Compass Tax Servs., LLC v. Karki, 2025 NCBC 35.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION ORANGE COUNTY 22CVS001021-670
COMPASS TAX SERVICES, LLC; ASHOK LAMICHHANE; and AMAR SHRESTHA,
Plaintiffs, OPINION AND FINAL JUDGMENT v.
RABINDRA KARKI,
Defendant.
1. THIS MATTER came on for trial without a jury before the undersigned on
27 May 2025. (ECF No. 78.) The matter is now ripe for final determination.
I. INTRODUCTION
2. This dispute arises out of Defendant and Counterclaim Plaintiff Rabindra
Karki’s (Karki) sale of five Liberty Tax franchise locations to Plaintiffs and
Counterclaim Defendants Compass Tax Services, LLC (Compass Tax), Ashok
Lamichhane (Lamichhane), and Amar Shrestha (Shrestha; and with Compass Tax
and Lamichhane, Counterclaim Defendants).
3. Karki contends that the Counterclaim Defendants failed to fulfill their
payment obligations under the operative sale agreement and that Lamichhane made
material misrepresentations regarding his intent when entering into the operative
sale agreement and breached his fiduciary duty as majority owner and manager of
Compass Tax. 4. Based on the following Findings of Fact and Conclusions of Law, the Court
issues its Opinion and Final Judgment.
II. PROCEDURAL HISTORY
5. Counterclaim Defendants initiated this action on 19 August 2022 by filing
the Verified Complaint. (ECF No. 4.)
6. On 23 September 2022, this action was designated as a mandatory complex
business case by order of the Chief Justice of the Supreme Court of North Carolina,
(ECF No. 1), and assigned to the undersigned, (ECF No. 2).
7. Thereafter, on 16 February 2023, Counterclaim Defendants filed their
Amended Complaint as a matter of right, asserting eleven claims for relief against
Karki. (See generally Am. Compl., ECF No. 20.) Thereafter, they voluntarily
dismissed nine of those eleven claims without prejudice. (See ECF No. 31.) As a
result, Counterclaim Defendants maintained two claims against Karki for (1) breach
of contract, (Am. Compl. ¶¶ 43–47); and (2) breach of the duty of good faith and fair
dealing, (Am. Compl. ¶¶ 48–55).
8. On 20 March 2023, Karki filed his Answer to the Amended Complaint and
Amended Counterclaims in which he requested a jury trial. (ECF No. 26.) Karki
asserted the following counterclaims against the Counterclaim Defendants:
(1) breach of contract (Counterclaim One), (Countercl. ¶¶ 103–06); (2) fraud
(Counterclaim Two), (Countercl. ¶¶ 107–14); (3) breach of fiduciary duty
(Counterclaim Three), (Countercl. ¶¶ 115–20); (4) constructive fraud (Counterclaim
Four), (Countercl. ¶¶ 121–26); and (5) violations of the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), N.C.G.S. § 75-1.1 et seq., (Counterclaim
Five), (Countercl. ¶¶ 131–37). 1
9. After completion of discovery, on 17 October 2023, the parties filed cross-
motions for summary judgment. (ECF Nos. 41, 45.) After briefing was complete, the
Court held a hearing on the motions. (See ECF No. 56.) Following the hearing, the
Court entered its Order and Opinion on Cross-Motions for Summary Judgment, (ECF
No. 61), dismissing all of Counterclaim Defendants’ claims and leaving only Karki’s
counterclaims for trial.
10. On 2 July 2024, the Court originally set this matter for trial to begin on
4 February 2025 in Orange County, North Carolina. (ECF No. 62.) Thereafter, the
parties withdrew their request for a jury trial. (ECF No. 69.)
11. Following difficulties scheduling Nepalese interpreters for trial purposes,
the Court cancelled the trial set for 4 February 2025, (ECF No. 73), and subsequently
set trial for 27 May 2025, (ECF No. 78).
