Child Care Inc. v. LJ Schs. (Carolina), Inc., 2026 NCBC 8.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 24CV008443-590
CHILD CARE INC.; EARLY CHILDHOOD SERVICES INC.; DAY CARE INC.; CHILD DEVELOPMENT INC.; CHILD LEARNING PROGRAMS INC.; SAM NEWELL CHILD DEVELOPMENT, LLC; SOUTH POINT CHILD DEVELOPMENT LLC; RUBEN ORDER AND OPINION ON LINKER CHILD DEVELOPMENT CENTER LLC; and MONROE ROAD PLAINTIFFS’ AND DEFENDANT’S CHILD DEVELOPMENT CENTER MOTIONS FOR SUMMARY LLC, JUDGMENT Plaintiffs,
v.
LJ SCHOOLS (CAROLINA), INC.,
Defendant.
1. THIS MATTER is before the Court upon Plaintiffs’ Motion for Summary
Judgment (“Plaintiffs’ Motion”) filed on 21 April 2025 and Defendant’s Motion for
Summary Judgment (“Defendant’s Motion”) filed on 18 April 2025 pursuant to Rule
56 of the North Carolina Rules of Civil Procedure (the “Rule(s)”), in the above
captioned case. 1
2. Having considered Plaintiffs’ Motion and Defendant’s Motion, the parties’
briefs and materials offered in support of and in opposition to each Motion, the
arguments of counsel at the hearing on the Motions, and other appropriate matters
1 (Pls.’ Mot. Summ. J. [hereinafter, “Pls.’ MSJ”], ECF No. 45; Def.’s Mot. Summ. J. [hereinafter, “Def.’s MSJ”], ECF No. 40.) of record, the Court hereby GRANTS Defendant’s Motion and DENIES
Plaintiffs’ Motion.
Shumaker, Loop & Kendrick, LLP, by Steven A. Meckler and Frederick M. Thurman, for Plaintiffs Child Care Inc., Early Childhood Services Inc., Day Care Inc., Child Development Inc., Child Learning Programs Inc., Sam Newell Child Development, LLC, South Point Child Development LLC, Ruben Linker Child Development Center LLC, and Monroe Road Child Development Center LLC.
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., by Evan M. Sauda, for Defendant LJ Schools (Carolina), Inc.
Brown, Judge. I.
FACTUAL AND PROCEDURAL BACKGROUND
3. While the Court does not make findings of fact on a motion for summary
judgment, “it is helpful to the parties and the courts for the trial judge to articulate a
summary of the material facts which he considers are not at issue and which justify
entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161-62 (2010) (citation and
quotation marks omitted). Accordingly, the following background, drawn from the
undisputed evidence submitted by the parties, is intended only to provide context for
the Court’s analysis and ruling and not to resolve issues of material facts.
4. Plaintiff Child Care Inc. and the other eight Plaintiffs are each a North
Carolina corporation or a North Carolina limited liability company. 2 Kevin Campbell
was the manager and principal of each of the Plaintiff entities before their
2 (Verified Compl. ¶ 1–9, ECF No. 3.) dissolutions. 3 Together, Plaintiffs owned and operated nine childcare centers in
South Carolina and North Carolina. 4
5. Defendant LJ Schools (Carolina), Inc. (“LJ Schools”) is a North Carolina
corporation that owns and operates daycare facilities in the State of North Carolina. 5
6. On 24 December 2020, Plaintiffs and Defendant entered into an Asset
Purchase Agreement (together with the later Amending Agreement dated 30
September 2021, the “APA”), whereby Defendant purchased childcare facilities and
other assets from Plaintiffs. 6
7. Under the APA, the total “Purchase Price” consists of three components:
$10,750,000.00 on the closing date, $250,000.00 as a “Holdback Amount,” and a
“Contingent Payment” not to exceed $6,000,000.00. 7
8. The parties’ dispute centers on whether Plaintiffs have earned the
Contingent Payment. The APA provides that the Contingent Payment shall be
calculated using the following formula:
6 x Purchased Assets’ rolling 12-month EBITDA less $11,310,696.00. 8
3 (Verified Compl. ¶ 18; Answer and Affirmative Defense of Def. LJ Schools (CAROLINA),
Inc. [hereinafter, “Answer”] ¶¶ 1–9, ECF No. 7; Tr. Hr’g Mots. Summ. J. [hereinafter, “Tr. Hr’g”] at 4:21, ECF No. 53.)
4 (Mem. Law Supp. Def.’s Mot. Summ. J. [hereinafter, “Mem. Supp. Def.’s MSJ”] 2, ECF. No.
41.)
5 (Verified Compl. ¶¶ 10–11.)
6 (See Verified Compl., Ex. A – Asset Purchase Agreement [hereinafter, the “APA”]; Verified
Compl., Ex. A – Amending Agreement [hereinafter, the “Amending Agreement”].)
7 (Verified Compl. ¶ 27; APA § 4.2.) Each of these terms is defined in the APA.
