In Re Se. Eye Ctr. (Old Battleground v. Ccsea)
This text of 2019 NCBC 28 (In Re Se. Eye Ctr. (Old Battleground v. Ccsea)) is published on Counsel Stack Legal Research, covering North Carolina Business Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
In re Se. Eye Ctr. (Old Battleground v. CCSEA), 2019 NCBC 28.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WAKE COUNTY 15 CVS 1648
IN RE SOUTHEASTERN EYE ORDER AND OPINION ON MOTIONS CENTER-PENDING MATTERS FOR SUMMARY JUDGMENT (OLD BATTLEGROUND V. CCSEA)
1. THIS MATTER is before the Court upon (i) Douglas Harris’s Motion for
Summary Judgment as to Nivison Family Investment, LLC, Old Battleground
Properties, and Arthur Nivison (“Doug Harris’s Motion as to Plaintiffs’ Claims”);
(ii) the Castle McCulloch Defendants’ Motion for Summary Judgment (the “Castle
McCulloch Defendants’ Motion”); (iii) Plaintiffs’ Motion for Partial Summary
Judgment as to Counts Fourteen, Fifteen, Sixteen, Twenty-Seven, Twenty-Eight, and
Thirty of Amended Consolidated Complaint (“Plaintiffs’ Motion for Partial Summary
Judgment”); (iv) Plaintiffs’ and Third Party Defendants’ Motion for Partial Summary
Judgment as to Counterclaims Filed Against Nivison Family Investments, LLC and
as to Third Party Claims Filed Against Old Battleground Properties, Inc. and Arthur
Nivison by Douglas S. Harris, Individually and as Trustee of JDPW Trust U/T/A
Dated June 8, 2007 and JDPW Trust U/T/A Date June 8, 2007 (“Plaintiffs and
Nivison’s Motion as to Doug Harris’s Claims”); (v) Douglas S. Harris’s Motion for
Summary Judgment as to Richard Harris, Historic Castle McCulloch, and Castle
McCulloch, Inc. (“Doug Harris’s Motion as to the Castle McCulloch Defendants’
Crossclaims”); and (vi) Douglas S. Harris’s Motion for Summary Judgment as to
Gerald Jeutter’s Cross Claims on Behalf of JDPW Trust, CCSEA, and DRE against Douglas Harris (“Doug Harris’s Motion as to the Receiver’s Crossclaims”)
(collectively, the “Motions for Summary Judgment”) in the above-captioned case.
2. For the reasons stated herein, the Court (i) GRANTS Doug Harris’s Motion
as to Plaintiffs’ Claims; (ii) GRANTS in part and DENIES in part the Castle
McCulloch Defendants’ Motion; (iii) DENIES Plaintiffs’ Motion for Partial Summary
Judgment; (iv) GRANTS in part and DENIES in part Plaintiffs and Nivison’s
Motion as to Doug Harris’s Claims; (v) GRANTS Doug Harris’s Motion as to the
Castle McCulloch Defendants’ Crossclaims; and (vi) GRANTS in part and DENIES
in part Doug Harris’s Motion as to the Receiver’s Crossclaims.
Smith Debnam, Attorneys at Law, by Byron L. Saintsing, for Plaintiffs Nivison Family Investments, LLC and Old Battleground Properties, Inc. and Third-Party Defendant Arthur Nivison.
Oak City Law LLP, by Robert E. Fields, III, for Receiver Gerald A. Jeutter, Jr., as Receiver for the JDPW Trust, Central Carolina Surgical Eye Associates, P.A., HUTA Leasing LLC, Southeastern Eye Management, Inc., Southeastern Cataract Laser Center, PLLC, EMS Partners, LLC, KEPES Newco, LLC, and DRE Newco, LLC.
Wyatt Early Harris Wheeler, LLP, by Scott F. Wyatt and Donavan J. Hylarides, for Defendants Richard A. Harris, Historic Castle McCulloch, LLC, and Castle McCulloch, Inc.
Douglas S. Harris, Pro se.
Bledsoe, Chief Judge. I.
BACKGROUND
A. Factual Background
3. The Court does not make findings of fact when ruling on a motion for
summary judgment, but “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[.]”
Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C. App. 138, 142, 215 S.E.2d 162,
165 (1975).
4. This action is a piece of a larger group of cases that have found their way to
the North Carolina Business Court and are consolidated into two files: In re
Southeastern Eye Center-Pending Matters (15 CVS 1648, Wake County) and In re
Southeastern Eye Center-Judgments (12 CVS 11322, Guilford County). The litigation
of these cases has concerned a wide variety of matters, including the appointment of
a receiver over multiple entities, disputes over ownership interests in a collection of
valuable artwork and chess sets, and appeals to the Supreme Court of North
Carolina.
5. Defendant Central Carolina Surgical Eye Associates, P.A. (“CCSEA”) is a
North Carolina medical services professional association located in Guilford County,
North Carolina. (Am. Consolidated Compl. ¶ 4, ECF No. 179.) In September 2002,
CCSEA leased a commercial premises in Greensboro, North Carolina (the
“Battleground Property”) from Battleground Real Estate Partners, LLC, a
predecessor in interest to Plaintiff Old Battleground Properties, Inc. (“Old Battleground”). (Am. Consolidated Compl. ¶ 21.) CCSEA executed amendments to
this lease with Old Battleground in 2006 and 2010. (Am. Consolidated Comp. ¶ 22.)
6. By 2010, CCSEA was behind on its payments under the commercial lease
with Old Battleground. CCSEA executed two promissory notes to evidence its debt
to Old Battleground, each in the amount of $1,000,000 (the “2010 CCSEA Notes”).
(Am. Consolidated Compl. Ex. A, ECF No. 180.) Both notes were signed by James
Mark McDaniel, Jr. (“Mark McDaniel”) as the CEO of CCSEA. (Am. Consolidated
Compl. Ex. A.)
7. Two years later, two more promissory notes were executed in Old
Battleground’s favor. One was executed by CCSEA in the amount of $140,359.38.
(Am. Consolidated Compl. Ex. D, ECF No. 180.) The other was executed by Dr. C.
Richard Epes (“Dr. Epes”), an interest owner in CCSEA, to evidence Old
Battleground’s payment of CCSEA’s property taxes. (Am. Consolidated Compl. ¶ 24;
Am. Consolidated Compl. Ex. B, ECF No. 180.) This fourth note was in the amount
of $118,182.05. (Am. Consolidated Compl. Ex. B.)
8. In March 2012, Old Battleground sold the Battleground Property to MMRE,
LLC (“MMRE”), an entity affiliated with CCSEA. (Am. Consolidated Compl. ¶ 25.)
Old Battleground financed this transaction, and in exchange MMRE executed a
purchase-money note and deed of trust in favor of Investors Title Exchange Corp. as
a qualified intermediary for Old Battleground. (Am. Consolidated Compl. ¶ 25; Am.
Consolidated Compl. Ex. BB, at 1, ECF No. 187.) According to Plaintiffs, the purchase-money note and deed of trust were later assigned to Plaintiff Nivison
Family Investments, LLC (“NFI”). (Am. Consolidated Compl. ¶ 25.)
9. During the time CCSEA was leasing from and incurring debts with Old
Battleground, it was also borrowing money from FNB Southeast, a predecessor in
interest to NewBridge Bank (for clarity, the Court will refer to FNB and NewBridge
Bank as “NewBridge”). (Am. Consolidated Compl. Exs. E, H, ECF Nos. 180–81.) In
2007, CCSEA engaged in two loan transactions with NewBridge, executing
promissory notes in NewBridge’s favor for each loan. (Am. Consolidated Compl. Exs.
E, H.) To provide security for these loans, CCSEA and two affiliated entities—HUTA
Leasing, LLC (“HUTA”) and Southeastern Eye Management, Inc. (“SEM”)—executed
security agreements granting NewBridge security interests in certain personal
property. (Am. Consolidated Compl. Exs. F, I, ECF Nos. 181–82.) Dr. Epes and Mark
McDaniel also personally guaranteed both loans. (Am. Consolidated Compl. Exs. G,
J, ECF Nos. 181–82.)
10. In 2008, CCSEA executed a third promissory note with NewBridge as part
of a third loan transaction. (Am. Consolidated Compl. Ex. K, ECF No. 182.) To secure
this loan, another security instrument was executed by CCSEA granting NewBridge
a security interest in further collateral. (Am. Consolidated Compl. Ex. L, ECF No.
183.) Dr.
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In re Se. Eye Ctr. (Old Battleground v. CCSEA), 2019 NCBC 28.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WAKE COUNTY 15 CVS 1648
IN RE SOUTHEASTERN EYE ORDER AND OPINION ON MOTIONS CENTER-PENDING MATTERS FOR SUMMARY JUDGMENT (OLD BATTLEGROUND V. CCSEA)
1. THIS MATTER is before the Court upon (i) Douglas Harris’s Motion for
Summary Judgment as to Nivison Family Investment, LLC, Old Battleground
Properties, and Arthur Nivison (“Doug Harris’s Motion as to Plaintiffs’ Claims”);
(ii) the Castle McCulloch Defendants’ Motion for Summary Judgment (the “Castle
McCulloch Defendants’ Motion”); (iii) Plaintiffs’ Motion for Partial Summary
Judgment as to Counts Fourteen, Fifteen, Sixteen, Twenty-Seven, Twenty-Eight, and
Thirty of Amended Consolidated Complaint (“Plaintiffs’ Motion for Partial Summary
Judgment”); (iv) Plaintiffs’ and Third Party Defendants’ Motion for Partial Summary
Judgment as to Counterclaims Filed Against Nivison Family Investments, LLC and
as to Third Party Claims Filed Against Old Battleground Properties, Inc. and Arthur
Nivison by Douglas S. Harris, Individually and as Trustee of JDPW Trust U/T/A
Dated June 8, 2007 and JDPW Trust U/T/A Date June 8, 2007 (“Plaintiffs and
Nivison’s Motion as to Doug Harris’s Claims”); (v) Douglas S. Harris’s Motion for
Summary Judgment as to Richard Harris, Historic Castle McCulloch, and Castle
McCulloch, Inc. (“Doug Harris’s Motion as to the Castle McCulloch Defendants’
Crossclaims”); and (vi) Douglas S. Harris’s Motion for Summary Judgment as to
Gerald Jeutter’s Cross Claims on Behalf of JDPW Trust, CCSEA, and DRE against Douglas Harris (“Doug Harris’s Motion as to the Receiver’s Crossclaims”)
(collectively, the “Motions for Summary Judgment”) in the above-captioned case.
2. For the reasons stated herein, the Court (i) GRANTS Doug Harris’s Motion
as to Plaintiffs’ Claims; (ii) GRANTS in part and DENIES in part the Castle
McCulloch Defendants’ Motion; (iii) DENIES Plaintiffs’ Motion for Partial Summary
Judgment; (iv) GRANTS in part and DENIES in part Plaintiffs and Nivison’s
Motion as to Doug Harris’s Claims; (v) GRANTS Doug Harris’s Motion as to the
Castle McCulloch Defendants’ Crossclaims; and (vi) GRANTS in part and DENIES
in part Doug Harris’s Motion as to the Receiver’s Crossclaims.
Smith Debnam, Attorneys at Law, by Byron L. Saintsing, for Plaintiffs Nivison Family Investments, LLC and Old Battleground Properties, Inc. and Third-Party Defendant Arthur Nivison.
Oak City Law LLP, by Robert E. Fields, III, for Receiver Gerald A. Jeutter, Jr., as Receiver for the JDPW Trust, Central Carolina Surgical Eye Associates, P.A., HUTA Leasing LLC, Southeastern Eye Management, Inc., Southeastern Cataract Laser Center, PLLC, EMS Partners, LLC, KEPES Newco, LLC, and DRE Newco, LLC.
Wyatt Early Harris Wheeler, LLP, by Scott F. Wyatt and Donavan J. Hylarides, for Defendants Richard A. Harris, Historic Castle McCulloch, LLC, and Castle McCulloch, Inc.
Douglas S. Harris, Pro se.
Bledsoe, Chief Judge. I.
BACKGROUND
A. Factual Background
3. The Court does not make findings of fact when ruling on a motion for
summary judgment, but “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[.]”
Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C. App. 138, 142, 215 S.E.2d 162,
165 (1975).
4. This action is a piece of a larger group of cases that have found their way to
the North Carolina Business Court and are consolidated into two files: In re
Southeastern Eye Center-Pending Matters (15 CVS 1648, Wake County) and In re
Southeastern Eye Center-Judgments (12 CVS 11322, Guilford County). The litigation
of these cases has concerned a wide variety of matters, including the appointment of
a receiver over multiple entities, disputes over ownership interests in a collection of
valuable artwork and chess sets, and appeals to the Supreme Court of North
Carolina.
5. Defendant Central Carolina Surgical Eye Associates, P.A. (“CCSEA”) is a
North Carolina medical services professional association located in Guilford County,
North Carolina. (Am. Consolidated Compl. ¶ 4, ECF No. 179.) In September 2002,
CCSEA leased a commercial premises in Greensboro, North Carolina (the
“Battleground Property”) from Battleground Real Estate Partners, LLC, a
predecessor in interest to Plaintiff Old Battleground Properties, Inc. (“Old Battleground”). (Am. Consolidated Compl. ¶ 21.) CCSEA executed amendments to
this lease with Old Battleground in 2006 and 2010. (Am. Consolidated Comp. ¶ 22.)
6. By 2010, CCSEA was behind on its payments under the commercial lease
with Old Battleground. CCSEA executed two promissory notes to evidence its debt
to Old Battleground, each in the amount of $1,000,000 (the “2010 CCSEA Notes”).
(Am. Consolidated Compl. Ex. A, ECF No. 180.) Both notes were signed by James
Mark McDaniel, Jr. (“Mark McDaniel”) as the CEO of CCSEA. (Am. Consolidated
Compl. Ex. A.)
7. Two years later, two more promissory notes were executed in Old
Battleground’s favor. One was executed by CCSEA in the amount of $140,359.38.
(Am. Consolidated Compl. Ex. D, ECF No. 180.) The other was executed by Dr. C.
Richard Epes (“Dr. Epes”), an interest owner in CCSEA, to evidence Old
Battleground’s payment of CCSEA’s property taxes. (Am. Consolidated Compl. ¶ 24;
Am. Consolidated Compl. Ex. B, ECF No. 180.) This fourth note was in the amount
of $118,182.05. (Am. Consolidated Compl. Ex. B.)
8. In March 2012, Old Battleground sold the Battleground Property to MMRE,
LLC (“MMRE”), an entity affiliated with CCSEA. (Am. Consolidated Compl. ¶ 25.)
Old Battleground financed this transaction, and in exchange MMRE executed a
purchase-money note and deed of trust in favor of Investors Title Exchange Corp. as
a qualified intermediary for Old Battleground. (Am. Consolidated Compl. ¶ 25; Am.
Consolidated Compl. Ex. BB, at 1, ECF No. 187.) According to Plaintiffs, the purchase-money note and deed of trust were later assigned to Plaintiff Nivison
Family Investments, LLC (“NFI”). (Am. Consolidated Compl. ¶ 25.)
9. During the time CCSEA was leasing from and incurring debts with Old
Battleground, it was also borrowing money from FNB Southeast, a predecessor in
interest to NewBridge Bank (for clarity, the Court will refer to FNB and NewBridge
Bank as “NewBridge”). (Am. Consolidated Compl. Exs. E, H, ECF Nos. 180–81.) In
2007, CCSEA engaged in two loan transactions with NewBridge, executing
promissory notes in NewBridge’s favor for each loan. (Am. Consolidated Compl. Exs.
E, H.) To provide security for these loans, CCSEA and two affiliated entities—HUTA
Leasing, LLC (“HUTA”) and Southeastern Eye Management, Inc. (“SEM”)—executed
security agreements granting NewBridge security interests in certain personal
property. (Am. Consolidated Compl. Exs. F, I, ECF Nos. 181–82.) Dr. Epes and Mark
McDaniel also personally guaranteed both loans. (Am. Consolidated Compl. Exs. G,
J, ECF Nos. 181–82.)
10. In 2008, CCSEA executed a third promissory note with NewBridge as part
of a third loan transaction. (Am. Consolidated Compl. Ex. K, ECF No. 182.) To secure
this loan, another security instrument was executed by CCSEA granting NewBridge
a security interest in further collateral. (Am. Consolidated Compl. Ex. L, ECF No.
183.) Dr. Epes and Mark McDaniel guaranteed this third loan as well. (Am.
Consolidated Compl. Ex. M, ECF No. 183.)
11. NewBridge Bank also entered into a loan agreement with several other
entities that had ties to Dr. Epes or Mark McDaniel. Specifically, NewBridge lent money (the “Castle McCulloch Loan”) to Defendants Castle McCulloch, Inc. (“Castle
McCulloch”), Historic Castle McCulloch, LLC (“Historic Castle McCulloch”), and
NSITE Management, LLC (“NSITE”). (Am. Consolidated Compl. Ex. N, ECF No.
183.) Castle McCulloch is a North Carolina corporation whose officers included Mark
McDaniel, Defendant Douglas Harris (“Doug Harris”), and Doug Harris’s brother,
Defendant Richard Harris. (Am. Consolidated Compl. ¶ 14.) Historic Castle
McCulloch is a North Carolina LLC whose members included Mark McDaniel, Dr.
Epes, and Richard Harris. (Am. Consolidated Compl. ¶ 15.)
12. The Castle McCulloch Loan was secured by various kinds of collateral (the
“Castle McCulloch Collateral”), including a deed of trust from Historic Castle
McCulloch in favor of NewBridge (the “Castle McCulloch Deed of Trust”) and an
assignment of leases and rents (the “Assignment of Rents and Profits”) granted by
Historic Castle McCulloch in NewBridge’s favor. (Am. Consolidated Compl. Exs. T,
UU, ECF Nos. 184, 191.) The loan was also guaranteed by EMS Partners, LLC
(“EMS”), whose members included Dr. Epes and Mark McDaniel, (Am. Consolidated
Compl. Ex. U, ECF No. 184), and Dr. Epes and Mark McDaniel personally, (Am.
Consolidated Compl. Exs. V, W, ECF No. 184). Much of the present dispute stems
from the Castle McCulloch Loan and its associated collateral.
13. By mid-2012, all three of NewBridge’s loans to CCSEA (the “CCSEA
Loans”), as well as the Castle McCulloch Loan, were in default. (Am. Consolidated
Compl. Ex. X, at 2 [hereinafter “Settlement Agreement”], ECF No. 185.) The
combined outstanding balance on the loans was $3,350,139.42. (Settlement Agreement 2.) In an attempt to recover a portion of this balance, NewBridge agreed
to a settlement agreement (the “Settlement Agreement”) with Historic Castle
McCulloch, Castle McCulloch, NSITE, CCSEA, HUTA, SEM, Mark McDaniel, and
Dr. Epes (collectively, excluding NewBridge, the “Settlement Debtors”). (Settlement
Agreement 5–6.) Under the terms of the Settlement Agreement, the Settlement
Debtors represented that they had arranged for a third party to purchase the
promissory notes, security agreements, and all other loan documents (collectively, the
“Loan Documents”) connected to the four outstanding loans for a discounted price of
$2,026,834.35. (Settlement Agreement 2.) NewBridge agreed to sell the Loan
Documents to this third-party buyer for this discounted amount. (Settlement
Agreement 2.) Under the Settlement Agreement, if the purchase did not go through
by a certain date, NewBridge would be permitted to file and enforce a confession of
judgment in the amount of $2,026,834.09 executed by the Settlement Debtors (the
“Confession of Judgment”). (Settlement Agreement 2–3.)
14. By a subsequent purchase and sale agreement between NewBridge and
Defendant JDPW Trust U/T/A Dated June 8, 2007 (“JDPW”), it was agreed that
JDPW would act as the Settlement Debtors’ third-party buyer for the Loan
Documents. (Am. Consolidated Compl. Ex. Z, at 1, ECF No. 186.) In furtherance of
this agreement, JDPW made an initial deposit of $25,000 with NewBridge. (Am.
Consolidated Compl. ¶ 47; Harris Dep. 382:9–383:12 [hereinafter Harris Dep. I], ECF
No. 887.) Doug Harris was the trustee of JDPW. (Harris Dep. I, at 382:5–14.) 15. Around the same time or shortly after the Settlement Agreement was
executed, Doug Harris and Mark McDaniel approached Third-Party Defendant
Arthur Nivison about providing a loan to JDPW so JDPW could complete the
purchase from NewBridge. (Castle McCulloch Defs.’ Br. Opp’n Pls.’ Mot. Partial
Summ. J. Ex. 3 ¶ 11 [hereinafter “Nivison Aff.”], ECF No. 879; Harris Dep. I, at 75:14–
23, 79:11–25.) Arthur Nivison was the acting manager of Old Battleground and the
manager of NFI. (Nivison Dep. 147:10–23 [hereinafter Nivison Dep. I], ECF No. 833.)
Based on his discussions with Doug Harris and Mark McDaniel, Arthur Nivison
understood the purpose of the loan was to “facilitate the purchase of the Castle
McCulloch [L]oan and the CCSEA Loans.” (Nivison Aff. ¶ 11.)
16. Eventually, it was agreed that either Old Battleground or NFI—the parties
dispute which entity was supposed to be the lender—would provide JDPW with the
funds required to complete the Settlement Agreement. However, before Old
Battleground or NFI could lend JDPW any money, MMRE had to sell the
Battleground Property and pay off the loan secured by the related 2012 deed of trust
so that Old Battleground or NFI would have money to lend. (Am. Consolidated
Compl. Ex. BB, at 1.)
17. Because the Battleground Property needed to sell before the purchase of the
Loan Documents from NewBridge could be completed, the Settlement Debtors,
JDPW, and NewBridge entered into agreements extending the date by which JDPW
could make the purchase to September 21, 2012. (Am. Consolidated Compl. Exs. AA,
at 9, BB, at 1–2, ECF No. 187.) As consideration for the extended closing date, the Settlement Debtors agreed to pay NewBridge an additional $100,000. (Am.
Consolidated Compl. Ex. BB, at 2.) Richard Harris paid this money to NewBridge in
the form of sixty-two gold coins, which were then replaced by $100,000 in cash. (Am.
Consolidated Compl. Ex. CC, ECF No. 187.)
18. On or about September 21, 2012, a flurry of activity occurred. The
Battleground Property was sold, and the profits from that sale were used to pay off
one of the 2010 CCSEA Notes in favor of Old Battleground and the note secured by
the deed of trust held by NFI. (Nivison Aff. ¶ 9.) These funds were then wired to
NewBridge, although the record is unclear as to whether the transfer of the funds to
NewBridge occurred on September 21 or on September 24 (with interest paid by NFI
for the additional three days).
19. In either event, NewBridge then assigned the Loan Documents to JDPW.
(Am. Consolidated Compl. Exs. UU, VV, WW, ECF Nos. 191–92.) This was
accomplished by three separate documents: (i) an “Assignment of Security
Instruments” that conveyed the Castle McCulloch Deed of Trust and the Assignment
of Rents and Profits, (ii) an “Allonge” that memorialized the sale of the promissory
note for the Castle McCulloch Loan (the “Castle McCulloch Note”) to JDPW, and
(iii) a “Bill of Sale and Assignment of Loan Documents” that included the Loan
Documents connected to the CCSEA Loans as well as the remainder of the Loan
Documents connected to the Castle McCulloch Loan and Castle McCulloch Collateral
(the “Castle McCulloch Loan Documents”). (Am. Consolidated Compl. Exs. UU, VV,
WW.) Plaintiffs allege that they had no knowledge that JDPW would be purchasing the Castle McCulloch Note, the Castle McCulloch Deed of Trust, the Assignment of
Rents and Profits, or the other Castle McCulloch Loan Documents from NewBridge
and contend that those facts were intentionally concealed from them. (Am.
Consolidated Compl. ¶¶ 65–66.)
20. Also on or about September 21, 2012, Arthur Nivison and JDPW
memorialized their own agreement in writing, but Plaintiffs and Doug Harris dispute
the final terms of that agreement and the validity of certain documents purporting to
set forth the parties’ deal.
21. First, Plaintiffs allege that Doug Harris, as trustee for JDPW, executed a
promissory note in favor of NFI in exchange for the approximately $2.1 million either
Old Battleground or NFI would be lending to JDPW (the “JDPW Note”). (Am.
Consolidated Compl. Ex. DD at 1, ECF No. 187.) Doug Harris denies executing this
note.
22. Second, the parties executed a written agreement containing further terms
for the loan to JDPW (the “Assignment Agreement”). (Pls.’ Reply Br. Resp. Castle
McCulloch Defs.’ Br. Opp’n Pls.’ Mot. Partial Summ. J. Corrected Ex. KK [hereinafter
“Corrected Ex. KK”], ECF No. 908; see also Am. Consolidated Compl. Exs. QQ, TT,
ECF No. 190.)1 Plaintiffs and Doug Harris dispute which version of this document is
controlling.
1 In their reply brief in support of their Motion for Partial Summary Judgment, Plaintiffs represented that Exhibit KK to the Amended Consolidated Complaint inadvertently included the wrong set of documents. (Pls.’ Reply Br. Resp. Castle McCulloch Defs.’ Br. Opp’n Pls.’ Mot. Partial Summ. J. 3 n.1, ECF No. 908.) Plaintiffs attached a corrected version of Exhibit KK to their reply brief. 23. At around 1:02 PM on September 21, 2012, Doug Harris sent one version of
the Assignment Agreement, bearing his signature, to an attorney acting for Arthur
Nivison named Tom Harper. (Corrected Ex. KK.) Doug Harris alleges that this
original version of the Assignment Agreement is valid and enforceable. Plaintiffs,
however, allege that Tom Harper then circulated a second version of the Assignment
Agreement with handwritten modifications. (Am. Consolidated Compl. Ex. QQ.) By
5:15 PM on September 21, 2012, Nivison signed this second agreement. (Am.
Consolidated Compl. Exs. QQ.) Plaintiffs allege that Doug Harris returned an
initialed copy of this version of the Assignment Agreement to Tom Harper by e-mail
at 5:37 PM. (Am. Consolidated Compl. Ex. TT, ECF No. 190.) Doug Harris contends
that his initials on this second version of the agreement are forged.
24. The two versions of the Assignment Agreement differ in several respects.
First, the original version stated that the money lent to JDPW would come from Old
Battleground or would be wired to JDPW on Old Battleground’s behalf, (Corrected
Ex. KK), while the second version provided that the loan proceeds would be wired to
JDPW by NFI or on NFI’s behalf, (Am. Consolidated Compl. Ex. QQ). Second, the
original version of the Assignment Agreement contained language indicating that
additional security for the loan to JPDW would be tendered by Mark McDaniel and
Dr. Epes; this language was crossed out in the later version. (Corrected Ex. KK; Am.
Consolidated Compl. Exs. QQ, TT.)2 Third, the original version of the agreement
2 The record contains an “Unconditional Guaranty of Payment” in favor of NFI bearing the signatures of Dr. Epes; his wife, Bessie Epes; Dr. Epes as president of CCSEA; and Mark McDaniel, (Am. Consolidated Compl. Ex. FF, ECF No. 187), and a “Pledge Agreement” that purported to secure NFI’s loan with security interests in certain property owned by Dr. Epes included a provision stating that JDPW’s liability on default would be limited to
forfeiture of the mentioned collateral and JDPW’s interests in that collateral,
(Corrected Ex. KK); the second version of the agreement crossed this term out as well,
(Am. Consolidated Compl. Ex. QQ).
25. All versions of the Assignment Agreement expressly set out the following:
THIS AGREEMENT [is] made . . . for the purpose of transferring the security interest in the personal property of HUTA Leasing Company, Southeastern Eye Management, Inc., and Central Carolina Surgical Eye Associates, P.A., now held by NewBridge . . . to [either a legal entity designated by Old Battleground, or, in the second version of the agreement, NFI] in exchange for [a] $2,100,000.00 loan to JDPW . . . which loan will be used to purchase NewBridge Bank’s security interest.
(Corrected Ex. KK; Am. Consolidated Compl. Exs. QQ, TT.) The “personal property”
referenced by the Assignment Agreement was detailed in the Assignment of Security
Instruments that Doug Harris sent to Tom Harper with the draft of the Assignment
Agreement. (Corrected Ex. KK.) The schedule attached to this document (“Schedule
A” or “Attachment A”) specifically listed which Loan Documents JDPW would be
assigning to the agreed-upon recipient, with each piece of collateral listed under its
corresponding loan. (Corrected Ex. KK; see Am. Consolidated Compl. Ex. GGG, at 1–
2 [hereinafter “Partial Summ. J. Order”], ECF No. 194.) The Court hereafter refers
to the property referenced in the Assignment Agreement and listed under the CCSEA
Loans in Schedule A as the “CCSEA Collateral” or “CCSEA Loan Documents.”
or Bessie Epes, (Am. Consolidated Compl. Ex. GG, ECF No. 188). The validity of these documents has been disputed, and there is evidence appearing to show that neither Bessie Epes nor anyone with authority to sign on her behalf executed these documents. See Old Battleground Props. v. Cent. Carolina Surgical Eye Assocs., P.A., 2015 NCBC LEXIS 19, at *19–20 (N.C. Super. Ct. Feb. 25, 2015). 26. Plaintiffs allege that the Schedule A sent to Tom Harper was nearly
identical to the list of assigned collateral JDPW received from NewBridge as an
attachment to the NewBridge-to-JDPW Bill of Sale and Assignment of Loan
Documents, except that the version sent to Tom Harper did not include reference to
the Castle McCulloch Loan and Castle McCulloch Loan Documents. (Am.
Consolidated Compl. ¶ 59; Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J.
Nivison Entities’ Claims 10, ECF No. 883.) Plaintiffs contend that Doug Harris
intentionally omitted the Castle McCulloch Loan and Castle McCulloch Loan
Documents from the Schedule A he sent Tom Harper to conceal the conveyance of the
Castle McCulloch Loan Documents to JDPW. (Mem. Law Opp’n Douglas S. Harris’s
Mot. Summ. J. Nivison Entities’ Claims 14.)
27. Problems arose after the September 21, 2012 transactions. Despite the
representations made in the Assignment Agreement, Doug Harris did not assign the
CCSEA Loan Documents to NFI until compelled to do so by a court order. (Partial
Summ. J. Order 1–2.) JDPW also failed to make payments on the allegedly valid
JDPW Note. (Partial Summ. J. Order 2.)
28. Plaintiffs also allege that Doug Harris, acting as trustee for JDPW, assigned
the Castle McCulloch Loan Documents to his brother, Richard Harris, or otherwise
released the Castle McCulloch Collateral by other means, including by preparing a
deed releasing the land encumbered by the Castle McCulloch Deed of Trust and the
Assignment of Rents and Profits (the “Release Deed”). (Am. Consolidated Compl. Ex.
YY, ECF No. 192; Harris Dep. I, at 866:19–868:25.) Plaintiffs assert that they were unaware that JDPW ever held the Castle McCulloch Loan Documents or interests in
the Castle McCulloch Collateral and were further unaware that JDPW then released
that collateral until after this litigation commenced. Richard Harris denies by
affidavit that he, Castle McCulloch, or Historic Castle McCulloch (collectively, with
Richard Harris, the “Castle McCulloch Defendants”) ever received an assignment of
the Castle McCulloch Loan Documents. (Def. Richard A. Harris’s Am. Answer and
Countercls. Ex. A ¶ 10, ECF No. 678.)
B. Procedural Background
29. As a result of the preceding facts, NFI filed an action against JDPW, Doug
Harris, individually and as trustee of JPDW, and NewBridge on July 21, 2014.
Several months later, Old Battleground and NFI filed an action against CCSEA,
various CCSEA-affiliated entities, Dr. Epes, Bessie Epes, and Mark McDaniel and
his wife, Patricia McDaniel.
30. In the second lawsuit, upon the parties’ joint request at a February 23, 2015
hearing, the Court appointed Gerald A. Jeutter, Jr. as a receiver (the “Receiver”) for
CCSEA and several of its related entities (the “Receivership Entities”).3 Old
Battleground Props. v. Cent. Carolina Surgical Eye Assocs., P.A., 2015 NCBC LEXIS
19, at *24 (N.C. Super. Ct. Feb. 25, 2015). Following his appointment, the Receiver
investigated and asserted claims and demands on behalf of the Receivership Entities
against the Epeses. As the litigation of Plaintiffs’ cases progressed, the number of
3These entities included the above-mentioned EMS as well as Southeastern Cataract Laser Center, PLLC, HUTA, and SEM. Old Battleground Props., 2015 NCBC LEXIS 19, at *24. entities in receivership and the larger universe of cases related to CCSEA and various
other parties to these actions grew.
31. On June 19, 2015, the Court ordered both of Plaintiffs’ lawsuits consolidated
with other cases pending before it and directed all subsequent filings be made in the
Master File In re Southeastern Eye Center-Pending Matters (Wake 15 CVS 1648).
