L’Heureux Enters., Inc. v. Port City Java, Inc., 2009 NCBC 24.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF NEW HANOVER 06 CVS 3367
L’HEUREUX ENTERPRISES, INC.; DAVID ) ALAN L’HEUREUX and PETER ARNOLD ) L’HEUREUX, ) Plaintiffs ) ) v. ) ORDER AND OPINION ) PORT CITY JAVA, INC.; PCJ ) FRANCHISING COMPANY, LLC; ) PCJ VENTURES, LLC; DONALD ) F. REYNOLDS, JR., Individually ) and WILD FLOUR BREAD COMPANY, LLC, ) Defendants )
THIS CAUSE, designated a complex business case by Order of the Chief Justice
of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b), and
assigned to the undersigned Special Superior Court Judge for Complex Business
Cases, by order of the Chief Special Superior Court Judge for Complex Business
Cases, is before the court upon (a) the Plaintiffs’ Motion for Summary Judgment
(“Plaintiffs’ Motion”) and Defendants’ Motion for Summary Judgment (“Defendants’
Motion”) (collectively, the “Motions”), pursuant to the provisions of Rule 56, North
Carolina Rules of Civil Procedure (“Rule(s)”); and (b) Plaintiff’s Motion to Strike and
Motion for Sanctions (“Motion to Strike”), 1 pursuant to Rule 12(f).
After considering the arguments, briefs, other submissions of counsel and
appropriate matters of record, as discussed infra, the court concludes that the Plaintiffs’
1 Plaintiffs withdrew their Motion for Sanctions on March 3, 2009. Motion should be DENIED, Defendants’ Motion should be GRANTED and the Motion to
Strike should be DENIED.
The Law Office of Jacqueline M. Druar, PLLC by Jacqueline M. Druar, Esq. and The Law Office of Robert M. Axelrod, PLLC by Robert M. Axelrod, Esq. for Plaintiffs L’Heureux Enterprises, Inc.; David Alan L’Heureux and Peter Arnold L’Heureux.
Wells Jenkins Lucas & Jenkins, PLLC by Ellis B. Drew, III, Esq. and John L. Barber, Esq. for Defendants Port City Java, Inc.; PCJ Franchising Company, LLC; PCJ Ventures, LLC; Donald F. Reynolds, Jr., Individually and Wild Flour Bread Company, LLC.
Jolly, Judge.
I.
THE PARTIES
[1] Plaintiff L’Heureux Enterprises, Inc. (“L’Heureux Enterprises”) is a
corporation formed under the laws of the State of North Carolina with a principal place
of business in the State of Connecticut.
[2] Plaintiff David L’Heureux is a resident of the State of Connecticut.
[3] Plaintiff Peter L’Heureux is a resident of the State of Connecticut. He is
grandfather of David L’Heureux.
[4] Defendant Port City Java, Inc. (“PCJ”) is a corporation formed under the
laws of the State of North Carolina, with a principal office in Wilmington, New Hanover
County, North Carolina.
[5] Defendant PCJ Franchising Company, LLC (“PCJ Franchising”) is a
limited liability company formed under the laws of the State of North Carolina, with a
principal office in Wilmington, New Hanover County, North Carolina.
[6] Defendant PCJ Ventures, LLC (“PCJ Ventures”) is a limited liability
company formed under the laws of the State of North Carolina, with a principal office in Wilmington, New Hanover County, North Carolina. It is alleged to be the parent entity of
PCJ Franchising.
[7] Defendant Donald Reynolds, Jr. (“Reynolds”) is a resident of New
Hanover County, North Carolina. Reynolds was Chief Operating Officer of Port City
Java and an agent of Wild Flour Bread Company, LLC during times material to this
action.
[8] Defendant Wild Flour Bread Company, LLC (“Wild Flour”) was at times
material to this civil action a limited liability company formed under the laws of the State
of North Carolina.
II.
PROCEDURAL BACKGROUND
[9] On August 11, 2006, Plaintiffs filed a Complaint against Defendants
alleging five Claims for Relief (“Claim(s)”): First Claim – Misrepresentation, Fraud and
Deceit; Second Claim – Negligent Misrepresentation; Third Claim – Unfair and
Deceptive Trade Practices; Fourth Claim – Breach of Contract/Breach of Express
Warranty and Fifth Claim – Piercing the Corporate Veil.