8 (Verified Compl. ¶ 28; APA § 4.2(c); Amending Agreement.) 9. The APA required Defendant to prepare quarterly statements of Purchased
Assets’ rolling 12-month EBITDA during an earn out period (the “Earn Out Period”),
using the following formula:
Total Revenue less Non-Recurring Revenue less Center Level Personal [sic] Costs less Operating Costs less Fixed Costs less Dues and Taxes less Overheard [sic] Costs plus (Non-Recurring Revenue × 12%). 9
10. Under the APA, “Non-Recurring Revenue” and several other variables are
defined, and Defendant has sole discretion to determine the specific variables in the
above formulas:
For greater certainty, the specific variables associated with each of the above formula (including the application of the term EBITDA) in the equation shall be determined by [Defendant] in its sole discretion. Without limiting the above in any way, the parties agree to the following principles.
...
Non-Recurring Revenue in the above equation in Section 4.2.c.iii shall include all grants, payments for non attending [sic] children, or government stimulus funds received by [Defendant] that are free of mandated expense obligations by the grantor or administrator of such funds during the Earn Out Period. 10
(emphasis added).
The APA does not, however, define “mandated expense obligations.”
9(Verified Compl. ¶ 29; APA § 4.2(c); Amending Agreement.) The “Earn Out Period” is defined in the APA § 4.2(c)(iii) and later amended by the Amending Agreement to be the period “commencing on March 31, 2022 and continuing to March 31, 2023.”
10 (APA § 4.2(c)(iii).)During the negotiations leading up to the execution of the APA, the parties discussed at arms-length the definition of Non-Recurring Revenue, the calculation of Contingent Payment, and the treatment of government stimulus grants free of mandated expense obligations. See Mem. Supp. Def.’s MSJ 6–8. Ultimately, they agreed on the above formulas and inserted a merger clause into the APA. See Mem. Supp. Def.’s MSJ 8; APA § 14.6. 11. The APA also imposes on Defendant a duty to “use reasonable commercial
efforts and operate in good faith so as to maximize EBITDA of the [b]usiness during
the Earn Out Period.” 11
12. During the Earn Out Period, Defendant received Early Childhood
Stabilization Grants from the State of North Carolina and similar grants from the
State of South Carolina (collectively the “Grant Funds”). 12 These Grant Funds were
provided by the American Rescue Plan Act of 2021 (“ARPA”), Pub. L. No. 117-2, 135
Stat. 4 (2021), enacted by Congress in 2021 in response to the ongoing COVID-19
pandemic. 13 The North Carolina Division of Child Development and Early Education,
the agency responsible for distributing the ARPA Grant Funds, separated the Grant
Funds into two categories: the Compensation Support Grants and the Fixed Costs
and Families Grants. 14 Plaintiffs’ entitlement to the Contingent Payment depended
heavily on whether the Grant Funds were categorized as Non-Recurring Revenue,
because Non-Recurring Revenue was deducted from Total Revenue under the
EBITDA formula.
11 (APA § 9.7.)
12 (See Verified Compl. ¶¶ 42–43; Mem. Supp. Def.’s MSJ 8–11, 16–20.)
13 (Br. Supp. Pls.’ Mot. Summ. J. [hereinafter, “Br. Supp. Pls.’ MSJ”] 6–7, ECF No. 46.)
14 (See Ex. 23, p. 2, ECF 43.7: “Each approved program receives a fixed costs and families grant . . . . Programs may choose to also receive additional funding, compensation supports grants . . . . The two components . . . .”.) 13. No later than August 2022, the parties began to disagree on Defendant’s
categorization of the Grant Funds under the EBITDA formula. 15 The parties’
disagreement stems from their different views on whether the Grant Funds are free
of mandated expense obligations by the grantor or the administrator of such funds
and thus deemed Non-Recurring Revenue when calculating EBITDA and the
Contingent Payment. 16
14. Plaintiffs contend that the Grant Funds are not free of mandated expense
obligations and should be included as recurring revenue for the Contingent Payment
calculation. 17 Defendant agrees with Plaintiffs that the Compensation Support
Grants are not free of mandated expense obligations, but claims that the Fixed Costs
and Families Grants are free of mandated expense obligations and thus Non-
Recurring Revenue. 18
15. On 7 July 2023, Plaintiffs notified Defendant of their election to have the
Contingent Payment calculated and paid to Plaintiffs. 19 The results of the calculation
from the two parties were drastically different: Plaintiffs calculated the Contingent
15 (See Mem. Supp. Def.’s MSJ 12; see also Ex. 29, ECF No. 43.13, Ex. 30, ECF No. 43.14.)
16 (Verified Compl. ¶ 42.) It is apparent from the formulas that the greater the Non-Recurring
Revenue is, the smaller the outcome of Purchased Assets’ rolling 12-month EBITDA, and thus the Contingent Payment, will be.
17 (See Verified Compl. ¶¶ 42–63.)
18 (See Mem. Supp. Def.’s MSJ 8–12; see also Ex. 29, ECF No. 43.13, Ex. 30, ECF No. 43.14.)
