Bickley v. Fordin , 258 N.C. App. 1 ( 2018 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-185
Filed: 20 February 2018
Wake County, No. 15-CVS-4672
ADAM BICKLEY, Plaintiff,
v.
FREDERIC (a.k.a FRED) FORDIN and MILLENIUM 3 AUTOMOTIVE
CONSULTANTS, LLC, and ASR PRO, LLC, Defendants.
Appeal by Defendants and cross-appeal by Plaintiff from order and final
judgment entered 22 August 2016 by Judge G. Wayne Abernathy in Wake County
Superior Court. Heard in the Court of Appeals 24 August 2017.
The Farrell Law Group, P.C., by Richard W. Farrell, for the Plaintiff-
Appellee/Cross Appellant.
Wyrick Robbins Yates & Ponton LLP, by Tobias S. Hampson and K. Edward
Greene, for the Defendants-Appellants/Cross Appellees.
DILLON, Judge.
Both parties appeal from the order and final judgment of the trial court,
awarding Plaintiff $550,762.20.
I. Background
In 2003, Defendant Frederic Fordin formed Millenium 3 Automotive
Consultants, LLC (“M3 LLC”). M3 LLC’s primary asset was its ongoing development
of software called “ASR Pro,” which was intended to be marketed to the used car
BICKLEY V. FORDIN
Opinion of the Court
dealership industry. At all relevant times, Defendant Fordin was the majority owner
and managing member of M3 LLC.
In 2006, Plaintiff Adam Bickley purchased a 10% interest in M3 LLC for
$50,000. Shortly thereafter, however, Plaintiff was sentenced to serve two years in
prison after pleading guilty to drug charges.
In October 2008, Defendant Fordin approached Plaintiff, expressing his
concern that the conviction would adversely affect M3 LLC’s prospects of becoming
viable. Defendant Fordin offered to repurchase Plaintiff’s 10% interest in M3 LLC
for $50,000 in the form of a promissory note. Defendant Fordin drafted a written
repurchase agreement (the “2008 Agreement"), telling Plaintiff that “he would
bankrupt the company if [Mr. Bickley] didn’t sign [the agreement].” Mr. Bickley
signed the agreement in October 2008.
In December 2009, Mr. Fordin formed a new company, Defendant ASR Pro,
LLC, (“ASRP LLC”) and arranged for ASRP LLC to purchase the ASR Pro software
from M3 LLC. Every member of M3 LLC was given a minority stake in ASRP LLC.
In 2014, ASRP LLC sold the ASR Pro software to an independent company for
approximately $14 million.
In December 2015, Plaintiff filed a complaint seeking damages from
Defendants based on Defendant Fordin’s actions in procuring Plaintiff’s signature on
the 2008 Agreement.
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The trial court granted Defendants’ motion for a directed verdict on Plaintiff’s
claim for unfair and deceptive trade practice (“UDTP”), but ruled that, as a matter of
law, M3 LLC had breached its contract to pay Mr. Bickley $50,000 for his 10% interest
in the company. The jury found in favor of Plaintiff on his other claims for fraud,
constructive fraud, and breach of fiduciary duty, and awarded $505,000 in damages.
The jury declined to award punitive damages.
In its order and final judgment, the trial court awarded Plaintiff a total of
$550,762.20. The trial court denied Plaintiff’s motion for attorneys’ fees. Both parties
appealed.
II. Analysis
Defendants contend that the trial court erred in failing to grant directed
verdict in their favor on Mr. Bickley’s claims for fraud, constructive fraud, and breach
of fiduciary duty.
The standard of review of directed verdict is whether the
evidence, taken in the light most favorable to the non-
moving party, is sufficient as a matter of law to be
submitted to the jury. If there is evidence to support each
element of the nonmoving party's cause of action, then the
motion for directed verdict and any subsequent motion for
[JNOV] should be denied. . . . Whether [a party is] entitled
to a directed verdict [] is a question of law. We review
questions of law de novo.
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Green v. Freeman, 367 N.C. 136, 140-41, 749 S.E.2d 262, 267 (2013) (internal marks
and citations omitted). Guided by our standard of review, we address each of the
parties’ arguments in turn.
A. Plaintiff’s Appeal
On appeal, Plaintiff challenges the trial court’s grant of directed verdict for the
Defendants on his UDTP claim, a claim based on Defendant Fordin’s representations
concerning M3 LLC to induce Plaintiff to sell back his 10% interest in the company.