12. Beginning on 27 May 2025, the parties, through their counsel, presented
evidence to the Court at trial in the form of five live witnesses, stipulations of fact,
various exhibits, and deposition testimony. Following conclusion of trial, on 3 July
2025, the parties submitted proposed findings of fact and conclusions of law. (ECF
Nos. 81.1, 82.1.)
13. All issues and claims are now ripe for resolution.
1Karki originally asserted a counterclaim for civil conspiracy, (Countercl. ¶¶ 127–130); however, he voluntarily dismissed that claim without prejudice on 22 November 2023, (see ECF No. 51). III. FINDINGS OF FACT
14. Based on the evidence properly considered by the Court, the Court makes
the following Findings of Fact. Any determination later stated as a conclusion of law
that should have been stated as a finding of fact is incorporated into these Findings
of Fact.
A. The Parties
15. Compass Tax is a North Carolina limited liability company with its
principal office in Chapel Hill, North Carolina. Compass Tax was organized on 16
July 2021 and has three members—Lamichhane, Shrestha, and Karki. (See Karki’s
Ex. 103 at 5 [Op. Agt.].)
16. Lamichhane is a citizen and resident of Orange County, North Carolina.
Lamichhane holds a seventy-five percent interest in Compass Tax. (Op. Agt. 5.)
17. Shrestha is a citizen and resident of Durham County, North Carolina.
Shrestha holds a fifteen percent interest in Compass Tax, (Op. Agt. 5), and he is also
employed full-time at Harris Teeter.
18. Karki is a citizen and resident of Morrisville, North Carolina. Karki holds
a ten percent interest in Compass Tax. (Op. Agt. 5.)
B. Beginning of the Parties’ Relationship
19. For approximately twenty years, Karki has directly and indirectly owned
tax preparation businesses in central North Carolina that operate as Liberty Tax
franchises. 20. Each store had a store manager who was responsible for carrying out the
work at each individual location. Mindy Hickerson, who has worked with Karki for
many years and generally oversaw the operation of his tax preparation businesses,
acted as the store manager in Raleigh. Ms. Hickerson was also the “general manager”
for Karki’s businesses in that she served as central administrator and addressed
issues that arose in the day-to-day operations of the stores.
21. Karki’s businesses included five tax preparation stores located at the
following addresses (the Businesses):
a. 3825 S. Roxboro Street #136, Durham, NC 27713;
b. 247 Grande Heights Drive, Cary, NC 27513;
c. 4456 Fayetteville Road, Raleigh, NC 27603;
d. 501 Raleigh Road, Angier, NC 27501; and
e. 3808 Guess Road, Durham, NC 27705.
22. Each of these five locations operated as a Liberty Tax franchise.
23. Lamichhane and Karki knew each other through a mutual friend in the
Nepali community. In early 2021, Lamichhane was residing with his wife and family
in New Jersey. Lamichhane and Karki became reacquainted and, during that time,
the two began discussing the possibility of Lamichhane purchasing the Businesses
from Karki.
24. During those discussions, Karki provided Lamichhane the gross sales
figures for the Businesses between March and May 2021 by way of text message. Lamichhane relied on only the financial information provided and shown to him by
Karki in making his decision to pursue this opportunity.
25. Around the same time, Lamichhane informed Shrestha of the same
opportunity, and Shrestha notified Lamichhane that, if Lamichhane purchased one
or more of the Businesses, Shrestha wanted to join in.
26. In May 2021, a document was drafted by Lamichhane for the acquisition of
the Businesses from Karki (the May Agreement). The May Agreement reflected a
purchase price of $720,000.00 for the five Liberty Tax franchise locations owned by
Karki. (See Karki’s Ex. 101 [May Agt.].)
27. Shrestha and Karki met on 14 May 2021 without Lamichhane, who was at
that time still living in New Jersey. However, the three men spoke on the phone
while Shrestha and Karki signed the May Agreement. (May Agt. 4.) There is no
evidence that Lamichhane ever signed the May Agreement.
