over which it has jurisdiction to avoid needless disruption of state efforts to establish coherent
policy in an area of comprehensive state regulation." Friedman v. Revenue Mgmt. of NY., Inc.,
38 F.3d 668, 671 (2nd Cir. 1994) (quoting Burford v. Sun Oil Co., 319 U.S. 315, 332 (1943)).
Thus, "federal courts may decline to exercise their jurisdiction ... where denying a federal
forum would clearly serve an important countervailing interest." Quackenbush v. Allstate Ins.
Co., 517 U.S. 706, 716 (1996). In considering abstention, the court is to weigh "the strong

federal interest in having certain classes of cases, and certain federal rights, adjudicated in
federal court" against "the State's interests in maintaining uniformity in the treatment of an
essentially local problem, and retaining local control over difficult questions of state law bearing
on policy problems of substantial public import." Id at 728 (internal quotations omitted). This
analysis "only rarely favors abstention, and the power to dismiss recognized in Burford
represents an 'extraordinary and narrow exception to the duty of the District Court to adjudicate
a controversy properly before it."' Id (quoting Colo. River Water Conservation Dist. v. United
States, 424 U.S. 800, 813 (1976)).

The Fourth Circuit has explained the Burford abstention standard thusly:
The Supreme Court has admonished the federal courts to respect the
efforts of state governments to ensure uniform treatment of essentially local
problems. Principles of federalism and comity require no less. Basic abstention
doctrine requires federal courts to avoid interference with a state's administration
of its own affairs. Though "[a]bstention from the exercise of federal jurisdiction is
the exception, not the rule," its importance in our system of dual sovereignty
cannot be underestimated. It safeguards our federal system from the "[d]elay,
misunderstanding of local law, and needless conflict with [a] state policy" that
inevitably result from federal judicial intrusions into areas of core state
prerogative.
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Johnson v. Collins Entm 't Co., 199 F.3d 710, 719 (4th Cir. 1999) (alterations in original)
(internal citations omitted). This court has not found a Fourth Circuit opinion on point. As noted
in the M&R, however, at least one district court has held that dissolution of a state corporation
qualifies as an exceptional circumstance warranting abstention pursuant to Burford. Ives v.

Advanced Broadband Sols., Inc., No. Civ. A. DKC 2003-0848, 2004 WL 180043 (D. Md. Jan.
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23, 2004). In Ives, the court declined to exercise jurisdiction over a claim for dissolution of a
Virginia corporation, noting the "comprehensive scheme" and "detailed provisions" related to
corporate dissolution set out by the state of Virginia. Id. at *4. Cf HWC Wire & Cable Co. v.

Mirant Mid-Atl., LLC, No. DKC 10-0731, 2010 WL 2431018, at *4 (D. Md. June 10, 2010)
(rejecting abstention in a "relatively uncomplicated area of state law"-mechanic's liens). The
court noted that "the right to control ... the dissolution of a corporation without its consent
belongs to the state which created the corporation." Ives, 2004 WL 180043, at *4 (citing 19 Am.
Jur. 2d, Corporations § 2734). While unpublished, Ives is nevertheless valuable for its persuasive
authority. See Collins v. Pond Creek Mining Co., 468 F.3d 213, 219 (4th Cir. 2006) (recognizing
unpublished decisions "are entitled only to the weight they generate by the persuasiveness of
their reasoning").
Here, Plaintiff seeks judicial dissolution of Yelverton Farms, Ltd., a North Carolina
corporation. Corporate dissolution in North Carolina is governed by Article 14 of the General
Statutes. Judicial dissolution, specifically, is addressed in §§ 55-14-30 through -34, which vest
jurisdiction over such claims in the North Carolina Superior Court. Like the Virginia statutes
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Courts in other circuits agree. See, e.g., Sojitz Am. Capital Corp. v. Keystone Equip. Fin. Corp., 88 F. Supp. 3d 59
(D. Conn. 2015); Kermanshah v. Kermanshah, 580 F. Supp. 2d 247 (S.D.N.Y. 2008); Nutronics Imaging, Inc. v.
Danan, No. Civ. A. 96-2950, 2000 WL 33128504, at *1 (E.D.N.Y. July 27, 2000); Feiwus v. Genpar, Inc., 43 F.
Supp. 2d 289 (E.D.N.Y. 1999); Armenian Assembly of Am., Inc. v. Cafesjian, 772 F. Supp. 2d 129, 160 (D.D.C.
2011); Cammack New Liberty, LLC v. Int'l Greetings USA, Inc., 653 F. Supp. 2d 709, 714 (E.D. Ky. 2009); Patel v.
Oakwin Lodging Inc., No. 308-CV-206-J-32MCRCA, 2008 WL 3365233, at *1 (M.D. Fla. Aug. 8, 2008);
Friedman, 38 F.3d at 671.