19 (Ex. 32, ECF No. 43.16.) Payment to be the full $6,000,000.00, while Defendant calculated the Contingent
Payment to be zero. 20
16. The parties could not resolve the dispute among themselves. 21
Consequently, pursuant to Section 4.2(c)(vii) of the APA, 22 Plaintiffs and Defendant
each appointed qualified accountants to determine the disputed aspects of the
Contingent Payment. 23 The accountants were unable to agree on the amount of the
Contingent Payment. 24
17. On 20 February 2024, Plaintiffs filed their Verified Complaint, asserting
three claims. 25 First, Plaintiffs allege that Defendant breached the APA by (a) failing
to pay the Contingent Payment in the amount of $6,000,000.00, (b) failing to properly
categorize revenue, costs, and expenses for the purpose of calculating the Contingent
Payment, and (c) failing to act in good faith to maximize EBITDA during and related
to the Earn Out Period. 26 Second, Plaintiffs allege that Defendant breached the duty
20 (Verified Compl. ¶ 36; Mem. Supp. Def.’s MSJ 12–13.)
21 (Verified Compl. ¶ 38.)
22 (APA § 4.2(c)(vii):“If the [parties] disagree on any aspect of the Contingent Payment including the Quarterly EBITDA Statement . . . and the parties are unable to resolve such dispute within 20 days, then each of [sic] Party shall appoint a qualified Chartered Accountant, both of whom shall work together in good faith to finally determine the disputed aspects of the Contingent Payment. The Parties agree to be bound by the determination of the Chartered Accountant in this regard.”.)
23 (Verified Compl. ¶ 39.)
24 (Verified Compl. ¶ 41.)
25 (Verified Compl.)
26 (Verified Compl. ¶¶ 67–80.) of good faith and fair dealing imposed by § 9.7 of the APA by failing to act in good
faith to maximize EBITDA and the Contingent Payment to be received by Plaintiffs. 27
Third, Plaintiffs seek a declaration that (a) the Grant Funds are not free from
mandated expense obligations by the grantor or administrator of such funds during
the Earn Out Period, and (b) the Grant Funds are to be included as recurring revenue
for purposes of the EBITDA calculation, the Contingent Payment, and other relevant
calculations. 28
18. Defendant filed its Answer and Affirmative Defenses on 22 March 2024,
denying liability for the causes of action asserted by Plaintiffs. 29
19. Defendant filed its Motion for Summary Judgment on 18 April 2025, seeking
summary judgment as to all of Plaintiffs’ claims. 30 Plaintiffs filed their Motion for
Summary Judgment on 21 April 2025, seeking summary judgment in their favor on
all claims. 31 After full briefing, the Court held a hearing on Plaintiffs’ Motion and
Defendant’s Motion on 30 July 2025 (the “Hearing”), at which all parties were
represented by counsel. The Motions are now ripe for resolution.
27 (Verified Compl. ¶¶ 81–85.)
28 (Verified Compl. ¶¶ 86–95.)
29 (Answer.)
30 (Def.’s MSJ.)
31 (Pls.’ MSJ.) II.
LEGAL STANDARD
20. Under Rule 56(c), “[s]ummary judgment is appropriate ‘if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that
any party is entitled to a judgment as a matter of law.’” Da Silva v. WakeMed, 375
N.C. 1, 10 (2020) (quoting N.C. R. Civ. P. 56(c)). “A genuine issue of material fact is
one that can be maintained by substantial evidence.” Curlee v. Johnson, 377 N.C. 97,
101 (2021) (cleaned up). “Substantial evidence is such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion and means more
than a scintilla or a permissible inference[.]” DeWitt v. Eveready Battery Co., 355
N.C. 672, 681 (2002) (cleaned up). “An issue is material if, as alleged, facts ‘would
constitute a legal defense, or would affect the result of the action or if its resolution
would prevent the party against whom it is resolved from prevailing in the action.’”
Bartley v. City of High Point, 381 N.C. 287, 292 (2022) (quoting Koontz v. City of
Winston-Salem, 280 N.C. 513, 518 (1972)). “When considering a motion for summary
judgment, the trial judge must view the presented evidence in a light most favorable
to the nonmoving party.” Belmont Ass’n v. Farwig, 381 N.C. 306, 310 (2022) (quoting
Dalton v. Camp, 353 N.C. 647, 651 (2001)).
21. “The party seeking summary judgment bears the initial burden of
demonstrating the absence of a genuine issue of material fact.” Liberty Mut. Ins. Co.
v. Pennington, 356 N.C. 571, 579 (2002). The movant may meet this burden either (1) “by proving an essential element of the opposing party’s claim does not exist,
cannot be proven at trial, or would be barred by an affirmative defense,” or (2) “by
showing through discovery that the opposing party cannot produce evidence to
support an essential element of [its] claim[.]” Dobson v. Harris, 352 N.C. 77, 83 (2000)
(cleaned up). If the movant meets its burden, “the burden shifts to the nonmoving
party to produce a forecast of evidence demonstrating that the nonmoving party will
be able to make out at least a prima facie case at trial[.]” Cummings v. Carroll, 379
N.C. 347, 358 (2021) (cleaned up); see also N.C. R. Civ. P. 56(e) (“[A]n adverse party
may not rest upon the mere allegations or denials of his pleading, but his response,
by affidavits or as otherwise provided in this rule, must set forth specific facts
showing that there is a genuine issue for trial.”).