(Order Mot. Consolidate 8–9, ECF No. 76.) The Court then issued a case management
order in this consolidated proceeding requiring all persons asserting claims against
CCSEA or its affiliated entities to file their claims against those entities with the
Receiver. (Case Management Order 5–8, ECF No. 82.)
32. Soon after consolidation, the Court approved a settlement between the
Receiver and the Epeses. (Order Approving Settlement Agreement and Appointing
Receiver for Kepes Newco, LLC and DRE Newco LLC and Restraining Order 6
[hereinafter “Epes Settlement Order”], ECF No. 117.) To facilitate this settlement,
the Court placed two additional entities into receivership: Kepes Newco, LLC
(“Kepes”) and DRE Newco, LLC (“DRE”) (both added to the “Receivership Entities”).4
(Epes Settlement Order 7.) Kepes and DRE are limited liability companies created
for the purpose of assuming and paying the debts of Dr. Epes and Bessie Epes and to
which the Epeses have assigned a significant number of their assets. (See Joint Mot.
Approve Settlement Agreement and Release Ex. A-1, at 1, Ex. A-2, at 1, ECF No. 52.2;
4 In addition to DRE and Kepes, the Court also placed several other entities in which the Epeses owned controlling or materially dominant shares into receivership. These entities included Surgical Eye Center, Inc., ME Greensboro, LLC, HUTA Leasing Company, and MEM of High Point, LLC. (Epes Settlement Order 5–6.) Joint Mot. Approve Settlement Agreement and Release Ex. B-1, at 1, Ex. B-2, at 1,
ECF No. 52.1.)
33. In July and August 2015, Plaintiffs sought leave to amend their complaints
in each of their lawsuits. Recognizing that common issues of fact and law were
present in both of Plaintiffs’ cases and that consolidation would avoid confusion,
unnecessary costs, and potential delays, the Court ordered the two lawsuits further
consolidated for future proceedings and directed Plaintiffs to file a single amended
complaint consolidating their claims. (Order Pls.’ Mots. Amend Compl. and
Consolidation ¶¶ 6–7, ECF No. 168.) Plaintiffs filed their Amended Consolidated
Complaint on September 17, 2015. (Am. Consolidated Compl. 50.) The Amended
Consolidated Complaint added the Castle McCulloch Defendants to the case. (Am.
Consolidated Compl. 1.)
34. On March 28, 2016, Plaintiffs voluntarily dismissed their claims against
Mark McDaniel and Patricia McDaniel.
35. On April 28, 2016, upon Plaintiffs’ motion, the Court placed JDPW into
receivership by appointing the Receiver as receiver for JDPW. (Order Approving Pls.’
Mot. Appointment Receiver for JDPW Trust 7, ECF No. 472.) The Court did so after
finding and concluding for the limited purposes of Plaintiffs’ motion (i) that Doug
Harris had a conflict of interest in remaining in control of JDPW and making
decisions on its behalf; (ii) that Doug Harris was unlikely to investigate and pursue
possible claims JDPW may have against the Castle McCulloch Defendants; (iii) that
the rights and interests of the parties would be adequately protected by the Receiver taking fiscal and operational charge of JDPW; (iv) that there was no perceived conflict
of interest in the receiver for the Receivership Entities serving as the receiver for
JDPW, provided that NFI and JDPW, under the Receiver’s direction, settled the
claims against JDPW pursuant to a negotiated settlement agreement; and (v) that
Plaintiffs had, on the record at that time, presented substantial evidence that they
had an apparent right to property in an adverse party’s possession and that JDPW,
due to Doug Harris’s involvement, was not investigating or pursing causes of action
relating to the Deed of Trust and Assignment of Rents and Profits, which NFI
asserted it had claims to in law and equity. (Order Approving Pls.’ Mot. Appointment
Receiver for JDPW Trust 5–7.) As a further part of its ruling, the Court enjoined
Doug Harris from conducting further business as trustee of JDPW. (Order Approving
Pls.’ Mot. Appointment Receiver for JDPW Trust 17.)
36. Concurrent with the Court’s order placing JDPW into receivership, the
Court approved a settlement agreement between Plaintiffs, the Receivership
Entities, and JDPW. The settlement allowed Plaintiffs a $4 million claim against
CCSEA, DRE, and Kepes, subject to certain restrictions, and a $2.1 million claim
against JDPW. (Order Approving Nivison Settlement and Related Transactions
Including Release of CCSEA Sale Proceeds 8 [hereinafter “Order Approving Nivison
Agreement”], ECF No. 471.) Both amounts represented a substantial reduction from
the amount sought by Plaintiffs against JDPW or the Receivership Entities. (Order
Approving Nivison Agreement 8.) 37. Plaintiffs voluntarily dismissed their claims against the Epeses on June 27,
2016. Several months later, Plaintiffs dismissed their claims against NewBridge.
38. On February 28, 2017, Plaintiffs, Arthur Nivison, Doug Harris, and the
Castle McCulloch Defendants filed the Motions for Summary Judgment. Following
these filings, however, the Court concluded that matters in this case should be stayed
while the Supreme Court of North Carolina considered related issues on appeal.
39. On March 2, 2018, the Supreme Court of North Carolina dismissed the
appeals relating to this case pending before it after concluding that the appellants
had failed to demonstrate grounds for appellate review.
40. This Court held a hearing on the Motions for Summary Judgment on April
26, 2018, at which all parties with claims at issue were present. Additional
supplemental briefing ordered by the Court was completed on January 30, 2019.
41. The Motions for Summary Judgment are ripe for resolution.5
II.
LEGAL STANDARD
42. Under Rule 56 of the North Carolina Rules of Civil Procedure, summary
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
5 On April 6, 2018, Mark McDaniel filed an untitled document that opposed Plaintiffs’ Motion
for Partial Summary Judgment. Summary judgment filings in this case were due on February 28, 2017, and responses to those filings were due on April 3, 2017. Given that Mark McDaniel’s opposition was filed just over a year past this deadline, to the extent the opposition is not rendered moot by the Court’s decisions herein, the Court will, in its discretion, refuse to consider the opposition’s contents as untimely. genuine issue as to any material fact and that any party is entitled to . . . judgment
as a matter of law.” Craig v. New Hanover Cty. Bd. of Educ., 363 N.C. 334, 337, 678
S.E.2d 351, 353 (2009) (quoting N.C. R. Civ. P. 56(c)). A material fact is one that
“would constitute or would irrevocably establish any material element of a claim or
defense.” Abner Corp. v. City Roofing & Sheetmetal Co., 73 N.C. App. 470, 472, 326
S.E.2d 632, 633 (1985). A genuine issue is “one that can be maintained by substantial
evidence.” Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000).
“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, 565 S.E.2d 140, 146
(2002) (internal quotation marks and citations omitted).
43. On a motion for summary judgment, the moving party bears the burden of
showing that no genuine issues of material fact remain to be resolved. Camalier v.
Jeffries, 340 N.C. 699, 706, 460 S.E.2d 133, 136 (1995). “Evidence presented by the
parties is viewed in the light most favorable to the non-movant.” Summey v. Barker,
357 N.C. 492, 496, 586 S.E.2d 247, 249 (2003). The trial court should grant summary
judgment against an adverse party’s claim only if the movant can prove “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 can show “through discovery that the
opposing party cannot produce evidence to support an essential element of [his or]
her claim.” Dobson, 352 N.C. at 83, 530 S.E.2d at 835. If the moving party meets its
burden, “the burden shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least
establish a prima facie case at trial.” Gaunt v. Pittaway, 139 N.C. App. 778, 784–85,
534 S.E.2d 660, 664 (2000). The responding party may not “rest upon the . . .
allegations or denials” within its pleading, but must put forward specific facts
showing there is a genuine issue for trial. N.C. R. Civ. P. 56(e).
III.
ANALYSIS
44. The Court begins its analysis by addressing Doug Harris’s Motion as to
Plaintiffs’ Claims.6 The Court then turns to the Castle McCulloch Defendants’
Motion, followed by Plaintiffs’ Motion for Partial Summary Judgment, Plaintiffs and
Nivison’s Motion as to Doug Harris’s Claims, Doug Harris’s Motion as to the Castle
McCulloch Defendants’ Crossclaims, and finally Doug Harris’s Motion as to the
Receiver’s Crossclaims.
A. Doug Harris’s Motion as to Plaintiffs’ Claims
45. Doug Harris moves for Summary Judgment as to Plaintiffs’ claims against
him: Count 6 (Legal Malpractice and Misrepresentation); Count 8 (Fraud); Count 31
(Unfair and Deceptive Trade Practices); and Count 32 (Punitive Damages). Doug
Harris also argues for the dismissal of Plaintiffs’ claims against him by contending
6 The majority of the claims contained in Plaintiffs’ Amended Consolidated Complaint allege injury to NFI and seek relief for NFI. Nevertheless, for ease of reference and because Plaintiffs jointly briefed the Motions for Summary Judgment, the Court will attribute arguments made by Old Battleground or NFI to “Plaintiffs.” that Plaintiffs’ claims are barred due to Plaintiffs’ election of remedies. The Court
begins by addressing this latter argument.
1. Election of Remedies
46. Doug Harris argues that the Court should dismiss all claims jointly brought
against himself, Dr. Epes, and Mark McDaniel because Plaintiffs have settled these
claims as to Dr. Epes. He continues, “the Nivison entities have no right to settle the
same claim . . . against Dr. Epes and then decide they are dissatisfied [with] the
amount of the damages and go after Harris on the same claim.” (Mem. Law Supp.
Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims Against Harris 25, ECF
No. 862.2.) This argument is mistaken.
47. Plaintiffs seek cumulative remedies. “Unless and until [a] plaintiff receives
full satisfaction of a claim, settlement against [other] joint tortfeasors [will] not bar a
claim against the remaining offender.” Swain v. Leahy, 111 N.C. App. 884, 887, 433
S.E.2d 460, 462 (1993) (citing Bowen v. Iowa Nat’l Mut. Ins. Co., 270 N.C. 486, 492,
155 S.E.2d 238, 243 (1967)). Accordingly, the claims against Doug Harris will not be
dismissed on this ground.
2. Legal Malpractice and Misrepresentation
48. Plaintiffs’ sixth count alleges that Doug Harris, as a licensed North Carolina
attorney, provided legal advice to NFI by advising Arthur Nivison and represented
NFI leading up to and during the September 21, 2012 transactions between NFI,
JDPW, and NewBridge Bank. (Am. Consolidated Compl. ¶ 137.) Plaintiffs contend
that Doug Harris breached his fiduciary duties as an attorney to NFI by intentionally concealing from NFI both the Castle McCulloch Collateral and an alleged deal
between the Settlement Debtors to release the Castle McCulloch Collateral, by failing
to assign the Castle McCulloch Collateral to NFI, and by providing legal services to
NFI despite a clear conflict of interest. (Am. Consolidated Compl. ¶¶ 136–48.)
Legal Malpractice
49. Doug Harris moves for summary judgment on Plaintiffs’ sixth count and
argues that NFI, following discovery, cannot support an essential element of its claim
because no reasonable factfinder could conclude on the record before the Court that
an attorney-client relationship existed between Doug Harris and Plaintiffs or Arthur
Nivison.
50. Plaintiffs counter that NFI’s claim for legal malpractice is supported by
“Plaintiffs’ original verified Complaint, affidavits, subpoena responses, Doug Harris’s
deposition, and other materials in support of Plaintiffs’ Motions for Summary
Judgment[.]” (Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’
Claims 2.) At summary judgment, however, the Court is interested in specific facts,
not general statements of support. See N.C. R. Civ. P. 56(e). Indeed, after reviewing
the record and the parties’ arguments, the Court concludes that summary judgment
is appropriate on this claim.
51. While in limited circumstances North Carolina courts have extended an
attorney’s liability to certain nonclient third parties harmed in the course of an
employment contract for another, see, e.g., United Leasing Corp. v. Miller, 45 N.C.
App. 400, 405–06, 263 S.E.2d 313, 317 (1980) (stating “we have recognized a cause of action in negligence arising from the negligent breach of a common law duty of care
flowing from the parties’ working relationship,” and “a party not in direct privity of
contract with an attorney [can] recover if he [can] show that he was a third-party
beneficiary of the attorney-client employment contract”), the general rule in North
Carolina remains that an attorney-client relationship must exist before liability for
attorney malpractice can be established, see Rorrer v. Cooke, 313 N.C. 338, 355, 329
S.E.2d 355, 365–366 (1985) (“In a professional malpractice case predicated upon a
theory of an attorney’s negligence, the plaintiff has the burden of proving by the
greater weight of the evidence: (1) that the attorney breached the duties owed to his
client, as set forth by Hodges, 239 N.C. 517, 80 S.E. 2d 144, and that this negligence
(2) proximately caused (3) damage to the plaintiff.” (emphasis added)); Moore v.
Jordan, 816 S.E.2d 218, 220 (N.C. Ct. App. 2018) (restating the rule of Rorrer);
Chicago Title Ins. Co. v. Holt, 36 N.C. App. 284, 288, 244 S.E.2d 177, 180 (1978)
(affirming dismissal of legal malpractice claim where plaintiff was not in attorney-
client relationship with the attorney).
52. Whether an attorney-client relationship exists is generally a question of
fact. Cornelius v. Helms, 120 N.C. App. 172, 175, 461 S.E.2d 338, 339 (1995). The
existence of such a relationship can be “implied from the conduct of the parties, and
is not dependent on the payment of a fee, nor upon the execution of a formal contract.”
N.C. State Bar v. Sheffield, 73 N.C. App. 349, 358, 326 S.E.2d 320, 325 (1985). Rather,
the “dispositive question” is “whether [a] defendant’s conduct was such that an
attorney-client relationship could reasonably be inferred.” Id. “An important factor in determining the existence of the relationship is the client’s subjective belief.”
Kingsdown, Inc. v. Hinshaw, 2015 NCBC LEXIS 33, at *18 (N.C. Super. Ct. Mar. 25,
2015) (quoting Flick Mortg. Inv’rs v. Epiphany Mortg., 2006 NCBC LEXIS 2, at *3–4
(N.C. Super. Ct. Feb. 1, 2006)).
53. Here, NFI’s claim against Doug Harris for legal malpractice is premised
upon allegations of an attorney-client relationship, (Am. Consolidated Compl. ¶ 137
(“As such, [Doug Harris] represented Plaintiff NFI in said transaction and had a
fiduciary duty to Plaintiff NFI.”)), and breaches of the fiduciary duties arising from
that relationship, (see, e.g., Am. Consolidated Compl. ¶¶ 137, 141, 146).7 NFI’s claim
fails because NFI cannot forecast substantial evidence of such an attorney-client
relationship.
54. While the exact number and the form of Doug Harris and Arthur Nivison’s
interactions is disputed, the record does not present a genuine issue of material fact
about the general nature of those interactions. Most importantly, the record reflects
that no genuine issue of material fact remains as to whether Nivison himself believed
7 Plaintiffs also argue in briefing that the transaction between NFI and JDPW “did not take place within the context of a standard lender/debtor relationship,” that “[a]s an attorney, Doug Harris had a fiduciary obligation to Arthur Nivison to engage in arms-length transactions,” and that “a fiduciary relationship can exist under a variety of circumstances and is not limited to those persons who stand in some recognized legal relationship to another, such as attorney and client.” (Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims 12.) Here, however, Plaintiffs have made extensive allegations that an attorney-client relationship existed between Doug Harris and NFI due to Doug Harris’s interactions with Arthur Nivison and have argued as much in briefing and at oral argument. Plaintiffs have not presented an argument that Doug Harris owed NFI some other duty, aside from that owed by an attorney to his or her client, sufficient to allow NFI to sue Doug Harris for malpractice. that an attorney-client relationship existed between himself or NFI and Doug
Harris—he did not. That point is evidenced by Nivison’s deposition testimony:
Q: I just want to know if you believe that [Doug Harris] was your attorney[.]
....
Q: You can answer, if you know[.]
A: As far as I am concerned, I have not had a contract with [Doug Harris] as an attorney.
Q: Would that be ever?
A: According to my memory, which is faulty.
Q: Well, I understand. And would it follow if you didn’t have a contract, the next question would be, do you ever recall retaining [Doug Harris] or paying [Doug Harris] money as an attorney even without a contract?
A: I do not.
(Nivison Dep. I, at 34:2–14.)
55. Plaintiffs contend that these statements do not defeat NFI’s claim because
neither a formal contract nor the payment of a fee are necessary prerequisites to the
formation of an attorney-client relationship. While that statement of law is true,
Sheffield, 73 N.C. App. at 358, 326 S.E.2d at 325, Arthur Nivison’s answers clearly
show that he did not recall paying or retaining Doug Harris as an attorney, either for
himself or NFI, and Plaintiffs point to no evidence suggesting that Arthur Nivison
otherwise believed Doug Harris was, in fact, serving as his attorney.
56. To the contrary, Arthur Nivison testified numerous times at his deposition
that he retained his own attorney for the transaction with JDPW, that he relied on that attorney’s advice, and that when he said “his attorney” he was referring to Tom
Harper.
A: This is a document I would have referred to my attorney. At his instruction, I would have -- my reliance was dependent upon his instruction.
Q: So you relied upon your attorney and you’re referring to Tom Harper?
A: Yes.
Q: And you’re not referring to [Doug Harris] as your attorney, are you?
A: No. I am not.
(Nivison Dep. I, at 71:1–9.)
A: I signed the document before sending it to Mr. Harper.
Q: And Mr. Harper is an attorney?
A: He is an attorney.
Q: Was he your attorney with regard to this transaction?
A: He was.
(Nivison Dep. I, at 107:20–108:1.)
57. Arthur Nivison also testified that he was under the impression that Doug
Harris was acting as an attorney for Mark McDaniel, an adverse party, when the
three individuals met to discuss a possible transaction between Arthur Nivison’s
entities and JDPW:
Q: I heard you say vaguely but do you remember that the purpose of that meeting was to discuss the possibility of JDPW Trust getting a note from NewBridge Bank and you financing it? Do you remember that much?
.... A: That was probably part of the discussions. My recollection of the meeting was, or is, more that Mark was using it as a vehicle to introduce me to an attorney of his named Doug Harris.
Q: You believe that [Doug Harris] was representing Mark McDaniel at that meeting?
A: [He] seemed to be. What the exact relationship was, we did not inquire into.
A: I believed that [Doug Harris] had some sort of attorney relationship with Mark McDaniel. Whether [he was] actually representing him in that meeting or not, I cannot say.
(Nivison Dep. I, at 28:25–29:12, 35:11–13.) Furthermore, in stark contrast to the
position Plaintiffs take now, Arthur Nivison’s testimony appears to demonstrate a
lack of concern as to Doug Harris’s role in the transactions between his entities and
JDPW:
Q: At what point did you become aware that [Doug Harris] was the trustee of a trust known as the JDPW trust -- at what point?
A: In September, probably the closing date.
Q: You say you did not know that before September 21st?
A: I really didn’t pay any attention to it up until that point.
(Nivison Dep. I, at 29:13–18.)
58. In the face of this evidence, Plaintiffs are unable to create a genuine issue
of material fact on which NFI’s claim can proceed. The most specific assertion
Plaintiffs make in opposition to Doug Harris’s motion is that “Doug Harris was giving
legal advice to Arthur Nivison and preparing documents for Arthur Nivison to review
and asking Arthur Nivison to prepare letters to send to NewBridge Bank.” (Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims 5.) To support
this assertion, Plaintiffs cite pages from Doug Harris’s deposition (pages 79–84, 95,
and 130). Plaintiffs do not point the Court to specific lines or quotes, so the Court
examines Doug Harris’s testimony itself, viewing the contents in the light most
favorable to NFI.
59. In the first excerpt cited, Plaintiffs appear to refer to Doug Harris’s
testimony that he, Arthur Nivison, and Mark McDaniel met to negotiate the terms of
the deal between Arthur Nivison’s entities and JDPW at a restaurant; that he and
Mark McDaniel discussed the deal further with Arthur Nivison over the telephone;
and that during these conversations he explained the proposed deal to Arthur Nivison
and explained why JDPW was involved. (Harris Dep. I, at 79:5–81:4, 82:1–20.) Doug
Harris also testified that he brought a folder of materials to the initial restaurant
meeting for Arthur Nivison to review and that these materials were meant to
reassure Arthur Nivison and explain the deal. (Harris Dep. I, at 81:11–25.)
60. The second deposition excerpt Plaintiffs cite is a single page that appears to
refer to the aforementioned letter Doug Harris asked Arthur Nivison to prepare and
send to NewBridge. The first part of the relevant line of questioning is cut off from
the excerpt provided to the Court, but Doug Harris appears to testify that he told
Arthur Nivison “in the most general terms” what to include in the letter. (Harris
Dep. I, at 95:1–3.)
61. The final cited portion of Doug Harris’s deposition appears to discuss an
opinion letter Doug Harris prepared and sent to Arthur Nivison regarding the transactions between Arthur Nivison’s entities, JDPW, and NewBridge. (Harris Dep.
I, at 130:2–11.)
62. Reviewing this testimony, the Court concludes that a reasonable factfinder
could not find this evidence indicative of an attorney-client relationship. First, Doug
Harris’s meeting with Arthur Nivison and Mark McDaniel, explaining the terms of
the transaction Mark McDaniel had proposed to Arthur Nivison, and providing
documents to Arthur Nivison is not substantial evidence of an attorney-client
relationship, even considering that Arthur Nivison had not yet retained his own
counsel. Indeed, the Rules of Professional Conduct contemplate attorneys meeting,
negotiating, and discussing legal matters with unrepresented adverse parties. Rev.
R. Prof. Conduct 4.3 cmt. 2 (stating, in interacting with an unrepresented adverse
party, a lawyer may inform that person of the terms on which the lawyer’s client will
enter an agreement, prepare documents that require that person’s signature, and
explain the lawyer’s own view on the meaning of the documents or the lawyer’s view
of the underlying legal obligations). Plaintiffs present no evidence that Doug Harris’s
interactions with Arthur Nivison extended beyond such acts.
63. Further, while an attorney meeting with an unrepresented party must
disclose that they are representing an adverse party to adhere to ethical standards,
Rev. R. Prof. Conduct 4.3 cmt. 2, the record is clear here that Arthur Nivison was
under no impression that Doug Harris was acting as his attorney. Instead, he
believed Doug Harris was representing Mark McDaniel.8 Considering that belief and
8 The Court notes that while Plaintiffs argue that Doug Harris has violated several of the Revised Rules of Professional Conduct governing attorney behavior in North Carolina, “a the arm’s-length nature of the interactions between Doug Harris and Arthur Nivison,
no reasonable factfinder could conclude that an attorney-client relationship was
formed when Doug Harris and Mark McDaniel sat down with, or subsequently called,
Arthur Nivison to negotiate the proposed deal with JDPW.
64. The Court draws a similar conclusion about the second deposition excerpt
Plaintiffs cite. A reasonable factfinder could not conclude that Arthur Nivison and
Doug Harris’s discussion concerning what NewBridge would be expecting in a letter
from JDPW’s lender created an attorney-client relationship between the two men,
particularly in light of Arthur Nivison’s lack of belief that such a relationship existed.
65. Finally, with regard to the opinion letter referenced in Plaintiffs’ last page
of cited deposition testimony, the Court finds it sufficient to note that the record
indicates that Doug Harris sent this letter to Tom Harper, (Corrected Ex. KK), who
Arthur Nivison stated was his attorney during the September 21, 2012 transaction
with JDPW and upon whose advice Arthur Nivison indicated he relied, (Nivison Dep.
I, at 71:1–9, 107:20–108:1). No reasonable factfinder could conclude that Doug Harris
created an attorney-client relationship with NFI or Arthur Nivison by drafting
documents and sending those documents to an attorney representing Arthur Nivison
with respect to the September 21, 2012 transactions. Thus, this evidence, like the
breach of a provision of the Code of Professional Responsibility is not ‘in and of itself . . . a basis for civil liability.” Baars v. Campbell Univ., Inc., 148 N.C. App. 408, 421, 558 S.E.2d 871, 879 (2002) (quoting Webster v. Powell, 98 N.C. App. 432, 439, 391 S.E.2d 204, 208 (1990), aff’d, 328 N.C. 88, 399 S.E.2d 113 (1991)). The Court makes no conclusion about whether Doug Harris’s conduct violated the Rules of Professional Conduct, as that issue is not now before the Court. rest of the testimony Plaintiffs cite, fails to create a genuine issue of material fact in
NFI’s favor.
66. Plaintiffs contend that the Court may not resolve whether an attorney-client
relationship existed between NFI and Doug Harris on this record, citing Broyhill v.
Aycock & Spence, 102 N.C. App. 382, 402 S.E.2d 167, aff’d, 330 N.C. 438, 410 S.E.2d
392 (1991), and Ives v. Real-Venture, Inc., 97 N.C. App. 391, 388 S.E.2d 573 (1990).
In both of those cases, however, the party alleging the existence of an attorney-client
relationship presented affidavit testimony or other evidence purporting to show that
the attorney in question had been retained or engaged. Broyhill, 102 N.C. App. at
390, 402 S.E.2d at 172; Ives, 97 N.C. App. at 399, 388 S.E.2d at 578. In contrast,
there is no indication here that Arthur Nivison was under any illusion that Doug
Harris was acting as his or NFI’s attorney, and Plaintiffs offer no sworn testimony
supporting NFI’s claim.
67. Plaintiffs’ reliance upon their initial verified Complaint (the “Verified
Complaint”) is also unavailing. On the issue of representation, the Verified
Complaint contains only an allegation that begins, “Harris served as the closing
attorney for the loan from [NFI] to Defendant JDPW,” and concludes “as such,
[Harris] represented [NFI] in said transaction and had a fiduciary duty to [NFI].”
(Compl. ¶ 28 (Wake 14 CVS 9564), ECF No. 1.) Plaintiffs cannot use this allegation
to create a genuine issue of material fact at summary judgment.
68. A trial court may treat a verified complaint “as an affidavit if it (1) is made
on personal knowledge, (2) sets forth such facts as would be admissible in evidence, and (3) shows affirmatively that the affiant is competent to testify to the matters
stated therein.” Page v. Sloan, 281 N.C. 697, 705, 190 S.E.2d 189, 194 (1972).
69. Examining the Verified Complaint, the Court first concludes that the second
portion of the above-quoted statement—“as such, [Harris] represented [NFI] in said
transaction and had a fiduciary duty to [NFI]”—cannot be considered facts admissible
in evidence or a statement based on the personal knowledge of Arthur Nivison, the
individual who verified the Complaint. Rather, this portion of the statement is a legal
conclusion. See Singleton v. Steward, 280 N.C. 460, 467, 186 S.E.2d 400, 405 (1972)
(concluding that affiant’s legal conclusions are not facts to be considered under Rule
56(e)). The Verified Complaint also alleges no facts supporting the presence of an
attorney-client relationship besides those the Court has already concluded cannot
support the existence of such a relationship. Consequently, this conclusory statement
cannot itself create a genuine issue of material fact. See United Cmty. Bank (Ga.) v.
Wolfe, 369 N.C. 555, 559–60, 799 S.E.2d 269, 272 (2017) (holding that a conclusory
statement in defendants’ affidavit, without specific supporting facts, did not create a
genuine issue of material fact); S.C. Telcoms. Grp. Holdings v. Miller Pipeline LLC,
248 N.C. App. 243, 248, 788 S.E.2d 634, 638 (2016) (holding that conclusory
statements that “photographs and video” showed fiber optic cables were clearly
marked did not provide specific facts for summary judgment or indicate the affiant
possessed personal knowledge of the issue).
70. Turning to the first part of the statement in the Verified Complaint, the
allegation that Doug Harris served as the “closing attorney” on the loan from NFI to JDPW appears to reference a situation most commonly found in real estate
transactions where a “closing attorney” represents multiple parties. See, e.g.,
Johnson v. Schultz, 364 N.C. 90, 94, 691 S.E.2d 701, 704 (2010). This verified
allegation fails to create a genuine issue of material fact with regard to the existence
of an attorney-client relationship for two reasons.
71. First, in real estate transactions involving a “closing attorney,” the multiple
parties with which the closing attorney maintains an attorney-client relationship are
typically those allied on one side of the transaction. Id. (noting, with regard to real
estate closings, that “the most common practice is for the closing attorney to represent
the purchaser and lender while performing limited functions for the seller (such as
the preparation of the deed)” (quoting Patrick K. Hetrick et al., North Carolina Real
Estate Manual 508 (2008–2009 ed.))). In fact, this State’s Supreme Court has
“stress[ed] that it is the buyer alone in most residential real estate transactions who
is legally deemed to repose confidence in the closing attorney through the existence
of [an] attorney-client relationship,” not both sides. Id. at 96, 691 S.E.2d at 706.
72. Exceptions to this general rule exist only in rare cases. For example, in
Johnson, cited above, the Supreme Court of North Carolina held that there was a
question as to whether an attorney represented both the buyer and the seller in a real
estate transaction. Id. The Supreme Court made clear, however, that a possible
relationship existed only because of a prior relationship between the seller and the
attorney. Id. Thus, NFI’s allegation here that Doug Harris served as a “closing attorney” does not ipso facto establish an attorney-client relationship between Doug
Harris and NFI.
73. Second, as the Court has stressed, the undisputed facts show that NFI’s
manager, Arthur Nivison, did not believe he had retained Doug Harris as an attorney;
he believed Doug Harris was acting as an attorney for another party involved in the
proposed deal. Further, on the day of the closing, NFI was represented by a different
attorney. The undisputed facts show that attorney Tom Harper handled the closing
for Arthur Nivison and NFI on September 21, 2012, reviewed documents for Arthur
Nivison and NFI, and circulated the changes to the Assignment Agreement that
Plaintiffs contend are enforceable. Arthur Nivison also stated that he relied on Tom
Harper’s instructions that day with regard to the transaction. (Nivison Dep. I, at
71:1–9.) The record thus overwhelmingly refutes any attempt by Plaintiffs to create
an attorney-client relationship between NFI and Doug Harris through the use of the
term “closing attorney.”
74. A genuine issue is “one that can be maintained by substantial evidence.”
Dobson, 352 N.C. at 83, 530 S.E.2d at 835. Proving that a genuine issue of material
fact exists requires a party to present “such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion,” and that “means more than a
scintilla or a permissible inference.” DeWitt, 355 N.C. at 681, 565 S.E.2d at 146. For
the reasons stated herein, the Court concludes that NFI cannot produce substantial
evidence to support an essential element of its claim for legal malpractice. No
reasonable factfinder could examine the record before the Court and conclude that an attorney-client relationship existed such that NFI can maintain its legal malpractice
claim against Doug Harris. Accordingly, the Court grants Doug Harris’s motion as
to NFI’s claim for legal malpractice and will dismiss this claim.
Misrepresentation
75. To the extent the reference to “Misrepresentation” in Plaintiffs’ Count 6
attempts to assert a claim for negligent misrepresentation against Doug Harris, the
Court grants summary judgment on that cause of action as well.
76. A claim for negligent misrepresentation cannot be based upon a
concealment or failure to disclose; a plaintiff must allege and prove an “actual,
affirmative representation.” USA Trouser, S.A. de C.V. v. Williams, 2016 NCBC
LEXIS 58, at *40 (N.C. Super. Ct. July 21, 2016), aff’d, 812 S.E.2d 373 (N.C. Ct. App.),
disc. rev. denied, 371 N.C. 448 (2018). The majority of the conduct NFI pleads in
connection with its claim for “Legal Malpractice and Misrepresentation” concerns
Doug Harris’s failure to disclose certain information. (See, e.g., Am. Consolidated
Compl. ¶¶ 136, 140, 142.) These allegations do not support a claim for negligent
misrepresentation.
77. The remaining allegations can be broken into two categories. The first set
alleges intentional concealment of the Castle McCulloch Collateral, and is thus (i) a
restatement of NFI’s below-discussed fraud claim and (ii) allegations of concealment,
which cannot form the basis for a negligent misrepresentation claim. (See, e.g., Am.
Consolidated Compl. ¶ 139 (alleging that Doug Harris’s failure to disclose the Castle
McCulloch Collateral “was not inadvertent” but “intentional”).) The second set of allegations relates to Doug Harris’s representations in prepared documents that
JDPW would assign the CCSEA Collateral to NFI and Doug Harris’s subsequent
failure to do so. (See, e.g., Am. Consolidated Compl. ¶ 144.) This group of allegations
does not take issue with the care with which Doug Harris prepared these documents;
rather, NFI alleges it suffered damages because Doug Harris did not perform under
the Assignment Agreement. (See Am. Consolidated Compl. ¶ 145.) A breach of a
contractual duty cannot provide the basis for an independent claim of negligent
misrepresentation. Supplee v. Miller-Motte Bus. Coll., Inc., 239 N.C. App. 208, 233,
768 S.E.2d 582, 600 (2015). Thus, although Doug Harris failed to assign interests in
the CCSEA Collateral to NFI and may not have disclosed certain facts to NFI, NFI’s
allegations do not support a claim for negligent misrepresentation.