28. The May Agreement also provided that a $15,000.00 deposit would be paid
to Karki on the date the agreement was executed and that the deposit would be
applied to the purchase price at closing. (May Agt. 1.) This payment was made to
Karki on 14 May 2021 by a check written and delivered by Shrestha, and Karki
deposited that check on 26 May 2021.
29. By July 2021, Lamichhane had moved to North Carolina from New Jersey
and began advertising and operating the Businesses. On 30 July 2021, Lamichhane
incorporated Compass Tax with the North Carolina Secretary of State, (Karki Ex. 104), with the purpose of purchasing the Businesses from Karki and operating
them.
C. The September Agreement and Conduct Related Thereto
30. On 15 September 2021, Lamichhane invited Karki and Shrestha to his
home for dinner. After dinner, the three men discussed a new purchase and sale
agreement related to the Businesses (the September Agreement). (See Karki Ex. 102
[Sept. Agt.].) This document, like the May Agreement, was drafted by Lamichhane
using sources found on the internet.
31. The preamble of the September Agreement states that “Compass Tax
Services LLC (as represented by Ashok Lamichhane[,] Amar Shrestha[,] and
Rabindra Karki[ ]) agrees to purchase [the Businesses] from Rabindra Karki[.]”
(Sept. Agt. ¶ 1.) Lamichhane, Shrestha, and Karki each signed the September
Agreement on 15 September 2021. (Sept. Agt. 4.) Lamichhane and Shrestha signed
in their individual capacities as the “buyers” and Karki signed in his individual
capacity as the “seller.” (Sept. Agt. 4.)
1. Purchase Price and Subsequent Payments
32. The September Agreement represents that Karki, as a result of the sale,
would receive $648,000.00, not the $720,000.00 as provided in the May Agreement,
as follows:
a) $15,000 paid on 5/15/2021 as initial deposit payment when signed the Contract for the Purchased [sic] and Sales of a Business was signed. a) [sic] Out of purchase price $179,400 shall be for operating and other the [sic] expenses and remaining shall be inventory, furniture and fixture and good will, of which $79,400 shall be paid in cash on 8/24/2021 and $100,000 will be paid in cash on 9/30/2021[.] b) Remaining balance shall be paid as promissory note in 5 installments beginning 5/15/2022[.] c) Compass Tax Services LLC shall pay interest of Bank prime loan plus 1 percent as of 5/10/2021 which is 3.25 + 1=4.25% Annual compound[.]
(Sept. Agt. ¶ 2.) Lamichhane drafted the September Agreement in order to reflect
that the $720,000.00 purchase price would be decreased from the amount
contemplated in the May Agreement to $648,000.00, which would account for Karki’s
ten percent ownership interest in Compass Tax.
33. In accordance with the terms of the September Agreement, the following
payments were made to Karki: (1) the initial deposit of $15,000.00 on 14 May 2021
by check drawn on Shrestha’s personal account; (2) a sum of $79,400.00 on
8 September 2021 by check drawn on Lamichhane’s personal account; and
(3) $35,000.00 of the $100,000.00 payment on 30 September 2021 made by
Lamichhane and Shrestha.
34. After all parties signed the September Agreement and payment was
remitted to Karki pursuant thereto, Lamichhane brought to Karki’s attention that he
felt the purchase price was too high and attempted to negotiate a different price.
Karki declined.
35. As a result, Lamichhane asked for additional time to pay the remainder of
the $100,000.00 payment, due on 30 September 2021, and Karki did not object.
However, by December 2021, Karki made a demand upon Lamichhane to remit all
amounts overdue. Karki received no further payments.