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considered in Ives, North Carolina's corporate regulations are comprehensive and detailed. In
fact, the state has dedicated the North Carolina Business Court to adjudicating complex business
disputes. Accordingly, this court concludes that corporate dissolution in North Carolina is an
"essentially local matter," and as such, abstention is appropriate. Accordingly, if subject matter
jurisdiction exists over Plaintiffs claim for judicial dissolution, receivership, and liquidation, the
court declines to exercise it.
5. Objection Eight

In Plaintiffs final objection, he argues he was deprived of a hearing on his objections to
the court's taking judicial notice of decisions in other courts. Plaintiff argues that, while the court
is free to take judicial notice of such decisions, a hearing is required on any objections.
The court may take judicial notice of any fact "that is not subject to reasonable dispute,"
either because it "is generally known within the trial court's territorial jurisdiction," or because it
"can be accurately and readily determined from sources whose accuracy cannot reasonably be
questioned." Fed. R. Evid. 201 (b). Here, the court has not taken judicial notice of any facts, but
has considered the evidence related to subject matter jurisdiction and reached a conclusion based
on that evidence.
Further, Plaintiff is not entitled to a hearing on his objection to judicial notice. Rule
201(e) of the Federal Rules of Evidence provides that "a party is entitled to be heard on the
propriety of taking judicial notice and the nature ofthe fact to be noticed." Fed. R. Evid. 201(e).
A party's opportunity to be heard need not take the form of a formal hearing, however. See, e.g.,
Amadasu v. The Christ Hasp., 514 F.3d 504, 508 (6th Cir. 2008) ("Since Amadasu had an

opportunity to be heard on the issue of judicial notice through the filing of his objections to the
magistrate judge's report and recommendation and the filing of his request for a hearing, a

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formal hearing was not necessary in this case." (citing Am. Stores Co. v. Comm 'r of Internal

Revenue, 170 F.3d 1267, 1271 (lOth Cir. 1999))). Here, Plaintiffthoroughly argued his reasons
for objecting to the court's taking judicial notice in his response to the motion to dismiss.
Plaintiffs objections to the M&R reiterated his position. Thus, even if the court did take judicial
notice, it has heard and considered Plaintiffs arguments on the issue. A formal hearing on this
matter is not required and would not aid the court in its decision.
B. Plaintiff's Requests for Judicial Notice
Plaintiff filed three motions [DE-50, -53, -56] requesting the court take judicial notice.
The first motion, at docket entry 50, requests judicial notice of a Petition for Writ of Mandamus
filed by Plaintiff in a case before the North Carolina Superior Court-Yelverton v. Edmundson

and Marm, Case No. 13-CVS-543. The petition requests the ·court in that case make a decision
on a motion filed by Plaintiff. The second motion, at docket entry 53, requests judicial notice of
"certain documents submitted to this District Court by the Defendants, who have raised material
disputes of fact as to the Plaintiffs claims, or argue that these allegations of fact were not made
by the Plaintiff." The third motion, at docket entry 56, requests judicial notice of the testimony of
Bankruptcy Trustee Wendell W. Webster in a hearing before the Bankruptcy Court in
Washington, D.C. None of these motions point to a fact that is beyond reasonable dispute, as
required by Rule 201 of the Federal Rules of Evidence. Accordingly, judicial notice as requested
by Plaintiff is improper.
Finally, at docket entry 57, Plaintiff moves to correct and supplement the motion
requesting judicial notice filed at docket entry 56. This motion is DISMISSED as moot.

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IV. CONCLUSION
For the foregoing reasons, it is hereby ORDERED as follows:
(1) The Memorandum and Recommendation [DE-63] is ADOPTED;
(2) Plaintiffs objection [DE-64] is OVERRULED;
(3) Defendants' motion to dismiss the amended complaint [DE-18] is ALLOWED;
(4) Plaintiffs claims against Defendant Edmundson and Yelverton Farms, Ltd. are
DISMISSED with prejudice;
(5) Plaintiffs motions for judicial notice [DE-50, -53, -56] are DENIED;
(6) Plaintiffs motion to correct and supplement his request for judicial notice [DE-57] is
DISMISSED as moot; and
(7) Plaintiffs motion for leave to reply [DE-66] is ALLOWED in part.
SO ORDERED.
This, the

/;I; day ofOctober, 2016.

J S C. FOX
Senior United States District Judge

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