Corporate – Derivative & Direct Claims – Tort/Negligence – Conversion – Arbitration

The individual plaintiff and the plaintiff-limited liability company both allege harm arising out of the actions of defendants. The individual plaintiff and the plaintiff-LLC, which is suing derivatively, would both benefit from recovery. Since plaintiffs allege that they were injured independently and collectively by defendants, claims by both of them survive a motion to dismiss.

The court denies the motion to dismiss filed by defendants Michelle Koch and MNK Holdings, LLC (collectively, Koch Defendants).

In support of their negligence claim, plaintiffs allege that the Koch Defendants had access to plaintiffs’ bank accounts and used that access to set up funding for certain business ventures. As such, plaintiffs allege that the Koch Defendants owed plaintiffs a duty of care, as a person of ordinary prudence and reason would exercise under the same circumstances. Plaintiffs further assert that the Koch Defendants improperly siphoned funds for personal use, failed to disclose material facts relevant to investment decisions, and made improper use of plaintiffs’ monies. Plaintiffs allege that they have suffered extensive damages as a result of defendants’ breaches. Plaintiffs have thus alleged the necessary elements, supported by sufficient factual matter, to state a cause of action for negligence.

The Koch Defendants dispute that the only standard of care owed by MNK, as well as Michelle Koch was created by statutory law. Moreover, the Koch Defendants argue that this specific statute (S.C. Code Ann. § 33-44-409(c)) limits their standard of care owed to plaintiffs. Such disagreement is a factual one and is not to be considered at this stage in the case. Therefore, the court denies the Koch Defendants’ motion to dismiss the negligence claim.

Even though plaintiffs’ claim for breach of fiduciary duty appears to be duplicative of their negligence claim, a party may plead claims in the alternative or may make two or more statements of a claim either in a single count or separate ones.

Money may be the subject of conversion when it is capable of being identified and is subject to an obligation to be returned or to be otherwise treated in a particular manner. Plaintiffs allege that defendants siphoned money from plaintiff Johnson’s bank accounts. Drawing an inference in plaintiffs’ favor, as it must, the court finds that this alleges segregation sufficiently to make the allegedly converted funds specifically identifiable.

The Koch Defendants’ argument that there can be no conversion because plaintiffs gave them control and permission over bank accounts fails as a matter of law. Plaintiffs have sufficiently alleged that defendants converted to their own use or benefit certain funds belonging to plaintiffs without plaintiffs’ permission.

Plaintiff Johnson has initiated arbitration against Paul Koch (defendant Michelle Koch’s husband) with the Financial Industry Regulatory Authority (FINRA). Since plaintiffs do not allege that the Koch Defendants are members of the FINRA, the Koch Defendants are not entitled to dismissal in favor of FINRA arbitration.

Motion denied.

Johnson v. Barner (Lawyers Weekly No. 002-016-20, 21 pp.) (J. Michelle Childs, J.) 3:19-cv-01129. Alonzo Jonathon Holloway, Brady Ryan Thomas, Candace Celeste Shiver and William Camden Lewis for plaintiffs; Douglas Manning Muller, Trudy Hartzog Robertson, Mitchell Byrd Snyder and Robert Lee Buchanan for defendants. D.S.C.