We conclude that the trial court did not err. Specifically, as explained below, the
repurchase of an interest in a closely held company from a shareholder does not fall
within the scope of the UDTP Act.
The UDTP Act provides, in relevant part, that “[u]nfair methods of competition
in or affecting commerce, and unfair or deceptive acts or practices in or affecting
commerce, are declared unlawful.” N.C. Gen. Stat. § 75-1.1 (2015). Our Supreme
Court has observed that the history of the Act indicates that the General Assembly
was targeting “unfair and deceptive interactions between market participants.” White
v. Thompson, 364 N.C. 47, 52, 691 S.E.2d 676, 679 (2010) (emphasis added). For
instance, our Supreme Court has explained:
Essentially, the General Assembly indicated through its
original statement of purpose that the Act was designed to
achieve fairness in dealings between individual market
participants. To accomplish this goal, the General
Assembly explained that the Act would regulate two types
of interactions in the business setting: (1) interactions
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between businesses, and (2) interactions between businesses
and consumers.
Id. (emphasis added); see also Bhatti v. Buckland, 328 N.C. 240, 245-46, 400 S.E.2d
440, 443-44 (1991).
Therefore, as our Supreme Court has observed, “the General Assembly did not
intend for the Act’s protections to extend to a business’s internal operations.” White,
364 N.C. at 53, 691 S.E.2d at 680 (emphasis added). “[T]he Act is not focused on the
internal conduct of individuals within a single market participant, that is, within a
single business.” Id.
As a result, any unfair or deceptive conduct contained
solely within a single business is not covered by the Act. As
the foregoing indicates, [our Supreme] Court has
previously determined that the General Assembly did not
intend for the Act to intrude into the internal operations of
a single market participant.
Id.
Here, as in Thompson, the bad acts as alleged “did not occur in . . . dealings
with [other market participants].” Id. Rather, the transaction which forms the basis
of Plaintiff’s claim under the Act is more appropriately classified as internal conduct
between two owners of a single business, M3 LLC. As such, being a transaction
confined to M3 LLC, and not involving any other market participant, we hold that
the transaction whereby Plaintiff agreed to sell back his 10% interest falls outside
the scope of the UDTP Act.
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As an alternative reason for our holding, we believe that this transaction is
analogous to a securities transaction, which our Supreme Court has repeatedly
explained does not fall within the scope of the UDTP Act. See HAJMM Co. v. House
of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991). Specifically,
our Supreme Court reasoned as follows:
Issuance and redemption of securities are not in this sense
business activities. . . . Subsequent transfer of securities
merely works a change in ownership of the security itself.
Again, this is not a business activity of the issuing
enterprise. Similarly, retirement of the security by the
issuing enterprise simply removes the security from the
capital structure. Like issuance and transfer of the
security, retirement is not a business activity which the
issuing enterprise was organized to conduct.
Securities transactions are related to the creation,
transfer, or retirement of capital. Unlike regular purchase
and sale of goods, or whatever else the enterprise was
organized to do, they are not “business activities” as that
term is used in the [UDTP] Act. They are not, therefore,
“in or affecting commerce,” even under a reasonably broad
interpretation of the legislative intent underlying these
terms.
Id.
In the present case, it is unclear whether Plaintiff’s 10% interest in M3 LLC
was technically a “security.” See N.C. Gen. Stat. § 25-8-103(c) (2015) (stating that an
interest in a limited liability company is not a security unless certain other criteria
are met). Notwithstanding, we believe that the reasoning by our Supreme Court in
the quote above supports our conclusion that the transaction whereby Plaintiff agreed
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Opinion of the Court
to sell back his 10% interest in M3 LLC does not fall within the scope of the UDTP
Act.
Accordingly, we conclude that the trial court properly granted directed verdict
for Defendants on Plaintiff’s UDTP claim.
B. Defendants’ Cross-Appeal
Defendants contend that the trial court erred in failing to grant Defendants’
motions for directed verdict on Plaintiff’s fraud claim, constructive fraud claim, and
claim for breach of fiduciary duty. These three issues were ultimately submitted to
the jury and formed the basis of the jury’s verdict.
In considering these claims, we are only concerned with whether, when
considered in the light most favorable to Plaintiff, there was enough evidence of each
element to warrant submission of the claim to the jury. See Green, 367 N.C. at 140-
41, 749 S.E.2d at 267. We must accept Plaintiff’s evidence as true, and resolve all
contradictions, conflicts, and inconsistencies in the evidence in his favor. Daughtry
v. Turnage, 295 N.C. 543, 544, 246 S.E.2d 788, 789 (1978). Evidence offered by a
defendant, when favorable to the plaintiff, is to be considered as well. Godwin v.
