Allen Patterson, Steve Tilton, Richard Sendler, Lincoln Privette, Marc Ellis, Joey Carter, Barry Davis, Michael Nieri, Allen Patterson Residential LLC, Tilton Group, Sendler Construction Co., Inc., Privette Enterprises, Ellis Construction Co., Inc., The Barry Davis Company, Inc., Great Southern Homes, and J. Carter, LLC, on behalf of themselves and others similarly situated, Appellants,
Herb Witter, Colin Campbell, Eddie Weaver, Tom Markovich, Keith Smith, Jim Gregorie, individually and as Trustees of the South Carolina Homes Builders Self Insurers Fund, and the South Carolina Home Builders Self Insurers Fund, Respondents. Appellate Case No. 2014-000963
Submitted December 1, 2015
From Richland County G. Thomas Cooper, Jr., Circuit Court
Edward Bradley and S. Jahue Moore, both of Moore Taylor Law
Firm, P.A., of West Columbia, for Appellants.
William W. Wilkins and Burl F. Williams, of Nexsen Pruet,
LLC, of Greenville, for Respondents; James Lynn Werner and
Lawrence M. Hershon, of Parker Poe Adams & Bernstein LLP,
of Columbia, for Respondent South Carolina Home Builders Self
Insurers Fund and Respondents Herb Witter, Colin Campbell,
Eddie Weaver, Tom Markovich, Keith Smith, and Jim Gregorie,
individually and as Trustees of the South Carolina Home
Builders Self Insurers Fund; and Pope D. Johnson, III, of
Johnson & Barnette, LLP, of Columbia, for Respondents
Herb Witter, Colin Campbell, Eddie Weaver, Tom Markovich,
Keith Smith, and Jim Gregorie, individually and as Trustees
of the South Carolina Home Builders Self Insurers Fund.
civil matter, Allen Patterson and several
appeal the circuit court's grant of the South Carolina
Home Builders Self Insurers Fund (the Fund) and its
trustees' (collectively "Respondents") Rule
12(b)(6), SCRCP, motion to dismiss. Appellants argue the
court erred in (1) finding the Fund was not a trust; (2)
ruling the action involved derivative claims subject to the
pleading requirements of Rule 23(b)(1), SCRCP; and (3)
holding Appellants' complaint did not comply with such
requirements. We affirm.
Builders Association of South Carolina, Inc. (HBASC) is a
nonprofit corporation organized under the laws of South
Carolina. HBASC's membership is comprised of individual
and corporate homebuilders throughout the state. On September
27, 1995, HBASC created the Fund in a document titled
"Agreement and Declaration of Trust" (the
Agreement). Pursuant to the Agreement with HBASC, as the
"Settlor, " the contemporaneously formed
"Board of Trustees" (the Board) was to direct the
affairs of the Fund. According to the Agreement, the
Fund's purpose was to meet and fulfill HBASC members'
obligations and liabilities under the South Carolina
Workers' Compensation Act (the Act).
Fund is regulated and controlled by the South Carolina
Workers' Compensation Commission (the Commission) and is
not an insurance company. To become a member of the Fund and
satisfy workers' compensation obligations under the Act,
a homebuilder must first submit an application to the
Commission. If the Commission approves the application, then
the homebuilder receives a certificate confirming membership
in the Fund. Five weeks following approval, the Fund begins
to bill the new member for the premium relating to its
business. Each Fund member pays a predetermined rate for
protection from workers' compensation claims of its
employees. Additionally, each member is jointly and severally
liable for the obligations of the Fund.
are members of the Fund. On February 16, 2012, Appellants
filed a complaint (First Complaint) against Respondents,
bringing causes of action for, inter alia, breach of
fiduciary duty, breach of trust, and breach of contract.
Appellants alleged the Board breached its fiduciary duties by
voting to remove approximately $5 million from the Fund to
establish a separate member-owned insurance company that
Appellants argue would not provide any benefit to existing
Appellants amended the First Complaint, Respondents moved to
dismiss under Rule 12(b)(6), SCRCP, arguing Appellants failed
to meet the pleading requirements for derivative suits under
Rule 23(b)(1), SCRCP. Respondents alternatively asserted the
suit involved the internal affairs of a trust and, thus, was
under the exclusive jurisdiction of the probate court
pursuant to section 62-7-201 of the South Carolina Code
March 4, 2013, the circuit court accepted Respondents'
alternative argument and dismissed the action without
prejudice, holding it lacked subject matter jurisdiction to
hear the case. The court ruled Appellants must initially file
the action in probate court, but could subsequently remove it
to circuit court under section 62-1-302(d)(4) of the South
Carolina Code (Supp. 2015).
filed another complaint (Second Complaint) on April 9, 2013,
in probate court and moved to remove the case to circuit
court. On April 22, 2013, the probate court granted
Appellants' motion to remove. In the circuit court,
Respondents again filed a motion to dismiss the Second
Complaint, arguing the lawsuit was a shareholder derivative
action and Appellants failed to comply with the pleading
requirements of Rule 23(b)(1). On November 8, 2013, the
circuit court denied Respondents' motion to dismiss,
holding the Fund was a trust and, as such, was not subject to
the pleading requirements of Rule 23(b)(1).
subsequently filed a Rule 59(e), SCRCP, motion to alter or
amend judgment. The circuit court granted Respondents'
motion on February 11, 2014, and dismissed Appellants'
Second Complaint. In reaching its decision, the court found
the Fund was not a trust, but instead resembled an
unincorporated association. The court further explained the
"gravamen of the [Appellants' c]omplaint alleges
that the [F]und has been injured, not that the members have
been injured." Thus, the court found the claims were
typical of derivative claims subject to the pleading
requirements of Rule 23(b)(1), requiring particularized
allegations that Appellants first made a demand on the Board
to obtain the relief they sought. The court found
Appellants' complaint did not include sufficient
allegations of such a demand and, therefore, did not comply
with Rule 23(b)(1).
circuit court, however, recognized Respondents had agreed to
accept a January 20, 2013 letter from Appellants as a demand
under Rule 23. After giving Respondents sixty days to respond
to the letter, the court ruled Appellants "may pursue
whatever legal action they determine is appropriate." On
March 3, 2014, Appellants filed a motion to alter or amend
the order of dismissal, which the circuit court denied. This
the circuit court err in finding the Fund was not a trust?
the circuit court err in ruling the action involved
derivative claims subject to Rule 23(b)(1), SCRCP?
Did the circuit court err in holding Appellants'
complaint did not comply with the pleading requirements of
Rule 23(b)(1), SCRCP?
appellate court applies the same standard of review as the
circuit court in reviewing the dismissal of an action
pursuant to Rule 12(b)(6), SCRCP. Doe v. Marion, 373
S.C. 390, 395, 645 S.E.2d 245, 247 (2007). "A motion to
dismiss under Rule 12(b)(6) should not be granted if facts
alleged and inferences reasonably deducible therefrom would
entitle the plaintiff to relief on any theory of the
case." Flateau v. Harrelson, 355 S.C. 197, 202,
584 S.E.2d 413, 415 (Ct. App. 2003). "The question is
whether, in the light most favorable to the plaintiff and
with every doubt resolved in his behalf, the complaint states
any valid claim for relief" Cole Vision Corp. v.
Hobbs, 394 S.C. 144, 149, 714 S.E.2d 537, 539 (2011).