2. Management Fees to Lamichhane
36. The September Agreement also contains a provision that provides: Lamichhane will be managing member of this entity and he shall be paid $500 for each franchise territory a month as Management fee for maintaining the day-to-day business for first year and $1000 for each franchise territory a month as Management fee for managing the day- to-day business for second year and $1500 for each franchise territory a month as Management fee for managing the day-to-day business for after 2nd year.
(Sept. Agt. ¶ 19.) At the same meeting where the parties signed the September
Agreement, the parties signed the Operating Agreement for Compass Tax, which was
also prepared by Lamichhane. (Op. Agt.) The Operating Agreement, in addition to
the management fee provided for in the September Agreement, states that “[a]ny
manager rendering services to the Company is entitled to compensation
proportionate with the value of those services.” (Op. Agt. ¶ 5.1.)
37. A checking account was set up for Compass Tax. The evidence shows that
five checks for varying amounts, some exceeding $5,000.00, were written out from
this account to Lamichhane for “management fees” or “cash,” for a total of $61,700.00
being paid to Lamichhane for management services provided to the Businesses. (See
Karki Exs. 114–18.) Lamichhane used one check for “cash” to pay a contractor for
work done on his home.
D. Management and Operation of Compass Tax
38. Compass Tax operated the Businesses from 15 September 2021 through the
end of the 2022 tax season, or 15 April 2022. In addition to a business checking
account, Compass Tax established a payroll account and a savings account with
SunTrust Bank no later than 24 September 2021. (See ECF No. 79.) 39. When payments were not made pursuant to the September Agreement, the
business relationship between the parties deteriorated.
40. Further, during the 2022 tax season, Lamichhane (1) changed the locks to
the Businesses and did not provide Karki a key to the five locations, (2) prepared
customer tax returns for his wife’s New Jersey tax preparation company, Compass
LLC, and (3) attempted to accept payment from customers on a credit card platform
outside of the Liberty Tax franchise system.
IV. CONCLUSIONS OF LAW
41. Based on the foregoing Findings of Fact, the Court makes the following
Conclusions of Law.
42. The Court has jurisdiction over the parties and the subject matter of this
action.
43. This case was properly designated as a mandatory complex business case
and assigned to the undersigned, who has authority to make Findings of Fact
following the completion of the trial and the submission of all disputed issues for
resolution by the Court without a jury.
44. The parties voluntarily and timely waived their right to a jury trial.
45. The parties tendered twenty-seven exhibits, which the Court admitted into
evidence for purposes of this bench trial. The Court also received testimony by five
witnesses appearing at trial: Karki, Lamichhane, Shrestha, Mindy Hickerson, and
Elizabeth Suazo-Diaz. 46. Any Findings of Fact that are more appropriately deemed Conclusions of
Law are incorporated by reference as the Court’s Conclusions of Law.
A. Counterclaim One: Breach of Contract
47. As an initial matter, the Court previously entered partial summary
judgment as to Counterclaim One, holding that there was no genuine issue of
material fact as to whether one or more of the Counterclaim Defendants failed to pay
Karki the 15 May 2022 installment payment owed to Karki under the September
Agreement. (Order & Op. Cross-Mots. Summ. J. ¶ 77, ECF No. 61 [O&O MSJ].)
48. However, the Court found there was a genuine issue of material fact as to
which Counterclaim Defendant, or Counterclaim Defendants, were obligated to remit
payment to Karki on 15 May 2022. (O&O MSJ ¶ 79.) In other words, while Karki
contended that Lamichhane and Shrestha were each jointly and severally personally
liable for the purchase price under the September Agreement, those Counterclaim
Defendants contended that it was Compass Tax’s obligation, and not their personal
obligation, to make the purchase price payments called for under the September
Agreement. As a result, this was an issue for which evidence was presented at trial
and is now ripe for the Court’s determination.
49. It is clear and undisputed based on the evidence presented that
Lamichhane and Shrestha signed the September Agreement as the “buyers” and
Karki signed as the “seller.” The Court concludes that, as the signature line does not
denote that Lamichhane and Shrestha signed the September Agreement in their capacity as members of Compass Tax, they signed on behalf of themselves as
individuals, separate from their affiliation with Compass Tax.