22. “For affirmative summary judgment on a party’s own claim, the burden is
heightened.” Futures Grp. v. Brosnan, 2023 NCBC LEXIS 7, at *4 (N.C. Super. Ct.
Jan. 19, 2023). The movant “must show that there are no genuine issues of fact, that
there are no gaps in his proof, that no inferences inconsistent with his recovery arise
from the evidence, and that there is no standard that must be applied to the facts by
the jury.” Parks Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 721 (1985); accord Kidd
v. Early, 289 N.C. 343, 370 (1976). Consequently, “rarely is it proper to enter
summary judgment in favor of the party having the burden of proof.” Blackwell v.
Massey, 69 N.C. App. 240, 243 (1984). III.
ANALYSIS
23. As an initial matter, the only issue before the Court is the amount of a
“Contingent Payment” Plaintiffs are entitled to under the APA, which is wholly
dependent upon the interpretation of the term “mandated expense obligations” in the
APA. 32 Defendant contends that certain grants it received during COVID, namely
the Fixed Costs and Families Grants, are free of mandated expense obligations and
thus are Non-Recurring Revenue; therefore, they would be excluded from revenue
and the calculation of the Contingent Payment, based on Defendant’s interpretation
of the term “mandated expense obligations.” Plaintiffs argue that the Fixed Costs
and Families Grants clearly carry “mandated expense obligations” and therefore
should be deemed recurring revenue under the APA.
24. The parties agree that there are no genuine issues of material facts or
factual disputes in this case. 33 The only material dispute involves the meaning and
interpretation of a single term in the APA.
Defendant’s Motion
25. Defendant moves for summary judgment on Plaintiffs’ breach of contract
claim, claim of breach of duty of good faith and fair dealing, and claim for declaratory
relief. 34
32 (Br. Supp. Pls.’ MSJ 1–2.)
33 (See generally Tr. Hr’g 6–9, 19–20, 34:19–25, 45–47; see also Br. Supp. Pls.’ MSJ 3.)
34 (Mem. Supp. Def.’s MSJ.) A. Breach of Contract
26. The elements of a claim for breach of contract are (1) existence of a valid
contract and (2) breach of the terms of the contract. Davis v. Woods, 286 N.C. App.
547, 561 (2022) (citation omitted).
27. On Plaintiffs’ breach of contract claim, Defendant argues that: (1) Defendant
properly exercised its contractually vested discretion in categorizing items in the
EBITDA formula, including the Grant Funds; (2) the contract negotiations and due
diligence establish an intent to categorize the Fixed Costs and Families Grants as
Non-Recurring Revenue; and (3) Defendant operated the business with commercially
reasonable efforts and in good faith. 35
28. Plaintiffs contend that (1) Defendant’s interpretation of the APA is self-
serving and not a proper exercise of its contractually vested discretion, and (2)
Defendant’s reliance on the parties’ negotiations of the APA is improper. 36
Are the terms of the APA clear and unambiguous?
29. The APA is a contract. The enforceability of contracts is governed by the
general principles of contract law. Chappell v. Roth, 353 N.C. 690, 692 (2001).
30. “Interpreting a contract requires the court to examine the language of the
contract itself for indications of the parties’ intent at the moment of execution.”
United Therapeutics Corp. v. Liquidia Techs., Inc., 2024 NCBC LEXIS 47, at *28
(N.C. Super. Ct. July 31, 2024) (citing Lane v. Scarborough, 284 N.C. 407, 409–10
35 (Mem. Supp. Def.’s MSJ 15–26.)
36 (Br. Resp. Def.’s Mot. Summ. J. [hereinafter, “Br. Resp. Def.’s MSJ”], ECF. No. 47.) (1973)). “If the plain language of a contract is clear, the intention of the parties is
inferred from the words of the contract.” Walton v. City of Raleigh, 342 N.C. 879, 881
(1996). “A contract that is plain and unambiguous on its face will be interpreted by
the court as a matter of law.” Lane v. Scarborough, at 410. Whether the contract is,
in fact, ambiguous is a question for the court to determine. Lynn v. Lynn, 202 N.C
App. 423, 432 (2010).
31. The APA clearly grants to Defendant sole discretion in determining the
variables in the EBITDA formula and, without limiting Defendant’s discretion,
defines Non-Recurring Revenue to include grants free of mandated expense
obligations. No competing reasonable interpretations have been advanced by either
party. Neither party argues in its briefs that the terms of the APA are ambiguous
with regards to the Contingent Payment formula, its calculation, the items included
in the formula, or the definitions of the items. The parties’ dispute is not over whether
the APA grants Defendant the discretion described above, or over whether Non-
Recurring Revenue should be free of mandated expense obligations. Instead, the
parties’ dispute involves whether Defendant’s determination that the Fixed Costs and
Families Grants are free of mandated expense obligations is a proper exercise of its
discretion. Indeed, the parties expressly agreed during the Hearing that the APA
was clear and unambiguous. 37 The Court agrees and concludes that the APA is clear
and unambiguous.
