In North Carolina, shareholders can sue on behalf of corporations, but only under certain conditions. In particular, there are a number of specific statements which must appear in the complaint; without them, the case will be dismissed.
In Coderre v. Futrell, No. COA 12-517, the North Carolina Court of Appeals, by affirming the dismissal of a breach of contract claim, reminds the legal and business community of the importance of basic procedural concepts, particularly standing and the statute of limitations. In this case a North Carolina corporation called NALA bought for 200 acres of land, mostly financed by a note secured by a deed of trust. When NALA failed to make payments its president tried to make a payment on its behalf. The seller rejected this payment, opting to foreclose.
The parties then made a new agreement in which the seller would assign its successful bid back to NALA upon payment. But on August 12, 2008, one day before the expiration of that agreement, NALA filed for bankruptcy. On February 11, 2011, while NALA's bankruptcy case was still pending, Coderre, one of NALA's shareholders, filed an action against the seller for breach of contract. The seller moved to dismiss for lack of standing. In response, Coderre filed an amended complaint adding NALA as a plaintiff. The seller then moved for dismissal, arguing that the statute of limitations had run on the claim.
The Court of Appeals affirmed that Coderre, as a shareholder, did not have standing to file a complaint against the seller in his individual capacity. His name was nowhere on the original purchase agreement and he did not state in his complaint that he was filing on behalf of NALA. Coderre attempted to fix this mistake by filing an amended complaint adding NALA as a plaintiff the day that defendants filed their first motion to dismiss, June 13, 2011. Coderre argued that the amended complaint relates back to the date of the initial complaint. The Court rejected this argument, stating that the initial complaint was nullified because Coderre did not have standing to bring the lawsuit, therefore there was no valid complaint to which the amended complaint could relate back to. Thus, the initial complaint could not be used to defeat defendants' statute of limitations defense to the amended complaint.
Second, the Court affirmed that the bankruptcy proceedings did not toll the statute of limitations and that the amended complaint was filed outside of the limitations period to bring a breach of contract action. NALA argued that 11 U.S.C. § 108(c), which tolls the statute of limitations by the amount of time the debtor is in bankruptcy, should apply. However, the Court noted that this section applies only to a claim against the debtor, not to a claim brought by the debtor against third parties. Instead, 11 U.S.C. § 108(a) applies, which states that “a trustee may commence a nonbankruptcy action before the later of either the expiration of the statute of limitations for such action or two years after the entry of the order for relief.” Here, the alleged breach of contract occurred on April 1, 2008, so the three-year statute of limitations would have run on April 1, 2011. The order for relief in NALA's bankruptcy action was entered on August 12, 2008, so two years after this would have been August 12, 2010. Since the later of these two dates is April 1, 2011, the complaint for breach of contract should have been filed on or before that date. NALA filed its amended complaint on June 13, 2011 and was, therefore, past the statute of limitations.