Johnson Cotton Co., 238 N.C. 627, 629, 78 S.E.2d 772, 773 (1953). And “[w]here the
question of granting a directed verdict is a close one, the better practice is for the trial
judge to reserve his decision on the motion and allow the case to be submitted to the
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jury.” Manganello v. Permastone, Inc., 291 N.C. 666, 669-70, 231 S.E.2d 678, 680
(1977).
For the reasons stated below, we hold that the trial court properly denied
Defendants’ directed verdict motion as to these claims.
1. Fraud
In regard to Plaintiff’s fraud claim, Defendants contend that Plaintiff failed to
offer any evidence that Defendant Fordin (1) made a false representation, (2) had any
intent to deceive, or (3) that Plaintiff was harmed by Defendant Fordin’s
representation.
At trial, Plaintiff testified that when Defendant Fordin approached him with
the request that he sell his 10% interest in M3 LLC, Defendant Fordin stated that
the value of his shares was “zero dollars” and that Defendant Fordin “would bankrupt
the company” if Plaintiff refused to sell. Defendant Fordin contradicted this version
of events, testifying that he had no intention of bankrupting the company; rather, he
was concerned that the government would seize M3 LLC’s assets and he had a
potential investor who refused to buy in to M3 LLC unless Plaintiff was no longer
part of the organization, due to Plaintiff’s criminal drug conviction.
Considered in the light most favorable to Plaintiff, this evidence suggests that
Defendant Fordin threatened to bankrupt M3 LLC, although he had no intention of
actually doing so, in order to force Plaintiff to relinquish his interest in the company.
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Opinion of the Court
Defendants also contend that there is no evidence that Plaintiff was harmed
by Defendant Fordin’s representations because Mr. Fordin presented evidence that if
Plaintiff had remained a shareholder of M3 LLC, the prospective investor would not
have invested in the company and the software would not have ultimately been sold
for $14 million – rather, Defendants contend that “Mr. Fordin would simply have
been forced to dissolve the company and pay existing creditors.” However, this is
contradicted by Defendant Fordin’s testimony that he had no intent to “bankrupt” M3
LLC, Defendants’ own evidence that Plaintiff had left the company more than
eighteen (18) months before the potential investor bought into M3 LLC, and that
Defendant Fordin never disclosed that Plaintiff had been an investor in the company,
even in his official report to a CPA in 2010 while preparing tax returns. It was the
jury’s responsibility to weigh the credibility of all of the testimony and evidence
presented at trial. See Manganello, 291 N.C. at 669-70, 231 S.E.2d at 680. Thus, we
conclude that the trial court properly denied Defendant’s motion for directed verdict
on the issue of fraud.
2. Constructive Fraud and Breach of Fiduciary Duty
“Constructive fraud differs from actual fraud in that it is based on a
confidential relationship rather than a specific misrepresentation.” Barger v. McCoy
Hillard & Parks, 346 N.C. 650, 666, 488 S.E.2d 215, 224 (1997) (internal marks
omitted). In order to maintain a claim for constructive fraud, a plaintiff must show
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that “[he] and defendants were in a relation of trust and confidence . . . [which] led
up to and surrounded the consummation of the transaction in which defendant[s]
[are] alleged to have taken advantage of [their] position of trust to the hurt of [the]
plaintiff.” Id. (internal marks omitted).
“In North Carolina, it is well established that a controlling shareholder owes a
fiduciary duty to minority shareholders.” Freese v. Smith, 110 N.C. App. 28, 37, 428
S.E.2d 841, 847 (1993) (citing Gaines v. Long Mfg. Co., 234 N.C. 340, 67 S.E.2d 350
(1951)).
Where a transferee of property stands in a confidential or
fiduciary relationship to the transferor, it is the duty of the
transferee to exercise the utmost good faith in the
transaction and to disclose to the transferor all material
facts relating thereto and his failure to do so constitutes
fraud. Such a relationship exists in all cases where there
has been a special confidence reposed in one who in equity
and good conscience is bound to act in good faith and with
due regard to the interests of the one reposing confidence.
Intent to deceive is not an essential element of such
constructive fraud.
Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971) (internal marks and
citations omitted).