37 (See Tr. Hr’g. 19–20, 34:19–25, 43:6–8, 45–47.) 32. When a contract is clear and unambiguous, absent allegations of fraud or
mistake, its terms may not be contradicted by parol or extrinsic evidence, and it is
presumed that all prior negotiations are merged into the written instrument. Root v.
Allstate Ins. Co., 272 N.C. 580, 587 (1968). Parol evidence may only be used to explain
or supplement the contract “if it appear[s] that the entire agreement was not reduced
to writing, or if the writing itself leaves it doubtful or uncertain as to what the
agreement was.” Id. at 590.
33. The conclusion that the APA is clear and unambiguous is further supported
by the APA itself and by the parties. Section 14.6 of the APA, “Entire Agreement,”
states that the APA constitutes the entire agreement between the parties. 38 The
parties have confirmed that the APA is the result of arms-length negotiations, and
the language of the APA represents the parties’ intent. 39 No fraud or mistake has
been alleged or found. Therefore, no extrinsic evidence will be considered by the
Court for purposes of interpreting the APA.
34. Accordingly, the Court will interpret the APA as a matter of law. The APA
is clear that “the specific variable associated with” the Contingent Payment formula,
including Non-Recurring Revenue, “shall be determined by [Defendant] in its sole
discretion.” 40
38 (APA § 14.6.) “North Carolina recognizes the validity of merger clauses and has consistently upheld them.” Zinn v. Walker, 87 N.C. App. 325, 333 (1987).
39 (See generally Tr. Hr’g.)
40 (APA § 4.2(c)(iii).) Is Section 4.2(c)(iii) of the APA valid?
35. Despite the fact that Plaintiffs agreed to Section 4.2(c)(iii) of the APA after
arms-length negotiation with Defendant, Plaintiffs argue that Section 4.2(c)(iii),
which grants sole discretion to Defendant in determining the specific variables in the
EBITDA formula, renders the APA illusory, because the section “reserves to
[Defendant] the sole discretion to interpret the contract.” 41
36. A contract is illusory when the promisor reserves an “unlimited right to
determine the nature or extent of his performance.” Canteen v. Charlotte Metro
Credit Union, 386 N.C. 18, 26–27 (2024) (citing State v. Philip Morris USA Inc., 363
N.C. 623, 641–42 (2009)). However, a contract is not illusory if a limitation on the
promisor’s unlimited right is supplied by law. Id. at 27 (“An otherwise illusory
contract may be remedied because a limitation on a promisor’s freedom of choice ‘may
be supplied by law.’”) (cleaned up).
37. In Canteen, a “Notice of Amendments” provision was included in the
contract at issue, which stated that “[e]xcept as prohibited by applicable law,
[defendant] may change the terms of this Agreement.” Id. at 20. The Canteen Court
determined that the phrase “except as prohibited by applicable law” in the contract
implicates the implied covenant of good faith and fair dealing, which remedies any
purported issues of illusoriness in the contract. Id. at 27.
38. In Mezzanotte v. Freeland, 20 N.C. App. 11, 17 (1973), the Court of Appeals
similarly concluded that “[a] promise conditioned upon an event within the promisor’s
41 (Br. Resp. Def.’s MSJ 3–4.) control is not illusory if the promisor also ‘impliedly promises to make reasonable
effort to bring the event about or to use good faith and honest judgment in
determining whether or not it has in fact occurred.’” In Mezzanotte, the agreement
was contingent upon the plaintiffs obtaining “satisfactory” financing from a bank. Id.
The term satisfactory financing was not defined in the agreement, and it was up to
the plaintiffs to interpret its meaning. See id. at 16–17. The Mezzanotte Court
determined that the agreement implied, and both parties understood, that “plaintiffs
would make an honest good faith effort to acquire financing satisfactory to
themselves” from the bank. Id. at 17. The Mezzanotte Court therefore concluded that
the agreement was not illusory. Id.; see also Philip Morris USA Inc., 363 N.C. at 641–
42 (determining that the provision at issue did not render any promise illusory
because “no party ha[d] an unlimited right to determine whether, or to what extent,
to perform any obligation . . .”).
39. Plaintiffs argue that the APA does not contain the limiting language found
in Canteen, and that consequently, the APA is illusory. 42 The Court finds Plaintiffs’
argument unavailing.
40. An express reference to the implied covenant of good faith and fair dealing
is not a prerequisite for it to apply. “In addition to its express terms, in every contract
there is an implied covenant of good faith and fair dealing that neither party will do
anything which injures the right of the other to receive the benefits of the agreement.”
Governor’s Club Inc. v. Governors Club Ltd. P’ship, 152 N.C. App. 240, 251 (2002)
42 (Br. Resp. Def.’s MSJ 4.) (cleaned up); see also Banyan GW, LLC v. Wayne Preparatory Acad. Charter Sch.,
Inc., 2019 N.C. App. LEXIS 112, at *17–21 (N.C. Ct. App. Feb. 5, 2019) (determining
that a contract was not illusory because the “sole and absolute discretion” to interpret
the agreement was limited by the implied covenant of good faith and fair dealing).