50. Additionally, when payments were timely made to Karki pursuant to the
September Agreement, Lamichhane and Shrestha paid the amounts using their
personal checks—payments were not made from a Compass Tax bank account. There
is no documentary evidence that Lamichhane and/or Shrestha made any statements,
and there are no other documents evidencing, that these payments were made to
Karki by Lamichhane and/or Shrestha in their capacity as members of Compass Tax.
After the September Agreement was signed, Compass Tax was a functioning entity
with an established bank account which could have provided funds to Karki pursuant
to the September Agreement. Instead, Lamichhane and Shrestha used their personal
funds to pay Karki, supporting the Court’s conclusion that the individuals were the
intended buyers under the September Agreement—not Compass Tax.
51. Furthermore, the evidence demonstrates that, between the signing of the
May Agreement and the September Agreement, Karki and Lamichhane discussed
Karki reducing the purchase price of the five Businesses by the amount of $72,000.00
in return for receiving a ten percent membership interest in Compass Tax. Because
the Court finds and concludes that the price reduction was, in fact, Karki’s
contribution to Compass Tax for his ten percent membership interest, the other two
members—Lamichhane and Shrestha—would logically have to pay the remainder of
the purchase price for their ninety percent combined interest in the entity. 52. The Court, therefore, concludes, by the greater weight of the evidence, that
Lamichhane and Shrestha—and not Compass Tax—are personally responsible under
the September Agreement for the payment of the purchase price. As a result,
Lamichhane and Shrestha are liable, jointly and severally, to Karki for breach of the
September Agreement, and Karki is entitled to compensatory damages in the amount
of $518,000.00, which represents the amount still owed to Karki pursuant to the
September Agreement. See Rufty v. Claywell, Powell & Co., 93 N.C. 306, 308–09
(1885) (explaining that liability for breach of contract may be joint, several, or joint
and several).
B. Counterclaim Two: Fraud
53. Karki’s Counterclaim Two for Fraud has been narrowed during the
pendency of this action, resulting in this claim being based on Karki’s contention that
Lamichhane’s promises to pay Karki pursuant to the September Agreement were
knowingly false and made with the intent to deceive Karki.
54. The essential elements of a claim for fraud are a “(1) [f]alse representation
or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with
intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured
party.” Forbis v. Neal, 361 N.C. 519, 526–27 (2007). Proof of a fraud claim requires
proof of scienter, which requires “an intent to deceive, manipulate, or defraud.” RD
& J Props. v. Lauralea-Dilton Enters., LLC, 165 N.C. App. 737, 745 (2004).
“Additionally, reliance on alleged false representations must be reasonable.”
Sullivan v. Mebane Packaging Grp., Inc., 158 N.C. App. 19, 26 (2003). 55. Karki has failed to demonstrate by the greater weight of the credible
evidence that Lamichhane knowingly made false promises to Karki regarding his
intent to make payments pursuant to the September Agreement at the time that
agreement was signed. In fact, evidence presented by Karki supports the position
that Lamichhane had every intention of paying, with Lamichhane paying Karki
substantial sums of money, both before and after the September Agreement was
signed. While the entire amount has not been paid to Karki, Lamichhane paid
portions of the purchase price, evidencing his intent to honor his obligations under
the September Agreement.
56. This does not relieve Lamichhane of his obligation to pay Karki pursuant
to the September Agreement; however, the Court concludes that these payments
evidence Lamichhane’s intent to carry out his end of the September Agreement,
which in turn causes Karki’s claim for fraud to fail. The Court further finds and
concludes that, based on the evidence presented, Karki has failed to demonstrate, by
the greater weight of the evidence, that, at the time he signed the September
Agreement, Lamichhane had no intention of satisfying his obligations thereunder.