78. For these reasons, the Court concludes that Doug Harris’s Motion for
Summary Judgment as to Plaintiffs’ Claims should be granted with regard to Count
6 of Plaintiffs’ Amended Consolidated Complaint.
3. Fraud
79. Doug Harris next moves for summary judgment on Count 8 of Plaintiffs’
Amended Consolidated Complaint, a claim by NFI against Doug Harris labeled
“Fraud – Castle McCulloch Collateral.” (Am. Consolidated Compl. 23.) Doug Harris
argues that summary judgment should be granted in his favor because NFI has failed
to plead fraud with the specificity required by Rule of Civil Procedure 9(b) and
because the record following discovery shows an absence of facts sufficient to support
this claim. 80. “The essential elements of actionable fraud are: ‘(1) false 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.’” RD&J Props. v. Lauralea-Dilton Enters., LLC, 165 N.C. App. 737, 744, 600
S.E.2d 492, 498 (2004) (quoting Becker v. Graber Builders, Inc., 149 N.C. App. 787,
794, 561 S.E.2d 905, 910 (2002)). Additionally, the claimant’s “reliance on alleged
false representations must be reasonable.” Sullivan v. Mebane Packaging Grp., Inc.,
158 N.C. App. 19, 26, 581 S.E.2d 452, 458 (2003). “Whether each of the elements of
actual fraud and reasonable reliance are met are ordinarily questions for the jury
‘unless the facts are so clear that they support only one conclusion.’” Head v. Gould
Killian CPA Grp., P.A., 371 N.C. 2, 9, 812 S.E.2d 831, 837 (2018) (quoting Forbis v.
Neal, 361 N.C. 519, 527, 649 S.E.2d 382, 387 (2007)).
81. In response to Doug Harris’s motion, Plaintiffs lay out three main categories
of fraudulent conduct by Doug Harris that they contend are supported by the record.
First, Plaintiffs assert that Doug Harris misrepresented the value of the CCSEA
Collateral that NFI would be assigned under the Assignment Agreement. (Mem. Law
Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims 13.) Second,
Plaintiffs argue that Doug Harris represented that Dr. Epes would pledge certain
property to secure NFI’s loan despite knowing that Dr. Epes transferred his interest
in this property to his wife in 2006. (Mem. Law Opp’n Douglas S. Harris’s Mot.
Summ. J. Nivison Entities’ Claims 13, 15.) Finally, Plaintiffs contend that Doug
Harris misrepresented to NFI that the Castle McCulloch Loan Documents and interests in the Castle McCulloch Collateral would be assigned to NFI as part of the
deal with JDPW and concealed JDPW’s receipt of that collateral. (Mem. Law Opp’n
Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims 14.) The Court begins
by addressing the first two categories of allegations.
Requirements of Rule 9(b)
82. Doug Harris argues that NFI’s claim for fraud should be dismissed at
summary judgment because the allegations in the Amended Consolidated Complaint
are not pleaded with sufficient particularity under Rule 9(b). Rule 9(b) requires that
a complaint alleging “circumstances constituting fraud” state its allegations “with
particularity” (with the exception of intent, which must be alleged but can be averred
generally). N.C. R. Civ. P. 9(b). The Supreme Court of North Carolina has held that
this requirement is met if a pleading alleges the “time, place and content of the
fraudulent representation,” the “identity of the person making the representation,”
and “what was obtained as a result of the fraudulent acts or representations.” Terry
v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678 (1981). Recognizing that it may be
difficult to satisfy Rule 9(b) when alleging fraud by omission or concealment, this
Court has previously held that a litigant pleading fraud by omission or concealment
does so with particularity by specifically alleging:
(1) the relationship between plaintiff and defendant giving rise to the duty to speak; (2) the event that triggered the duty to speak or the general time period over which the relationship arose and the fraud occurred; (3) the general content of the information that was withheld and the reason for its materiality; (4) the identity of those under a duty who failed to make such disclosures; (5) what the defendant gained from withholding the information; (6) why the plaintiff’s reliance on the omission was reasonable and detrimental; and (7) the damages the fraud caused the plaintiff. Tillery Envtl. LLC v. A&D Holdings, Inc., 2018 NCBC LEXIS 13, at *21–22 (N.C.
Super. Ct. Feb. 9, 2018); Christenbury Eye Ctr., P.A. v. Medflow, Inc., 2015 NCBC
LEXIS 64, at *13–14 (N.C. Super. Ct. June 19, 2015), aff’d, 370 N.C. 1, 802 S.E.2d
888 (2017); Island Beyond, LLC v. Prime Capital Grp., LLC, 2013 NCBC LEXIS 48,
at *19 (N.C. Super. Ct. Oct. 30, 2013); Lawrence v. UMLIC-Five Corp., 2007 NCBC
LEXIS 20, at *10 (N.C. Super. Ct. June 18, 2007); see also Breeden v. Richmond Cmty.
Coll., 171 F.R.D. 189, 195 (M.D.N.C. 1997).
83. Although parties often seek to attack a fraud claim under Rule 9(b) at the
early stages of a proceeding, the North Carolina Court of Appeals has held that
summary judgment is appropriate in cases where a plaintiff has failed to plead fraud
with particularity. Hardin v. KCS Int’l, Inc., 199 N.C. App. 687, 702, 682 S.E.2d 726,
737 (2009) (“This Court has held that when a complaint against a corporation fails to
allege, as required by Rule 9(b), the time and occasion of the misrepresentation and
the individual who made the misrepresentation, then summary judgment was proper
for failure to allege the essential elements of fraud with particularity.” (internal
quotation marks omitted)); Trull v. Cent. Carolina Bank & Tr. Co., 117 N.C. App.
220, 224, 450 S.E.2d 542, 545 (1994) (“Rule 9(b) . . . requires that a complaint
charging fraud allege [the elements of fraud] with particularity. If it does not,
summary judgment is proper.” (citations omitted)); Leake v. Sunbelt, Ltd. of Raleigh,
93 N.C. App. 199, 205, 377 S.E.2d 285, 289 (1989).
84. As Doug Harris has challenged NFI’s fraud claim on particularity grounds,
the Court examines the contents of the Amended Consolidated Complaint. Doing so, the Court concludes that NFI has not pleaded its contentions as to the value of the
CCSEA Collateral and the ownership of Dr. Epes’s property with sufficient
particularity to base its claim for fraud on those facts now.
85. First, the Amended Consolidated Complaint contains no allegation of a
misrepresentation regarding the value of the CCSEA Collateral. The representation
that Plaintiffs take issue with—that the 2012 tax value of the CCSEA Collateral was
$4,582,222.00—is included in every version of the Assignment Agreement and several
other documents attached to the Amended Consolidated Complaint, (see, e.g., Am.
Consolidated Compl. Ex. TT), but Plaintiffs’ pleading contains no allegation that this
representation was false, that Doug Harris intended it to be false, or that NFI relied
on this statement of tax value to its detriment. NFI pleads fraud and intent only as
to the concealment of the Castle McCulloch Collateral, the Settlement Agreement,
and the documents by which NewBridge assigned interests in the Castle McCulloch
Collateral to JDPW. NFI does not allege that any statement regarding the tax value
of the CCSEA Collateral was fraudulent or was intended to deceive. Consequently,
the Court must conclude that NFI did not particularly plead a claim for fraud against
Doug Harris based on representations of the CCSEA Collateral’s value, and Plaintiffs
cannot now argue that NFI’s claim should survive summary judgment on this basis.
See Trull, 117 N.C. App. at 224, 450 S.E.2d at 545; see also United States ex rel. Owens
v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 731 (4th Cir. 2010)
(holding nonmovant could not avoid summary judgment by asserting new grounds
for fraud claim which had not been particularly pleaded); Dongelewicz v. PNC Bank Nat’l Ass’n, 104 Fed. App’x 811, 819 n.4 (3d Cir. 2004) (refusing, after affirming
dismissal of common law fraud claim, to consider additional theories of fraud offered
in summary judgment brief on the reasoning that “a contention in a brief . . . may not
be used to substitute for an allegation in a complaint, especially in the context of a
fraud claim, which must be pled with particularity” (citation and internal quotation
marks omitted)).
86. Second, with regard to Plaintiffs’ argument concerning Doug Harris’s
representations about Dr. Epes’s property, the Court notes that the Amended
Consolidated Complaint contains allegations of misrepresentations about this
collateral, but those allegations are pleaded only against the Epeses. (Am.
Consolidated Compl. ¶¶ 55, 149–167 (alleging the Epeses concealed the fraudulent
conveyance of Dr. Epes’s property from NFI and bringing a claim against the Epeses
for fraud on creditors and fraudulent transfer of assets).) Doug Harris’s name
appears in these allegations only in reference to deposition testimony he gave prior
to the Amended Consolidated Complaint in which he stated Dr. Epes continued to
control the personal property in question and did not abide by the terms of the
assignment agreement between him and his spouse. (Am. Consolidated Compl. ¶
158.)
87. To properly bring a claim for fraud, a claimant’s pleading must state the
specific individual who made the allegedly fraudulent misrepresentations, Hardin,
199 N.C. App. at 702, 682 S.E.2d at 737, or, in cases of concealment, must allege “the
identity of those under a duty who failed to make . . . disclosures,” Tillery Envtl. LLC., 2018 NCBC LEXIS 13, at *21–22. Because the Amended Consolidated Complaint
contains no allegations that Doug Harris made a false representation about or
concealed the transfer of Dr. Epes’s property to Bessie Epes, NFI cannot now attempt
to assert a claim for fraud on this basis. See Trull, 117 N.C. App. at 224, 450 S.E.2d
at 545; see also Owens, 612 F.3d at 731; Dongelewicz, 104 Fed. App’x at 819 n.4.
Fraud Concerning the Castle McCulloch Collateral
88. The Court next turns to Plaintiffs’ contentions concerning Doug Harris’s
concealment of the Castle McCulloch Collateral and Doug Harris’s argument that
NFI cannot produce a sufficient forecast of certain elements of its fraud claim
following discovery. To prevail, Doug Harris need not “negate every element of
fraud,” but may succeed if he “effectively refutes even one element” of NFI’s claim.
RD&J Props., 165 N.C. App. at 745, 600 S.E.2d at 498 (quoting Ramsey v. Keever’s
Used Cars, 92 N.C. App. 187, 191, 374 S.E.2d 135, 137 (1988)).
89. At the outset, the Court notes that NFI’s allegations of fraud and Plaintiffs’
arguments in support of this claim appear, at times, inconsistent. In certain parts of
its pleading, NFI appears to assert that Doug Harris made express
misrepresentations that the Castle McCulloch Collateral would be part of NFI’s deal
with JDPW. (See, e.g., Am. Consolidated Compl. ¶ 174.) At other points, NFI claims
ignorance of the existence of the Castle McCulloch Collateral and alleges that Doug
Harris concealed it from Arthur Nivison, NFI, and their attorney. (See, e.g., Am.
Consolidated Compl. ¶ 59.) Finally, NFI also seems to put forward the theory that
Doug Harris made general representations to Arthur Nivison and NFI that caused them to believe that NFI would be receiving everything NewBridge held as security
on the CCSEA and Castle McCulloch Loans, that Nivison and NFI were not aware
that this collateral included the Castle McCulloch Collateral or Loan Documents, and
that Doug Harris concealed the existence of that collateral from NFI. (See, e.g., Am.
Consolidated Compl. ¶ 178 (“Doug Harris, Mark McDaniel, and Richard Epes never
disclosed to Plaintiff NFI exactly what collateral had been assigned to Defendant
JDPW Trust from Defendant NewBridge Bank.”).) Examining each apparent theory,
the Court concludes that none supports NFI’s fraud claim on the record at summary
judgment.
90. First, to the extent NFI alleges that Doug Harris made affirmative
misrepresentations that the Castle McCulloch Collateral would be transferred from
JDPW to NFI—assuming for this discussion that such statements could sustain a
claim for fraud9—the record demonstrates no such representation. To the contrary,
the record contains evidence that implicitly and explicitly refutes such an allegation.
This evidence includes Arthur Nivison’s signed memos that demonstrate he was
aware that NFI’s loan would be used to pay off the Castle McCulloch Loan, (Am.
Consolidated Compl. Ex. DDD, ECF No. 193); the fact the Castle McCulloch
Collateral was not part of the specifically described collateral assigned under the
Assignment Agreement (Corrected Ex. KK; Am. Consolidated Compl. Exs. QQ, TT);
and Arthur Nivison testifying at his deposition that he could not recall any
9 Promises of future intent, as opposed to statements relating to past or existing facts, will not generally support a claim for fraud unless made with the intent to deceive and with no intent to comply with the stated promise or representation. Potts v. KEL, LLC, 2018 NCBC LEXIS 24, at *8–9 (N.C. Super. Ct. Mar. 27, 2018) (citing North Carolina cases). misleading, deceptive, or false statements made by Doug Harris personally or as a
representative of JDPW, (Castle McCulloch Defs.’ Br. Opp’n Pls.’ Mot. Partial Summ.
J. Ex. 10, at 92:3–7 [hereinafter “Nivison Dep. II”], ECF No. 880). In sum, any
allegation that Doug Harris made affirmative misrepresentations that expressly
dealt with the Castle McCulloch Collateral finds no support in the evidence before
the Court.
91. The second apparent theory of fraud NFI pursues, that of concealment,
encounters a similar issue. The record overwhelmingly supports Doug Harris’s
contention that Plaintiffs and Arthur Nivison were aware of the Castle McCulloch
Loan and Loan Documents or Collateral. Arthur Nivison himself testified that he
had the impression that a Castle McCulloch entity would somehow serve as security
for his loan, (Nivison Dep. II, at 89:4–22), and his signed memos indicate he was
aware of the Castle McCulloch Loan, (Am. Consolidated Compl. Ex. DDD). Further,
before Plaintiffs allege Doug Harris signed the amended version of the Assignment
Agreement, NFI’s attorney received an e-mail from NewBridge’s counsel reading,
“Upon [receipt] of $2,001,834.09 newbridge will transfer all ccsae [sic] and castle
mcculloch loan documents to jdpw trust.” (Am. Consolidated Compl. Ex. RR, ECF
No. 190 (emphasis added).) If Doug Harris made an attempt to conceal the Castle
McCulloch Loan, Loan Documents, or Collateral from Arthur Nivison and NFI, the
undisputed record shows that effort was not successful.
92. Further, as to Plaintiffs’ assertion that Doug Harris concealed aspects of the
deals between the Settlement Debtors and NewBridge or JDPW and NewBridge, a claim for fraud may only be based on concealment of a material fact where one party
owed the other a duty of disclosure. Hardin, 199 N.C. App. at 696, 682 S.E.2d at 733.
A duty to disclose arises where: (1) “a fiduciary relationship exists between the parties to the transaction”; (2) there is no fiduciary relationship and “a party has taken affirmative steps to conceal material facts from the other”; [or] (3) there is no fiduciary relationship and “one party has knowledge of a latent defect in the subject matter of the negotiations about which the other party is both ignorant and unable to discover through reasonable diligence.”
Id. (quoting Sidden v. Mailman, 137 N.C. App. 669, 675, 529 S.E.2d 266, 270–71
(2000)). Plaintiffs’ arguments to the contrary notwithstanding, the Court has
determined that Doug Harris did not have an attorney-client relationship with NFI,
and Plaintiffs have not argued or successfully shown the existence of some other
fiduciary relationship. Plaintiffs have also not argued, and the facts of this case do
not fit, a scenario in which a latent defect existed in the subject matter of a
transaction. Thus, the remaining question is whether Doug Harris took affirmative
steps to conceal information from NFI about the dealings between the Settlement
Debtors, NewBridge, and JDPW. Contrary to Plaintiffs’ assertions, the Court
concludes that the record does not contain sufficient facts of such an affirmative step
to sustain NFI’s fraud claim.
93. The final theory on which NFI’s fraud claim appears to be based is that Doug
Harris made nonspecific misrepresentations to Arthur Nivison that NFI would
receive everything NewBridge held as collateral on the loans JDPW was purchasing,
did not disclose that NewBridge held the Castle McCulloch Loan Documents or
interests in the Castle McCulloch Collateral, and thus made a fraudulent
representation to NFI about the general nature of the assets it would be receiving. In short, this argument asserts that Doug Harris is liable to NFI for fraud because
he led NFI to believe that it would get whatever NewBridge held, and the specifics of
that collateral were never discussed or accurately disclosed to NFI. This theory of
fraud also finds little, if any, support in the evidentiary record.
94. Just as there is no evidence in the record of any fraudulent representation
mentioning the Castle McCulloch Collateral or Loan Documents specifically, the
record is also devoid of any express representation that NFI would receive any and
all collateral held by NewBridge for the CCSEA and Castle McCulloch Loans. The
numerous e-mails that Plaintiffs cite between Doug Harris and other parties involved
in the September 21, 2012 transactions do not show that Doug Harris represented
that NFI, Old Battleground, or Arthur Nivison would be receiving anything and
everything held by NewBridge. Where these e-mails do mention an assignment to
Plaintiffs or Arthur Nivison, they merely state that JDPW would be making an
unspecified assignment. For example, one e-mail on which Plaintiffs rely is from
Doug Harris to an individual named Desmond Sheridan which indicated that Doug
Harris would pick up “the assignment papers” and would “then re-assign the security
interest to Art Niverson [sic].” (Am. Consolidated Compl. Ex. SS, ECF No. 190.) The
e-mail does not identify which assignment papers or security interests are referenced.
Reading Doug Harris’s nonspecific mention of security interests in this e-mail, or
similar mentions of security interests in other e-mails Plaintiffs cite, to include
interests in the Castle McCulloch Collateral requires the factfinder to assume the
conclusion that Plaintiffs seek to prove by citing the e-mails. This final theory is also, again, rebutted by Arthur Nivison’s testimony that he could not recall any false or
misleading statements by Doug Harris that induced him to enter the transaction with
JDPW. (Nivison Dep. II, at 92:3–7.)
95. Plaintiffs point repeatedly to a September 21, 2012 e-mail from Doug Harris
to NFI’s attorney as evidence of a fraudulent misrepresentation or an affirmative act
of concealment. In that e-mail, Doug Harris indicated that he was attaching an
“assignment of security interest which [he] basically copied from that of [NewBridge]
as well as their attachment A.” (Corrected Ex. KK.) The referenced “Attachment A”
was the Schedule A to the drafted Assignment of Security Instruments document that
was sent to NFI’s attorney. (See Corrected Ex. KK.) NFI contends that the Schedule
A it received was nearly identical to the one JDPW received from NewBridge, but
that the version sent to NFI’s attorney omitted the Castle McCulloch Loan and Castle
McCulloch Loan Documents, which had been included in the version sent to JDPW.
(Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’ Claims 14.)
96. Upon review, the Court cannot conclude that the September 21, 2012 e-mail
from Doug Harris presents substantial evidence raising a genuine issue of material
fact about whether a fraudulent representation was made. NFI’s reading of this
e-mail is only possible if the factfinder already assumes that NFI was promised all of
the collateral in NewBridge’s possession and that the document supplied by Doug
Harris should have contained the entirety of the collateral that was to be exchanged
between NewBridge and JDPW. There is no evidence in the present record to justify
such an assumption, and a reasonable factfinder could not conclude that this e-mail, on its own, reflects a misrepresentation or a concealment of material facts that Doug
Harris had a duty to disclose.
97. The Court has also examined Plaintiffs’ submitted Second Affidavit of
Arthur Nivison (the “Second Affidavit”) and the allegations of promises and
representations by Doug Harris made therein. After doing so, the Court concludes
NFI may not rely on these statements to create a genuine issue of material fact at
summary judgment.
98. In his Second Affidavit, Arthur Nivison affirms:
[I]t was agreed that the Castle McCulloch Loan and the CCSEA Loans would be assigned to me. . . .
. . . Doug Harris had represented both to me and to my attorney that NewBridge Bank would assign all of the loan documents associated with the Castle McCulloch Loan and the CCSEA Loans to JDPW . . . and that JDPW Trust would re-assign those same documents to NFI at closing.
(Nivison Aff. ¶¶ 17–18.) These statements are not only at variance with Plaintiffs’
verified allegations that NFI was not aware JDPW would be purchasing the Castle
McCulloch Loan or Loan Documents, but also contradict Arthur Nivison’s previous
deposition testimony.
99. When asked at his deposition whether he had “any belief that [H]istoric
Castle McCulloch, LLC was intended to be part of [the security for his loan],” Arthur
Nivison did not answer directly but responded, “There were a number of mentions of
Castle McCulloch and the fact that it was included in verbal discussions.” (Nivison
Dep. I, at 71:16–20.) When pressed on this point several minutes later, Arthur
Nivison further testified that he could not identify any statements made prior to the deal with JDPW that were deceptive or misleading, stated that he could not explain
the absence of the Castle McCulloch Collateral from the Assignment Agreement, and
described his understanding that such collateral was part of the agreement as an
“impression”:
Q: All right. I heard you say in the morning that it had at least crossed your mind, at least somebody had mentioned to you that Historic Castle McCulloch, LLC might be part of the security for your loan. Did you understand that? Was that your understanding or did you think it was not part of your security?
A: I had the impression it was.
Q: If that was your impression, how is it that in neither agreement, not in the one you signed by mistake, nor the one that you and your attorney went over, how is it that Castle McCulloch -- Historic Castle McCulloch, LLC is not mentioned at all? Can you explain that if you thought it was supposed to be in there?
A: I cannot.
Q: All right. Was that another mistake on your part?
A: In light of the current situation, it probably was but that is not -- I’m not -- no, that’s it.
Q: All right. Can you point to any specific statement made by [Doug Harris], either personally or as a representative of JDPW Trust, that induced you to enter this deal that was misleading or deceptive or outright false?
A: I cannot recall.
(Nivison Dep. II, at 89:4–22, 92:3–7.) 100. The assertions in Arthur Nivison’s Second Affidavit concerning Doug
Harris’s representations and the parties’ agreement are incompatible with and
contradict Arthur Nivison’s deposition testimony. The Second Affidavit describes two
statements or promises: (i) a promise that Arthur Nivison would be assigned the
Castle McCulloch Loan—a promise only Doug Harris would have the power to make
on behalf of JPDW—and (ii) a representation by Doug Harris that JDPW would
assign all of the Loan Documents associated with the CCSEA Loans and the Castle
McCulloch Loans to NFI. (Nivison Aff. ¶ 17.) Under Plaintiffs’ theory of the case,
such promises and representations were false, misleading, or deceptive, and made
with no intent of performance. As shown above, however, Arthur Nivison previously
testified that he could not recall any false or deceptive statements made by Doug
Harris that induced him to enter the deal with JDPW. (Nivison Dep. II, at 92:3–7.)
Moreover, Arthur Nivison testified that he could not explain his “impression” that
the Castle McCulloch Collateral would be assigned to NFI and the absence of any
written deal to that effect. (Nivison Dep. II, at 89:4–22.)
101. The affidavit Plaintiffs now submit attempts to do what Arthur Nivison’s
deposition testimony could not—create a genuine issue of material fact at summary
judgment—with statements concerning previously unmentioned promises or
representations that are at odds with the earlier deposition testimony. Plaintiffs may
not survive summary judgment by this tactic. See Pinczkowski v. Norfolk S. R.R. Co.,
153 N.C. App. 435, 440–41, 571 S.E.2d 4, 7 (2002) (holding plaintiff could not create
an issue of fact at summary judgment by submitting an affidavit in which he, for the first time, testified about statements made by his doctor that he did not mention at
his deposition and which contradicted his deposition testimony “as a whole”); see also
Yeager v. Bowlin, 693 F.3d 1076, 1080–81 (9th Cir. 2012) (holding trial court properly
disregarded a declaration containing facts a witness previously testified he could not
recall where the newly remembered facts were not accompanied by a reasonable
explanation for the witness’s sudden recollection); Mitchael v. Intracorp, Inc., 179
F.3d 847, 854–55 (10th Cir. 1999) (concluding that an affidavit from a witness that
“more clearly recalled discussions and meetings” that the witness could not remember
at deposition “arguably contradicted his deposition” and represented “an attempt to
create a sham issue of fact”); Barringer v. Wake Forest Univ. Baptist Med. Ctr., 197
N.C. App. 238, 257–58, 677 S.E.2d 465, 478 (2009) (noting that no genuine issue of
fact was created at summary judgment by plaintiff’s expert providing a new,
additional allegation concerning defendants’ breach of the standard of care in an
affidavit). A “genuine issue of material fact is not created where the only issue of fact
is to determine which of the two conflicting versions of the plaintiff’s testimony is
correct.” Rohrbough v. Wyeth Labs., Inc., 916 F.2d 970, 975 (4th Cir. 1990) (quoting
Barwick v. Celotex Corp., 736 F.2d 946, 960 (4th Cir. 1984)). The Court thus
concludes that NFI cannot rely on Arthur Nivison’s Second Affidavit to create a
genuine issue of material fact at summary judgment with regard to representations
or promises concerning the Castle McCulloch Collateral.
102. For these reasons, after a careful review of the evidentiary record viewed in
the light most favorable to Plaintiffs, the Court concludes NFI has not forecast substantial evidence of a fraudulent misrepresentation or concealment by Doug
Harris sufficient to show a genuine issue of material fact on this claim at summary
judgment and has not demonstrated its ability to establish a prima facie case of fraud
at trial.
103. The above analysis notwithstanding, the Court also notes that NFI faces
another hurdle in proving its fraud claim—NFI’s reliance must have been reasonable.
A plaintiff’s reliance will not be deemed “reasonable where the plaintiff could have
discovered the truth of the matter through reasonable diligence, but failed to
investigate.” Sullivan, 158 N.C. App. at 26, 581 S.E.2d at 458.
104. Assuming that some statement in the record could be considered evidence
of a false representation by Doug Harris that NFI would be assigned the Castle
McCulloch Collateral or all of the collateral NewBridge held, or that evidence existed
tending to show a concealment of material facts, the uncontested facts before the
Court show no effort by NFI to exercise reasonable diligence to determine what
collateral NewBridge held, what collateral JDPW would be receiving, or what
collateral NFI could expect to get as the result of the transactions between the three
entities.
105. In particular, the record contains no evidence suggesting that NFI, Arthur
Nivison, or their counsel engaged in any due diligence to ascertain or confirm what
collateral NewBridge held to secure the loans that NFI’s funds would be used to
purchase. There is no evidence Plaintiffs or Arthur Nivison inquired into this matter
with NewBridge Bank or any other party besides JDPW. There is also no evidence that Plaintiffs or Arthur Nivison made any attempt to confirm their alleged
understanding of the agreement with JDPW or Doug Harris when faced with, at best,
vague statements of what collateral would be involved in the transaction and, at
worst, statements which detailed what collateral NFI could expect and made no
mention of the Castle McCulloch Loan, Loan Documents, or Collateral.
106. Particularly, assuming that Doug Harris’s e-mail to NFI’s counsel contained
the version of the Schedule A omitting the Castle McCulloch Collateral, that
document clearly classified each piece of collateral listed and placed it under one of
three listed loans to CCSEA. (Am. Consolidated Compl. Ex. NN, ECF No. 189; see
also Corrected Ex. KK.) It did not mention the Castle McCulloch Loan and did not
indicate that any listed collateral secured the unmentioned Castle McCulloch Loan.
(Am. Consolidated Compl. Ex. NN.) Despite this, the record contains no evidence
that NFI—whose manager had signed a memo acknowledging that NFI’s funds
would, in part, be used to purchase or pay off the Castle McCulloch Loan and had the
impression that NFI was going to be secured by collateral related to a Castle
McCulloch entity—made any inquiries concerning the omission of the Castle
McCulloch Loan or related collateral from the received Schedule A.
107. Instead, after an opportunity to consult with counsel, Arthur Nivison signed
the agreement with JDPW which promised to convey an interest in equipment and
personal property specifically owned by HUTA, SEM, and CCSEA. (See, e.g., Am.
Consolidated Compl. Ex. QQ.) This provision of the agreement remained the same
even after NFI’s attorney received the e-mail from NewBridge’s counsel notifying NFI that NewBridge was transferring the CCSEA and Castle McCulloch Loan Documents
to JDPW, (Am. Consolidated Compl. Ex. RR), and after, according to Plaintiffs, the
Assignment Agreement was amended, (see Am. Consolidated Compl. Ex. TT).
108. Thus, even assuming that the record supported Plaintiffs’ contentions of
misrepresentation and concealment sufficient to instill in NFI some belief it would be
getting the Castle McCulloch Collateral, or everything NewBridge held, the record
also establishes that NFI never made any reasonable attempt to confirm this belief,
ignored repeated signs that there was an inconsistency between the assignment
JDPW was agreeing to in writing and the deal NFI believed it had, and lent $2.1
million to JDPW after signing an agreement that clearly did not conform to the deal
NFI envisioned. There is no evidence, or even an allegation from NFI, that Doug
Harris prevented NFI from making reasonable inquiries or conducting its own due
diligence. “When . . . parties deal at arm[’s] length and [one party] has full
opportunity to make inquiry but neglects to do so and the [other party] resorted to no
artifice which was reasonably calculated to induce the [first] to forego investigation[,]
action in deceit will not lie.” Hardin, 199 N.C. App. at 697, 682 S.E.2d at 734 (quoting
Olivetti Corp. v. Ames Bus. Sys., Inc., 319 N.C. 534, 543, 356 S.E.2d 578, 583 (1987)).
109. Based on the above, and as an additional basis for the Court’s decision at
summary judgment, the Court concludes that NFI has failed to forecast sufficient
evidence of its own reasonable reliance to proceed to trial on its fraud claim. See
McDonald’s Corp. v. Five Stars, Inc., No. COA10-346, 2010 N.C. App. LEXIS 2097, at
*9–10 (N.C. Ct. App. Nov. 16, 2010) (holding defendant’s allegations that he was fraudulently tricked under an “excess lease” agreement into paying two thirds of his
and plaintiff’s rent to landlord when he believed each party agreed to pay half did not
show reasonable reliance when defendant did not contact the landlord, did not obtain
a copy of plaintiff’s lease with the landlord, did not request any form of confirmation
for plaintiff’s representations, and signed a contract that did not incorporate the
allegedly material terms of the negotiations between the parties); RD&J Props., 165
N.C. App. at 748, 600 S.E.2d at 500 (affirming dismissal of fraud claim at summary
judgment where plaintiff forecast insufficient evidence of reasonable reliance);
Spartan Leasing, Inc. v. Pollard, 101 N.C. App. 450, 456, 400 S.E.2d 476, 479–80
(1991) (reliance not reasonable as a matter of law as to fraud in the inducement
allegations where individual in an arm’s-length transaction signed a short document
with clear terms and was in no way prevented from reading the document); Crockett
Capital Corp. v. Inland Am. Winston Hotels, Inc., 2011 NCBC LEXIS 7, at *71–72
(N.C. Super. Ct. Feb. 28, 2011) (due diligence required inspection of documents
delivered to claimant, which would have revealed need for further action); Staton v.
Brame, 2001 NCBC LEXIS 2, at *73–74 (N.C. Super. Ct. May 31, 2001) (holding fraud
claimant did not exercise reasonable diligence where claimant failed to request
relevant documents or make inquiries to relevant parties); see also Broussard v.
Meineke Disc. Muffler Shops, 155 F.3d 331, 341 (4th Cir. 1998) (noting North Carolina
courts recognize that reliance is not reasonable “if a plaintiff had an alternative
source for the information that is alleged to have been concealed from or
misrepresented to him”); Area Landscaping, L.L.C. v. Glaxo-Wellcome, Inc., 160 N.C. App. 520, 527, 586 S.E.2d 507, 512 (2003) (holding that a party’s assumption about
the terms of an agreement that directly conflicted with the express terms of written
communications between the parties did not constitute reasonable reliance “that
would support a cause of action based upon fraud”).
110. The Court thus concludes that summary judgment is appropriate in Doug
Harris’s favor on NFI’s claim for fraud. As a result, the Court will dismiss Count 8
of Plaintiffs’ Amended Consolidated Complaint as against Doug Harris at summary
4. Unfair or Deceptive Trade Practices
111. Doug Harris also moves for summary judgment on Plaintiffs’ Count 31, a
claim against him for unfair or deceptive trade practices, arguing that the acts this
claim is premised upon constitute the rendering of professional services and are thus
excluded from actionable conduct under the North Carolina Unfair and Deceptive
Trade Practices Act (the “UDTPA”).