Here, Plaintiff presented evidence that Defendant Fordin owned a controlling
interest in M3 LLC and essentially ran the business. See id. at 193, 179 S.E.2d at
704 (discussing the responsibility of a president or manager of a corporation to
disclose information of its value when stock is being transferred). Plaintiff also
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Opinion of the Court
presented evidence that Defendant Fordin controlled the finances of the company,
failed to keep detailed records of M3 LLC’s finances, and failed to disclose any specific
details of M3 LLC’s financial situation at the time he requested that Plaintiff sell
back his shares in M3 LLC. While Defendant Fordin certainly was not required to
disclose that the stock had any value if it in fact did not, Plaintiff presented evidence
from which a jury could infer that M3 LLC’s value was greater than zero; specifically,
that in 2008, M3 LLC’s profits had increased drastically despite the fact that
Defendant Fordin had increased his personal salary draw from $60,000 to $180,000.
Defendants have maintained that there is no evidence that M3 LLC had any
value at the time of the 2008 Agreement; however, this conflict in the evidence is
again for the jury to resolve. See id. Accordingly, it was not error for the trial court
to deny Defendants’ motion for directed verdict on the issues of constructive fraud
and breach of fiduciary duty.
C. Verdict
Defendants challenge the amount of the jury’s verdict, alleging that it is an
invalid “compromise verdict” because the jury did not consider the evidence and the
instructions from the trial court in arriving at the dollar amount of damages. We
disagree.
“A compromise verdict is one in which the jury answers the issues without
regard to the pleadings, evidence, contentions of the parties or instructions of the
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court.” City of Burlington v. Staley, 77 N.C. App. 175, 178, 334 S.E.2d 446, 450 (1985).
Defendants request a new trial arguing no evidence supports the jury’s calculation of
damages of $505,000 because this figure is the numerical average between what the
Plaintiff sought and Defendant offered. Mr. Fordin conceded he owed approximately
$70,000 on his contract with Plaintiff. Plaintiff’s forensic accountant testified, that if
Plaintiff remained with the company, Plaintiff would have likely received close to
$940,000. Defendants contend the jury simply split the difference between those two
numbers instead of awarding a sum based upon the evidence. The $505,000 verdict
equals the average of $70,000 and $940,000.
Under North Carolina law, the dollar amount of the verdict alone is insufficient
to establish an unlawful compromise verdict. Piedmont Triad Reg’l Water Auth. v.
Lamb, 150 N.C. App. 594, 598, 564 S.E.2d 71, 74 (2002). Because a juror cannot give
testimony to impeach a verdict, establishing a quotient verdict is difficult to prove.
See N.C. R. Evid. 606(b). Furthermore, the presumption of regularity attaches to
judicial acts, including verdicts. Without other evidence to rebut this presumption,
this Court presumes the jury followed its instructions. See generally State v.
Elkerson, 304 N.C. 658, 664, 285 S.E.2d 784, 789 (1982).
Defendant cites one case where the Supreme Court found an improper verdict
based on a series of multiple verdicts each representing 30% of the damage amount
requested. Daniel v. Belhaven, 189 N.C. 181, 126 S.E. 421 (1925). The jury in this
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case “adopted a general rule to give each plaintiff thirty per cent. [sic] of the amount
each claimed in his complaint.” Id. at 182, 126 S.E. at 422. This was evidenced by a
note in the verdict sheet’s margin where a juror wrote, “The jury agrees that each
man shall be paid 30 per cent. of his claim.” Id. at 182, 126 S.E.2d at 421. Here, the
North Carolina Supreme Court found the jurors were not “governed by the proper
exercise of judgment under the fixed rules of law,” since the verdict was “arbitrary”
and was not a valid consideration “in light of the evidence.” Id. at 182, 126 S.E.2d at
422.