41. Similar to Canteen, here, Defendant’s discretionary power to determine the
specific variables associated with the EBITDA formula carries with it the duty to
exercise that power in good faith and fairly. Therefore, the Court concludes that
Section 4.2(c)(iii) of the APA, which grants sole discretion to Defendant in
determining the variables in the EBITDA formula, is not invalid as illusory.
Was Defendant’s exercise of discretion proper?
42. As stated above, the parties’ disagreement mainly concerns the undefined
term “mandated expense obligations” and its interpretation and application. The
APA is clear and unambiguous. As a matter of law, the Court interprets the APA to
vest Defendant with sole discretion to determine the variables in the EBITDA
formula, including Non-Recurring Revenue and the meaning of the term “mandated
expense obligations.” The inquiry therefore turns to whether Defendant properly
exercised that discretion in interpreting the term “mandated expense obligations.”
43. Defendant reads “mandated expense obligations” to mean obligations to
have officially required expense. 43 Defendant interprets the term by referencing the
definitions from Merriam-Webster’s Dictionary. 44 Its focus is on “mandated expense.”
43 (See Mem. Supp. Def.’s MSJ 15–18.)
44 (Mem. Supp. Def.’s MSJ 17–18.) Merriam-Webster’s Dictionary defines “mandated” as “officially required,” “expense” as “a financial burden or outlay,” “obligate” as “to bind legally Therefore, Defendant maintains that “mandated expense obligations” require
additional expense. 45 Defendant claims that it properly exercised its discretion by
excluding the Compensation Support Grant from Non-Recurring Revenue, as it
obligates Defendant to pay bonuses and raises to teachers—an additional expense on
top of existing wages—and by categorizing and including the Fixed Costs and
Families Grants as Non-Recurring Revenue, as they do not create additional
expenses and can be applied to existing or previously incurred expenses. 46
44. Defendant also refers to Plaintiffs’ previous treatment and categorization of
COVID-19-related funds to support its position. 47 Defendant points out that BDO,
an accounting firm hired by Plaintiffs as advisor during the due diligence period,
issued a Quality of Earnings report that states: “The Company was awarded and
recognized grant revenue from the state of North Carolina due to COVID-19. As
or morally” or “to commit (something, such as funds) to meet an obligation,” and “obligation” as “something (such as a formal contract, a promise, or the demands of conscience or custom) that obligates one to a course of action” or “a commitment (as by government) to pay a particular sum of money.” Mandated, MERRIAM-WEBSTER, https://www.merriam- webster.com/dictionary/mandated (last visited Jan. 8, 2026); Expense, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/expense (last visited Jan. 8, 2026); Obligate, MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/obligate (last visited Jan. 8, 2026); Obligation, MERRIAM-WEBSTER, https://www.merriam- webster.com/dictionary/obligation (last visited Jan. 8, 2026).
45 (Mem. Supp. Def.’s MSJ 18.)
46 (Mem. Supp. Def.’s MSJ 15–18.)
47 (Mem. Supp. Def.’s MSJ 3–4.) these grants were nonrecurring in nature, Management proposed an adjustment to
remove these revenues.” 48
45. Defendant contends that its interpretation and categorization were in good
faith and should be afforded the discretion granted by the APA. 49
46. Plaintiffs disagree with Defendant’s interpretation of “mandated expense
obligations” and deem Defendant’s interpretation “self-serving.” 50 Plaintiffs agree
that “mandated” means “required,” 51 but fail to proffer an alternative interpretation
of the term “mandated expense obligations.” 52 Instead, Plaintiffs contend that
Defendant’s distinction between the Compensation Support Grant and the Fixed
Costs and Families Grants is “fallacious.” 53 Plaintiffs point out that the ARPA, the
law that governs the Grant Funds, requires the funds to be used in a listed category
of both continuing expenses and additional expenses. 54 See ARPA § 2202(e). The
North Carolina Division of Child Development and Early Education provides that the
Fixed Costs and Families Grants “must fit into one of [eight] categories of approved
use.” 55
48 (Ex. 26, ECF. No. 43.10.)
49 (Mem. Supp. Def.’s MSJ 17.)
50 (Br. Resp. Def.’s MSJ 3–6.)
51 (Br. Resp. Def.’s MSJ 2.)
52 (See generally Br. Resp. Def.’s MSJ; see also Br. Supp. Pls.’ MSJ 6–15.)
53 (Br. Resp. Def.’s MSJ 4.)
54 (Br. Resp. Def.’s MSJ 4–6; Br. Supp. Pls.’ MSJ 6–7.)
55 (Br. Supp. Pls.’ MSJ 6–9; Ex. 23, p. 4, ECF No. 43.7.) 47. Essentially, Plaintiffs argue that these spending requirements constitute
mandated expense obligations, and since the ARPA makes no distinction between the
types of grants, neither the Compensation Support Grant nor the Fixed Costs and
Families Grants are free of mandated expense obligations.
