31 F.4th 838
4th Cir.2022Background:
- U.S. Tobacco Cooperative is a North Carolina flue-cured tobacco cooperative that administered a federal price-support program and still holds substantial reserves from member fees and tobacco sales.
- Certain members sued seeking judicial dissolution and distribution of reserves, alleging the Cooperative can no longer carry out its purposes due to industry-wide economic and regulatory changes.
- The Cooperative moved to dismiss under Rule 12(b)(6), arguing dissolution is governed by the North Carolina Business Corporation Act because the Cooperative was formed "with capital stock," and that Act does not include ‘‘no longer able to carry out its purposes’’ as a ground for dissolution.
- The district court held the Business Corporation Act applies (citing N.C. Gen. Stat. § 54-142) and dismissed the amended complaint for failure to state a claim; it also dismissed the related declaratory-judgment claim.
- On appeal the core question was statutory: whether cooperatives "with capital stock" are governed by the Business Corporation Act or whether the Nonprofit Corporation Act applies "so far as appropriate," which would permit dissolution for failure to carry out purposes.
- The Fourth Circuit affirmed, holding that because the Cooperative has capital stock, the Business Corporation Act governs dissolution and the members’ sole asserted ground (inability to carry out purposes) is not a ground for dissolution under that Act.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which statutory regime governs dissolution of a cooperative organized under the Marketing Act? | The Nonprofit Corporation Act should govern because cooperatives are nonprofit and "so far as appropriate" allows applying the Nonprofit Act despite capital stock. | The Marketing Act directs cooperatives with capital stock to follow the Business Corporation Act, absent a conflict, and this Cooperative has capital stock. | Business Corporation Act governs dissolution because the Cooperative has capital stock and plaintiffs pointed to no conflict with the Marketing Act. |
| Whether plaintiffs stated a claim for judicial dissolution based on inability to carry out purposes | The Cooperative is effectively unable to carry out its purposes, which (under the Nonprofit Act) would permit dissolution. | Under the Business Corporation Act, failure to carry out purposes is not a statutory ground for dissolution, so dismissal is proper. | Dismissal affirmed: plaintiffs’ sole ground is not recognized under the Business Corporation Act; declaratory relief also properly dismissed. |
Key Cases Cited
- Sharp Farms v. Speaks, 917 F.3d 276 (4th Cir. 2019) (prior appellate decision in this litigation)
- Fairfax v. CBS Corp., 2 F.4th 286 (4th Cir. 2021) (standard of review for dismissal motions)
- State v. Williams, 212 S.E.2d 113 (N.C. 1975) (statutory-construction canon to give effect to every part of a statute)
- Burgess v. Joseph Schlitz Brewing Co., 259 S.E.2d 248 (N.C. 1979) (interpret statutes to harmonize provisions)
- Cuomo v. Clearing House Ass’n, L.L.C., 557 U.S. 519 (2009) (avoid interpreting exceptions so they swallow the rule)
- Good Hope Hosp., Inc. v. N.C. Dep’t of Health & Hum. Servs., 623 S.E.2d 315 (N.C. Ct. App. 2006) (rejecting an interpretation where an exception would swallow the rule)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (discretion to dismiss declaratory-judgment actions)
- State v. Alonzo, 838 S.E.2d 354 (N.C. 2020) (plain-meaning rule for clear statutory language)