Defendants also cite Shaver v. Monroe Construction Co., 63 N.C. App. 605, 306
S.E.2d 519 (1983). In that case, a former employee sued his former employer for the
employer’s alleged misrepresentation that the company pension plan was still in
effect, which induced the employee to stay with the company and forgo salary
increases and bonuses. Id. at 606, 306 S.E.2d at 521. The trial court instructed the
jury on two different measures of damages. Id. at 615, 306 S.E.2d at 526. The trial
court also instructed the jury to choose only one of those measures of damages, but
not both or a combination of both. Id. at 615, 306 S.E.2d at 526. The first measure
was the “difference in the value of plaintiff’s services during the time that he worked
under the fraudulent inducement and the price he was actually paid for his services
because of the deceit.” Id. at 615, 306 S.E.2d at 526. The second measure of damages
was the benefit of the bargain. Id. at 615, 306 S.E.2d at 526. The benefit of the
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bargain damages equaled “the difference between the amount that would have been
distributed to plaintiff had continuous contributions been made to the plan and the
amount which was actually distributed to him.” Id. at 615, 306 S.E.2d at 526. This
Court determined the trial court erroneously submitted the first measure of damages
to the jury. Id. at 615, 306 S.E.2d at 526. This Court reasoned:
What plaintiff lost as a result of the misrepresentations
was the amount of the contributions which supposedly
were being made. To allow plaintiff to recover the
difference between the value of his services and his salary
at the Company would be to allow him a windfall and
would be contrary to the underlying principles of
compensatory damages.
Id. at 615-16, 306 S.E.2d at 526.
In the current action, neither party, nor the trial court, gave the jury any
specific instructions regarding damages. Rather the trial court gave the jury general
instructions on damages:1
As you know, we are - - we are trying a case in which
the Plaintiff seeks to recover money damages resulting
from the diversion of the Plaintiff’s equity interest in M3
today.
....
Seven: What amount is the Plaintiff entitled to
recover from the Defendant as damages? If you answered
issue two yes, answer issue seven. If you answered issue
three yes and four no, answer issue seven. If you answered
issue five yes and answered six no, answer issue seven.
1 The damages issue was issue #7.
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Otherwise, stop and inform the Bailiff.
....
I will discuss these issues one at a time and explain
the law which you should consider as you deliberate upon
your verdict.
....
Six, that the Plaintiff suffered damages proximately
caused by the Defendant’s false representations or
concealment. Proximate cause is a cause that’s a natural
and continuous sequence producing the person’s damage
and is a cause that any reasonable and prudent person
couldn’t have seen, would probably produce such damage
or some similar injurious results. There may be more than
one proximate cause of damage, therefore the Plaintiff
need not prove that the Defendants’ false representation or
concealment was the sole proximate cause of the Plaintiff’s
damages. The Plaintiff must prove, by the greater weight
of the evidence, only that the Defendants’ false
representation or concealment was a proximate cause.
....
The next issue is the damage issue. It reads as
follows: What amount is the Plaintiff entitled to recover
from the Defendant as damages, exclusive of the contract
damages? If you answer issue two yes, answer - - answer
issue seven. Issue seven is the damage issue. If you
answer issue three yes and four no, answer issue seven. If
you answer issue five yes and issue six no, answer the
issue seven. Otherwise, stop and inform the Bailiff.
....
Now, members of the jury, you’ve heard the evidence
and the argument of counsel. If your recollection of the
evidence differs from that of the attorneys, you are, as I
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Opinion of the Court
told you, to be guided exclusively by your recollection. It
is your duty to recall the evidence (inaudible) your
attention or not.
You should consider all the evidence, the arguments,
contingents, and positions urged by the attorneys and any
other contingents that arises from the evidence.
Our review of the record indicates the jury received no special instruction from the
trial court on how to measure damages. Rather, the jury was to weigh the evidence
and compensate Plaintiff accordingly. The better practice would have been for the
parties to ask for a special instruction regarding the benefit of the bargain or
restitution damages. This way, the jury would have a better understanding of the
remedies available to Plaintiff.
Furthermore, this Court has held “whether plaintiff’s [damages] calculation is
correct or not is irrelevant since the jury, as the trier of fact, may award damages
based on the evidence they find credible and may disregard the evidence they did not
find credible.” Dafford v. JP Steakhouse LLC, 210 N.C. App. 678, 687, 709 S.E.2d
402, 409 (2011). The jury found Defendants liable for fraud, fraud in the inducement,
constructive fraud, and breach of fiduciary duty. Defendants show the jury’s verdict
represents the average of two sums presented to the jury during trial. However, the
jury’s single sum alone, without more, under our case law, is insufficient for
Defendants to demonstrate that the award of $505,000 to Plaintiff by the jury was an
improper exercise of jury discretion and contrary to law.
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III. Conclusion
We find no error in the rulings of the trial court on the parties’ respective
motions for directed verdict. In addition, we find no error in the form or amount of
the jury’s verdict. Accordingly, we conclude that the parties had a fair trial, free from
prejudicial error.
NO ERROR.
Judges HUNTER, JR., and ARROWOOD concur.
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