112. A claim for unfair or deceptive trade practices requires a plaintiff to show
(1) that the “defendant committed an unfair or deceptive act or practice,” (2) that the
act or practice “was in or affecting commerce,” and (3) that “the act proximately
caused injury to the plaintiff.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704,
711 (2001). Under the UDTPA, “‘commerce’ includes all business activities, however
denominated, but does not include professional services rendered by a member of a
learned profession.” N.C. Gen. Stat. § 75-1.1. This so-called “learned profession
exception” (also termed an “exemption” or “exclusion” by courts) applies to attorneys or law firms “acting within the scope of the traditional attorney-client role.” Reid v.
Ayers, 138 N.C. App. 261, 267, 531 S.E.2d 231, 236 (2000).
113. On this claim, Plaintiffs assert that a genuine issue of material fact exists
as to whether Doug Harris was acting as an attorney in his and JDPW’s dealings with
Arthur Nivison and Plaintiffs or whether he was acting as the trustee of JDPW.
Plaintiffs argue in their opposition brief that Doug Harris, in his own deposition
testimony, “consistently maintained that he conducted . . . negotiations solely in his
capacity as Trustee of JDPW Trust, and not in his professional capacity as an
attorney.” (Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’
Claims 18.) To support this contention, Plaintiffs cite the following excerpt from Doug
Harris’s deposition: “I was advancing JDPW Trust’s interest . . . and I was making
representations, which I fully knew that if they were false representations I could be
sued for.” (Mem. Law Opp’n Douglas S. Harris’s Mot. Summ. J. Nivison Entities’
Claims 18.) Plaintiffs’ arguments suffer from two inaccuracies, one factual, and one
legal.
114. First, an examination of the cited page of Doug Harris’s deposition reveals
a quite different statement than the snippet Plaintiffs have placed before the Court.
The entirety of Plaintiffs’ quoted sentence reads, “So to me, I was advancing JDPW
Trust’s interest, which I did represent, so I was acting as -- as their attorney trying to
make the thing close, and I was making representations, which I fully knew that if
they were false representations I could be sued for, you know, false representations.”
(Harris Dep. I, at 384:10–15 (emphasis added).) Three lines down, Doug Harris again undercuts Plaintiffs’ representation that he was not acting as an attorney: “I did. I
intended for people to rely upon it. And I was speaking as the attorney for JDPW
Trust, and I expected them to rely upon it. Yes, I did.” (Harris Dep. I, at 384:18–20
(emphasis added).) In fact, reviewing the surrounding pages of Doug Harris’s
deposition, the Court is unable to locate a single instance in which Doug Harris stated
he was acting solely as the trustee for JDPW and not as an attorney. Plaintiffs’
representation to the Court and the evidence Plaintiffs rely upon to support that
representation thus appear diametrically opposed.
115. Second, Plaintiffs are mistaken in arguing that whether Doug Harris’s
conduct falls under the learned profession exception is a question of fact. With regard
to unfair or deceptive trade practice claims, the jury determines the facts underlying
the plaintiff’s claim, “and based on the jury’s finding[s], the court . . . [determines] as
a matter of law whether the defendant engaged in unfair or deceptive acts or practices
in the conduct of trade or commerce.” Hardy v. Toler, 288 N.C. 303, 310, 218 S.E.2d
342, 346–47 (1975). Thus, a question of fact could exist as to the events underlying
Plaintiffs’ unfair or deceptive trade practices claim, but whether Doug Harris’s acts
fall outside the UDTPA’s definition of commerce due to the learned profession
exception is a question of law. See id.; see also Wheeless v. Maria Parham Med. Ctr.,
Inc., 237 N.C. App. 584, 589–91, 768 S.E.2d 119, 123–24 (2014).
116. North Carolina courts assessing unfair or deceptive trade practices claims
are frequently asked to determine whether acts fall within the learned profession
exception. Although a bright line is not easily drawn, an act will be considered falling under the learned profession exception when (1) the person or entity performing the
act is a member of a learned profession and (2) the act is a rendering of professional
services. Wheeless, 237 N.C. App. at 589; 768 S.E.2d at 123; Reid, 138 N.C. App. at
266, 531 S.E.2d at 235. What constitutes a rendering of professional services can be
a difficult question to answer, especially in cases where a learned professional’s
conduct “admits of two motives.” Battleground Veterinary Hosp., P.C. v. McGeough,
2007 NCBC LEXIS 33, at *52 (N.C. Super. Ct. Oct. 19, 2007).
117. Plaintiffs acknowledge that Doug Harris is an attorney licensed in the State
of North Carolina. Thus, whether Doug Harris’s acts fall within the learned
profession exception turns solely on whether those acts were a rendering of
professional services.
118. When answering this question, courts have applied the learned profession
exception broadly. For example, matters affecting the professional services rendered
by members of a learned profession have been deemed to fall outside commerce, even
where the actor possessed ulterior motives. Wheeless, 237 N.C. App. at 589–91, 768
S.E.2d at 123–24 (holding statements made to a licensing board about another
professional not did not constitute unfair or deceptive trade practices, even where
there were allegations that the information communicated was obtained illegally and
was reported out of malice or a chance for financial gain). Defamatory statements
made by one professional about another’s work have also been exempted. Gaunt v.
Pittaway, 139 N.C. App. 778, 784, 534 S.E.2d 660, 664 (2000) (“[I]t clearly does not
follow that a statement by a medical professional, criminal or otherwise, is governed by [N.C. Gen. Stat. § 75-1.1(a)].”). Further, that an act might be illegal or unethical
does not prevent it from falling within the learned profession exception for purposes
of assessing a section 75-1.1 claim. Alamance Family Practice, P.A. v. Lindley, 2018
NCBC LEXIS 83, at *24 (N.C. Super. Ct. Aug. 14, 2018) (“In considering whether a
defendant’s conduct is exempt from the UDTPA’s definition of commerce, the Court
is not concerned with whether the conduct runs afoul of other legal or ethical
standards, but only whether the conduct affects the professional services rendered by
members of a learned profession.” (first citing Burgess v. Busby, 142 N.C. App. 393,
406–07, 544 S.E.2d 4, 11–12 (2001); and then citing Gaunt, 139 N.C. App. at 784, 534
S.E.2d at 664)).
119. In the context of the legal profession, the North Carolina Court of Appeals
has provided specific guidance for analyzing the acts of attorneys under section 75-
1.1. In particular, the court has drawn a distinction between nonessential and
“entrepreneurial aspects” of legal practice, such as advertising, to which the exception
does not apply, and acts “within the scope of the traditional attorney-client role,” to
which the exception does apply. Reid, 138 N.C. App. at 267–68, 531 S.E.2d at 236.
Thus, when an attorney acts in representing a client, his or her conduct will generally
not give rise to an unfair or deceptive trade practices claim. See Moch v. A.M. Pappas
& Assocs., LLC, 251 N.C. App. 198, 208–09, 794 S.E.2d 898, 904 (2016) (concluding
plaintiff could not bring a claim against defendants based upon letters sent by
defendants’ counsel); Davis Lake Cmty. Ass’n v. Feldmann, 138 N.C. App. 292, 297,
530 S.E.2d 865, 869 (2000) (emphasizing that defendants did not have a claim against plaintiff’s counsel because “[a]ny acts engaged in by plaintiff’s counsel, even if cloaked
in terms of a principal-agent relationship, [fell] within the learned profession
exemption[.]”). The exception extends beyond work such as drafting pleadings,
negotiating settlements, and preparing contracts, and includes those acts that are a
necessary part of the legal services provided to the client. See Reid, 138 N.C. App. at
266–67, 531 S.E.2d at 235–36 (“Plaintiffs attempt to distinguish debt collection from
other aspects of an attorney’s work, such as drafting pleadings, negotiating
settlements, and preparing contracts, arguing that only the latter should fall within
the exemption. We disagree. . . . Debt collection, along with the collection of any
attorney’s fees incurred as a penalty, is a necessary part of the practice of debtor-
creditor law.”).
120. In the present case, although there are disputes as to how many times,
when, and where Doug Harris and Arthur Nivison met and exactly what was said, it
does not appear to be disputed that Plaintiffs allege Doug Harris negotiated the loan
to JDPW with Arthur Nivison and drafted certain documents that were provided to
Plaintiffs and other parties, including an opinion letter. It also appears beyond
dispute, Plaintiffs’ arguments notwithstanding, that Doug Harris was acting as an
attorney for JDPW during his interactions with Plaintiffs and NewBridge.
121. That Doug Harris’s acts may have been motivated by self-serving goals, or
that Doug Harris may have run afoul of ethical and legal standards, does not matter
for the Court’s purposes here. See Wheeless, 237 N.C. App. at 589–91, 768 S.E.2d at
123–24; Alamance Family Practice, P.A., 2018 NCBC LEXIS 83, at *24. The sole question for the Court is whether Doug Harris’s conduct constituted the rendering of
professional services for purposes of N.C. Gen. Stat. § 75-1.1(b). Given the above, the
Court concludes the answer to that question must be yes. See Reid, 138 N.C. App. at
267–68, 531 S.E.21 at 236; cf. N.C. Gen. Stat. § 84-2.1(a) (“The phrase ‘practice law’
as used in this Chapter is defined to be performing any legal service for any other
person, specifically including . . . assisting by advice, counsel, or otherwise in any
legal work; and to advise or give opinion upon the legal rights of any person, firm or
corporation[.]”); N.C. Gen. Stat. § 84-4 (making it unlawful for persons except active
members of the State Bar to prepare legal documents for another person, firm, or
corporation); State v. Pledger, 257 N.C. 634, 636, 127 S.E.2d 337, 339 (1962) (“Practice
of law embraces the preparation of legal documents and contracts by which legal
rights are secured.”).
122. Because Doug Harris’s complained of conduct falls outside of section 75-1.1’s
definition of commerce, no genuine issue of material fact remains as to Plaintiffs’
claim against Doug Harris for unfair or deceptive trade practices. Consequently, the
Court will grant Doug Harris’s motion and dismiss that claim.
5. Punitive Damages
123. Finally, Doug Harris moves to dismiss Plaintiffs’ claim against him for
punitive damages, contending that there is no basis for such an award.
124. A party cannot “have a cause of action for punitive damages by itself.”
Oestreicher v. Am. Nat’l Stores, Inc., 290 N.C. 118, 134, 225 S.E.2d 797, 808 (1976);
see also N.C. Gen. Stat. § 1D-15. As the Court has concluded that Plaintiffs’ other, substantive claims against Doug Harris should be dismissed at summary judgment,
the Court further concludes that Plaintiffs’ claim for punitive damages must be
dismissed as well. Horne v. Cumberland Cty. Hosp. Sys., 228 N.C. App. 142, 150–51,
746 S.E.2d 13, 20 (2013) (affirming dismissal of punitive damages claim where all of
plaintiff’s substantive claims were dismissed). The Court therefore grants Doug
Harris’s motion as to Plaintiffs’ claim against him for punitive damages.
B. The Castle McCulloch Defendants’ Motion
125. The Court next turns to the Castle McCulloch Defendants’ Motion, which
requests summary judgment on all of Plaintiffs’ claims that the Castle McCulloch
Defendants contend are directed against them.
1. Fraud
126. The Castle McCulloch Defendants contend that they are subject to Count 8
of the Amended Consolidated Complaint, NFI’s fraud claim against Doug Harris, or
that the claim at least involves the Castle McCulloch Collateral. (Br. Supp. Castle
McCulloch Defs.’ Mot. Summ. J. 8, ECF No. 834.) As such, the Castle McCulloch
Defendants move for summary judgment seeking dismissal of Count 8. In support of
their motion, the Castle McCulloch Defendants make various arguments contending
that Plaintiffs and Arthur Nivison had knowledge of the Castle McCulloch Collateral,
that the Castle McCulloch Collateral was not concealed from Plaintiffs or Arthur
Nivison, and that the Castle McCulloch Collateral was never meant to secure NFI’s
loan. 127. Plaintiffs oppose the Castle McCulloch Defendants’ Motion and argue that
NFI has a proper fraud claim against the Castle McCulloch Defendants due to those
Defendants’ agency relationship with Doug Harris. Specifically, Plaintiffs contend
Doug Harris was acting on behalf of the Castle McCulloch Defendants when he
committed the acts giving rise to NFI’s fraud claim.
128. The parties’ arguments, however, presuppose that NFI has pleaded a fraud
claim against the Castle McCulloch Defendants. The Court’s review of the Amended
Consolidated Complaint reveals that NFI brought no such claim. In particular, and
contrary to the parties’ competing contentions, NFI’s fraud claim was not pleaded
against the Castle McCulloch Defendants directly or indirectly through agency
principles. Reading Plaintiffs’ pleading, Count 8 is asserted only against Doug
Harris, Dr. Epes, and Mark McDaniel and includes no allegation of an agency
relationship between Doug Harris and the Castle McCulloch Defendants, (Am.
Consolidated Compl. ¶¶ 168–81), even considering the minimal pleading standards
agency allegations must meet, Fox v. Killian, 102 N.C. App. 819, 821, 403 S.E.2d 546,
547 (1991) (noting that agency allegations must meet Rule 8(a)(1)’s requirements).
Consequently, the Court concludes that NFI has not brought a fraud or vicarious
liability claim against the Castle McCulloch Defendants.
129. Because NFI does not maintain a fraud or vicarious liability claim against
the Castle McCulloch Defendants, the Court cannot grant summary judgment in the
Castle McCulloch Defendants’ favor on any such claim. The Court therefore denies
the Castle McCulloch Defendants’ Motion as moot to the extent it requests summary judgment on Count 8 of the Amended Consolidated Complaint. The Court further
notes, however, that this ruling precludes NFI from contending at trial that it has
asserted a fraud or vicarious liability claim against the Castle McCulloch
Defendants.10
2. Plaintiffs’ Request for a Constructive Trust on the Confession of Judgment
130. The Castle McCulloch Defendants move for summary judgment on
Plaintiffs’ Count 14, which asks the Court to impose a constructive trust in favor of
NFI upon the Confession of Judgment, arguing that the Confession of Judgment is
void by its own terms.
131. In response, and in connection with their own motion for partial summary
judgment, Plaintiffs contend that the Court should now determine only whether NFI
is equitably entitled to possession of the Confession of Judgment, leaving any
arguments about its validity until later. As to possession, Plaintiffs argue that NFI
is entitled to have a constructive trust imposed on the Confession of Judgment
because the Confession of Judgment secured all four loans held by NewBridge, and
NFI provided money to satisfy the Settlement Agreement between NewBridge and
the Settlement Debtors. Plaintiffs further argue, however, that should the Court
wish to reach the issue of validity, the Confession of Judgment may still be
10 Had NFI pleaded a fraud claim against the Castle McCulloch Defendants based on Doug Harris’s alleged fraud, or should the Supreme Court disagree with the Court’s reading of the Amended Consolidated Complaint on appeal, the Court notes that its dismissal of NFI’s fraud claim against Doug Harris likewise requires dismissal of any fraud claim based on vicarious liability resulting from Doug Harris’s allegedly fraudulent conduct. Draughon v. Harnett Cty. Bd. of Educ., 166 N.C. App. 464, 469–70, 602 S.E.2d 721, 726 (2004) (“The general rule in North Carolina is that judgment on the merits in favor of the agent precludes any action against the principal where, as here, the principal’s liability is purely derivative.”). enforceable because a question of fact remains as to whether performance under the
Settlement Agreement was proper. Plaintiffs appear to believe that the Confession
of Judgment may still have some value because, according to Plaintiffs, NewBridge
actually received NFI’s $2.1 million payment on September 24, 2012—three days
after the September 21, 2012 deadline for payment in the Settlement Agreement—
with NFI paying interest on the additional days. (Mem. Law Opp’n Castle McCulloch
Defs.’ Mot. Summ. J. 3, ECF No. 884.) Plaintiffs contend that this question of fact
precludes summary judgment on the enforceability of the Confession of Judgment.
132. “A constructive trust ‘arises when one obtains the legal title to property in
violation of a duty he owes to another.’” Day v. Rasmussen, 177 N.C. App. 759, 762,
629 S.E.2d 912, 914 (2006) (quoting Fulp v. Fulp, 264 N.C. 20, 22, 140 S.E.2d 708,
711 (1965)).
A constructive trust is a fiction of equity, brought into operation to prevent unjust enrichment through the breach of some duty or other wrongdoing. It is an obligation or relationship imposed irrespective of the intent with which such party acquired the property, and in a well-nigh unlimited variety of situations.
Cury v. Mitchell, 202 N.C. App. 558, 560, 688 S.E.2d 825, 827 (2010) (quoting Roper
v. Edwards, 323 N.C. 461, 464, 373 S.E.2d 423, 425 (1988)). The common,
“indispensable element” of scenarios meriting a constructive trust is “some fraud,
breach of duty or other wrongdoing by the holder of the property, or by one under
whom he claims[.]” Id. By the fiction of the constructive trust, a plaintiff who has
been deprived of its property by such wrongdoing “wins an in personam order that
requires the defendant,” the constructive trustee, “to transfer specific property in some form to the plaintiff.” Roper, 323 N.C. at 464, 373 S.E.2d at 425 (quoting Dan
B. Dobbs, Remedies § 4.3, at 241 (1973)). The plaintiff may also be “entitled to any
new form his property takes by way of exchange for other assets.” Dobbs, supra § 9.4,
at 628.
133. “[T]he ultimate decision whether to impose a constructive trust as an
equitable remedy . . . rest[s] in the discretion of the trial court.” Variety Wholesalers,
Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 531, 723 S.E.2d 744, 752
(2012).
134. After a review of the record and the parties’ arguments, the Court concludes
Plaintiffs are correct that the Court need not resolve issues with respect to the
Confession of Judgment’s enforceability at summary judgment. This is because, on
the issue of possession, Plaintiffs are not entitled to the constructive trust they seek.
135. First, Plaintiffs no longer maintain a claim for fraud or breach of fiduciary
duty that concerns the Confession of Judgment, and a request for a constructive trust
may not stand on its own absent a cause of action for which it is an appropriate
remedy. Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *29 (N.C. Super.
Ct. Oct. 2, 2017) (dismissing plaintiffs request for a constructive trust because a
constructive trust is a remedy, not a cause of action, and plaintiffs’ underlying causes
of action had been dismissed), aff’d, 371 N.C. 579, 821 S.E.2d 711 (2018); see also
Weatherford v. Keenan, 128 N.C. App. 178, 179, 493 S.E.2d 812, 813 (1997)
(“Defendant errs when he suggests that a constructive trust is a cause of action rather than a remedy.”). This alone gives the Court sufficient reason to grant the Castle
McCulloch Defendants’ Motion.
136. However, as an additional reason for denying Plaintiffs their requested
relief, the Court further concludes that the undisputed facts of this case do not create
a situation meriting the imposition of a constructive trust over the Confession of
Judgment under applicable law.
137. The Confession of Judgment was executed as consideration for the
Settlement Agreement and served as a failsafe for NewBridge in the event the
Settlement Agreement was not performed. (Am. Consolidated Compl. Ex. Y ¶ 12
[hereinafter “Confession J.”], ECF No. 185.) The Settlement Debtors authorized
NewBridge to file the Confession of Judgment “[i]n the event, and only in the event,
the [Settlement Debtors] fail[ed] to make a payment to [NewBridge] as set forth in
the Settlement Agreement.” (Confession J. ¶ 12.) The undisputed evidence shows
that NewBridge received NFI’s funds and thereafter assigned the Loan Documents
to JDPW. (Am. Consolidated Compl. Exs. UU, VV, WW.) JDPW did not receive an
interest in, or possession of, the Confession of Judgment, nor did any of the
Settlement Debtors.
138. Instead, NewBridge retained the Confession of Judgment until its successor
moved the Court for permission to transfer possession of that document to the
Receiver. (Order Yadkin Bank’s Mot. Transfer Possession Confession J. ¶ 7, ECF No.
663.) NewBridge’s successor, Yadkin Bank, represented to the Court that it believed
it had no authority to file the Confession of Judgment due to the parties’ compliance with the terms of the Settlement Agreement. (Order Yadkin Bank’s Mot. Transfer
Possession Confession J. ¶ 3.) Yadkin Bank’s employee assigned to the relevant loan
file stated in affidavit testimony that the typical practice in such a situation would
be to return a confession of judgment to the debtor or destroy the document. (Cassidy
Aff. ¶ 4, ECF No. 377.) The employee stated she was “unable to determine why the
Confession of Judgment at issue in this lawsuit was not destroyed or returned to the
persons signing it.” (Cassidy Aff. ¶ 4.)
139. The Confession of Judgment was not part of the bargain between JDPW and
NFI and was never obtained by any party through some change in form of the $2.1
million NFI lent. Thus, neither the Receiver nor NewBridge/Yadkin Bank became
holders of the Confession of Judgment as the result of “some fraud, breach of duty or
other wrongdoing[.]” See Cury, 202 N.C. App. at 561, 688 S.E.2d at 827 (quoting
Roper, 323 N.C. at 464, 373 S.E.2d at 425). Because such fraud, breach of duty, or
other wrongdoing is the “indispensable element” common to situations where a
constructive trust may be imposed, the absence of such wrongdoing leads the Court
to conclude that a constructive trust in NFI’s favor is not available on the undisputed
record here. See Roper, 323 N.C. at 464, 373 S.E.2d at 425.
140. The case Plaintiffs cite as their primary support for imposing an equitable
trust over the Confession of Judgment is Hoffman v. Mozeley, 247 N.C. 121, 100
S.E.2d 243 (1957). (Mem. Law Supp. Pls.’ Mot. Partial Summ. J. as to Counts 14, 15,
16, 27, 28, and 30, at 5 [hereinafter “Pls.’ Partial Summ. J. Br.”], ECF No. 827.) The
equitable trust referenced in this case is not a constructive trust but a purchase- money resulting trust. Hoffman, 247 N.C. at 123, 100 S.E.2d at 245 (“This action is
to compel conveyance of the remaining portion upon the ground that a resulting trust
in the property existed in favor of the plaintiffs by reason of their having furnished
the purchase money.”). NFI is not entitled to possession of the Confession of
Judgment under this equitable remedy either.
141. “A resulting trust arises when a person becomes invested with the title
to . . . property under circumstances which in equity obligate him to hold the title and
to exercise his ownership for the benefit of another.” Dillingham v. Dillingham, 202
N.C. App. 196, 201, 688 S.E.2d 499, 504 (2010) (quoting Mims v. Mims, 305 N.C. 41,
46, 286 S.E.2d 779, 783 (1982)). “The classic example of a resulting trust is the
purchase-money resulting trust,” i.e., a resulting trust imposed where the plaintiff
supplied the purchase money used by defendant to acquire property. Mims, 305 N.C.
at 46, 286 S.E.2d at 784 (quoting Cline v. Cline, 297 N.C. 336, 344, 255 S.E.2d 399,
404 (1979)). “The trust is created in order to effectuate what the law presumes to
have been the intention of the parties in these circumstances—that the person to
whom the land was conveyed hold[s] it as trustee for the person who supplied the
purchase money.” Id. While often discussed in the context of real property, our
Supreme Court has previously stated that “[t]he principle of resulting trusts applies
alike to transactions relating to both real and personal property.” Bullman v. Edney,
232 N.C. 465, 468, 61 S.E.2d 338, 340 (1950) (citing 54 Am. Jur. Trusts § 203).
142. Like with Plaintiffs’ request for a constructive trust, the facts of record here
do not permit the imposition of a resulting trust. The undisputed facts show that no party obtained title to the Confession of Judgment using the purchase money NFI
lent. The Court thus concludes that a resulting trust cannot be imposed on the
Confession of Judgment as a matter of law on the undisputed facts.
143. For each of these reasons, the Court will grant the Castle McCulloch
Defendants’ Motion to the extent it requests summary judgment on Count 14 of
Plaintiffs’ Amended Consolidated Complaint.
3. Equitable Subrogation and Possession of the Castle McCulloch Collateral
144. The Castle McCulloch Defendants next move for summary judgment on
Plaintiffs’ Counts 16, 26, 27, 28, and 30.11 Plaintiffs’ arguments supporting these
claims draw upon the same equitable theory of relief, and the Court discusses them
together.
145. Plaintiffs’ Count 16 seeks a declaratory judgment holding that NFI has a
valid and enforceable ownership interest in the Castle McCulloch Collateral listed in
the Bill of Sale and Assignment of Loan Documents executed by NewBridge in favor
of JDPW. Plaintiffs’ Counts 26 and 27 asks the Court to enter a temporary
restraining order, a preliminary injunction, and a permanent injunction restraining
and enjoining Defendants from “encumbering, disposing of, pledging, assigning,
using, conveying, selling, moving, transporting, or otherwise impairing any of the
11 In their brief, the Castle McCulloch Defendants state that their motion requests summary judgment on “Count Twenty-Nine – Judicial Assignment.” (Br. Supp. Castle McCulloch Defs.’ Mot. Summ. J. 9.) The twenty-ninth count of Plaintiffs’ Amended Consolidated Complaint deals with a request to pierce the corporate veils of CCSEA and other CCSEA- related entities. (Am. Consolidated Compl. ¶ 362.) Count 30 contains Plaintiffs’ judicial assignment claim. (Am. Consolidated Compl. ¶ 366.) Castle McCulloch Collateral[.]” (Am. Consolidated Compl. ¶ 340; see Am.
Consolidated Compl. ¶ 335.) Plaintiffs’ Count 28 seeks a judgment declaring that
NFI shall be deemed the owner of all collateral previously held by NewBridge for the
CCSEA and Castle McCulloch Loans and that NFI holds the right to enforce the
Confession of Judgment, the Castle McCulloch Deed of Trust, and the Assignment of
Rents and Profits. (Am. Consolidated Compl. ¶ 352.) Plaintiffs’ Count 30 seeks “a
judicial assignment of all of the NewBridge Bank Collateral not already assigned to
[NFI], as well as the Confession of Judgment[.]”12 (Am. Consolidated Compl. ¶ 366.)
Plaintiffs rely on the doctrine of equitable subrogation as the basis for all five of these
claims. (Am. Consolidated Compl. ¶¶ 252, 342; Pls.’ Partial Summ. J. Br. 11, 13, 18–
19.)
146. The Castle McCulloch Defendants assert multiple arguments against
Plaintiffs’ equitable-subrogation-based claims. Among these, the Castle McCulloch
Defendants claim that NFI is not equitably subrogated to NewBridge’s rights to the
Castle McCulloch Collateral because the parties never intended for the Castle
McCulloch Collateral to serve as security for NFI’s loan to JDPW. The Castle
12 Plaintiffs’ Counts 28 and 30 seek relief concerning the ownership of both the CCSEA Collateral and the Castle McCulloch Collateral. (Am. Consolidated Compl. ¶¶ 343, 366.) However, on January 9, 2015, prior to this case being assigned to the undersigned and the consolidation of Plaintiffs’ lawsuits, the Honorable Howard E. Manning, Jr. entered partial summary judgment in favor of NFI and awarded NFI possession of the CCSEA Collateral based on the terms of the Assignment Agreement. (See Partial Summ. J. Order 1–6.) The issue of the rightful ownership of the CCSEA Collateral is therefore settled, see Smithwick v. Crutchfield, 87 N.C. App. 374, 376, 361 S.E.2d 111, 113 (1987) (“[O]rdinarily one judge may not modify, overrule, or change the judgment of another Superior Court judge previously made in the same action.” (quoting Calloway v. Ford Motor Co., 281 N.C. 496, 501, 189 S.E.2d 484, 488 (1972))), and the Court denies the Castle McCulloch Defendants’ Motion as moot to the extent it seeks a ruling on that issue. McCulloch Defendants argue that the parties intended only the CCSEA Collateral to
secure NFI’s loan and that NFI agreed to lend its money to JDPW knowing that its
money would also be used to purchase the Castle McCulloch Loan and Loan
Documents. The Castle McCulloch Defendants therefore characterize Plaintiffs’
appeal to equity as a clandestine attempt to “re-write what [Plaintiffs] recognize now
as a bad business deal.” (Br. Supp. Castle McCulloch Defs.’ Mot. Summ. J. 11.)
147. Plaintiffs argue, both in response to the Castle McCulloch Defendants’
Motion and as part of their own motion for partial summary judgment, that their
claims based upon equitable subrogation are proper because NFI advanced the funds
necessary for JDPW to complete the transaction contemplated in the Settlement
Agreement and purchase the Castle McCulloch Loan Documents from NewBridge.
Plaintiffs contend that there was an understanding that the money furnished would
be applied to the CCSEA Loans and Castle McCulloch Loan held by NewBridge and
that NFI lent the money to JDPW in order to protect its own interests in the
Battleground Property. Particularly, Plaintiffs assert that if the Confession of
Judgment was filed by NewBridge against the Settlement Debtors, NFI would likely
not have recovered on the deed of trust and purchase money note executed by MMRE
on the Battleground Property. Under these circumstances, Plaintiffs contend NFI
should be equitably subrogated to the rights of NewBridge in all of the collateral
securing the CCSEA and Castle McCulloch Loans. 148. Within the last several years, the North Carolina Court of Appeals has
restated the general principles underlying the doctrine of equitable subrogation in
North Carolina:
Equitable subrogation is a general rule [that] one who furnishes money for the purpose of paying off an encumbrance on real or personal property, at the instance either of the owner of the property or of the holder of the encumbrance, either upon the express understanding or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, will be subrogated to the rights of the prior lienholder as against the holder of an intervening lien, of which the lender was excusably ignorant.
Bank of N.Y. Mellon v. Withers, 240 N.C. App. 300, 302, 771 S.E.2d 762, 764 (2015)
(quoting Peek v. Wachovia Bank & Tr. Co., 242 N.C. 1, 15, 86 S.E.2d 745, 755 (1955)).
The doctrine requires “both that the money should have been advanced for the
purpose of discharging the prior encumbrance, and that [the money] should have
actually been so applied.” Id. at 302–03, 771 S.E.2d at 764–65 (quoting Peek, 242
N.C. at 15–16, 86 S.E.2d at 756).
149. Equitable subrogation seeks to do “complete, essential, and perfect justice
between . . . parties without regard to form, and its object is the prevention of
injustice. Id. at 302, 771 S.E.2d at 764 (quoting Journal Publ’g Co. v. Barber, 165
N.C. 478, 487–88, 81 S.E. 694, 698 (1914)). “When the equities of a case favor
equitable subrogation, the party in whose favor [the right of subrogation] exists is
entitled to all of the remedies and security which the creditor had against the person
whose debt was paid.” Am. Gen. Fin. Servs., Inc. v. Barnes, 175 N.C. App. 406, 409,
623 S.E.2d 617, 619 (2006) (internal quotation marks omitted). 150. After careful consideration, the Court concludes that the remedy of
equitable subrogation is not available on the undisputed facts of record here. As the
Supreme Court of North Carolina has noted, circumstances favoring equitable
subrogation arise when a party “furnishes money for the purpose of paying off an
encumbrance on real or personal property . . . either upon the express understanding
or under circumstances from which an understanding will be implied, that the
advance made is to be secured by a first lien on the property[.]” Peek, 242 N.C. at 15,
86 S.E.2d at 755 (emphasis added). At summary judgment, Plaintiffs have not
forecast evidence establishing a genuine issue of material fact as to the existence of
such an express understanding or circumstances from which such an understanding
can be implied.
151. To begin with, there is no evidence of an express understanding that NFI
would be secured by a lien on the Castle McCulloch Collateral. It appears beyond
dispute that NFI’s money was used to fulfill the Settlement Agreement with
NewBridge and facilitate JDPW’s purchase of the CCSEA and Castle McCulloch
Loans and Loan Documents. The record further demonstrates, despite Plaintiffs’
arguments to the contrary, that Arthur Nivison and NFI were aware that JDPW
would be purchasing the Castle McCulloch Loan with NFI’s $2.1 million loan and
that the written agreement with JDPW did not contemplate the assignment of any
assets or debts linked to the Castle McCulloch Defendants.
152. Plaintiffs may allege that they were unaware that NFI’s funds would be
used to satisfy the Castle McCulloch Loan, (see Am. Consolidated Compl. ¶ 59 (“None of these documents made any disclosure to Tom Harper . . . that Plaintiff NFI’s funds
were going to satisfy the Castle McCulloch Loan[.]”), but that allegation is directly
contradicted by the undisputed record, including certain exhibits to Plaintiffs’
Amended Consolidated Complaint.13 For example, on August 17, 2012 and August
22, 2012, Arthur Nivison signed memos indicating that he was aware that NFI was
lending JDPW $2.1 million “to enable them to pay off the loan from NewBridge Bank
to Castle McCulloch, Central Carolina Surgical Eye Associates, et al.” (Am.
Consolidated Compl. Ex. DDD (emphasis added); see also Am. Consolidated Compl.
Ex. CCC, ECF No. 193.)