48. Defendant asserts that the eight categories are non-exhaustive because
childcare providers who receive the Fixed Costs and Families Grants from the North
Carolina Division of Child Development and Early Education are allowed to select
“Other” and to describe how the funds were utilized, in addition to the eight
categories. 56
49. Again, the parties’ disagreement is rooted in their different interpretations
of “mandated expense obligations.”
The eight categories are: (1) Rent (including rent under a lease agreement) or payment on any mortgage obligation, utilities, facility maintenance or improvements, or insurance; (2) Personal protective equipment, cleaning and sanitization supplies and services, or training and professional development related to health and safety practices; (3) Purchases of or updates to equipment and supplies to respond to the COVID-19 public health emergency; (4) Goods and services necessary to maintain or resume child care services; (5) Mental health supports for children and employees; (6) Tuition assistance for families; (7) Past Expenses: reimbursement of debt or expenditures incurred after January 31, 2020, for the cost of a good or service that falls in the categories above to respond to the COVID-19 public health emergency; and (8) Personnel costs, including payroll and salaries or similar compensation for an employee (including any sole proprietor or independent contractor), employee benefits, costs for employee recruitment and retention as well as ongoing professional development or training, premium or hazard pay, staff bonuses, and employee transportation costs to or from work.
56 (See Mem. Supp. Def.’s MSJ 18–19; Ex. 23, ECF No. 43.7; Ex. 24, p. 11, ECF No. 43.8.) 50. As discussed above, Defendant’s discretion is limited by the implied
covenant of good faith and fair dealing. To breach the implied covenant of good faith
and fair dealing, Defendant must have acted in a manner, “which injured the right of
the other to receive the benefits of the agreement, thus depriving the other of the
fruits of the bargain.” Conleys Creek Ltd. P’ship v. Smoky Mt. Country Club Prop.
Owners Ass’n, 255 N.C. App. 236, 253 (2017) (cleaned up). “Evasion of the spirit of
the bargain, lack of diligence and slacking off, willful rendering of imperfect
performance, abuse of a power to specify terms, and interference with or failure to
cooperate in the other party’s performance” may constitute breach of the implied
covenant. Intersal, Inc. v. Wilson, 2023 NCBC LEXIS 29, at *67 (N.C. Super. Ct. Feb.
23, 2023) (quoting Restatement 2d of Contracts § 205 cmt. d (1981)). There is no
credible evidence presented to the Court that Defendant has engaged in any such
conduct.
51. Defendant followed the practice approved by North Carolina courts when
interpreting undefined terms in a contract, using dictionaries. See Morris Communs.
Corp. v. City of Bessemer, 365 N.C. 152, 158 (2011) (“To ascertain the ordinary
meaning of undefined and ambiguous terms, courts may appropriately consult
dictionaries.”) (citations omitted); see also James H. Q. Davis Trust v. JHD Props.,
2022 NCBC LEXIS 153, at *11–12 (N.C. Super. Ct. Dec. 9, 2022) (using Black’s Law
Dictionary’s definition to interpret undefined term “practicable”); Encompass Servs.,
PLLC v. Maser Consulting P.A., 2021 NCBC LEXIS 59, at *43 (N.C. Super. Ct. June
28, 2021) (using online dictionaries’ definitions to interpret undefined term “server”). Defendant has presented a textually based interpretation of “mandated expense
obligations” taken from the definitions of the words “mandated,” “expense,” and
“obligations” from the online version of the Merriam-Webster Dictionary—obligations
to have officially required expense.
52. Apart from characterizing Defendant’s interpretation as “self-serving” and
attacking Defendant’s distinction between the Compensation Support Grant and the
Fixed Costs and Families Grants as “fallacious,” Plaintiffs’ only argument against
Defendant’s interpretation of “mandated expense obligations” is that the ARPA
makes no distinction between the two types of grants and both should be treated as
having mandate expense obligations. 57
53. After Defendant has carried its initial burden on its motion, the question is
not whether Defendant’s interpretation of “mandated expense obligations” was the
only permissible interpretation, but whether Plaintiffs have produced evidence from
which a reasonable factfinder could conclude that Defendant exercised its
contractually vested discretion in bad faith.
54. The Court concludes that Plaintiffs have not met that burden. The APA
granted Defendant discretion to determine the variables included in the EBITDA
formula, including the interpretation of undefined terms. Defendant advanced a
textually based interpretation derived from the dictionary meanings of the term
“mandated expense obligations” and the structure of the Grant Funds at issue.
57 (See Br. Resp. Def.’s MSJ 4–6.) 55. Plaintiffs’ evidence demonstrates a disagreement over contract
interpretation and the financial consequences of Defendant’s decisions. However,
under North Carolina law, disagreement with a discretionary decision does not
establish bad faith. See Lovell v. Nationwide Mut. Ins. Co., 108 N.C. App. 416, 421
(1993) (“[B]ad faith means ‘not based on honest disagreement or innocent mistake.’”