57. Based on the foregoing, the Court concludes that Karki has failed to prove
his claim for fraud and, therefore, Counterclaim Two is hereby dismissed with
prejudice.
C. Counterclaim Three: Breach of Fiduciary Duty
58. Karki alleges that Lamichhane has breached his fiduciary duty owed to
Karki as manager of Compass Tax by “using the [Businesses] and their associated assets and resources” for his “own benefit and to the exclusion and detriment of
Karki[.]” (Countercl. ¶ 118.)
59. To prevail on his claim for breach of fiduciary duty, Karki must show that:
(1) Lamichhane owed Karki a fiduciary duty; (2) Lamichhane breached his fiduciary
duty; and (3) the breach of fiduciary duty was a proximate cause of injury to Karki.
Farndale Co. v. Gibellini, 176 N.C. App. 60, 68 (2006); see also Miller v. Burlington
Chem. Co., 2017 NCBC LEXIS 6, at *23 (N.C. Super. Ct. Jan. 27, 2017).
1. Existence of a Fiduciary Duty
60. “For a breach of fiduciary duty to exist, there must first be a fiduciary
relationship between the parties.” Dalton v. Camp, 353 N.C. 647, 651 (2001).
61. As a general rule, members of an LLC do not owe a fiduciary duty to one
another, but in some circumstances, “a holder of a majority interest who exercises
control over the LLC owes a fiduciary duty to minority interest members.” Fiske v.
Kieffer, 2016 NCBC LEXIS 22, at *9 (N.C. Super. Ct. Mar. 9, 2016); see also Kaplan
v. O.K. Techs., L.L.C., 196 N.C. App. 469, 473 (2009). However, a majority interest
does not necessarily equate to control. Because “an LLC is primarily a creature of
contract,” the members are generally free to arrange their relationship however they
wish. Crouse v. Mineo, 189 N.C. App. 232, 237 (2008) (quoting Russell M. Robinson,
II, Robinson on North Carolina Corporate Law § 34.01, at 34-2 to 34-3 (rev. 7th ed.
2006)).
62. It is undisputed that Lamichhane held a majority interest in Compass Tax.
(See Op. Agt. 5.) As to the Compass Tax Operating Agreement, Lamichhane was the elected managing member of Compass Tax, allowing him powers that were not
available to Karki and Shrestha, resulting in Lamichhane holding both managerial
and majority control over Compass Tax. (See Op. Agt. § 4.3; see also Op. Agt. 6.)
63. Based on the evidence shown regarding the managerial control
Lamichhane maintained over Compass Tax, (see Op. Agt. §§ 4.1, 4.3), paired with his
majority interest in the company, (Op. Agt. 5), the Court concludes that Lamichhane
owed a fiduciary duty to Karki—a minority member. See, e.g., Plasman v. Decca
Furniture (USA), Inc., 2016 NCBC LEXIS 80, at *17–18, 25 (N.C. Super. Ct. Oct. 21,
2016) (concluding that plaintiff sufficiently alleged existence of fiduciary duty by 55%
majority member with “ultimate decision-making authority”). 2
2. Breach by Lamichhane of His Fiduciary Duties
64. There was ample evidence presented at trial which supports that
Lamichhane breached his fiduciary duties owed as majority and managing member
of Compass Tax, including: (1) the payment of “management fees” to himself in excess
of the amounts contracted for without consent or notice of the other members of
Compass Tax and without providing evidence as to the reasonableness of these fees;
(2) the preparation of tax returns for his wife’s tax preparation company during the
2022 tax season; and (3) the attempts to process credit card payments on a platform
outside the Liberty Tax franchise system.