153. Plaintiffs also assert that JDPW’s purchase of the Castle McCulloch Loan
Documents or interests in the Castle McCulloch Collateral was concealed from
Plaintiffs, (see Am. Consolidated Compl. ¶ 178 (“Until this lawsuit was filed and
discovery conducted . . . Plaintiff NFI was unaware that [NewBridge] had assigned
the Castle McCulloch Loan Documents to [JDPW].”); see Pls.’ Partial Summ. J. Br.
10), but that allegation is also contradicted by the undisputed record and Plaintiffs’
own statement of facts at summary judgment. Specifically, on September 21, 2012,
before Plaintiffs contend the enforceable version of the Assignment Agreement was
finalized, NFI’s counsel, Tom Harper, received an e-mail informing him that “all ccsea
and castle mcculloch loan documents” would be transferred to JDPW once NewBridge
was paid. (Am. Consolidated Compl. Ex. RR (emphasis added).) Plaintiffs admit this
13 That allegation is also at odds with Plaintiffs’ own arguments in favor of their equitable subrogation claims now. (Mem. Law Opp’n Castle McCulloch Defs.’ Mot. Summ. J. 7 (“[T]he evidence reflects that there was an understanding that the money was furnished by NFI for the purpose of being applied to all four loans.” (emphasis added).) fact in their own brief supporting their motion for partial summary judgment. (Pls.’
Partial Summ. J. Br. 4 (“On the date of closing, counsel for NewBridge Bank advised
counsel for the Plaintiffs that upon receipt of $2,001,834.09, NewBridge Bank would
transfer all CCSEA and Castle McCulloch loan documents to JDPW Trust.”).)
154. Strikingly, despite this evidence that Arthur Nivison and Plaintiffs were
aware that JDPW would be purchasing the Castle McCulloch Loan and Loan
Documents with NFI’s funds, the documents before the Court concerning the
agreement with JDPW make no reference to the Castle McCulloch Collateral or Loan
Documents. Regardless of which version of the agreement the Court examines, the
language agreed to by the parties clearly states that JDPW would assign all “right,
title, and interest to the security interest in equipment and personal property”
mentioned in the agreement to NFI. (Corrected Ex. KK; Am. Consolidated Compl.
Exs. QQ, TT.) This “equipment” and “personal property” is identified as “all the
equipment and other personal property owned by HUTA Leasing Company,
Southeastern Eye Management, Inc., and Central Carolina Surgical Eye Associates,
P.A.” (Corrected Ex. KK; Am. Consolidated Compl. Exs. QQ, TT.) This statement, in
combination with the Assignment of Security Instruments Doug Harris forwarded to
Tom Harper, identified the collateral that JDPW would assign to NFI in exchange for
the $2.1 million loan. (Corrected Ex. KK; Partial Summ. J. Order 1–2.) Documents
related to interests in real property or the other Castle McCulloch Collateral were
not among the collateral mentioned in the Assignment Agreement or listed in the
Assignment of Security Instruments. This is true even of the amended version of the Assignment Agreement Plaintiffs present. (Am. Consolidated Compl. Ex. LL, ECF
No. 189.)
155. In short, even when viewed in the light most favorable to Plaintiffs, the
undisputed evidence presented at summary judgment shows that Plaintiffs and
Arthur Nivison were aware that JDPW planned to purchase the Castle McCulloch
Loan, the Loan Documents securing that loan, and other interests in the Castle
McCulloch Collateral from NewBridge with NFI’s funds. The undisputed record also
shows that the security for this loan set out in the parties’ negotiated agreement did
not include the Castle McCulloch Loan Documents or Collateral.
156. Plaintiffs have also presented no evidence of any other written or oral
agreement by JDPW to assign an interest in the Castle McCulloch Collateral to NFI
in exchange for the $2.1 million loan. At most, Plaintiffs point to vague statements
concerning the deal to support their arguments—for example, Arthur Nivison’s own
memo stating “It is acknowledged that the security for the loan is being purchased by
JDPW Trust and JDPW Trust has agreed to sign all documents necessary to convey
a first lien security interest in said property in favor of the [NFI],” (Am. Consolidated
Compl. Ex. DDD)—but these statements do not mention the Castle McCulloch
Collateral or support Plaintiffs’ argument by implication. Instead, such statements
simply note the origin of whatever collateral would serve as security for NFI’s loan.14
14 As with NFI’s fraud claim, Plaintiffs also cite multiple e-mails and other documents that Doug Harris exchanged with third parties and contend that these documents demonstrate that Doug Harris led counsel for other parties to believe that JDPW Trust would be assigning all interests in the Castle McCulloch Collateral to NFI. The Court has reviewed these documents and concludes that no such inference can be reasonably drawn from them. Here again, to read these statements as Plaintiffs do, a factfinder must first assume
the conclusion Plaintiffs seek to prove: that the Castle McCulloch Collateral was part
of the “security for the loan.” Plaintiffs have not presented evidence supporting that
assumption.
157. Plaintiffs further attempt to create an issue of fact concerning an oral
agreement to secure the $2.1 million loan with the Castle McCulloch Collateral by
the submission of Arthur Nivison’s Second Affidavit. (Nivison Aff. ¶ 17 (“Doug Harris
had represented both to me and to my attorney that NewBridge Bank would assign
all of the loan documents associated with the Castle McCulloch Loan and the CCSEA
Loans to JDPW . . . and that JDPW Trust would re-assign those same documents to
NFI at closing.”).) However, for the reasons already explained in connection with the
Court’s ruling on NFI’s fraud claim, the Court concludes Plaintiffs cannot rely on this
post-deposition affidavit to create a genuine issue of material fact about such
representations, agreements, or promises. See Pinczkowski, 153 N.C. App. at 440–
41, 571 S.E.2d at 7.
158. In sum, Plaintiffs have not forecast substantial evidence from which a
reasonable factfinder could infer that JDPW and NFI had a mutual understanding
that NFI’s loan was made in exchange for a lien on the Castle McCulloch Collateral.
The entirety of the evidence demonstrates that NFI knew which notes and collateral
JDPW was purchasing with NFI’s loan and agreed to make the loan in exchange for
security interests in “equipment and other personal property owned by HUTA
Leasing Company, Southeastern Eye Management, Inc., and Central Carolina Surgical Eye Associates, P.A.” (Corrected Ex. KK; Am. Consolidated Compl. Exs. QQ,
TT.) The Castle McCulloch Loan Documents and Collateral were simply not part of
the agreed-upon security.
159. Furthermore, the Court concludes that the record does not demonstrate
“circumstances from which an understanding” that NFI’s loan would be secured by a
lien on the Castle McCulloch Collateral should “be implied.” Peek, 242 N.C. at 15, 86
S.E.2d at 755. Instead, the undisputed record shows that NFI was given a full
opportunity to negotiate an agreement with JDPW for security for its $2.1 million
loan and that NFI did in fact obtain security for that loan.
160. The parties have not provided, and the Court’s research has not uncovered,
any controlling or persuasive case law discussing the interaction between express
agreements among parties and equitable subrogation in the circumstances presented
here. On the one hand, the broad equitable power recognized in the doctrine of
equitable subrogation is well established, and, as Plaintiffs note, the doctrine is
meant to operate independent of contractual principles. See N.C. Ins. Guar. Ass’n v.
Century Indem. Co., 115 N.C. App. 175, 190, 444 S.E.2d 464, 473 (1994). On the other
hand, allowing NFI to step into the shoes of NewBridge in these circumstances to
obtain the same secured position previously held by NewBridge with regard to the
Castle McCulloch Collateral seems akin to adding terms to the contract negotiated
between Plaintiffs and JDPW. This State’s strong support for a party’s constitutional
right to contract cautions against such an endeavor. Hlasnick v. Federated Mut. Ins.
Co., 353 N.C. 240, 243, 539 S.E.2d 274, 276 (2000) (“[O]ur state’s legal landscape recognizes that, unless contrary to public policy or prohibited by statute, freedom of
contract is a fundamental constitutional right.”). In this case, a review of the
principles underlying the doctrine of equitable subrogation and the undisputed facts
leads the Court to conclude that it should not apply the doctrine to alter the outcome
of the parties’ express agreement.
161. As the Washington Court of Appeals recently articulated, equitable
subrogation is intended to prevent a windfall to the debtor and provide a path to
security for a third party who pays a lender:
The doctrine allows an outside party to step into the lender’s shoes and receive the benefit of the outstanding debt, without an agreement or assignment of rights among the outside party, the lender, or the debtor. In other words, if a third party pays the debtor’s outstanding loan to the lender without any formal agreement among the parties, then equity may permit the third party to take over the lender’s interest and receive the debtor’s payments. The rationale for subrogation is to prevent the unearned windfall that would otherwise accrue to the debtor, who could deny the obligation to make further payments on the debt because it has been satisfied by another to whom the debtor owed no obligation by reason of assignment of rights or other agreement.
City of Kent v. Bel Air & Briney, 358 P.3d 1249, 1252 (Wash. App. Ct. 2015) (citations
omitted). The doctrine also stands to prevent the third-party lender, having paid the
prior lender, from losing his investment to “the holder of an intervening lien, of which
the [third-party] lender was excusably ignorant.” Bank of N.Y. Mellon, 240 N.C. App.
at 302, 771 S.E.2d at 764 (quoting Peek, 242 N.C. at 15, 86S.E.2d at 755).
162. The goal of equitable subrogation is to do “complete, essential, and perfect
justice between . . . parties,” Bank of N.Y. Mellon, 240 N.C. App. at 302, 771 S.E.2d
at 764 (quoting Journal Publ’g Co., 165 N.C. at 487–88, 81 S.E. at 698), not give parties a do-over when they feel they did not negotiate a favorable deal, (see Nivison
Dep. II, at 89:9–22 (Q: Was that another mistake on your part? A: In light of the
current situation, it probably was[.]”).) Indeed, courts of this State have long
recognized that “equity will not afford relief to those . . . whose condition is traceable
to that want of diligence which may fairly be expected from a reasonable and prudent
man,” Butler v. Butler, 239 N.C. App. 1, 7–8, 768 S.E.2d 332, 337 (2015), and this rule
is applicable to the doctrine of equitable subrogation in particular, Wallace v. Benner,
200 N.C. 124, 132, 156 S.E. 795, 799 (1931) (stating that equitable subrogation is not
available where “the party claiming relief is guilty of culpable negligence”).
163. Viewing the evidence in the light most favorable to Plaintiffs, the
undisputed record before the Court shows that NFI, through Arthur Nivison, was
aware that it would be lending funds to allow for the purchase of the Castle
McCulloch Loan and the CCSEA Loans and that NFI negotiated the terms of the
Assignment Agreement with that knowledge. The Assignment Agreement provided
that NFI’s loan would be secured by an assignment of interests in certain collateral
that did not include the Castle McCulloch Collateral. The record contains no evidence
that NFI was in any way obstructed from conducting its own due diligence on the
collateral held by NewBridge for these loans. This is not a situation in which NFI
lent money without receiving an agreement or assignment of rights to secure its loan
or where NFI is threatened by an intervening lien of which it was excusably ignorant.
164. As such, the Court concludes that the Castle McCulloch Defendants’ Motion
should be granted as to Counts 16, 26, 27, 28, and 30 to the extent those claims seek to obtain rights in the Castle McCulloch Collateral through the doctrine of equitable
subrogation.15 For these same reasons, the Court also concludes that the Castle
McCulloch Defendants’ Motion should be granted as to Counts 16, 26, 27, 28, and 30
to the extent those claims seek relief concerning the Confession of Judgment.
4. Breach of Contract and Constructive Trust as to the Castle McCulloch Collateral
165. The Castle McCulloch Defendants next move for summary judgment on
Count 13 of Plaintiffs’ Amended Consolidated Complaint, a claim titled “Possession
of Castle McCulloch Collateral Breach of Contract and Constructive Trust.” (Am.
Consolidated Compl. 29.) This claim alleges that Doug Harris and JDPW breached
their agreement with NFI by failing to deliver the Castle McCulloch Collateral to
NFI. NFI appears to request specific performance to remedy the alleged breach. (Am.
Consolidated Compl. ¶ 235 (“In order to obtain the benefit of its bargain, Plaintiff is
entitled to possession of all of the Castle McCulloch Collateral.”).) In the alternative,
Count 13 asserts that NFI is entitled to have a constructive trust imposed upon the
Castle McCulloch Collateral in NFI’s favor. (Am. Consolidated Compl. ¶ 235.)
166. In support of their motion, the Castle McCulloch Defendants argue that the
Assignment Agreement did not concern the Castle McCulloch Collateral and that
NFI’s request for a constructive trust is not supported by the undisputed facts of this
case. The Court agrees.
15 The Court’s ruling herein is addressed solely to the undisputed facts of this case and does not endorse a broader rule that equitable subrogation is not available due to the existence of a contract between the parties. 167. As previously explained, Plaintiffs have put forward no evidence at
summary judgment of an agreement to assign any interests in the Castle McCulloch
Collateral to NFI. The Assignment Agreement did not cover interests in real property
or mention any other form of collateral owned by the Castle McCulloch Defendants.
(See, e.g., Amended Consolidated Compl. Ex. TT.) Instead, the agreement expressly
noted three entities whose equipment and personal property would serve as security
for the $2.1 million loan to JDPW. (See, e.g., Amended Consolidated Compl. Ex. TT.)
None of these entities was a Castle McCulloch Defendant. Thus, no genuine issue of
material fact remains as to NFI’s breach of contract claim contained in Count 13, and
summary judgment in the Castle McCulloch Defendants’ favor is appropriate as a
matter of law.
168. Further, as to NFI’s request that the Court impose a constructive trust upon
the Castle McCulloch Collateral, the Court concludes that such a remedy is
inapposite here. Plaintiffs have no remaining fraud claim or claim for breach of
fiduciary duty that relates to the Castle McCulloch Collateral, and thus no remaining
cause of action for which a constructive trust would prove an appropriate remedy.
See Weatherford, 128 N.C. App. at 179, 493 S.E.2d at 813; Azure Dolphin, LLC, 2017
NCBC LEXIS 90, at *29. Accordingly, the Court concludes that no genuine issue of
material fact remains as to this aspect of Plaintiffs’ Count 13 and that summary
judgment in the Castle McCulloch Defendants’ favor is appropriate on NFI’s request
for a constructive trust on the Castle McCulloch Collateral. 5. Plaintiffs’ Claim for Unjust Enrichment
169. The Castle McCulloch Defendants also move for summary judgment on
Count 33 of the Amended Consolidated Complaint, NFI’s claim for unjust
enrichment. In support of their motion, the Castle McCulloch Defendants argue that
NFI’s claim for unjust enrichment against them should be dismissed because NFI
lent the funds necessary for JDPW to buy the Castle McCulloch Loan and Loan
Documents under a contract, i.e., the Assignment Agreement. Because any benefit
to the Castle McCulloch Defendants resulted from JDPW’s use of money lent under
a contract, and because NFI has already pursued and been assigned the CCSEA
Collateral under that contract, the Castle McCulloch Defendants argue that NFI
cannot continue to pursue an unjust enrichment claim against them.
170. Plaintiffs counter by arguing that the Castle McCulloch Defendants received
a benefit from NFI’s loan to JDPW because that loan allowed JDPW to purchase the
Castle McCulloch Defendants’ debt from NewBridge and allowed Doug Harris to
effectively release the Castle McCulloch Defendants from that debt at some point
thereafter. Plaintiffs also argue that NFI’s decision to pursue JDPW for defaulting
on NFI’s loan and the pre-lawsuit-consolidation award of the CCSEA Collateral to
NFI under the Assignment Agreement do not preclude NFI from bringing a claim for
unjust enrichment against the Castle McCulloch Defendants, citing Rule 8(e)(1)’s
authorization of alternative claims. (Mem. Law Opp’n Castle McCulloch Defs.’ Mot.
Summ. J. 15.) 171. “The doctrine of unjust enrichment was devised by equity to exact the return
of, or payment for, benefits received under circumstances where it would be unfair
for the recipient to retain them without the contributor being repaid or compensated.”
Bandy v. Gibson, 2017 NCBC LEXIS 66, at *9 (N.C. Super. Ct. July 26, 2017) (quoting
Collins v. Davis, 68 N.C. App. 588, 591, 315 S.E.2d 759, 761 (1984)). A claim for
unjust enrichment may stand where a plaintiff confers property or benefits on a
defendant “under circumstances which give rise to a legal or equitable obligation on
the part of the defendant to account for the benefits received,” and the defendant fails
to make restitution for the property or benefits. Norman v. Nash Johnson & Sons’
Farms, Inc., 140 N.C. App. 390, 417, 537 S.E.2d 248, 266 (2000) (citing Adams v.
Moore, 96 N.C. App. 359, 362, 385 S.E.2d 799, 801 (1989)). The claim “is neither in
tort nor contract but is described as a claim in quasi contract or a contract implied in
law.” Booe v. Shadrick, 322 N.C. 567, 570, 369 S.E.2d 554, 556 (1988). Where there
is a contract between the parties, however, the contract governs a plaintiff’s remedies,
“and the law will not imply a contract.” Id. (citing Vetco Concrete Co. v. Troy Lumber
Co., 256 N.C. 709, 124 S.E.2d 905 (1962)).
172. As an initial point, the Court notes that a claim for unjust enrichment in
North Carolina does not require the conveyance of a direct benefit. Bandy, 2017
NCBC LEXIS 66, at *14–16 (citing Embree Constr. Grp., Inc. v. Rafcor, Inc., 330 N.C.
487, 495–97, 411 S.E.2d 916, 922–23 (1992)). Thus, the success or failure of NFI’s
claim does not turn on whether any benefit to the Castle McCulloch Defendants
should be classified as indirect rather than direct. 173. The Court also notes that Plaintiffs’ argument about pleading in the
alternative under the North Carolina Rules of Civil Procedure is correct. In general,
alternative claims may be asserted in the same action, including claims for breach of
contract and unjust enrichment. James River Equip., Inc. v. Mecklenburg Utils., Inc.,
179 N.C. App. 414, 419, 634 S.E.2d 557, 560 (2006) (explaining that the rules “permit
pleading in the alternative and that theories may be pursued in the complaint even
if plaintiff may not ultimately be able to prevail on both” (internal quotation marks
omitted)); Bandy, 2017 NCBC LEXIS 66, at *11. Here, however, Plaintiffs’ contention
that they still possess the freedom to pursue alternative claims is incorrect.
174. NFI has already received partial summary judgment on the issue of whether
a valid and enforceable agreement existed that provided for its loan to JDPW and
gave it a right to recover certain collateral held by JDPW. Judge Manning’s January
9, 2015 order found that no genuine issue of material fact existed as to NFI’s second
claim in its pre-consolidation lawsuit and concluded that, under the Assignment
Agreement, NFI was entitled to immediate enforcement of its security interests in
the CCSEA Collateral as a result of JDPW’s default. (Partial Summ. J. Order 1–2.)
The existence of an express contract governing NFI’s loan to JPDW is no longer an
alternative theory advanced by Plaintiffs but an undisputed fact for the Court’s
purposes here. See Carr v. Great Lakes Carbon Corp., 49 N.C. App. 631, 633, 272
S.E.2d 374, 376 (1980) (“[W]hen the judge rules as a matter of law, not acting in his
discretion, the ruling finally determines the rights of the parties unless reversed upon
appellate review.”). 175. Because it has been determined that NFI’s $2.1 million loan was lent
pursuant to an express agreement, NFI may not pursue a claim in quasi contract for
benefits that loan may have conferred. Thus, contrary to Plaintiffs’ assertions, NFI
cannot maintain a claim against the Castle McCulloch Defendants for unjust
enrichment, and summary judgment will be granted in the Castle McCulloch
Defendants’ favor on this claim. See Delta Envtl. Consultants, Inc. v. Wysong & Miles
Co., 132 N.C. App. 160, 165, 510 S.E.2d 690, 694 (1999) (“Here, the first and second
contracts govern the relationship between the parties with regard to payment and
services rendered. Thus, an action for breach of contract, rather than unjust
enrichment, is the proper cause of action.”).
176. For the same reasons stated above, the Court also concludes that summary
judgment is appropriately granted in NSITE’s favor on NFI’s claim for unjust
enrichment. See N.C. Coastal Motor Line, Inc. v. Everette Truck Line, Inc., 77 N.C.
App. 149, 151, 334 S.E.2d 499, 501 (1985) (“Rule 56 does not require that a party
move for summary judgment in order to be entitled to it.”); Greenway v. N.C. Farm
Bureau Mut. Ins. Co., 35 N.C. App. 308, 314–15, 241 S.E.2d 339, 343 (1978) (same);
see also N.C. R. Civ. P. 56(c) (“[J]udgment sought shall be rendered forthwith 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.” (emphasis added)). 6. Plaintiffs’ Demand for Inventory and Inspection
177. The Castle McCulloch Defendants finally move for summary judgment on
Count 34 of Plaintiffs’ Amended Consolidated Complaint, which contains a demand
for inventory and inspection. Plaintiffs demand the opportunity to inspect the Castle
McCulloch Collateral and all other items in which Plaintiffs contend they have been
assigned a security interest. (Am. Consolidated Compl. ¶ 382.)
178. For the reasons discussed above, the Court concludes that, to the extent
Plaintiffs seek inspection of the Castle McCulloch Collateral or Loan Documents, or
the Confession of Judgment, the Castle McCulloch Defendants’ Motion for Summary
Judgment should be granted. To the extent Plaintiffs seek inspection of the CCSEA
Collateral, the Castle McCulloch Defendants’ Motion is denied as moot.
C. Plaintiffs’ Motion for Partial Summary Judgment
179. Plaintiffs move for partial summary judgment on Counts 14, 15, 16, 27, 28,
and 30 of their Amended Consolidated Complaint.
180. As the Court has already concluded that summary judgment is
appropriately granted in the Castle McCulloch Defendants’ favor on Counts 14, 16,
and 27, the Court denies Plaintiffs’ motion with regard to those claims. The Court
has also concluded that summary judgment is appropriately granted in the Castle
McCulloch Defendants’ favor on Counts 28 and 30 to the extent those claims seek
relief with regard to the Castle McCulloch Collateral or the Confession of Judgment,
and thus the Court denies Plaintiffs’ motion as to Counts 28 and 30 to the same
extent. Accordingly, the Court turns to examine Plaintiffs’ request for partial summary judgment on Count 15 as well as on Counts 28 and 30 to the extent they
seek relief concerning the CCSEA Collateral.
181. Count 15 of Plaintiffs’ Amended Consolidated Complaint petitions the Court
for a judgment declaring that the CCSEA Collateral is judicially assigned to NFI
“such that [NFI] has a valid and enforceable security interest in all of the collateral
described in the Assignment of Security Instruments which entitles it to possession
of the CCSEA Collateral due to Defendant JDPW Trust’s default under the JDPW
Trust Promissory Note.” (Am. Consolidated Compl. ¶ 247.) In connection with this
claim, Plaintiffs also note that “NFI has been granted a temporary restraining order
regarding the CCSEA Collateral and has been awarded a judgment for possession of
the CCSEA Collateral.” (Am. Consolidated Compl. ¶ 246.) Plaintiffs assert that these
orders are binding and “constitute the law of the case.” (Am. Consolidated Compl.
¶ 246.)
182. Judge Manning’s January 9, 2015 order granted NFI partial summary
judgment on the second count of its original complaint, a claim requesting delivery
and possession of the CCSEA Collateral. (Compl. ¶¶ 19–24 (Wake 14 CVS 9564).)
Judge Manning awarded NFI possession of the CCSEA Collateral based on the terms
of the Assignment Agreement, the same relief requested by Count 15. (Partial Summ.
J. Order 2.) Specifically, Judge Manning’s order stated “Plaintiff shall have and
recover . . . possession of the NewBridge Bank Collateral”—the term used by that
order to refer to the CCSEA Collateral—“and ownership of all of the rights, title, and
interest formerly held by NewBridge Bank [in that collateral.]” (Partial Summ. J. Order 2.) The order further stated that NFI was “judicially assigned all of the rights,
powers, and benefits conferred upon NewBridge Bank by the” CCSEA Loan
Documents, and that NFI was “deemed to be a holder in due course of said documents,
the owner of said documents, and ha[d] the right to enforce the provisions of said
documents as the judicial assignee of NewBridge Bank.” (Partial Summ. J. Order 3.)
183. Judge Manning’s ruling on NFI’s motion for partial summary judgment thus
granted NFI the relief it seeks in Count 15 of the Amended Consolidated Complaint.
The binding nature of that order on this proceeding is not governed by the law of the
case doctrine, but rather by the rule that one Superior Court judge may not ordinarily
“modify, overrule, or change the judgment of another Superior Court judge previously
made in the same action.” Smithwick v. Crutchfield, 87 N.C. App. 374, 376, 361
S.E.2d 111, 113 (1987) (quoting Calloway v. Ford Motor Co., 281 N.C. 496, 501, 189
S.E.2d 484, 488 (1972)). Matters with regard to this claim are thus settled before this
Court. See Carr, 49 N.C. App. at 633, 272 S.E.2d at 376.
184. Consequently, the Court denies Plaintiffs’ Motion for Partial Summary
Judgment as moot to the extent it requests summary judgment on Count 15. For the
same reasons, the Court denies Plaintiffs’ Motion for Partial Summary Judgment as
moot as to Counts 28 and 30 to the extent those claims seek relief with regard to the
CCSEA Collateral.
D. Plaintiffs and Nivison’s Motion as to Doug Harris’s Claims
185. Plaintiffs and Arthur Nivison move for summary judgment in their favor on
the counterclaims filed against NFI and the “third-party claims” filed against Old Battleground and Arthur Nivison by Doug Harris, individually and as Trustee of
JDPW, and JDPW.16
186. No party submitted a brief in response to Plaintiffs and Arthur Nivison’s
motion.17 While this means that the motion is uncontested, it does not mean the
Court may summarily grant it. The Court must still examine the merits of the
movants’ arguments, and the movants bear the burden of proving they are entitled
to summary judgment. Goodman v. Wenco Foods, Inc., 333 N.C. 1, 27, 423 S.E.2d
444, 457 (1992) (stressing that the movant bears the burden on a motion for summary
judgment, “and if he fails to carry that burden, summary judgment is not proper,
whether or not the nonmoving party responds”).
1. Counterclaim for Tortious Interference with Contract Against NFI
187. The Court first examines Plaintiffs’ argument that summary judgment is
appropriate on Doug Harris and JDPW’s first counterclaim, which is unlabeled but
clearly attempts to make out a claim for tortious interference with contract against
NFI. Particularly, Doug Harris and JDPW allege that they were harmed “as a direct
and proximate result of [NFI’s] intentional interference with a contractual
relationship between Old Battleground . . . and JDPW Trust with Douglas Harris as
a third party beneficiary.” (Defs. Douglas S. Harris and JDPW Trust’s Answer Am.
16 For ease of reference, the Court refers to these claims as Doug Harris’s claims.
17 There was some discussion at oral argument as to whether, now that JDPW has been placed in receivership, Doug Harris could oppose this motion to the extent it seeks to dismiss claims brought on JDPW’s behalf. The Court concludes that the answer to this question is irrelevant because the undisputed facts clearly show that summary judgment is appropriately granted in the movants’ favor on all claims. The Court additionally notes that Doug Harris failed to file a response to Plaintiffs’ motion in his individual capacity. Consolidated Compl. and Am. Countercl. 25 [hereinafter “Am. Countercls.”], ECF No.
221.)
188. A claim for tortious interference with contract has five elements:
(1) a valid contract between the plaintiff and a third person which confers upon the plaintiff a contractual right against a third person; (2) the defendant knows of the contract; (3) the defendant intentionally induces the third person not to perform the contract; (4) and in doing so acts without justification; (5) resulting in actual damage to plaintiff.
United Labs., Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988). After
a review of the record, the Court concludes summary judgment is appropriate on this
claim due to Doug Harris and JDPW’s insufficient proof of actual damages.
189. Doug Harris and JDPW’s first counterclaim focuses on their contention that
the original version of the Assignment Agreement is an enforceable contract between
Old Battleground and JDPW. Doug Harris and JDPW appear to contend that NFI
induced Old Battleground not to perform this contract by instead lending the $2.1
million itself or by causing Old Battleground to lend the money but “pretend” NFI
was the lender. (See Am. Countercls. 24 (“Instead, [NFI] pretended that it
had . . . lent the $2.1 million which directly contradicted a deed of trust recorded in
Guilford County. [NFI] also pretended that it was in a contractual relationship with
JDPW Trust which was not so and it also pretended that it had the reasonable
expectation of getting additional security from JDPW Trust[.]”).)
190. Even assuming these allegations are true, they do not show any injury to
JDPW or Doug Harris. It is undisputed that NewBridge received the proceeds of the
$2.1 million loan contemplated by JDPW’s agreement with either NFI or Old Battleground. Regardless of which Plaintiff was to extend the loan, the loan was
made and used to pay NewBridge. It is unclear how Doug Harris or JDPW believe
they were damaged by NFI lending this money in Old Battleground’s place (or by Old
Battleground lending the money but pretending NFI provided the funds). The only
theory that can be surmised from the text of the counterclaim is that Doug Harris
and JDPW believe they have suffered damages as a result of Plaintiffs’ attempt to
enforce the marked-up version of the Assignment Agreement.
191. On this point, Doug Harris and JDPW’s first counterclaim asserts that both
Doug Harris and JDPW have been injured as a result of NFI “caus[ing] Old
Battleground not to release JDPW Trust from any further involvement in the default”
of the $2.1 million loan. (Am. Countercls. 24.) Doug Harris and JDPW further
characterize NFI’s claims in this lawsuit as an attempt to “extort money [from various
defendants] to which it is not entitled.” (Am. Countercls. 25.) Both of these
statements appear to be references to Plaintiffs’ attempts to enforce the marked-up
version of the Assignment Agreement, which omitted certain terms limiting JDPW’s
liability in the event of default. (Am. Consolidated Compl. Ex. TT.) Neither
statement, however, nor the evidentiary record at summary judgment, reflect an
actual injury to Doug Harris or JDPW.
192. On its own, the parties’ disagreement over which version of the Assignment
Agreement is enforceable does not equate to a legally cognizable injury to Doug
Harris or JDPW. To the contrary, if a factfinder were to conclude, as Doug Harris
contends, that Doug Harris did not agree to the modified Assignment Agreement on JDPW’s behalf, then that version of the agreement will be deemed unenforceable and
its terms, including the omission of the limitation on JDPW’s liability, will not apply.
See Snyder v. Freeman, 300 N.C. 204, 218, 266 S.E.2d 593, 602 (1980) (“The essence
of any contract is the mutual assent of both parties to the terms of the agreement so
as to establish a meeting of the minds.”). In that instance, the injury Doug Harris
and JDPW appear to allege will not have occurred. If, on the other hand, a factfinder
were to conclude that Doug Harris agreed to the version of the Assignment
Agreement without a limitation on liability clause, then that version will be enforced
according to its terms, and the lack of a provision limiting JDPW’s liability cannot be
considered a legally cognizable injury.
193. For these reasons, and in light of Doug Harris and JDPW’s failure to put
forward any other evidence of damages, the Court concludes that no genuine issue of
material fact remains as to Doug Harris and JDPW’s first counterclaim and that NFI
is entitled to summary judgment dismissing this counterclaim as a matter of law. See
Hawkins v. Hawkins, 101 N.C. App. 529, 532–33, 400 S.E.2d 472, 474–75 (1991)
(noting that torts including fraud and interference with contractual relations require
actual damages as an essential element).
2. Counterclaim for Unfair or Deceptive Trade Practices Against NFI
194. NFI next moves for summary judgment on a claim for unfair or deceptive
trade practices included in Doug Harris and JDPW’s original counterclaims but not
repeated or incorporated into Doug Harris and JDPW’s Amended Counterclaims.
Because this counterclaim was not included in the now-operative pleading, the Court concludes Doug Harris and JDPW no longer maintain a claim for unfair or deceptive
trade practices against NFI in this action. See Azige v. Holy Trinity Ethiopian
Orthodox Tewahdo Church, 249 N.C. App. 236, 239–40, 790 S.E.2d 570, 573 (2016)
(recognizing the general rule that an amended pleading supersedes an original
pleading); see also Young v. City of Mt. Rainier, 238 F.3d 567, 573 (4th Cir. 2001) (“[I]f
an amended complaint omits claims raised in the original complaint, the plaintiff has
waived those omitted claims.”). The Court therefore denies NFI’s motion as to this
counterclaim as moot, and Doug Harris and JDPW shall not be permitted to advance
a claim under section 75-1.1 against NFI at trial.
3. Counterclaim for Punitive Damages Against NFI
195. NFI finally moves for summary judgment on Doug Harris and JDPW’s claim
for punitive damages.
196. Because the Court has concluded that summary judgment should be granted
in NFI’s favor on Doug Harris and JDPW’s counterclaim for tortious interference with
contract—the only claim they assert against NFI potentially giving rise to punitive
damages—the Court further concludes that NFI is entitled to summary judgment
dismissing Doug Harris and JDPW’s claim for punitive damages as a matter of law.
