Cutter v. Vojnovic: Derivative Standing Denied for General Partners and Modern Clarification of Partnership Formation in North Carolina

1. Introduction

In Cutter v. Vojnovic, the Supreme Court of North Carolina confronted an increasingly common business-litigation scenario: informal collaborators fall out before closing a transaction and one party sues the other for “stealing the deal.” Ernest Cutter III alleged that he and Gregory Vojnovic orally formed a general partnership to acquire “Jib Jab,” a three-unit restaurant chain. After financing fell through, Vojnovic alone acquired the assets via an SBA-backed structure, leaving Cutter empty-handed. Cutter sued individually and derivatively on behalf of an alleged common-law partnership, asserting breach of partnership agreement, fiduciary duties, misappropriation of a business opportunity, tortious interference, and equitable remedies.

The North Carolina Business Court dismissed several counts on the pleadings, later struck large portions of Cutter’s affidavit, disregarded an unsolicited expert “report,” and granted summary judgment to defendants. The Supreme Court, in a significant precedential opinion authored by Justice Barringer, affirmed almost entirely, but modified the Business Court’s reasoning on what it takes to form a partnership. The Court’s opinion plants three important doctrinal stakes:

1. There is no derivative cause of action for general partners in North Carolina absent legislative authorization.
2. Express agreement on loss-sharing is not a prerequisite to partnership formation; the NC Uniform Partnership Act’s default rule fills that gap, partially overruling dicta in Johnson v. Gill.
3. Courts will continue to police conclusory pleadings and affidavits aggressively; legal conclusions masquerading as facts will not survive Rules 12(c) or 56 challenges.

2. Summary of the Judgment

• Partial Judgment on the Pleadings (Jan. 24 2023): All derivative claims, the constructive-trust counts, and the tortious-interference claim against the holding company were dismissed. The Court held that Cutter lacked standing to sue derivatively on behalf of a general partnership.
• Evidentiary Rulings (Feb. 16 2024): Portions of Cutter’s affidavit containing beliefs, speculation, and legal conclusions were stricken; an unsworn expert “Molony Report” was excluded.
• Summary Judgment: Defendants prevailed on the remaining claims. The Court held that no partnership existed because the parties never agreed on critical financing terms and Cutter could produce no admissible evidence of damages or interference.
• Supreme Court Holding (Aug. 22 2025): The Business Court is affirmed in result; its analysis on loss-sharing is clarified; and Johnson v. Gill is overruled to the extent it suggests an express loss-sharing agreement is essential for partnership formation.

3. Analysis

3.1 Precedents Cited and Their Influence

• Godwin v. Vinson (1959): Established that a partner cannot sue individually on a partnership right — foundational in the derivative-standing discussion.
• Russello v. United States (U.S. 1983): The canon that legislative omission is intentional undergirded the Court’s refusal to create derivative standing judicially.
• Tully v. City of Wilmington (2018) & Radcliffe v. Avenel HOA (2016): Clarified Rule 12(c) standards and the insufficiency of bare legal conclusions.
• Eggleston (1948), Campbell (1968), Potter (1992): Addressed oral partnerships and partnership-by-conduct, shaping the formation analysis.
• Johnson v. Gill (1952): Previously insinuated that express loss-sharing is required; now partially overruled.
• Statutes: NC Business Corporation Act (55-7-40 et seq.), LLC Act (57D-8), Limited Partnership Act (59-1001 et seq.), and Uniform Partnership Act (59-31 et seq.) — juxtaposed to show legislative choice about derivative remedies.

3.2 Legal Reasoning

3.2.1 Derivative Standing

The Court observed that derivative actions are purely statutory. Because the General Assembly provided derivative mechanisms for corporations (§55-7), LLCs (§57D-8), and limited partnerships (§59-1001) but not for general partnerships, partners lack standing to sue derivatively. Invoking Russello, the Court refused to judicially graft such a remedy onto the Uniform Partnership Act. Partners instead have traditional equitable tools — chiefly an accounting.

3.2.2 Conclusory Pleadings and Affidavits

Reaffirming Tully and Radcliffe, the Court held that allegations merely parroting elements are not “well-pleaded facts.” On summary judgment, Rule 56(e) demands “specific facts.” Cutter’s statements of “belief,” “confidence,” and legal buzzwords (“partnership,” “misappropriation”) were struck as inadmissible. Unsworn expert analyses cannot substitute for record evidence.

3.2.3 Partnership Formation Clarified

The Business Court had ruled that lack of an express loss-sharing agreement defeated partnership status. The Supreme Court corrected this, pointing to §59-48(1): absent agreement, losses follow profits. The controlling defect here was not loss-sharing but the absence of agreement on a material term — financing. No financing, no acquisition, therefore no business “to carry on as co-owners.” The Court explicitly overruled Johnson v. Gill to the extent it could be read otherwise.

3.2.4 Tortious Interference

Without competent evidence that Cutter could have closed the deal, causation failed. His own deposition conceded he ceased seeking capital, and he lacked an operations partner other than Vojnovic. Summary judgment was therefore proper.

3.3 Impact of the Judgment

• Derivative Litigation: Plaintiffs may no longer style a general-partnership dispute as a derivative action. Relief must be sought via direct claims (breach, accounting, dissolution) or by forming an entity that does enjoy statutory derivative rights.
• Transactional Counsel: Entrepreneurs relying on handshake deals must ink at least a rudimentary agreement on core terms — particularly financing — or risk having no enforceable partnership.
• Pleading & Summary-Judgment Practice: The opinion signals that Business Court judges (and appellate courts) will strike affidavits and deny leave to file oversize briefs disguised as expert reports. Counsel must offer admissible fact evidence, not speculation.
• Partnership Law Curriculum: The decision re-centers §59-48’s default rules and will appear in textbooks as the modern North Carolina statement on partnership formation, replacing or at least heavily qualifying earlier dicta from Johnson.

4. Complex Concepts Simplified

• Derivative Action: A lawsuit brought by a stakeholder on behalf of the business entity for harm done to the entity. Statutorily created; without a statute, it does not exist.
• Rule 12(c) Judgment on the Pleadings: A procedure to test the sufficiency of pleadings after they close but before discovery. Courts accept well-pleaded facts as true but ignore conclusions and implausible inferences.
• Rule 56(e) Affidavit Requirements: Affidavits must (1) be sworn, (2) be based on personal knowledge, (3) contain admissible facts, and (4) show competence to testify.
• Uniform Partnership Act Default Rules: When partners are silent, profits (and therefore losses) are shared equally (§59-48), and each partner has equal management rights (§59-39). Parties can contract around these defaults.
• Tortious Interference with Prospective Economic Advantage: “Malicious” disruption of a probable future contract, requiring proof that the contract would have formed but for defendant’s conduct.

5. Conclusion

Cutter v. Vojnovic is more than a routine affirmation of summary judgment; it reshapes two corners of North Carolina business law. First, it conclusively denies derivative standing to general partners, enforcing the boundary between statutory and common-law remedies. Second, it modernizes partnership-formation doctrine by embracing §59-48’s default allocation of losses and by overruling outmoded dicta requiring express loss-sharing. Coupled with a stern reminder that courts will not credit conclusory pleadings or speculative affidavits, the decision equips practitioners with clearer guidance on structuring joint ventures and litigating partnership disputes. Going forward, would-be partners must reach consensus on essential deal terms — especially financing — or face the risk that, like Cutter, they possess no partnership, no standing, and ultimately, no claim.