2 While a number of this Court’s decisions have concluded that majority membership plus
managerial status doesn’t necessarily create a de fact fiduciary status, (see e.g. Wright v. Lorusso Ventures, LLC, 2023 NCBC LEXIS 114, **15–16 (N.C. Super. Ct. Sept. 19, 2023), the particular facts of each case are important. Given Lamichhane’s majority status, combined with his near total managerial control of the business, the Court concludes that, in this case, a fiduciary duty exists. 65. While the Court has determined that Lamichhane owed a fiduciary duty to
Karki and that his conduct breached duties he owed as majority and managing
member of Compass Tax, the Court next considers whether Lamichhane breached
duties owed to Karki or duties owed to Compass Tax.
66. Karki contends that Lamichhane breached his duty owed to Karki
individually by paying himself excessive “management fees,” which Karki argues
exceeds what was allowed under the September Agreement and the Operating
Agreement. The checks show that Lamichhane paid himself varying amounts for his
“management fee” as the manager of Compass Tax using funds from the Compass
Tax bank account. As such, it is clear to the Court, and the Court concludes, that any
harm suffered as a result of Lamichhane’s actions is a harm suffered by Compass
Tax—not Karki. Karki, however, has asserted his claim for breach of fiduciary duty
as a direct claim against Lamichhane, not as a derivative claim on behalf of Compass
Tax.
67. Likewise, the evidence presented as to Lamichhane’s preparation of tax
returns for his wife’s company and the credit card processing outside the Liberty Tax
franchise each constitute breaches of his fiduciary duty owed to Compass Tax—not
Karki. The diversion of corporate funds and corporate opportunities are breaches
which directly impact Compass Tax, and which only indirectly impact Karki as a
minority member. If Karki felt Compass Tax was entitled to hold Lamichhane
accountable for this behavior, he had the opportunity to bring derivative claims to right this wrong. Instead, Karki chose to bring these claims directly against
Lamichhane.
68. As a result, the Court concludes that, separate and apart from any alleged
breaches of fiduciary duty, the injury alleged by Karki as to Lamichhane’s conduct is
injury proximately caused to Compass Tax—not Karki. As a result, Karki has
suffered no individual injury and lacks standing to bring this direct claim for breach
of fiduciary duty for a harm which Compass Tax has endured.
69. Based on the foregoing, the Court concludes that Karki has failed to prove
his claim for breach of fiduciary duty and, therefore, Counterclaim Three is hereby
dismissed without prejudice.
D. Constructive Fraud
70. Karki alleges that Lamichhane breached his fiduciary obligations and took
advantage of his position of trust to benefit himself by “using the [Businesses] and
their associated assets and resources” for his “own benefit and to the exclusion and
detriment of Karki[.]” (Countercl. ¶ 124.)
71. “To establish constructive fraud, a plaintiff must show that defendant
(1) owes plaintiff a fiduciary duty; (2) breached this fiduciary duty; and (3) sought to
benefit himself in the transaction.” Highland Paving Co., 227 N.C. App. at 42.
72. Having concluded that the alleged harm stemming from Lamichhane’s
breach of his fiduciary duties belongs to Compass Tax and not Karki, the Court
concludes that Karki has failed to prove his claim for constructive fraud and,
accordingly, Counterclaim Four for constructive fraud is dismissed without prejudice. E. UDTPA
73. Karki further alleges that “Lamichhane’s fraud, breach of fiduciary duty,
and constructive fraud . . . and Lamichhane’s and Shrestha’s other unfair and
deceptive acts as alleged . . . are unfair and deceptive acts and practices in or affecting
commerce in violation of N.C.[G.S.] § 75-1.1.” (Countercl. ¶ 132.)
74. To establish a violation of N.C.G.S. § 75-1.1, a plaintiff must show, by the
greater weight of the evidence, “(1) an unfair or deceptive act or practice, (2) in or
affecting commerce, and (3) which proximately caused injury to plaintiff[ ].”
Highland Paving Co., 227 N.C. App. at 45.
If a practice has the capacity or tendency to deceive, it is deceptive for the purposes of the statute. “Unfairness” is a broader concept than and includes the concept of “deception.” A practice is unfair when it offends established public policy, as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.