See Horne, 228 N.C. App. at 150–51, 746 S.E.2d at 20.
4. Claim for Breach of Contract Against Old Battleground
197. Old Battleground moves for summary judgment on Doug Harris and
JDPW’s breach of contract claim against it. For the following reasons, the Court concludes that Old Battleground is entitled to summary judgment on this claim as a
198. To begin with, the Court notes that Doug Harris and JDPW’s claims against
Old Battleground and Arthur Nivison are not proper third-party claims. North
Carolina Rule of Civil Procedure 14(a) provides that “a defendant, as a third-party
plaintiff, may cause a summons and complaint to be served upon a person not a party
to the action who is or may be liable to him for all or part of the plaintiff’s claim
against him.” N.C. R. Civ. P. 14(a) (emphasis added). Doug Harris and JDPW’s
claims against Old Battleground and Arthur Nivison do not allege that either “third-
party defendant” is liable to Doug Harris or JDPW for all or part of NFI’s claims.
Instead, Doug Harris and JDPW simply allege that they have been damaged by Old
Battleground’s or Arthur Nivison’s acts. (Third Party Compl. ¶¶ 11–27 (14 CVS
9564), ECF No. 9.) The claims are thus not properly brought under Rule 14(a) and
are properly dismissed on this basis.
199. Moving on, the Court further concludes that the breach of contract claim
against Old Battleground fails on its merits. The elements of a breach of contract
claim are “(1) [the] existence of a valid contract and (2) breach of the terms of that
contract,” Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000), and the
record before the Court does not contain evidence of a breach.
200. Doug Harris and JDPW’s claim for breach of contract is based on their
contention that the original version of the Assignment Agreement is enforceable and
required Old Battleground to provide JDPW with the $2.1 million loan that would be used to satisfy certain debts owed to NewBridge. (Third Party Compl. ¶ 13 (14 CVS
9564).) Doug Harris and JDPW further contend that Old Battleground breached the
Assignment Agreement when it did not provide the $2.1 million that was ultimately
used to pay NewBridge. (Third Party Compl. ¶ 13 (14 CVS 9564) (“Old Battleground
did breach the contract and did not provide funding to JDPW Trust for the NewBridge
purchase as it had promised.”).)
201. Doug Harris and JDPW’s allegations supporting this claim are contradictory
and difficult to untangle. The undisputed evidence before the Court shows that the
$2.1 million lent under the Assignment Agreement was paid to NewBridge and that
NewBridge then assigned the CCSEA and Castle McCulloch Loan Documents to
JDPW. (See Am. Consolidated Compl. Exs. UU, VV, WW.) It is not clear, however,
where Doug Harris and JDPW allege this lent money came from, as they appear to
contend that Old Battleground never paid it, (Third Party Compl. ¶¶ 13, 15 (14 CVS
9564)), but also allege that any paperwork indicating NFI provided the funds is false
or fabricated, (Third Party Compl. ¶ 15 (14 CVS 9564)). They further allege that a
new contract has been “thrust upon” JDPW, (Third Party Compl. ¶ 14 (14 CVS 9564)),
and conclude by asserting that Old Battleground’s acts have resulted in over $2
million in damages to Doug Harris or JDPW, (Third Party Compl. ¶ 16 (14 CVS
9564)).
202. These allegations appear similar to the theory on which Doug Harris and
JDPW asserted their claim for tortious interference with contract against NFI, i.e.,
that Old Battleground breached its contract with JDPW because NFI ultimately provided the loan to JDPW and because Plaintiffs are asserting that a different
version of the Assignment Agreement with different terms controls the parties’ deal.
These allegations do not state a claim for breach of contract.
203. For one thing, the original version of the Assignment Agreement did not
require Old Battleground to be the entity providing the $2.1 million to JDPW or
NewBridge. The original version of the Agreement expressly states that JDPW’s
assignment of the mentioned security interests to NFI was “conditional upon the
wiring of the $2,100,000.00 to NewBridge Bank by Old Battleground or on Old
Battleground’s behalf.” (Corrected Ex. KK.) Thus, it was expressly contemplated
that another entity, like NFI, might provide the funds required. The contract would
not be breached simply because the money ultimately came from NFI, another entity
that shared management with Old Battleground.18
204. Moreover, even if the original Assignment Agreement did not contain a
provision expressly allowing for another entity to provide the $2.1 million used to pay
NewBridge, the contract contained no provision preventing Old Battleground from
assigning the contract or delegating its performance under the contract. See Hurst v.
West, 49 N.C. App. 598, 604–06, 272 S.E.2d 378, 382–83 (1980) (explaining the
general rule that a business contract may be assigned where the contract does not
forbid it and performance is not based on personal skill or credit and that the assignee
“under a general assignment of an executory bilateral contract becomes the delegatee
of the assignor’s duties”); see also Restatement (Second) of Contracts § 318(1) (Am.
18If some contract existed that required Old Battleground to be the source of the lent money, evidence of such a contract is not before the Court. Law Inst. 1981) (“An obligor can properly delegate the performance of his duty to
another unless the delegation is contrary to public policy or the terms of his
promise.”). Thus, Old Battleground was free to delegate its performance under the
Assignment Agreement to NFI and that delegation would not amount to a breach of
contract.
205. Finally, looking past the allegations about the source of the $2.1 million
loan, Doug Harris and JDPW’s assertion that another contract with less favorable
terms has been “thrust upon JDPW” does not constitute a breach of contract claim on
the current record. Doug Harris and JDPW allege that Old Battleground has
“refus[ed] to go forward and comply with the terms of the original contract,” (Third
Party Compl. ¶ 15 (14 CVS 9564)), but do not allege any particular duty under the
Assignment Agreement—besides the previously discussed duty to provide the $2.1
million loan—which Old Battleground has failed to perform. Doug Harris and JDPW
cannot survive summary judgment on this claim by merely noting that Plaintiffs
contend a different version of the Assignment Agreement with terms less favorable
to JDPW is enforceable; Plaintiffs’ arguing that JDPW does not have limited liability
under the operable Assignment Agreement is not the same as Old Battleground’s
failing to perform a duty under that agreement. Thus, even if the original version of
the Assignment Agreement is enforceable, Doug Harris and JDPW have pointed to
no evidence that Old Battleground failed to perform under that agreement. 206. The Court therefore concludes that no genuine issue of material fact exists
as to Doug Harris and JDPW’s breach of contract claim against Old Battleground and
that summary judgment dismissing this claim is appropriate as a matter of law.
5. Claim for Tortious Interference with Contract Against Nivison
207. Doug Harris and JDPW’s fourth “third-party claim” alleges the existence of
two contracts—one between Doug Harris and JDPW and certain CCSEA-related
entities, the other between Doug Harris and JDPW and Dr. Epes—which bound
others, instead of JDPW, to pay the $2.1 million back to Plaintiffs. (Third Party
Compl. ¶ 18 (14 CVS 9564).) Doug Harris and JDPW further allege that Arthur
Nivison knew of these contracts and intentionally induced these other parties not to
perform without justification, resulting in damages to Doug Harris and JDPW.
(Third Party Compl. ¶ 18 (14 CVS 9564).)
208. Arthur Nivison moves for summary judgment on this claim, arguing that
the record before the Court contains no evidence supporting Doug Harris and JDPW’s
allegations. Based upon its review of the record, the Court agrees. The record does
not contain evidence capable of sustaining a genuine issue of material fact in Doug
Harris or JDPW’s favor on their claim for tortious interference with contract against
Arthur Nivison. The Court thus concludes that Arthur Nivison is entitled to
summary judgment on this claim as a matter of law.
6. Claim for Civil Conspiracy Against Nivison
209. Doug Harris and JDPW also assert a claim for civil conspiracy against
Arthur Nivison. To support this claim, they allege that Arthur Nivison acted in concert with Dr. Epes and Mark McDaniel to conceal payments on Dr. Epes’s and
Mark McDaniel’s personal guarantees of the $2.1 million loan to JDPW and the
promissory notes Plaintiffs now hold. (Third Party Compl. ¶ 21 (14 CVS 9564).) Doug
Harris and JDPW contend that all three conspirators engaged in these acts to allow
Arthur Nivison’s entities to sue JDPW and Doug Harris to recover a “double
payment” while simultaneously allowing Dr. Epes, Mark McDaniel, and the CCSEA-
related entities to be excused from paying some of their alleged debts to Plaintiffs or
Arthur Nivison. (Third Party Compl. ¶ 22 (14 CVS 9564).) Doug Harris and JDPW
allege that, in furtherance of this conspiracy, Arthur Nivison, Dr. Epes, and certain
corporations the two control or controlled have intentionally not entered into follow-
up agreements that would absolve JDPW of liability for the $2.1 million loan, despite
being contractually bound to do so.
210. Arthur Nivison moves for summary judgment on Doug Harris and JDPW’s
claim for civil conspiracy, arguing that the record does not contain any evidence of
the alleged scheme between himself, Dr. Epes, and Mark McDaniel. The Court
agrees.
211. “There is no independent cause of action for civil conspiracy” under North
Carolina law. Toomer v. Garrett, 155 N.C. App. 462, 483, 574 S.E.2d 76, 92 (2002)
(citing Shope v. Boyer, 268 N.C. 401, 150 S.E.2d 771 (1966)). “Only where there is an
underlying claim for unlawful conduct can a plaintiff state a claim for civil conspiracy
by also alleging the agreement of two or more parties to carry out the conduct and
injury resulting from that agreement.” Id. (citing Muse v. Morrison, 234 N.C. 195, 66 S.E.2d 783 (1951)). A claim for civil conspiracy requires proof of “(1) an agreement
between two or more individuals; (2) to do an unlawful act or to do a lawful act in an
unlawful way; (3) resulting in injury to plaintiff inflicted by one or more of the
conspirators; and (4) pursuant to a common scheme.” Piraino Bros., LLC v. Atl. Fin.
Grp., Inc., 211 N.C. App. 343, 350, 712 S.E.2d 328, 333 (2011). Circumstantial
evidence may be used to establish the existence of the alleged conspiracy, but
“sufficient evidence of the agreement must exist ‘to create more than a suspicion or
conjecture in order to justify submission of the issue to a jury.’” Boyd v. Drum, 129
N.C. App. 586, 592, 501 S.E.2d 91, 96 (1998) (quoting Dickens v. Puryear, 302 N.C.
437, 456, 276 S.E.2d 325, 337 (1981)).
212. After reviewing the record, the Court concludes that it does not contain
evidence supporting Doug Harris and JDPW’s contention that the named parties
entered into an agreement to wrongfully extort or otherwise obtain money from Doug
Harris and JDPW or hide payments between the parties from the Court. The only
evidence supporting Doug Harris and JDPW’s allegations comes from Doug Harris
himself, who contended in his deposition testimony that Plaintiffs’ apportionment of
payments on the notes Plaintiffs now hold was contrary to the terms of a separate
contract—a contract that Doug Harris did not have with him at the deposition, that
Arthur Nivison was not a party to, and the terms of which Doug Harris did not
provide. (Harris Dep. 479:10–480:22 [hereinafter “Harris Dep. II], ECF Nos. 839–
841.)19 Doug Harris further testified that “McDaniel and Mr. Nivison conspired
19 This excerpt of Doug Harris’s deposition was submitted to the Court as Exhibit E to Plaintiffs’ February 28, 2017 summary judgment filings. The parties provided physical copies together to pay out one note and not the other,” (Harris Dep. II, at 479:14–16), but
Harris failed, then or later, to point to any evidence supporting his allegation besides
such statements.
213. As the record contains no evidence of the alleged civil conspiracy agreement
beyond Doug Harris’s suspicion and conjecture, the Court concludes that no genuine
issue of fact remains as to Doug Harris and JDPW’s civil conspiracy claim and that
Arthur Nivison is entitled to summary judgment dismissing this claim as a matter of
law. Boyd, 129 N.C. App. at 592, 501 S.E.2d at 96 (affirming directed verdict where
“[Plaintiff’s] testimony taken at a deposition . . . show[ed] that [plaintiff did] not have
evidence of a conspiracy, although he fe[lt] there was one”); Am. Air Filter Co. v. Price,
2018 NCBC LEXIS 73, at *35 (N.C. Super. Ct. July 10, 2018) (granting summary
judgment for defendants where plaintiff could offer no evidence to show an agreement
to misappropriate trade secrets).
7. Claim for Punitive Damages Against Nivison
214. Arthur Nivison finally moves for summary judgment on Doug Harris and
JDPW’s claim for punitive damages against him. Because the Court has concluded
that Arthur Nivison is entitled to summary judgment on Doug Harris and JDPW’s
other, substantive claims, the Court further concludes that no genuine issue of fact
exists as to this final claim and that Arthur Nivison is entitled to summary judgment
of these filings to the Court. Although Exhibit E appears on the Court’s electronic docket at ECF Nos. 839–841, only a portion of the deposition transcript can be electronically accessed, due either to Plaintiffs’ error in filing or a problem with the Court’s electronic case management system. in his favor dismissing Doug Harris and JDPW’s punitive damages claim as a matter
of law. See Horne, 228 N.C. App. at 150–51, 746 S.E.2d at 20.
E. Doug Harris’s Motion as to the Castle McCulloch Defendants’ Crossclaims
215. The Castle McCulloch Defendants each filed individual, amended
responsive pleadings to Plaintiffs’ Amended Consolidated Complaint. These
pleadings each contain an identical crossclaim against Doug Harris, individually and
as trustee of JDPW, and JDPW. (See, e.g., Def. Castle McCulloch Inc.’s Am. Answer
Am. Consolidated Compl. and Crossclaims in the Alternative 53 [hereinafter “Am.
Answer and Crossclaims”], ECF No. 676.)20 Doug Harris moves for summary
judgment on these crossclaims.
216. By order dated February 24, 2017, the Castle McCulloch Defendants were
allowed through and including March 3, 2017 to amend their responsive pleadings in
this case to add a third-party complaint asserting claims against Dr. Epes and Mark
McDaniel. (Order Castle McCulloch Defs.’ Mot. Amend Add Third-Party Compl. ¶ 12,
ECF No. 823.) The Castle McCulloch Defendants filed their second amended
responsive pleadings—containing their Second Amended Answer to Plaintiffs’
Amended Consolidated Complaint, their Crossclaims, and a Third-Party Complaint
against Dr. Epes and Mark McDaniel—on March 2 and 3, 2017, several days after
the deadline for filing summary judgment motions in this action, February 28, 2017.21
20Because the Castle McCulloch Defendants’ pleadings are identical for the Court’s purposes here, the Court cites only one of the pleadings.
21 The Castle McCulloch Defendants’ final amended pleadings are located on the Court’s e-docket at ECF Nos. 852, 853, and 855. 217. Although an amended pleading ordinarily moots pending motions for
summary judgment aimed at its predecessor, see Colin v. Marconi Commerce Sys.
Emps.’ Ret. Plan, 335 F. Supp. 2d 590, 614 (M.D.N.C. 2004), the Court will consider
Doug Harris’s motion as to the latest iteration of the Castle McCulloch Defendants’
responsive pleadings because the crossclaim against Doug Harris appearing therein
is identical to that in the previous pleadings, Doug Harris and the Castle McCulloch
Defendants were both given an opportunity to fully brief the merits of the crossclaim
throughout the briefing period for post-discovery dispositive motions, and both Doug
Harris and the Castle McCulloch Defendants were able to argue the merits of the
crossclaim at the April 26, 2018 hearing on the Motions for Summary Judgment, see
Gateway Mgmt. Servs. v. Carrbridge Berkshire Grp., Inc., 2018 NCBC LEXIS 45, at
*8 (N.C. Super. Ct. May 9, 2018) (considering motion to dismiss original complaint
against amended complaint where defendants and plaintiff addressed the sufficiency
of the amended complaint in their briefs and at the hearing).
218. The crossclaim asserted against Doug Harris by each of the Castle
McCulloch Defendants is not labeled, but its contents allege that if the Release Deed
is invalid, which the Castle McCulloch Defendants deny, then the Castle McCulloch
Defendants are entitled to recover from “Defendant Douglas S. Harris, individually
and as [t]rustee of the JDPW Trust, as well as Defendant JDPW Trust . . . an amount
equal to the value of all assets of [Castle McCulloch and Historic Castle McCulloch]”
because Doug Harris, “individually and as [t]rustee of JDPW Trust, gave such release
deed without authority to do so, while misrepresenting to [the Castle McCulloch Defendants] that he had such authority, all to [the Castle McCulloch Defendants’]
detriment.” (Am. Answer and Crossclaims ¶ 401.) Doug Harris argues that this is
an improper claim for negligent misrepresentation.
219. In response, the Castle McCulloch Defendants assert that their crossclaim
is a valid claim for negligent misrepresentation, brought in the event the Release
Deed is held invalid. (Castle McCulloch Defs.’ Br. Opp’n Douglas S. Harris’s Mot.
Summ. J. as to Richard Harris, Historic Castle McCulloch, and Castle McCulloch,
Inc. 3 [hereinafter “CM Opp’n Br. Doug Harris’s Mot. Summ. J.”], ECF No. 881
(“Nevertheless, in the event that the release of the Castle McCulloch Collateral is
deemed invalid, Doug Harris and/or JDPW Trust may be liable to the Castle
McCulloch Defendants for negligently misrepresenting that the Castle McCulloch
Collateral Would be released.”).)
220. Doug Harris argues that the Court should grant summary judgment in his
favor on the Castle McCulloch Defendants’ negligent misrepresentation crossclaim
because the Castle McCulloch Defendants have not alleged a duty of care or the other
necessary elements of a claim for negligent misrepresentation and do not allege the
specific details of when Doug Harris’s alleged misrepresentation was made. He
further argues that the Castle McCulloch Defendants have not alleged that they
justifiably relied on any misrepresentation and have not provided evidence to support
their claim.
221. The Castle McCulloch Defendants respond by asserting that the Court
should not yet consider the merits of their crossclaim because the crossclaim is contingent upon the invalidity of the Release Deed. They argue that considering the
crossclaim on Doug Harris’s motion is premature because the validity of the Release
Deed has not yet been resolved. However, in the event the Court does address their
crossclaim now, the Castle McCulloch Defendants further argue that they have
properly asserted and can show a sustainable claim for negligent misrepresentation.
222. The Castle McCulloch Defendants contend that they signed the Confession
of Judgment with NewBridge and provided the $100,000 gold coin/cash payment to
extend the Settlement Agreement’s deadline due to Doug Harris’s assurances that
the Castle McCulloch Collateral would be released in the course of the ensuing
transactions. The Castle McCulloch Defendants assert that they relied on these
assurances and would not have taken either of these actions absent Doug Harris’s
representations. If the Release Deed is invalid, they conclude, Doug Harris made
these representations without reasonable care. They stress, however, that
consideration of this issue is not necessary if the Court dismisses Plaintiffs’ claims
seeking the Castle McCulloch Collateral.
223. Although the Court has determined that summary judgment is
appropriately granted for the Castle McCulloch Defendants on Plaintiffs’ claims
seeking possession of the Castle McCulloch Collateral and the voiding of the Release
Deed, the possibility remains in this case that the Release Deed transaction may be
rescinded or voided—or that the release of the Castle McCulloch Collateral will be
undone in some other way—due to the Receiver’s claims against Doug Harris,
particularly those brought on behalf of JDPW alleging a breach of trust. See N.C. Gen. Stat. § 36C-10-1001(b)(9). Thus, contrary to the Castle McCulloch Defendants’
contention, the resolution of Plaintiffs’ claims for the Castle McCulloch Collateral
does not resolve the Castle McCulloch Defendants’ crossclaim for negligent
misrepresentation, and the Court must still consider it on Doug Harris’s motion.
Furthermore, that the claim may be brought in the alternative does not prevent the
Court from assessing it, and the sufficiency of the evidence supporting it, at summary
224. Negligent misrepresentation has been described by our appellate courts as
follows:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions . . . is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Rountree v. Chowan County, 252 N.C. App. 155, 160, 796 S.E.2d 827, 831 (2017)
(quoting Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 534, 537 S.E.2d
237, 241 (2000)). “The tort of negligent misrepresentation occurs when a party
justifiably relies to his detriment on information prepared without reasonable care
by one who owed the relying party a duty of care.” Dallaire v. Bank of Am., N.A., 367
N.C. 363, 369, 760 S.E.2d 263, 267 (2014). The claimant must have suffered an
injury, Deluca v. River Bluff Holdings II, LLC, 2015 NCBC LEXIS 12, at *20 (N.C.
Super. Ct. Jan. 28, 2015), and that injury must be the result of an actual
representation made by the other party, Loftin v. QA Invs. LLC, 2015 NCBC LEXIS
44, at *24 (N.C. Super Ct. April 30, 2015) (noting negligent misrepresentation, unlike fraud, cannot be based on a failure to disclose but must be based on an actual
representation); see Harrold v. Dowd, 149 N.C. App. 777, 782–83, 561 S.E.2d 914,
918–19 (2002) (concluding claim for negligent misrepresentation failed because it
could not be based upon allegations that defendants “failed to provide, failed to
advise, or failed to investigate” (internal quotation marks omitted)).
225. Examining the record for evidence of an affirmative representation in this
context, the Court finds none that supports the Castle McCulloch Defendants’
crossclaim.
226. Assuming for the moment that the Castle McCulloch Defendants’ decisions
to sign the Confession of Judgment and provide $100,000 to further the Settlement
Agreement constitute reliance to their detriment, the Castle McCulloch Defendants
have failed to supply the Court with any evidence of the statement or information
that they purportedly relied upon in undertaking either action, and an independent
review of the record discloses none. Merely stating in pleadings or briefs that Doug
Harris made misrepresentations cannot sustain the Castle McCulloch Defendants’
crossclaim at summary judgment, but such statements are all the Castle McCulloch
Defendants offer. The affidavit of Richard Harris, the only sworn testimony in the
record from any of the Castle McCulloch Defendants, does not mention any
representation by Doug Harris, negligent or otherwise.
227. In their briefing, the Castle McCulloch Defendants argue that Doug Harris
owed them a duty of care in preparing the “documents involved in the release of the
Castle McCulloch Collateral,” (CM Opp’n Br. Doug Harris’s Mot. Summ. J. 3), but the only document dealing with the release of Castle McCulloch Collateral before the
Court is the Release Deed, which was executed on March 15, 2013, months after the
Castle McCulloch Defendants signed the Confession of Judgment and paid the
$100,000. (Am. Consolidated Compl. Ex. YY.) The Castle McCulloch Defendants
cannot claim their detrimental reliance was based upon a representation in this
subsequent document, and they have pointed to no other documents containing an
actionable representation.22
228. The Court also disagrees with the Castle McCulloch Defendants’ contention
that Doug Harris has not adequately supported his motion for summary judgment
and that summary judgment on this issue would thus be improper. A party moving
for summary judgment may meet his or her burden by “showing through discovery
that the opposing party cannot produce evidence to support an essential element of
his or her claim.” Thomasville v. Lease-Afex, Inc., 300 N.C. 651, 654, 268 S.E.2d 190,
193 (1980); see also Rorrer, 313 N.C. at 350, 329 S.E.2d at 363 (explaining that a
movant at summary judgment has “the initial burden of showing that an essential
element of [the claimant’s] case [does] not exist as a matter of law or showing through
discovery that [the claimant has] not produced evidence to support an essential
element of her claim” (emphasis added)).
22 The Court also notes that the Castle McCulloch Defendants cannot bring a crossclaim for negligent misrepresentation against Doug Harris solely because he promised to release the Castle McCulloch Collateral and then ultimately failed to do so. See Supplee, 239 N.C. App. at 233, 768 S.E.2d at 600 (holding that a failure perform a contractual duty does not give rise to a claim for negligent misrepresentation). 229. Following discovery, Doug Harris argued in briefing that the Castle
McCulloch Defendants’ crossclaim against him was not supported by the record,
referencing the lack of any support for the crossclaim in Richard Harris’s affidavit in
particular. (See Douglas S. Harris’s, Individually, and as Trustee of JDPW Trust,
Reply Castle McCulloch’s Br. Opp’n Mot. Summ. J. as to Richard Harris, Historic
Castle McCulloch, LLC, and Castle McCulloch, Inc. 3, 6, ECF No. 911.) At the April
26, 2018 hearing on the Motions for Summary Judgment, Doug Harris further argued
that the Castle McCulloch Defendants failed to correctly plead or support their
crossclaim for negligent misrepresentation. (Hr’g Tr. 89:13–23 (“And as far as that’s
concerned, they don’t really say what the negligent misrepresentation is. . . . Because
if there’s a negligent misrepresentation, what is it?”).) Responding to these
arguments with some proof of a negligent misrepresentation, even by way of an
affidavit affirming that such a misrepresentation was made, would have been a very
low bar for the Castle McCulloch Defendants to meet. Instead, when pressed by the
Court at the April 26 hearing on whether they had brought forward evidence to avoid
summary judgment, the Castle McCulloch Defendants simply contended that Doug
Harris had not presented evidence to contradict their allegations or support his
motion. (Hr’g Tr. 91:17–22.) In these circumstances, the Court concludes that Doug
Harris has met his burden as the party moving for summary judgment and that the
Castle McCulloch Defendants have failed to respond with a forecast of evidence
showing that a genuine issue of material fact exists for trial. 230. The Court thus concludes that Doug Harris is entitled to summary judgment
as a matter of law on the Castle McCulloch Defendants’ crossclaims against him.
231. The Court further concludes that JDPW, whose liability is alleged solely by
reference to Doug Harris’s actions, is entitled to summary judgment as a matter of
law on these crossclaims as well. See N.C. Coastal Motor Line, Inc., 77 N.C. App. at
151, 334 S.E.2d at 501; Greenway, 35 N.C. App. at 314–15, 241 S.E.2d at 343; see also
N.C. R. Civ. P. 56(c).
F. Doug Harris’s Motion as to the Receiver’s Crossclaims
232. Doug Harris moves for summary judgment in his favor on all crossclaims
brought against him by the Receiver, which are asserted on behalf of JDPW, CCSEA,
DRE, or some combination of all three entities.
233. Before examining Doug Harris’s challenges to the merits of the Receiver’s
crossclaims, the Court first addresses an issue relating to its subject matter
jurisdiction over claims asserted by the Receiver on DRE’s behalf.
1. DRE’s Standing to Assert Claims of Dr. Epes
234. This Court has an obligation to satisfy itself in each case and controversy
that it has subject matter jurisdiction to hear the claims before it. See N.C. R. Civ.
P. 12(h)(3) (“Whenever it appears by suggestion of the parties or otherwise that the
court lacks jurisdiction of the subject matter, the court shall dismiss the action.”). “A
court’s lack of subject matter jurisdiction is not waivable and can be raised at any
time[.]” McDaniel v. Saintsing, 817 S.E.2d 912, 914 (N.C. Ct. App. 2018). The Court may raise the issue of subject matter jurisdiction on its own initiative. Conner Bros.
Mach. Co. v. Rogers, 177 N.C. App. 560, 561, 629 S.E.2d 344, 345 (2006).
235. “Standing is a necessary prerequisite to a court’s proper exercise of subject
matter jurisdiction.” Street v. Smart Corp., 157 N.C. App. 303, 305, 578 S.E.2d 695,
698 (2003) (quoting Neuse River Found., Inc. v. Smithfield Foods, Inc., 155 N.C. App.
110, 113, 574 S.E.2d 48, 51 (2002)). “If a party does not have standing to bring a
claim, a court has no subject matter jurisdiction to hear the claim.” Estate of Apple
v. Commercial Courier Express, Inc., 168 N.C. App. 175, 177, 607 S.E.2d 14, 16 (2005).
236. In reviewing the Receiver’s crossclaims, the Court concluded that it was
obligated to raise the issue of DRE’s standing to assert personal tort claims against
Doug Harris based on alleged wrongs to Dr. Epes (the “DRE Crossclaims”). (See
Order Suppl. Br. Subject Matter Jurisdiction ¶ 6, ECF No. 1040; Receiver Gerald A.
Jeutter’s Answer Cross-cls. Castle McCulloch Entitles and Cross-cls. Against Douglas
Harris ¶¶ 434–504 [hereinafter “Receiver’s Cross-cls.”], ECF No. 1040.) “In
particular,” the Court noted that it had “questions about how the rule of law
concerning the assignability of personal tort claims, including malpractice claims,
expressed in Revolutionary Concepts, Inc. v. Clements Walker PLLC, 227 N.C. App.
102, 744 S.E.2d 130 (2013), and similar cases affect[ed] DRE’s standing to pursue the
DRE Crossclaims.” (Order Suppl. Br. Subject Matter Jurisdiction ¶ 6.) The Court
therefore requested that Doug Harris and the Receiver submit supplemental briefs
focused solely on DRE’s standing to assert the DRE Crossclaims in this action. (Order
Suppl. Br. Subject Matter Jurisdiction ¶ 8.) 237. Having now reviewed both Doug Harris’s and the Receiver’s supplemental
briefs, the Court concludes, in the exercise of the discretion afforded to it by Business
Court Rule 7.4, that no further hearing is necessary on matters addressed within the
briefing and that the issue of DRE’s standing is ripe for resolution.
238. Doug Harris argues in his supplemental brief that the assignment of Dr.
Epes’s claims to DRE is improper under the holding of Revolutionary Concepts, Inc.,
namely, that assignments of personal tort claims, including legal malpractice claims,
are void as against public policy, and that DRE has no standing to assert its
crossclaims against him.
239. The Receiver takes a contrary position, arguing in his supplemental brief
that the rule voiding assignments of personal tort claims is a public policy exception
to the general rule that causes of action may be assigned, an exception meant to
prevent champerty. (Receiver’s Br. Regarding DRE Standing 2, ECF No. 1044.) This
exception, the Receiver contends, does not prevent a receiver from bringing personal
tort claims belonging to a debtor, and should not be applied in this case where Dr.
Epes’s assignment of his claims to DRE, and DRE’s subsequent assertion of those
claims, has occurred under the Court’s watch and for purposes of recovering assets to
pay creditors. In support of his position, the Receiver cites the North Carolina Court
of Appeals’ decision in Haarhuis v. Cheek, 820 S.E.2d 844 (N.C. Ct. App. 2018). The
Court finds the Receiver’s argument persuasive.
240. “While, in general, causes of action may be assigned,” Inv’rs Title Ins. Co. v.
Herzig, 330 N.C. 681, 688, 413 S.E.2d 268, 271 (1992), courts of this State have long recognized that allowing parties to assign personal tort claims “promotes champerty”
by giving control of those claims to a party not related to the lawsuit, Charlotte-
Mecklenburg Hosp. Auth. v. First of Ga. Ins. Co., 340 N.C. 88, 91, 455 S.E.2d 655, 657
(1995); see also Champerty, Black’s Law Dictionary (8th ed. 2004) (“[A]n agreement
to divide litigation proceeds between the owner of the litigated claim and a party
unrelated to the lawsuit who supports or helps enforce the claim.”). To curtail this
practice, North Carolina courts hold agreements assigning personal tort claims void
on public policy grounds. Charlotte-Mecklenburg Hosp. Auth., 340 N.C. at 91, 455
S.E.2d at 657. Many exceptions to this rule have developed, however, and thus a
court should examine the facts of each case before concluding that an assignment is
void due to its promotion of champerty. See Haarhuis, 820 S.E.2d at 850.
241. Our Court of Appeals recently examined the rule voiding assignments of
personal tort claims in the context of a receivership in Haarhuis. In that case, the
administrator of a deceased individual’s estate sought recovery from a defendant who,
while driving impaired, hit and killed the decedent. Id. at 847. A jury returned a
verdict against the defendant for substantial damages, but the plaintiff was unable
to locate property to recover on the judgment. Id. The plaintiff believed that the
defendant had possible legal claims against her insurance company and law firm for
their failure to settle and thus moved the Court to appoint a receiver to pursue those
claims. Id. The trial court denied the motion and the plaintiff appealed. Id. at 848.
On appeal, the defendant argued that the trial court properly denied the plaintiff’s
motion because the causes of action that the plaintiff requested be placed in receivership were unassignable personal tort claims. Id. at 849. The Court of Appeals
disagreed.