(citations omitted)). Plaintiffs have not presented credible evidence that shows
Defendant exercised its discretion arbitrarily, dishonestly, or for the purpose of
evading letter or the spirit of the APA.
56. Therefore, the Court concludes that there is not a genuine issue of material
fact as to whether Defendant abused its discretion or breached the implied covenant
of good faith and fair dealing by its interpretation of “mandated expense obligations.”
57. The Court concludes that Defendant is entitled to summary judgment on
Plaintiffs’ breach of contract claim.
B. Claim for Breach of Duty of Good Faith and Fair Dealing and Claim for Declaratory Judgment
58. Plaintiffs further claim that Defendant breached the duty of good faith and
fair dealing imposed by § 9.7 of the APA by failing to act in good faith to maximize
EBITDA and the Contingent Payment to be received by Plaintiffs. 58
59. Plaintiffs also seek a declaration that (a) the Grant Funds are not free from
mandated expense obligations by the grantor or administrator of such funds during
the Earn Out Period, and that (b) the Grant Funds are to be included as recurring
58 (Verified Compl. ¶ 84.) revenue for purposes of the EBITDA calculation, the Contingent Payment and other
relevant calculations. 59
60. To the extent that Plaintiffs argue that Defendant breached its duty of good
faith by failing to use commercially reasonable efforts to operate the acquired
childcare centers, Plaintiffs have conceded during depositions that Defendant used
reasonable commercial efforts and operated the centers in good faith. 60
61. Plaintiffs’ claim of breach of duty of good faith and fair dealing in connection
with Defendant’s interpretation of “mandated expense obligations” and
categorization of the Fixed Costs and Families Grants as Non-Recurring Revenue is
premised upon the same facts, evidence, and arguments underlying the breach of
contract claim as discussed above.
62. Under North Carolina law, “where a party’s claim for breach of the implied
covenant of good faith and fair dealing is based on the same acts as its claim for
breach of contract, we treat the former as part and parcel of the latter.” Cordaro v.
Harrington Bank, FSB, 260 N.C. App. 26, 38–39 (2018). “North Carolina state court
decisions considering good faith and fair dealing claims that are ‘part and parcel’ of
breach of contract claims . . . have concluded that the two claims merely stand or fall
together[.]” Southeast Anesthesiology Consultants, PLLC v. Rose, 2019 NCBC LEXIS
52, at *23 (N.C. Super. Ct. Aug. 20, 2019). Since Plaintiffs’ claim for breach of duty
of good faith and fair dealing is based on the same alleged facts as its claim for breach
59 (Verified Compl. ¶¶ 94–95.)
60 (See Ex. 5- Kevin R. Campbell Dep. Tr., at 153:4–11, 151:18–20, ECF No. 41.5.) of contract, the Court grants Defendant’s Motion as to this claim to the same extent
as Plaintiffs’ breach of contract claim. Because Plaintiffs have failed to raise a
genuine issue of material fact as to their breach of contract claim, Plaintiffs’ claim of
breach of duty of good faith and fair dealing likewise fails as a matter of law.
63. Courts have the statutory discretion to “refuse to render or enter a
declaratory judgment or decree where such judgment or decree, if rendered or
entered, would not terminate the uncertainty or controversy giving rise to the
proceeding,” N.C.G.S. § 1-257, especially “when the request for declaratory relief is
duplicative of a substantive cause of action that the court will already address.”
Meridian Renewable Energy LLC v. Birch Creek Dev., LLC, 2025 NCBC LEXIS 172,
at *8–9 (N.C. Super. Ct. Dec. 29, 2025) (dismissing request for declaratory relief that
were largely duplicative of the breach of contract, quasi contract, and tort claims); see
also Oak Grove Techs., LLC v. Seventh Dimension, LLC, 2025 NCBC LEXIS 111, at
*29–30 (N.C. Super. Ct. Aug. 22, 2025) (dismissing, in part, declaratory judgment
request that was duplicative of a breach of contract cause of action that was also
dismissed).
64. Since Plaintiffs’ claim for declaratory judgment is premised upon the same
facts, evidence, and arguments underlying the breach of contract claim, Plaintiffs’
claim for declaratory judgment also fails as a matter of law.
65. Accordingly, Defendant is also entitled to summary judgment on Plaintiffs’
claim of breach of duty of good faith and fair dealing and claim for declaratory relief. Plaintiffs’ Motion
66. Given that Plaintiffs’ Motion for Summary Judgment is based on the same
claims, arguments, and evidentiary record, 61 the Court denies Plaintiffs’ Motion in
its entirety.
67. The Court’s denial of Plaintiffs’ Motion is further supported by the fact that
the burden is heightened for an affirmative motion for summary judgment on the
party’s own claims, and Plaintiffs have failed to meet their burden.
IV.
CONCLUSION
68. WHEREFORE, the Court hereby GRANTS Defendant’s Motion and
DENIES Plaintiffs’ Motion.
SO ORDERED, this the 6th day of February 2026.
/s/ A. Todd Brown A. Todd Brown Special Superior Court Judge for Complex Business Cases
61 (See Br. Supp. Pls.’ MSJ.)