Supplee v. Miller-Motte Bus. Coll., Inc., 239 N.C. App. 208, 230 (2015). “Whether a
trade practice is unfair or deceptive depends upon the facts of each case and the
impact the practice has in the marketplace.” Mitchell v. Linville, 148 N.C. App. 71,
74 (2001) (quotation marks omitted).
75. Having concluded that Karki has not succeeded in proving his claims for
breach of fiduciary duty, constructive fraud, or fraud, the Court similarly concludes
that those claims and the underlying conduct alleged do not constitute an unfair or
deceptive act or practice in violation of N.C.G.S. § 75-1.1.
76. The only remaining issue is whether Lamichhane’s and Shrestha’s
conduct in negotiating and carrying out the September Agreement was unfair or deceptive. “[A] mere breach of contract, even if intentional, is not sufficiently unfair
or deceptive to sustain an action under [N.C.G.S.] § 75-1.1” absent a showing of
“substantial aggravating circumstances attending the breach” of contract. Branch
Banking & Tr. Co. v. Thompson, 107 N.C. App. 53, 62 (1992). “Our case law
establishes that ‘[s]imple breach of contract . . . do[es] not qualify as unfair or
deceptive acts, but rather must be characterized by some type of egregious or
aggravating circumstances before the statute applies.’ ” Supplee, 239 N.C. App. at
230 (alterations and omissions in original) (quoting Norman Owen Trucking, Inc. v.
Morkoski, 131 N.C. App. 168, 177 (1998)). Thus, “[a] violation of Chapter 75 is
unlikely to occur during the course of contractual performance, as these types of
claims are best resolved by simply determining whether the parties properly fulfilled
their contractual duties.” Mitchell, 148 N.C. App. at 75.
77. The Court concludes that Lamichhane’s and Shrestha’s conduct as alleged
and proven as to their breaches of the September Agreement, does not rise to the level
of egregious or aggravating circumstances sufficient to warrant a finding that such
conduct was unfair or deceptive within the meaning of N.C.G.S. § 75-1.1. The Court
further finds and concludes that the misconduct alleged concerns intra-corporate
actions and therefore is not “in or affecting” commerce. See HAJMM Co. v. House of
Raeford Farms, Inc., 328 N.C. 578, 592–93 (1991) (“[A]n unfair or deceptive act or
practice which is not between market participants, or that is not ‘in or affecting
commerce’ is outside the scope of the UDTPA.”); see also Wilkie v. Stanley, 2011 NCBC
LEXIS 11, at **15 (N.C. Super. Ct. Apr. 20, 2011). 78. Therefore, the Court concludes that Karki has failed to prove his claim for
violations of the UDTPA and, accordingly, Counterclaim Five is hereby dismissed
with prejudice.
V. CONCLUSION
79. Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby
ORDERED, ADJUDGED, and DECREED that:
a. On account of Counterclaim Defendants Ashok Lamichhane’s and Amar
Shrestha’s breaches of the September Agreement, Karki is entitled to recover
from Counterclaim Defendants Ashok Lamichhane and Amar Shrestha, jointly
and severally, the remaining unpaid portion of the purchase price in the
amount of $518,000, plus prejudgment interest at the legal rate from 15 May
2022 and post-judgment interest at the legal rate until the judgment is
satisfied.
b. Karki shall have fourteen days from the entry of this Opinion and Final
Judgment to submit to the Court a motion and supporting brief, and any
related materials, seeking recovery of his costs in prosecuting this action
against Lamichhane and Shrestha.
c. All parties shall bear their own attorneys’ fees.
d. All other requested relief is DENIED.
80. Having resolved all claims, this Opinion and Final Judgment constitutes
the Court’s final judgment. SO ORDERED, this the 23rd day of July, 2025.
/s/ Michael L. Robinson Michael L. Robinson Chief Business Court Judge