242. In rejecting the defendant’s argument, the Court of Appeals explained that
“the authority of a receiver to pursue a judgment-debtor’s legal claims is not limited
solely to those claims that are otherwise assignable.” Id. at 850. To begin with, the
court noted, “receivership is distinct from assignment.” Id. Assignment of personal
tort claims gives the assignee control of a claim, and thus promotes champerty,
whereas placing a claim in receivership hands control of the claim to a receiver, who
is a “disinterested person appointed [and supervised] by a court[.]” Id. (first citing
Charlotte-Mecklenburg Hosp. Auth., 340 N.C. at 91, 455 S.E.2d at 657; and then
quoting Receiver, Black’s Law Dictionary (8th ed. 2014)). “The purpose of a receiver
of legal claims is in essence to act as a trustee,” the court reasoned, “and a claim being
placed in receivership is [thus], at most, analogous to an assignment of the proceeds
of the claim, which are assignable.” Id. (citing Charlotte-Mecklenburg Hosp. Auth.,
340 N.C. at 91, 455 S.E.2d at 657).
243. “Moreover,” the court continued, “many exceptions” to the rule against the
assignment of personal tort claims “have been recognized[,] and . . . it has come to be
generally accepted that an agreement will not be held to be within the condemnation
of the [rule] unless the interference is clearly officious and for the purpose of stirring
up strife and continuing litigation.” Id. (quoting Wright v. Commercial Union Ins.
Co., 63 N.C. App. 465, 469, 305 S.E.2d 190, 192–93 (1983)). The court concluded that
this risk of officious interference was not present where a receiver brings a personal tort claim “for the purpose of satisfying an outstanding judgment” against a debtor.
Id. “If a receiver elects to pursue a cause of action held by a judgment-debtor and the
judgment-debtor prevails thereon, the debtor receives the full benefit of the award,”
the court reasoned, as any recovery would “be promptly applied to [the debtor’s]
debts,” and any excess would belong to the debtor. Id. at 851. As a result, none of
the public policy concerns supporting the rule against assigning personal tort claims
were presented by allowing the receiver to exercise control over the defendant’s
personal tort claims. See id.
244. The Court concludes that the situation presented here is sufficiently similar
to Haarhuis to follow the Court of Appeals’ reasoning in these circumstances. Like
in Haarhuis, the DRE Crossclaims are not controlled by a third party engaged in
champerty, but by a court-appointed receiver. (Epes Settlement Order 7.)
245. Admittedly, the fact pattern before the Court is unique in that the DRE
Crossclaims were not placed directly into receivership but instead assigned to DRE
by Dr. Epes as part of the court-approved settlement agreement between the Epeses
and the CCSEA-related entities in receivership. (See Joint Mot. Approve Settlement
Agreement and Release Ex. A-2, at 1.) Nonetheless, in approving the Receiver-Epes
settlement agreement, the Court did not give control of Dr. Epes’s causes of action to
a third-party assignee unrelated to this lawsuit. Rather, the Court’s purpose was to
provide the Receiver with a means of exercising his independent judgment over those
claims (subject to the Court’s supervision) while minimizing conflicts with the Epeses.
(Epes Settlement Order 3 (stating that the purpose of forming DRE was to transfer “control of [Dr. Epes’s] assets and resolution of the claims against those assets to the
Receiver”).) DRE was created specifically to acquire Dr. Epes’s causes of action and
assume his debts as a means of allowing the Receiver to collect assets, pay creditors,
compromise disputed claims and obligations, and resolve outstanding claims, debts,
and obligations owned by or owed by Dr. Epes. (See Joint Mot. Approve Settlement
Agreement and Release Ex. C-2, at 4, ECF No. 53.) Dr. Epes’s assignment of his
personal tort claims to DRE was thus clearly not “officious and for the purpose of
stirring up strife and continuing litigation,” Haarhuis, 820 S.E.2d at 850, but was
intended to avoid litigation and efficiently resolve claims, (Epes Settlement Order 4
(finding that “[a]n additional benefit of the settlement and this approach is to avoid
the Epeses expending considerable resources defending claims when those resources
could better be deployed toward resolving claims”). As a result, the Court concludes
that the rule voiding assignments of personal tort claims is not applicable to Dr.
Epes’s assignment of such claims to DRE.
246. The Court is thus satisfied that the rule stated in Revolutionary Concepts,
Inc. and similar cases does not void Dr. Epes’s assignment of his causes of action to
DRE and does not jeopardize DRE’s standing to assert any of the DRE Crossclaims
in this proceeding.
247. Doug Harris’s supplemental brief also contains arguments related to the
Receiver’s crossclaims brought on behalf of JDPW and CCSEA. These arguments fall
outside the narrow topic on which the Court requested supplemental briefing. To the
extent these arguments challenge the Receiver’s standing to assert claims on behalf of JDPW or CCSEA, the Court has considered them and finds them meritless. To the
extent Doug Harris’s supplemental brief asserts other challenges to the Receiver’s
crossclaims, such arguments are outside the scope of allowed supplemental briefing,
and the Court will not consider them at summary judgment.
2. Receiver’s Crossclaim for Indemnity
248. Doug Harris first moves for summary judgment on the Receiver’s crossclaim
for indemnity. The Receiver brings this crossclaim against Doug Harris on behalf of
JDPW, DRE, and CCSEA, pleading that to the extent those entities are liable for
certain crossclaims against them by the Castle McCulloch Defendants, Doug Harris’s
wrongful conduct is the cause of that liability. (Receiver’s Cross-cls. ¶ 474.) As a
result, the Receiver asserts that Doug Harris is liable to JDPW, DRE, or CCSEA for
anything found due and owing on the Castle McCulloch Defendants’ crossclaims.
(Receiver’s Cross-cls. ¶¶ 474–75.)
249. Doug Harris argues that the Receiver’s crossclaim for indemnity should be
dismissed at summary judgment because it presents no theory, contract, or other
facts creating a duty to indemnify, is too vague, and fails to state a claim. In response,
the Receiver argues that Doug Harris’s motion and briefs are generalized,
nonspecific, and do not meet his burden as a movant under Rule 56.
250. After reviewing the parties’ arguments and the record, particularly the
Castle McCulloch Defendants’ crossclaims on which the Receiver asserts a right to
indemnification, the Court concludes that Doug Harris’s burden has been met and that the Receiver cannot forecast evidence supporting essential elements of an
indemnity claim.
251. “A right to indemnity exists whenever one party is exposed to liability by
the action of another who, in law or equity, should make good the loss of the other.”
Carl v. State, 192 N.C. App. 544, 557, 665 S.E.2d 787, 797 (2008) (quoting McDonald
v. Scarboro, 91 N.C. App. 13, 22, 370 S.E.2d 680, 686 (1988)). “In North Carolina, a
party’s right[] to indemnity can rest on three bases: (1) an express contract; (2) a
contract implied-in-fact; or (3) equitable concepts arising from the tort theory of
indemnity, often referred to as a contract implied-in-law.” Kaleel Builders, Inc. v.
Ashby, 161 N.C. App. 34, 38, 587 S.E.2d 470, 474 (2003). The first of these is straight
forward: parties may have a right to indemnity under the terms of a bargained-for
contract. Id. The second, indemnity implied-in-fact, “stems from the existence of a
binding contract between two parties that necessarily implies the right. The
implication is derived from the relationship between the parties, circumstances of the
parties’ conduct, and that the creation of the indemnitor/indemnitee relationship is
derivative of the contracting parties’ intended agreement.” Id. The third, indemnity
implied-in-law, “arises from an underlying tort, where a passive tort-feasor pays the
judgment owed by an active tort-feasor to the injured third party.” Id. at 39, 587
S.E.2d at 474; see also Hunsucker v. High Point Bending & Chair Co., 237 N.C. 559,
563–64, 75 S.E.2d 768, 771 (1953).
252. Examining first CCSEA’s right to claim indemnification, the Court notes
that the Castle McCulloch Defendants have each asserted a single crossclaim against CCSEA for “suretyship, indemnity, and contribution.” (Am. Answer and Crossclaims
56.)23 This crossclaim is based on allegations that CCSEA guaranteed and agreed to
indemnify the Castle McCulloch Defendants on the Castle McCulloch Note. (Am.
Answer and Crossclaims ¶ 419.) Thus, there is no underlying tort for which the
Castle McCulloch Defendants seek to hold CCSEA liable, and CCSEA does not have
a right to implied-in-law indemnity from Doug Harris. See Hunsucker, 237 N.C. at
563–64, 75 S.E.2d at 771. Further, the Receiver does not allege, and the record
contains no evidence of, an express agreement that Doug Harris would indemnify
CCSEA for matters related to the Castle McCulloch Defendants’ crossclaim. Finally,
the Receiver does not plead, and the record does not show evidence of, “a binding
contract between [Doug Harris and CCSEA] that necessarily implie[d]” a right to
implied-in-fact indemnification. See Kaleel Builders, Inc., 161 N.C. App. at 38–39,
587 S.E.2d at 474 (“[T]he creation of the indemnitor/indemnitee relationship is
derivative of the contracting parties’ intended agreement.”) In sum, the pleadings
and evidence before the Court at summary judgment do not show that CCSEA is
entitled to indemnity from Doug Harris on any of the three grounds provided by North
Carolina law. The Court therefore concludes that summary judgment is
appropriately granted in Doug Harris’s favor to the extent the Receiver’s crossclaim
for indemnity is asserted on behalf of CCSEA.
23 The Court here cites the Castle McCulloch Defendants’ pleadings filed August 30, 2016. The crossclaims asserted against CCSEA, JDPW, and DRE in the August 30, 2016 pleadings are identical to those asserted in the amended responsive pleadings filed by the Castle McCulloch Defendants on March 2 and 3, 2017. 253. The Receiver’s crossclaim for indemnity on JDPW’s behalf is also based on
a single crossclaim by the Castle McCulloch Defendants, namely, the crossclaim for
negligent misrepresentation against JDPW and Doug Harris. Because the Court has
determined that summary judgment is properly entered in JDPW’s favor on that
crossclaim, JDPW no longer has a right to indemnification based on that crossclaim.
See Jennette Fruit & Produce Co. v. Seafare Corp., 75 N.C. App. 478, 483, 331 S.E.2d
305, 308 (1985). The Court therefore concludes that summary judgment is
appropriately granted in Doug Harris’s favor to the extent the Receiver’s crossclaim
for indemnity is asserted on behalf of JDPW.
254. The single crossclaim asserted against DRE by the Castle McCulloch
Defendants’ pleadings is a crossclaim for possession of certain collateral or the
proceeds of that collateral. (Am. Answer and Crossclaims ¶¶ 423–28.) Thus, here,
too, there is no underlying tort for which the Castle McCulloch Defendants seek to
hold DRE liable, and DRE does not have a right to implied-in-law indemnity from
Doug Harris. See Hunsucker, 237 N.C. at 563–64, 75 S.E.2d at 771. There is also no
evidence in the record to show a contract for indemnity between DRE and Doug
Harris or facts implying such a contract in fact.
255. Further, to the extent DRE’s asserted right to indemnity is based on the
third-party claims the Castle McCulloch Defendants assert against Dr. Epes in their
post-summary-judgment Third-Party Complaint, those claims do not serve as a basis
for indemnity either. For one thing, there is no evidence of an express contract or an
implied in fact contract between Dr. Epes and Doug Harris that would create a basis for DRE’s indemnity claim. Further still, the claims asserted against Dr. Epes do not
give rise to a right to implied-in-law indemnification.
256. The March 2 and 3, 2017 Third-Party Complaints filed by the Castle
McCulloch Defendants assert two third-party claims against Dr. Epes: one for
suretyship, indemnity, and contribution in the event Plaintiffs successfully enforce
the Castle McCulloch Note, and the second for fraud. (See, e.g., Def. Castle McCulloch
Inc.’s Am. Answer Am. Consolidated Compl., Crossclaims in the Alternative, Third-
Party Compl. ¶¶ 421–33 [hereinafter “Castle McCulloch Third-Party Compl.”], ECF
No. 853.) Neither of these claims give Dr. Epes a right to seek implied-in-law
indemnity.
257. First, the claim against Dr. Epes for suretyship, indemnity, and contribution
is not a tort and thus does not create a situation in which one alleged tortfeasor may
seek indemnity from another, primarily responsible tortfeasor. See Hunsucker, 237
N.C. at 563–64, 75 S.E.2d at 771.
258. Second, the Court concludes that the claim for fraud brought against Dr.
Epes does not give Dr. Epes the right, and therefore cannot give DRE the right, to
seek indemnity from Doug Harris. “The general rule of the common law is that there
is no right to indemnity as between joint tort-feasors.” Id. at 563, 75 S.E.2d at 771.
The ability of a passively negligent tortfeasor to seek indemnity from a primarily
negligent tortfeasor, i.e., implied-in-law indemnity, is an exception to this rule. See
id. at 563–64, 75 S.E.2d at 771; Bost v. Metcalf, 219 N.C. 607, 609, 14 S.E.2d 648, 651
(1941); Taylor v. Jones Constr. Co., 195 N.C. 30, 32, 141 S.E. 492, 493 (1928). The right to seek implied-in-law indemnity is “bottomed on acts of active and negative
negligence of joint tort-feasors,” Bost, 219 N.C. at 609, 14 S.E.2d at 651, and is
justified by the rationale underlying “the entire law of indemnity,” that is, that the
passively negligent tortfeasor, having discharged the obligations of the actively
negligent tortfeasor, is entitled to indemnity from the latter, Hunsucker, 237 N.C. at
563, 75 S.E.2d at 771. These considerations are not raised by the fraud claim against
Dr. Epes.
259. The Castle McCulloch Defendants’ claim for fraud against Dr. Epes alleges
that in the event a transfer of certain paintings and chess sets from Dr. Epes to his
wife is deemed valid, Dr. Epes was later intentionally deceitful when he signed an
agreement purporting to transfer ownership of that same property to Richard Harris
while representing that the property was his and his alone. (Castle McCulloch Third-
Party Compl. ¶ 430, Ex. 3, at 2.) The Castle McCulloch Defendants do not allege that
Dr. Epes is vicariously liable to them for the acts of another, but for his own acts.
(Castle McCulloch Third-Party Compl. ¶¶ 430–33.) Thus, to succeed on this claim,
the Castle McCulloch Defendants must prove each element of a claim for fraud,
including that Dr. Epes possessed the requisite scienter for fraud. See Carcano v.
JBSS, LLC, 200 N.C. App. 162, 177, 684 S.E.2d 41, 53 (2009) (“[T]he scienter required
for fraud is not present without both knowledge and an intent to deceive, manipulate,
or defraud.” (internal quotation marks omitted)). If Dr. Epes is adjudged liable to any
of the Castle McCulloch Defendants, it will not be because he was “exposed to liability
by the action of another,” Carl, 192 N.C. App. at 557, 665 S.E.2d at 797, but because he was found to have engaged in intentional deceit himself. Consequently, the Castle
McCulloch Defendants’ fraud claim against Dr. Epes does not give Dr. Epes a right
to indemnity from Doug Harris, and DRE does not have a basis for asserting such a
right either. The Court therefore concludes that summary judgment is appropriately
granted in Doug Harris’s favor to the extent the Receiver’s crossclaim for indemnity
is asserted on behalf of DRE.
3. Receiver’s Crossclaims for Negligence, Breach of Fiduciary Duty, and Constructive Fraud on Behalf of JDPW
260. The Receiver’s second crossclaim against Doug Harris on behalf of JDPW,
DRE, and CCSEA alleges that Doug Harris is liable to each entity for professional
negligence due to his failure to use due care in representing JDPW, Dr. Epes, and
CCSEA as a licensed attorney. (Receiver’s Cross-cls. ¶¶ 472, 477–79.) Similarly, the
Receiver’s third crossclaim asserts that Doug Harris breached his fiduciary duties as
an attorney to JDPW, Dr. Epes, and CCSEA. (Receiver’s Cross-cls. ¶¶ 472, 481–82.)
The third crossclaim further pleads that Doug Harris undertook these breaches of his
fiduciary duties in whole or in part to benefit himself and that Doug Harris’s conduct
thus constitutes constructive fraud. (Receiver’s Cross-cls. ¶ 483.)
261. Doug Harris moves for summary judgment on the Receiver’s second and
third crossclaims for party-specific reasons. The Court therefore begins by
addressing Doug Harris’s and the Receiver’s arguments regarding these crossclaims
to the extent they are asserted on JDPW’s behalf.
262. With regard to JDPW, the Receiver specifically alleges that Doug Harris
was negligent in his representation of JDPW and breached his fiduciary duties as an attorney to JDPW by, among other things, failing to adequately disclose risks
associated with releasing the Castle McCulloch Collateral; undertaking transactions,
including the Settlement Agreement and the execution of the Release Deed, in which
he had a personal interest; causing JDPW to enter into a transaction with guarantors
he knew were insolvent; causing JDPW to incur debts it could not pay; and subjecting
JDPW to risks in transactions in which it did not have material and actual economic
interests sufficient to justify said risks. (Receiver’s Cross-cls. ¶ 472(e), (i), (v)–(y).)
263. Doug Harris argues that summary judgment is appropriate in his favor on
these crossclaims, to the extent they are premised on his role as an attorney for
JDPW, because the claims sound in legal malpractice and are untimely under the
applicable statute of limitations, N.C. Gen. Stat. § 1-15(c).
264. Negligence or breach of contract claims arising out of the performance of or
a failure to perform professional services are governed by section 1-15(c)’s time limits,
Sharp v. Teague, 113 N.C. App. 589, 592, 439 S.E.2d 792, 794 (1994), as are claims
for breach of fiduciary duty arising from the provision of professional services,
NationsBank v. Parker, 140 N.C. App. 106, 113, 535 S.E.2d 597, 601 (2000) (citing
Heath v. Craighill, Rendleman, Ingle & Blythe, 97 N.C. App. 236, 244, 388 S.E.2d
178, 183 (1990)).
265. Section 1-15(c) provides a minimum statute of limitations of three years for
actions arising out of the performance of or failure to perform professional services:
Except where otherwise provided by statute, a cause of action for malpractice arising out of the performance of or failure to perform professional services shall be deemed to accrue at the time of the occurrence of the last act of the defendant giving rise to the cause of action . . . [p]rovided nothing herein shall be construed to reduce the statute of limitation in any such case below three years.
N.C. Gen. Stat. 1-15(c). “When the [defendant’s] last act . . . occurred is a factual
issue” determined by the factfinder. Chase Dev. Grp. v. Fisher, Clinard & Cornwell,
211 N.C. App. 295, 305, 710 S.E.2d 218, 225 (2011).
266. Section 1-15(c) also allows parties to bring claims based upon harm that was
not readily apparent at the time of the defendant’s last act within one year of the date
the claimant discovered, or reasonably should have discovered, the harm.
Provided that whenever there is bodily injury to the person, economic or monetary loss, or a defect in or damage to property which originates under circumstances making the injury, loss, defect or damage not readily apparent to the claimant at the time of its origin, and the injury, loss, defect or damage is discovered or should reasonably be discovered by the claimant two or more years after the occurrence of the last act of the defendant giving rise to the cause of action, suit must be commenced within one year from the date discovery is made[.]
N.C. Gen. Stat. § 1-15(c). Whether a claimant’s injury or loss was not readily
apparent to the claimant at the time of its origin is treated as an issue of fact unless
the record demonstrates that it may be resolved as a matter of law. See Cheek v.
Poole, 98 N.C. App. 158, 165, 390 S.E.2d 455, 460 (1990).
267. Doug Harris first argues that the Receiver’s second and third crossclaims on
JDPW’s behalf are untimely because the last act the Receiver points to as evidence of
Doug Harris’s professional negligence or breach of fiduciary duties as an attorney for
JDPW is Doug Harris’s March 15, 2013 execution of the Release Deed. Because the
Receiver’s crossclaims were not filed until October 3, 2016, more than three years after this last act, Doug Harris contends any crossclaim for professional negligence
or breach of fiduciary duty on JDPW’s behalf is untimely under section 1-15(c).
268. The Receiver counters that the harm on which his second and third
crossclaims on JDPW’s behalf are based was not readily apparent to JDPW and could
not reasonably have been discovered by JDPW until it was placed in receivership on
April 28, 2016. Thus, because the Receiver’s crossclaims were filed on October 3,
2016, the Receiver contends that his second and third crossclaims should be deemed
timely under the “one-year-from-discovery” provision of section 1-15(c).
269. The Court begins by examining whether the harm alleged on JDPW’s behalf
occurred under circumstances that would have made that harm not readily apparent
to JDPW, and thus whether JDPW qualifies for the one-year-from-discovery provision
in section 1-15(c). Doug Harris’s dual role as attorney and trustee for JDPW
complicates this issue.
270. An express trust is “a fiduciary relationship with respect to property,
subjecting the person by whom the property is held,” i.e., the trustee, “to equitable
duties to deal with the property for the benefit of another person,” i.e., the beneficiary.
Bland v. Branch Banking & Tr. Co., 143 N.C. App. 282, 287, 547 S.E.2d 62, 66 (2001);
see also Restatement (Second) of Trusts § 2 (Am. L. Inst. 1959) (defining a trust as “a
fiduciary relationship with respect to property”). The common law of trusts
supplements the North Carolina General Statutes, N.C. Gen. Stat. § 36C-1-106, and
“[t]he common law . . . provides that any injury to the property placed in a trust may
only be redressed by the trustee,” Slaughter v. Swicegood, 162 N.C. App. 457, 464, 591 S.E.2d 577, 582 (2004). This rule is subject to certain exceptions, such as allowing
a beneficiary to sue individually where a conflict of interest arises between the trustee
and the beneficiary, see Fortune v. First Union Nat’l Bank, 323 N.C. 146, 149, 371
S.E.2d 483, 485 (1988), or where the trustee has improperly refused or neglected to
bring an action against a third person, in which case the beneficiary may maintain a
suit in equity against the trustee and the third person, Slaughter, 162 N.C. App. at
465–66, 591 S.E.2d at 583 (citing Restatement (Second) of Trusts § 282). Under
normal circumstances, however, the law is clear that the trustee and the trustee alone
has the ability to seek recourse for injury to a trust’s property. Id. at 466–67; 591
S.E.2d at 583–84 (holding that individuals who were both settlors and beneficiaries
of a trust did not have standing to assert a claim where the trustee did not refuse or
neglect to bring an action to protect the trust).
271. The application of this common law rule here would mean the power to
redress any injury to JDPW’s property caused by Doug Harris as attorney lay in the
hands of Doug Harris as trustee. The conflict of interest inherent in this combination
of positions would make it “unlikely, if not impossible, that Doug Harris would
investigate and pursue potential claims against himself for potential violations of his
fiduciary duty to the Trust.” (Order Approving Pls.’ Mot. Appointment Receiver for
JDPW Trust 5.) This fact pattern would also appear to create a situation in which
JDPW’s beneficiary would have standing to sue Doug Harris as JDPW’s trustee,
attorney, or both, see Slaughter, 162 N.C. App. at 465–66, 591 S.E.2d at 583; Fortune,
323 N.C. at 149, 371 S.E.2d at 485, but it is not apparent from the record that the beneficiary of JDPW was aware of Doug Harris’s decision to use JDPW in the
Assignment Agreement and the Settlement Agreement. If the beneficiary was made
aware of this basis for potential claims against Doug Harris, the record is equally
silent as to when that happened.
272. On these facts, the Court concludes that a reasonable factfinder could
determine that JDPW’s loss occurred under circumstances making the loss not
readily apparent to JDPW at the time of origin. Thus, this issue is not susceptible to
resolution in Doug Harris’s favor as a matter of law at summary judgment.
273. Doug Harris further asserts that even if JDPW’s loss was not readily
apparent, the Receiver’s negligence and breach of fiduciary duty crossclaims are still
untimely because the Receiver, and thus JDPW, should be considered to have been
on notice of the basis for these claims since July 17, 2015, the date Plaintiffs filed the
Amended Consolidated Complaint and pleaded certain facts about Doug Harris’s
conduct that now give rise to the Receiver’s crossclaims. Thus, Doug Harris contends,
because the Receiver knew about or reasonably should have known about Doug
Harris’s complained of conduct on July 17, 2015, JDPW should have brought its
crossclaims by July 17, 2016 to take advantage of section 1-15(c)’s one-year-from-
discovery provision. The Court disagrees.
274. The Court’s April 28, 2016 order placing JDPW into receivership vested the
Receiver with the full authority available to a receiver under North Carolina law
acting for and under the direction of the Court to take control of and administer the
assets of JDPW. (Order Approving Pls.’ Mot. Appointment Receiver for JDPW Trust 8.) This authority specifically permitted the Receiver to exercise all powers through
or in place of JDPW’s trustee to the extent necessary to manage JDPW’s affairs in
the best interests of the trust’s beneficiary and creditors. (Order Approving Pls.’ Mot.
Appointment Receiver for JDPW Trust 8.) The same order authorized the Receiver
to take possession of JDPW’s records, books, bank accounts, other financial accounts,
leases, deposits, ledgers, and other materials relating to JDPW’s operations. (Order
Approving Pls.’ Mot. Appointment Receiver for JDPW Trust 9–10.) April 28, 2016
was thus the first date the Receiver had access to all of JDPW’s documents and had
full authority to investigate JDPW’s business. The Court concludes that a reasonable
factfinder could determine that it was then that the Receiver or JDPW should
reasonably have discovered the facts giving rise the current crossclaims against Doug
Harris. Such a determination would render the October 3, 2016 filing of the
Receiver’s crossclaims timely.
275. Consequently, the Court cannot conclude on the current record, as a matter
of law at summary judgment, that the Receiver discovered, or reasonably should have
discovered, the loss to JDPW before the date he was appointed to oversee and
administer the business of the trust,24 and thus cannot conclude as a matter of law
24 Further, while the Court declines to reach this issue as a matter of North Carolina law at this time, it is difficult to believe that under section 1-15(c)’s one-year-from-discovery provision a claim arising out of facts similar to those here—an attorney providing or failing to provide professional services to a trust for which he or she is also the sole trustee—could begin to run before any other individual discovered (or should reasonably have discovered) the facts giving rise to the claim and also possessed standing to pursue that claim. Accord Dudley v. Allen, No. 6205, 1971 U.S. Dist. LEXIS 11038, at *3–4 (W.D. Ken. Oct. 28, 1971) (concluding under Kentucky’s statute of limitations for fraud, which contained a discovery provision, that alleged fraud by individuals who conspired with the board of directors of a company placed into receivership was not “discoverable” until the appointment of the that the Receiver’s crossclaims for negligence and breach of fiduciary duty brought
on JDPW’s behalf are barred by section 1-15(c)’s statute of limitations. The Court
will therefore deny Doug Harris’s motion to the extent it requests summary judgment
on these crossclaims.
4. Receiver’s Crossclaims for Negligence, Breach of Fiduciary Duty, and Constructive Fraud on behalf of CCSEA and DRE
276. The Court next addresses the Receiver’s second and third crossclaims to the
extent these claims are asserted on behalf of CCSEA and DRE. With regard to these
entities, Doug Harris argues that the Receiver’s second and third crossclaims should
be dismissed because the claims are untimely under the four-year statute of repose
contained in N.C. Gen. Stat. § 1-15(c).
277. As stated above, section 1-15(c)’s time limits apply to claims for negligence
or breach of fiduciary duty arising out of the performance of or failure to perform
professional services. See NationsBank, 140 N.C. App. at 113, 535 S.E.2d at 601;
Sharp, 113 N.C. App. at 592, 439 S.E.2d at 794. Section 1-15(c)’s statute of repose
provides “in no event shall an action be commenced more than four years from the
last act of the defendant giving rise to the cause of action.” N.C. Gen. Stat. § 1-15(c).
receiver, “inasmuch as no one would have brought suit prior to that time”); cf. IIT, Int’l Inv. Tr. v. Cornfeld, 619 F.2d 909, 930 (2d Cir. 1980) (“It would seem anomalous and unfair, however, to hold the liquidators to the knowledge of those in charge of [the trust] when the liquidators are complaining precisely of wrongs perpetrated by them. When the liquidators assumed office, they did so free of any imputation of knowledge of the previous faithless management[].”); Fla. Dep’t of Ins. v. Blackburn, 209 B.R. 4, 12–13 (Bankr. M.D. Fla. May 20, 1997) (citing cases to support the proposition that “courts have also held that, for statutes of limitation purposes, the receiver takes its appointment free of any imputation of knowledge of the previous mismanagement”). The time period provided in the statute of repose is absolute. “A statute
of repose creates an additional element of the claim itself which must be satisfied in
order for the claim to be maintained.” KB Aircraft Acquisition, LLC v. Berry, 249
N.C. App. 74, 85, 790 S.E.2d 559, 567 (2016) (quoting Goodman v. Holmes &
McLaurin, 192 N.C. App. 467, 474, 665 S.E.2d 526, 531 (2008)). Thus, a plaintiff who
fails to bring a claim within section 1-15(c)’s statute of repose period “literally has no
cause of action.” Head, 371 N.C. at 11, 812 S.E.2d at 838 (quoting Hargett v. Holland,
337 N.C. 651, 655, 447 S.E.2d 784, 787 (1994)).
278. Doug Harris contends that the Receiver’s second and third crossclaims on
behalf of CCSEA and DRE are untimely under section 1-15(c)’s four-year statute of
repose because the record contains no evidence of any last act by Doug Harris giving
rise to these crossclaims that occurred less than four years prior to the October 3,
2016 filing of the crossclaims. Particularly, Doug Harris denies acting as an attorney
for CCSEA or Dr. Epes at any time after July 2012 except for certain representations
undertaken in September 2012. In support of this assertion, he points to a document
purporting to be a contract executed by Dr. Epes in July 2012 that acknowledged that
Doug Harris had previously represented Dr. Epes and his entities but was no longer
engaged in such a representation. (Mem. Law Supp. Douglas S. Harris’s Mot. Summ.
J. Gerald A. Jeutter’s Cross-cls. Behalf JDPW Trust, CCSEA, and DRE Against Doug
Harris Ex. A, at 2, ECF No. 845.) Doug Harris further argues that even if the
Receiver’s allegations are taken as true, the latest he could possibly have performed a last act giving rise to the Receiver’s crossclaims is still September 2012. Thus, Doug
Harris argues, summary judgment in his favor is appropriate.
279. In response, the Receiver contends that the March 15, 2013 execution of the
Release Deed should also be considered an act giving rise to CCSEA’s and DRE’s
claims. Because this act occurred within the four years prior to the Receiver filing
his crossclaims on behalf of CCSEA and DRE, the Receiver argues the crossclaims
are timely.
280. More specifically, the Receiver argues that following the September 2012
transactions, JDPW was obligated on a promissory note to NFI for $2.1 million dollars
and held approximately $1.7 million in debt belonging to the Castle McCulloch
Defendants and roughly $1.6–1.7 million in debt belonging to CCSEA as a means of
meeting that obligation.25 The Receiver points out that Doug Harris admits that he
took steps, including the execution of the March 15, 2013 Release Deed, to remove
collateral belonging to the Castle McCulloch Defendants from this pool of assets
available to JDPW.26 (Harris Dep. I, at 866:19–868:23.) The Receiver contends that the
remaining CCSEA-related assets JDPW held were not sufficient to cover its $2.1
million obligation to NFI and that JDPW held no, or few, other assets. Thus, the
25 The total balance outstanding on all of the loans held by NewBridge in mid-2012 was $3,350,139.42. (Settlement Agreement 2.) When JDPW purchased the CCSEA and Castle McCulloch Loans in September 2012, the Castle McCulloch Loan’s portion of the outstanding debt was exactly $1,692,430.39. (Am. Consolidated Compl. Ex. XX, ECF No. 192.)
26 While Doug Harris also testified in his deposition that he retained for JDPW any interests or property related to NSITE and believed JDPW could still call upon NSITE for some amount of money, he also testified that he was aware that NSITE had no money. (Harris Dep. I, at 867:1–13.) Receiver argues, Doug Harris’s decision to assign away the Castle McCulloch
Collateral and forgo collection on the Castle McCulloch Loan essentially guaranteed
that JDPW would default on its loan from NFI and that NFI would turn to the CCSEA
Collateral and additional pledged collateral from Dr. Epes to recover its money. The
Receiver asserts that the execution of the Release Deed therefore constituted a
conflicted transaction for Doug Harris which left CCSEA and Dr. Epes with increased
liability for JDPW’s debts and should be considered the last act giving rise to the
crossclaims for negligence and breach of fiduciary duty brought on behalf of CCSEA
and DRE. After a careful review of the record at summary judgment and controlling
North Carolina case law, the Court disagrees.
281. To determine when a professional’s last act occurred for purposes of section
1-15(c), courts “consider the contractual relationship between the parties and when
the contracted-for services were completed.” Head, 371 N.C. at 11–12, 812 S.E.2d at
838. When the professional is an attorney, “the contractual arrangement between
attorney and client . . . determine[s] the extent of the attorney’s dut[ies] to the client
and the end of the attorney’s professional obligation[s].” Hargett, 337 N.C. at 658,
447 S.E.2d at 789. The duties an attorney owes to a client as the result of a legal
representation can vary depending upon the nature of the contractual agreement for
the attorney’s services. Compare id. at 656–58, 447 S.E.2d at 788–89 (holding
attorney’s contract for representation obligated him to prepare and supervise
execution of will, and afterwards his professional duties to testator were at an end),
with Sunbow Indus., Inc. v. London, 58 N.C. App. 751, 753, 294 S.E.2d 409, 410 (1982) (holding attorney’s contracted-for services imposed a duty to represent client during
closing and a continuing duty to perfect client’s security interest by filing a financing
statement).
282. In assessing when a claim falling under section 1-15(c) begins to run, our
courts have taken a restrictive view of what may be considered a last act giving rise
to a cause of action. As one example, North Carolina courts have consistently held
that a continuing course of representation does not function as a continuing last act
such that section 1-15(c)’s time limits begin to run only once representation has
ended; the focus is instead on the specific acts constituting the alleged negligence or
breach of fiduciary duty. See Carlisle v. Keith, 169 N.C. App. 674, 683–84, 614 S.E.2d
542, 549 (2005) (explaining that the “continuing course of treatment doctrine” has
been limited to medical malpractice cases and that the issue for the court in a legal
malpractice action is when the last act occurred, not when an attorney’s
representation of a client ended). Further, when examining the contractual
agreement between attorney and client to determine the extent of the attorney’s
professional duties and when a duty was breached, North Carolina courts have been
reluctant to recognize “continuing” duties that extend beyond defined periods of
representation. See Hargett, 337 N.C. at 655–57, 447 S.E.2d at 788–89 (holding that
attorney’s last act was not failing “to fulfill a continuing duty to prepare a will
properly” but overseeing the execution of the will that was actually prepared).
Indeed, continuing duties stemming from an attorney’s representation of a client
have only been recognized in very limited circumstances in which the duties were imposed by the contractual agreement between the attorney and client. See Sunbow
Indus., Inc., 58 N.C. App. at 753, 294 S.E.2d at 410; see also Hargett, 337 N.C. at 657–
58, 447 S.E.2d at 789 (explaining that the contractual arrangement between attorney
and client in Sunbow allowed the attorney’s continuous failure to perfect a security
interest to amount to a last act giving rise to the claim).
283. Here, the Receiver’s pleading contains multiple allegations that Doug
Harris failed to properly advise CCSEA and Dr. Epes leading up to the September
21, 2012 transactions, (see Receiver’s Cross-cls. ¶¶ 472(a)–(b), (g), (p), (q), (z)),
represented multiple parties in the transactions despite conflicts of interest he failed
to disclose, (see Receiver’s Cross-cls. ¶¶ 472(d), (i), (l), (r), (aa)–(bb)), and otherwise
failed to competently represent CCSEA and Dr. Epes with regard to the transactions,
(see Receiver’s Cross-cls. ¶¶ 472(g), (h), (k), (o), (q), (s), (v), (w), (y)). However, with
the exception of the execution of the March 15, 2013 Release Deed, the Receiver does
not allege or point to evidence showing a negligent act occurring on or after October
3, 2012 or an act after that date that would constitute a breach of Doug Harris’s
professional obligations arising out of his contracted-for services. Further, although
the Receiver argued at the hearing on the Motions for Summary Judgment that
evidence in the record demonstrates that Doug Harris continued to represent CCSEA
or Dr. Epes in certain litigation until October 2012, the record does not support the
Receiver’s contention, and, in any event, continued representation does not establish
a last act for section 1-15(c)’s purposes. See Carlisle, 169 N.C. App. at 683–84, 614 S.E.2d at 549; Teague v. Isenhower, 157 N.C. App. 333, 338, 579 S.E.2d 600, 604
(2003).
284. As to the execution of the Release Deed, the Receiver does not allege or argue
that Doug Harris was providing professional services to either CCSEA or Dr. Epes as
late as March 2013, and the record contains no evidence that Doug Harris was
representing either party at that point in time. Thus, to make a case that the March
15, 2013 Release Deed served as a last act under section 1-15(c), the Receiver must
show that the execution of the Release Deed constituted a violation of a continuing
duty arising out of Doug Harris’s previous contractual agreements with CCSEA and
Dr. Epes. After a review of the record, the Court concludes that the Receiver has not
produced evidence showing such a continuing duty was imposed by Doug Harris’s
previous representations.
285. The Receiver’s argument that the execution of the Release Deed constitutes
a last act of negligence or a last act breaching a fiduciary duty focuses on the notion
that the Release Deed benefitted Doug Harris and/or his brother and left Doug
Harris’s former clients, CCSEA and Dr. Epes, “in a worse off position than they were”
when JDPW held interests in the Castle McCulloch Collateral. (Hr’g Tr. 125:9–15.)
Essentially, the Receiver argues that the Release Deed must amount to a last act
giving rise to a cause of action for professional negligence or breach of fiduciary duty
because in executing the Release Deed Doug Harris served the interests of a party
adverse to CCSEA and Dr. Epes, to their detriment, after previously representing both CCSEA and Dr. Epes. This argument, however, faces an obstacle raised by the
limited North Carolina case law addressing such situations.
286. While North Carolina law recognizes that an attorney’s concurrent and
continuing “representation of two or more clients with adverse or conflicting interests
[may] constitute[] such misconduct as to subject him to liability for malpractice,”
Jenkins v. Wheeler, 69 N.C. App. 140, 145, 316 S.E.2d 354, 358 (1984), the Court’s
research indicates that there is little authority in North Carolina addressing claims
for legal malpractice based upon adverse acts occurring after the conclusion of an
attorney-client relationship. The one case that appears to have confronted a relevant
fact pattern, State ex rel. Long v. Petree Stockton, LLP, 129 N.C. App. 432, 499 S.E.2d
890 (1998), indicates that if such a claim is possible, “[a] cause of action is not
established merely by showing that” the attorney “had access to confidential
information or that” his or her subsequent “representation was adverse.” Id. at 448,
499 S.E.2d at 800. Rather, “[t]he former client must establish . . . that the attorney
possessed and misused the client’s confidences [and] that the fiduciary breach was a
proximate cause of the injury.” Id.
287. Under the rule expressed in Long, the Receiver’s allegations and evidence
concerning the execution of the Release Deed do not support a cause of action against
Doug Harris. The Receiver has not alleged or argued that Doug Harris misused
information obtained in confidence from CCSEA or Dr. Epes in executing the Release
Deed, and no facts in the record demonstrate such a misuse of former clients’
confidences. Accordingly, the Court concludes that the March 15, 2013 execution of the Release Deed cannot be considered an act giving rise to a claim for professional
negligence or breach of fiduciary duty by CCSEA or DRE.
288. As a result of the above, the Court concludes that no genuine issue of
material fact exists as to the timeliness of the Receiver’s crossclaims brought on
behalf of CCSEA and DRE for negligence and breach of fiduciary duty. The record
contains no evidence of an act by Doug Harris giving rise to either claim within the
four years preceding the date the Receiver filed his crossclaims, and thus these claims
are barred by section 1-15(c)’s statute of repose. See Hargett, 337 N.C. at 655, 447
S.E.2d at 788.27
289. As previously noted, however, the Receiver’s third crossclaim also contains
an allegation that Doug Harris’s conduct constituted constructive fraud. (Receiver’s
Cross-cls. ¶ 483.) Doug Harris, in moving for summary judgment, argued that the
Receiver’s “legal malpractice and breach of fiduciary duty claims” should be
dismissed, (Douglas S. Harris’s Reply Receiver’s Resp. Harris Mot. Summ. J. Cross-
cls. 8, ECF No. 913), but did not discuss or provide argument on the Receiver’s
crossclaim for constructive fraud. As the party moving for summary judgment, Doug
Harris bears the burden of proving that no issue of material fact exists as to each of
27 In his response brief, the Receiver also argues “that the Cross Claims were asserted in an amended answer in response to an amended complaint and therefore can relate back under Rule 15 . . . to the initial answer.” (Receiver’s Resp. Harris Mot. Summ. J. Cross-cls. 2, ECF No. 892.) For relation back under Rule 15(c), however, a claim asserted in an amended pleading is deemed “to have been interposed at the time the claim in the original pleading was interposed[.]” N.C. R. Civ. P. 15(c) (emphasis added). The Receiver’s crossclaims against Doug Harris were asserted for the first time in the Receiver’s October 3, 2016 answer to the Castle McCulloch Defendants’ crossclaims. Thus, the crossclaims have no earlier “claim in [an] original pleading” to which they can relate back. As a result, the Receiver’s relation back argument under Rule 15(c) is without merit. the Receiver’s causes of action. Because Doug Harris did not discuss or advance
arguments concerning the Receiver’s constructive fraud crossclaim, the Court
concludes he has not met his burden as to that claim. Accordingly, the Receiver’s
crossclaim for constructive fraud shall proceed to trial. See Jones v. N.Y. City Health
& Hosp. Corp., No. 00 Civ. 7002 (CBM), 2003 U.S. Dist. LEXIS 9014, at *2–3
(S.D.N.Y. May 29, 2003) (holding that although defendants moved for summary
judgment with respect to all claims, they did not argue or discuss plaintiff’s
termination claim and thus failed to meet their burden at summary judgment with
respect to that claim).
5. Receiver’s Crossclaim for Breach of Trustee’s Duties and Constructive Fraud
290. The fourth crossclaim contained in the Receiver’s pleading alleges that Doug
Harris breached his fiduciary duties as trustee of JDPW and did so to benefit himself,
pointing again to Doug Harris’s decisions to, among other things, involve JDPW in
the Settlement Agreement and release the Castle McCulloch Deed of Trust
(Receiver’s Cross-cls. ¶¶ 472(i), (v)–(y), 485, 487.) The Receiver alleges that it was as
a result of these acts that JDPW was exposed to certain legal liabilities and has now
incurred the allowed claim of $2.1 million against it as part of its settlement
agreement with Plaintiffs. (Receiver’s Cross-cls. ¶¶ 485–86.)
291. Doug Harris moves for summary judgment on this crossclaim and argues
that his acts cannot be considered the proximate cause of the alleged injury to JDPW.
Doug Harris contends that this is so because it was the Receiver, not Doug Harris,
who decided to settle with Plaintiffs and allow the $2.1 million claim against JDPW once JDPW was placed in receivership. Thus, Doug Harris argues, JDPW’s liability
in this case is the result of the Receiver’s negligence or intentional misconduct, not
Doug Harris’s actions.
292. The Receiver responds by first pointing out that Doug Harris cites no
authority to support his proposition—that a court-approved settlement negotiated by
a receiver can insulate a trustee from liability for his or her actions leading up to the
appointment of the receiver. The Receiver also contends that Doug Harris’s argument
ignores the multiple transactions Doug Harris brought JDPW into despite clear
conflicts of interest on his part.
293. Under North Carolina law, a trustee under any trust is a fiduciary and owes
certain duties to the beneficiaries of that trust. N.C. Gen. Stat. § 32-2(a); see, e.g.,
N.C. Gen. Stat. § 36C-8-802. A breach of these fiduciary duties is considered a breach
of trust. N.C. Gen. Stat. § 36C-10-1001(a).
294. To prove a breach of fiduciary duty, a “plaintiff must show that:
(1) defendant owed plaintiff a fiduciary duty; (2) defendant breached his fiduciary
duty; and (3) the breach of fiduciary duty was a proximate cause of injury to plaintiff.”
Miller v. Burlington Chem. Co., 2017 NCBC LEXIS 6, at *23 (N.C. Super. Ct. Jan. 27,
2017) (citing Farndale Co. v. Gibellini, 176 N.C. App. 60, 68, 628 S.E.2d 15, 20 (2006)).
Where a claimant also shows that the breaching fiduciary exploited the fiduciary
relationship to his or her advantage or benefit, the claimant will have a claim for
constructive fraud. Hewitt v. Hewitt, 798 S.E.2d 796, 800 (N.C. Ct. App. 2017). 295. Proximate cause is defined as “a cause which in natural and continuous
sequence, unbroken by any new and independent cause, produced the plaintiff’s
injuries, and without which the injuries would not have occurred.” Adams v. Mills,
312 N.C. 181, 192, 322 S.E.2d 164, 172 (1984) (quoting Hairston v. Alexander Tank
& Equip. Co., 310 N.C. 227, 233, 311 S.E.2d 559, 565 (1984)). Questions concerning
proximate cause are ordinarily best left to the jury. Williams v. Carolina Power &
Light Co., 296 N.C. 400, 403, 250 S.E.2d 255, 258 (1979). The Court should only
decide issues of proximate cause in those cases where reasonable minds could not
differ as to the foreseeability of injury. Id.
296. Although in Doug Harris’s view JDPW’s liability may be due solely to the
Receiver’s decision to settle Plaintiffs’ claims against the trust, the Court cannot
conclude as a matter of law that the Receiver’s settlement with Plaintiffs was a “new
and independent cause,” Adams, 312 N.C. at 192, 322 S.E.2d at 172, of injury to
JDPW when viewing the facts here in the light most favorable to the Receiver or
JDPW. Further, evidence in the record tends to show other potential ways in which
Doug Harris breached his duties to JDPW, separate and apart from the $2.1 million
claim settlement. For example, Doug Harris testified that he caused JDPW to pay at
least $25,000 in furtherance of the Settlement Agreement between NewBridge and
the Settlement Debtors. (Harris Dep. I, at 382:9–383:12.) Doug Harris also testified
about his attempts to remove the assets associated with the Castle McCulloch
Defendants from JDPW’s possession in order to provide relief to his brother and his
brother’s entities. (Harris Dep. I, at 867:20–868:23.) Both of these facts support the Receiver’s assertions that Doug Harris compromised the assets of JDPW and used
the trust for transactions that personally benefitted himself.
297. For these reasons, the Court concludes that Doug Harris’s request for
summary judgment on the Receiver’s fourth crossclaim should be denied.
6. Receiver’s Crossclaim for Unfair or Deceptive Trade Practices
298. The Receiver, on behalf of CCSEA and DRE, alleges that Doug Harris, to
the extent he denies the existence of an attorney-client relationship with CCSEA or
Dr. Epes at any relevant time, is liable to CCSEA and DRE for unfair or deceptive
trade practices under N.C Gen. Stat. § 75-1.1 as a result of acts he carried out as
trustee of JDPW. The Receiver also asserts that Doug Harris must indemnify JDPW
for any liability the trust suffers as a result of Doug Harris’s unfair or deceptive acts.
299. Doug Harris moves for summary judgment in his favor on this crossclaim,
arguing that the alleged acts giving rise to the crossclaim constitute the rendering of
professional services and are thus exempt from a claim under the UDTPA. For the
reasons already stated in connection with the Court’s dismissal of Plaintiffs’ claim for
unfair or deceptive trade practices, the Court agrees.
300. Much like Plaintiffs’ argument in support of their section 75-1.1 claim, the
Receiver incorrectly assumes that if Doug Harris was not acting as an attorney for
CCSEA or Dr. Epes then Doug Harris’s conduct cannot fall under the learned
profession exception. This argument ignores the settled rule that an attorney’s
rendering of legal services to another cannot provide a basis for an unfair or deceptive
trade practices claim against the attorney or the attorney’s client. See Moch, 251 N.C. App. at 208–09, 794 S.E.2d at 904; Davis Lake Cmty. Ass’n, 138 N.C. App. at
297, 530 S.E.2d at 869.
301. Whether an act constitutes the rendering of professional services, and thus
whether a party’s acts were outside the scope of the UDTPA’s definition of commerce,
is a question of law for the Court to decide. Hardy, 288 N.C. at 310, 218 S.E.2d at
346–47. Here, even if Doug Harris was not serving as CCSEA’s or Dr. Epes’s attorney
during the negotiations for the Settlement Agreement and the Assignment
Agreement, and in the time leading up to and following both transactions, the
undisputed facts still show that Doug Harris was a duly licensed attorney who was
representing JDPW and engaging in acts that are commonly considered within the
purview of legal services. Cf. N.C. Gen. Stat. § 84-2.1(a) (“The phrase ‘practice law’
as used in this Chapter is defined to be performing any legal service for any other
person . . . specifically including . . . assisting by advice, counsel, or otherwise in any
legal work; and to advise or give opinion upon the legal rights of any person, firm or
corporation[.]”); N.C. Gen. Stat. § 84-4 (making it unlawful for persons except active
members of the State Bar to prepare legal documents for another person, firm, or
corporation ); Pledger, 257 N.C. at 636, 127 S.E.2d at 339 (“Practice of law embraces
the preparation of legal documents and contracts by which legal rights are secured.”).
That self-serving goals may have motivated those acts, or that Doug Harris’s conduct
may not have conformed to legal or ethical standards, are not proper factors for the
Court’s analysis. See Wheeless, 237 N.C. App. at 589–91, 768 S.E.2d at 123–24;
Alamance Family Practice, P.A., 2018 NCBC LEXIS 83, at *24. 302. Reviewing the undisputed facts at summary judgment, the Court concludes
that no genuine issue of material fact exists as to this issue and that Doug Harris’s
acts upon which the Receiver bases his section 75-1.1 crossclaim were professional
services rendered by a member of a learned profession. See Moch, 251 N.C. App. at
208–09, 794 S.E.2d at 904; Reid, 138 N.C. App. at 267–68, 531 S.E.2d at 236; Davis
Lake Cmty. Ass’n, 138 N.C. App. at 297, 530 S.E.2d at 869. The Court will therefore
grant Doug Harris’s motion for summary judgment as to this crossclaim.
7. Receiver’s Crossclaim for Equitable Relief
303. The Receiver’s sixth crossclaim on behalf of JDPW, CCSEA, and DRE
requests equitable relief from the Court to “return each [claimant], or any of them, as
near as possible to the position they occupied before the breaches of duty by Doug
Harris, including but not limited to rescission, restitution, an accounting, and voiding
of illegal or inequitable transactions.” (Receiver’s Cross-cls. ¶ 496.)
304. Doug Harris argues that summary judgment should be granted in his favor
against JDPW, CCSEA, and DRE on this crossclaim because each entity slept on its
legal rights and should not be allowed to recover in equity when it neglected to bring
its claims in a timely manner. As detailed above, however, the Receiver still
maintains at least one crossclaim against Doug Harris on behalf of each entity. Thus,
Doug Harris’s first argument against the Receiver’s request for equitable relief will
not succeed.
305. Doug Harris next contends that equity should not be available to JDPW,
CCSEA, or DRE because each entity has adequate remedies at law. The Court cannot agree with this assertion based on the current record at this stage of these
proceedings.
306. Generally, “[e]quity will not lend its aid in any case where the party seeking
it has a full and complete remedy at law.” Daugherty v. Cherry Hosp., 195 N.C. App.
97, 102, 670 S.E.2d 915, 919 (2009) (quoting Centre Dev. Co. v. County of Wilson, 44
N.C. App. 469, 470, 261 S.E.2d 275, 276 (1980)). When examining the adequacy of a
claimant’s remedy at law, however, courts should be mindful that “an adequate
remedy is not a partial remedy. It is a full and complete remedy, and one that is
accommodated to the wrong which is to be redressed by it.” Moore v. Moore, 297 N.C.
14, 16, 252 S.E.2d 735, 738 (1979) (quoting Sumner v. Staton, 151 N.C. 198, 201, 65
S.E. 902, 904 (1909)). Thus, to preclude the availability of equitable relief, the remedy
available at law “must be as practical and as efficient to the ends of justice and its
prompt administration as the remedy in equity.” Id.
307. Whether monetary damages will provide a claimant an adequate remedy at
law depends upon the facts of the case and the injury in question. See Whalehead
Props. v. Coastland Corp., 299 N.C. 270, 283, 261 S.E.2d 899, 907–08 (1980)
(reversing denial of prayer for specific performance where “the trial court was without
the necessary facts to determine whether damages would have provided defendants
an adequate remedy at law”). One factor courts consider on this point is the “difficulty
and uncertainty of collecting such damages after they are awarded.” Lasecki v.
Lasecki, 809 S.E.2d 296, 306 (N.C. Ct. App. 2017) (quoting Whalehead Props., 299
N.C. at 283, 261 S.E.2d at 908). 308. The insolvency of multiple parties, and the resulting importance of their
physical assets and other collateral, has been a common thread running throughout
this case. Although the Receiver, acting for JDPW, CCSEA, and DRE, may succeed
on certain crossclaims against Doug Harris and receive an award of monetary
damages, the Court is not convinced, on the current record, that such relief will be
full and complete or fully collectable. The Court thus concludes that Doug Harris has
not shown at summary judgment that JDPW’s, CCSEA’s, or DRE’s potential remedies
at law will be adequate such that the Receiver should be denied the ability to seek
equitable relief against him on their behalf. Doug Harris’s request for summary
judgment on this crossclaim is denied.
8. Receiver’s Crossclaim in Equity to Set Aside Release Deed and Assignment of Castle McCulloch Note
309. The seventh crossclaim by the Receiver is brought on behalf of JDPW. This
crossclaim asks the Court to void the Release Deed and the alleged assignment of the
Castle McCulloch Note to the Castle McCulloch Defendants, alleging that Doug
Harris breached his duties to JDPW as trustee in transferring or impairing these
assets without receiving adequate compensation for JDPW. (Receiver’s Cross-cls.
¶¶ 498–502.)
310. Despite moving for summary judgment on all crossclaims brought by the
Receiver, Doug Harris does not present an argument for summary judgment on this
crossclaim specifically. To the extent Doug Harris’s argument against equitable relief
on timeliness grounds applies to this crossclaim, that argument is unsuccessful for
the reasons already mentioned. To the extent Doug Harris argues that an adequate remedy exists at law for the complained of acts, the Court again concludes that Doug
Harris has not met his burden of showing the adequacy of such a remedy at summary
judgment. The Court also notes that the relief requested by this crossclaim is
expressly available under N.C. Gen. Stat. § 36C-10-1001 to remedy a breach of trust.
N.C. Gen. Stat. § 36C-10-1001(b)(9) (“To remedy a breach of trust that has
occurred . . . the court may . . . [s]ubject to G.S. 36C-10-1012, void an act of the
trustee, impose a lien or a constructive trust on trust property, or trace trust property
wrongfully disposed of and recover the property or its proceeds[.]”). Doug Harris’s
motion will thus be denied as to this crossclaim.
9. Receiver’s Crossclaim for “Other Causes of Action”
311. Doug Harris finally moves for summary judgment on the Receiver’s eighth
crossclaim brought on behalf of JDPW, CCSEA, and DRE, arguing that this last
crossclaim is improper under the Rules of Civil Procedure and fails to state a claim.
312. The Receiver’s eighth crossclaim is titled “Other Causes of Action.” This
crossclaim pleads that JDPW, CCSEA, and DRE, “[h]aving been directly and
proximately damaged in excess of $25,000 as described above . . . seek recovery under
all causes of action allowed by North Carolina or federal law based upon the facts,
transactions and occurrences as alleged above and as proven at trial.” (Receiver’s
Cross-cls. ¶ 503.) The next paragraph of the crossclaim goes on to state that JDPW,
CCSEA, and DRE “seek recovery from Castle McCulloch for aiding and abetting the
wrongs set forth above through the conduct of its attorney Douglas Harris” and
alleges that this conduct also “constitutes unfair and deceptive trade practices and otherwise entitles JDPW, CCSEA, and DRE to equitable relief.” (Receiver’s Cross-
cls. ¶ 504.)
313. Summary judgment is appropriate where an essential element of a party’s
claim does not exist or cannot be proven at trial. Dobson, 352 N.C. at 83, 530 S.E.2d
at 835. Where a party entirely fails to state a claim upon which relief can be granted,
summary judgment is also appropriate, because in such cases “any issue of fact which
exists would not be material.” Poston v. Morgan-Schultheiss, Inc., 46 N.C. App. 321,
323–24, 265 S.E.2d 615, 616 (1980).
314. Further, in order to properly plead a claim in North Carolina, at a bare
minimum, a claimant must comply with Rule 8(a)(1) and state his or her claim
“sufficient[ly] to enable the adverse party to understand the nature of the claim, to
answer, and to prepare for trial.” Plasman v. Decca Furniture (USA), Inc., 811 S.E.2d
616, 621 (N.C. Ct. App. 2018) (quoting Piro v. McKeever, 245 N.C. App. 412, 415, 782
S.E.2d 367, 370 (2016)); see N.C. R. Civ. P. 8(a)(1). A claim that fails to comply with
Rule 8(a)(1) may be dismissed as failing to state a claim upon which relief can be
granted. See Plasman, 811 S.E.2d at 626 (holding that plaintiffs’ failure to plead
their claims properly under Rule 8(a)(1) warranted a dismissal pursuant to Rule
12(b)(6)).
315. The Receiver’s eighth crossclaim asserts nothing more than a general right
to recover under “all other causes of action allowed by North Carolina or federal
law[.]” (Receiver’s Cross-cls. ¶ 503.) The crossclaim does not make out any legally
cognizable claim against Doug Harris and is not sufficiently stated to allow an adverse party in Doug Harris’s position to understand the nature of the claim brought
against him. The Court therefore concludes that this crossclaim fails to state a claim
upon which relief can be granted to the extent it attempts to assert a claim against
Doug Harris. As a result, Doug Harris’s motion for summary judgment will be
granted and this crossclaim is dismissed to the extent it asserts a claim against him.
IV.
CONCLUSION
316. WHEREFORE, the Court hereby ORDERS as follows:
a. Doug Harris’s Motion as to Plaintiffs’ Claims is GRANTED. Plaintiffs’
claims against Doug Harris for legal malpractice and misrepresentation,
fraud, unfair or deceptive trade practices, and punitive damages are
dismissed with prejudice.
b. The Castle McCulloch Defendants’ Motion is GRANTED in part and
DENIED in part as follows:
i. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Count 8 (Fraud) of Plaintiffs’ Amended
Consolidated Complaint, the Motion is DENIED as moot.
However, the Court’s ruling precludes NFI from contending at
trial that it has asserted a fraud or vicarious liability claim
against the Castle McCulloch Defendants.
ii. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Count 14 (Possession of Confession of Judgment: Constructive Trust) of Plaintiffs’ Amended
Consolidated Complaint, the Motion is GRANTED. Plaintiffs’
Count 14 is dismissed with prejudice.
iii. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Count 16 (Declaratory Judgment: Castle
McCulloch Collateral) of Plaintiffs’ Amended Consolidated
Complaint, the Motion is GRANTED. Plaintiffs’ Count 16 is
iv. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Counts 26 (Motion for Temporary
Restraining Order: Castle McCulloch Collateral) and 27
(Preliminary and Permanent Injunction: Castle McCulloch
Collateral) of Plaintiffs’ Amended Consolidated Complaint, the
Motion is GRANTED. Plaintiffs’ Counts 26 and 27 are dismissed
with prejudice.
v. To the extent Plaintiffs’ Count 28 (Equitable Subrogation:
NewBridge Bank Collateral) seeks possession of the Castle
McCulloch Collateral or the Confession of Judgment, the Castle
McCulloch Defendants’ Motion is GRANTED, and Plaintiffs’
Count 28 is dismissed with prejudice. To the extent Count 28
seeks possession of the CCSEA Collateral, the Castle McCulloch
Defendants’ Motion is DENIED as moot. vi. To the extent Plaintiffs’ Count 30 (Judicial Assignment) requests
judicial assignment of the Confession of Judgment or the Castle
McCulloch Collateral or Loan Documents, the Castle McCulloch
Defendants’ Motion is GRANTED, and Plaintiffs’ Count 30 will
be dismissed with prejudice. To the extent Plaintiffs’ Count 30
seeks judicial assignment of the CCSEA Collateral, the Castle
McCulloch Defendants’ Motion is DENIED as moot.
vii. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Count 13 (Possession of Castle McCulloch
Collateral: Breach of Contract and Constructive Trust) of
Plaintiffs’ Amended Consolidated Complaint, the Motion is
GRANTED. Plaintiffs’ Count 13 is dismissed with prejudice
viii. To the extent the Castle McCulloch Defendants’ Motion requests
summary judgment on Plaintiffs’ Count 33 (Unjust Enrichment),
the Motion is GRANTED. Plaintiffs’ Count 33 against the Castle
McCulloch Defendants and NSITE is dismissed with prejudice.
ix. To the extent Plaintiffs’ Count 34 (Demand for Inventory and
Inspection) seeks inventory and inspection of the Castle
McCulloch Collateral or Loan Documents, or the Confession of
Judgment, the Castle McCulloch Defendants’ Motion for
Summary Judgment is GRANTED, and Plaintiffs’ Count 34 is
dismissed with prejudice. To the extent Plaintiffs’ Count 34 seeks inventory and inspection of the CCSEA Collateral, the Castle
c. To the extent Plaintiffs’ Motion for Partial Summary Judgment requests
summary judgment on Counts 14, 16, and 27, as well as on Counts 28
and 30 to the extent those claims seek relief with regard to the Castle
McCulloch Collateral or the Confession of Judgment, Plaintiffs’ Motion
is DENIED. To the extent Plaintiffs’ Motion for Partial Summary
Judgment requests summary judgment on Count 15, as well as on
Counts 28 and 30 to the extent those claims seek relief with regard to
the CCSEA Collateral, Plaintiffs’ Motion is DENIED as moot.
d. Plaintiffs and Nivison’s Motion as to Doug Harris’s Claims is
GRANTED in part and DENIED in part as follows:
i. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for tortious
interference with contract against NFI, the Motion is
GRANTED. Doug Harris and JDPW’s claim for tortious
interference with contract against NFI is dismissed with
prejudice.
ii. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for unfair or
deceptive trade practices, the Motion is DENIED as moot.
However, Doug Harris and JDPW shall not be permitted to advance a claim against Plaintiffs or Nivison under section 75-1.1
iii. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for punitive damages
against NFI, the Motion is GRANTED. Doug Harris and JDPW’s
claim for punitive damages against NFI is dismissed with
iv. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for breach of contract
against Old Battleground, the Motion is GRANTED. Doug
Harris and JDPW’s claim for breach of contract against Old
Battleground is dismissed with prejudice.
v. To the extent Plaintiffs and Nivison’s Motion requests summary
interference with contract against Arthur Nivison, the Motion is
interference with contract against Arthur Nivison is dismissed
vi. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for civil conspiracy
against Arthur Nivison, the Motion is GRANTED. Doug Harris and JDPW’s claim for civil conspiracy against Arthur Nivison is
vii. To the extent Plaintiffs and Nivison’s Motion requests summary
judgment on Doug Harris and JDPW’s claim for punitive damages
against Arthur Nivison, the Motion is GRANTED. Doug Harris
and JDPW’s claim for punitive damages against Arthur Nivison
is dismissed with prejudice.
e. Doug Harris’s Motion as to the Castle McCulloch Defendants’
Crossclaims is GRANTED. The eleventh defense and crossclaim
against Doug Harris and JDPW contained in each of the Castle
McCulloch Defendant’s Second Amended Answer, Crossclaims, and
Third-Party Complaint is dismissed with prejudice.
f. Doug Harris’s Motion as to the Receiver’s Crossclaims is GRANTED in
part and DENIED in part as follows:
i. To the extent Doug Harris’s Motion as to the Receiver’s
Crossclaims requests summary judgment on the Receiver’s
crossclaim for indemnity, the Motion is GRANTED. The
Receiver’s crossclaim for indemnity against Doug Harris is
ii. To the extent Doug Harris’s Motion as to the Receiver’s
Crossclaims requests summary judgment on the Receiver’s crossclaims brought on JDPW’s behalf for negligence, breach of
fiduciary duty, and constructive fraud, the Motion is DENIED.
iii. To the extent Doug Harris’s Motion as to the Receiver’s
crossclaims for negligence and breach of fiduciary duty brought
on behalf of CCSEA and DRE, the Motion is GRANTED, and
those crossclaims against Doug Harris are dismissed with
prejudice. To the extent Doug Harris requests summary
judgment on the Receiver’s crossclaim for constructive fraud
brought on behalf of CCSEA and DRE, the Motion is DENIED.
iv. To the extent Doug Harris’s Motion as to the Receiver’s
crossclaim for breach of trustee’s duties and constructive fraud,
the Motion is DENIED.
v. To the extent Doug Harris’s Motion as to the Receiver’s
crossclaim for unfair or deceptive trade practices, the Motion is
GRANTED. The Receiver’s crossclaim against Doug Harris for
unfair or deceptive trade practices is dismissed with prejudice.
vi. To the extent Doug Harris’s Motion as to the Receiver’s
Crossclaims requests summary judgment on the Receiver’s crossclaim for equitable relief for JDPW, CCSEA, and DRE, the
Motion is DENIED.
vii. To the extent Doug Harris’s Motion as to the Receiver’s
crossclaim in equity to set aside the Release Deed and the
assignment of the Castle McCulloch Note, the Motion is
DENIED.
viii. To the extent Doug Harris’s Motion as to the Receiver’s
Crossclaims requests summary judgment on the Receiver’s eighth
crossclaim, the Motion is GRANTED. To the extent the
Receiver’s eighth crossclaim asserts a claim against Doug Harris,
that crossclaim is dismissed with prejudice.
SO ORDERED, this the 7th day of May, 2019.
/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Chief Business Court Judge
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