[10] On October 6, 2006, Defendants filed an Answer and Counterclaims,
raising claims by their Counterclaim for breach of a bakery contract and a franchise
agreement. Neither of the Motions raises issues with regard to the Defendants’
Counterclaims. Consequently, they are not dealt with in this Order and Opinion, and
they remain in place.
[11] On April 7, 2008, Plaintiffs filed an Amended Complaint to add PCJ
Ventures as a party defendant (hereinafter, the court will refer to the Amended
Complaint as the “Complaint”). [12] On July 31, 2008, Plaintiffs filed a Motion for Summary Judgment on all
claims. On August 1, 2008, Defendants filed a cross Motion for Summary Judgment on
all claims. The court heard oral argument on the Motions on November 3, 2008, and
the Motions are ripe for determination.
[13] On February 20, 2009, Defendants filed a Corrected Brief in Support of
Defendants’ Motion for Summary Judgment (“Corrected Brief”). On February 27, 2009,
Plaintiffs filed their Motion to Strike the Defendants’ Corrected Brief.
[14] Unless otherwise indicated herein, the material facts reflected in
paragraphs 15 through 29, 38, 39, 47, 53 through 57 and 66 of this Order exist, are
undisputed 2 and are pertinent to the issues raised by the Motions.
III.
FACTUAL BACKGROUND
[15] In July 2005, David L’Heureux and Peter L’Heureux, working together as
L’Heureux Enterprises, began searching in Wilmington, North Carolina for a business
investment opportunity. Plaintiffs had planned to purchase a franchise together in an
arrangement where Peter L’Heureux would supply the funds for purchase and David
L’Heureux would operate the business.
[16] In August 2005, Plaintiffs contacted Sharon Huffman (“Huffman”), of VR
Business Brokers, Inc., concerning a sales listing for Wild Flour. Huffman was
functioning at times material to this action as a sales agent for Wild Flour and Reynolds.
Huffman put Plaintiffs in contact with Reynolds, and the parties began negotiations as to
the potential purchase by Plaintiffs of Wild Flour.
2 It is not proper for a trial court to make findings of fact in determining a motion for summary judgment under Rule 56. However, it is appropriate for a Rule 56 order to reflect material facts that the court concludes exist and are not disputed, and which support the legal conclusions with regard to summary judgment. Hyde Ins. Agency v. Dixie Leasing, 26 N.C. App. 138 (1975). [17] At that time, Wild Flour was leasing 4,000 square feet in The Forum
Shopping Center, located at 1125 Military Cutoff Road in Wilmington, North Carolina. In
addition to a bakery, Wild Flour operated a Port City Java brand kiosk within the bakery.
The kiosk occupied approximately 150 to 300 square feet of space 3 in the bakery and
sold only Port City Java products. Wild Flour was an unprofitable bakery operation.
[18] Throughout the course of negotiations, Plaintiffs sought assurances that a
Port City Java franchise was included in the sale of Wild Flour. Plaintiffs’ plan had been
to purchase Wild Flour and convert the bakery into a full Port City Java franchise coffee
house (“PCJ Café”) while continuing to supply baked goods to PCJ.
[19] In a communication between Huffman and David L’Heureux prior to
closing, Huffman stated that Plaintiffs should “spend the $50,000 to fix up a really nice
Port City Java coffee house inside of Wild Flour.” 4 Huffman later stated that she did not
think there would be particular requirements for “the upfit of the coffeehouse” because
of the uniqueness of the space. 5
[20] On August 16, 2005, Huffman wrote David L’Heureux, telling him he could
“expand on the Port City Java coffee house as much as you want within the space.
[Reynold]’s estimate is that it would take about 50,000 to upfit the space into a nice PCJ
inside the Wildflour space.” 6
[21] Plaintiffs allege that these communications created the impression that the
costs associated with turning Wild Flour into a PCJ Café would be approximately
$50,000. Subsequently, when David L’Heureux requested a guarantee before closing
that the cost to turn Wild Flour into a full PCJ Café would only cost $50,000, Reynolds
3 The record is unclear as to the exact square foot area of the kiosk. 4 Pls.’ Mot. Summ. J. Supp. Br., Ex. F. 5 Id., Ex. G. 6 Id., Ex. C. said he would not make any guarantee with regard to specific costs. 7 The final
counteroffer, which Plaintiffs accepted, included a provision stating that “[r]enovations
will be as determined by Buyer with suggestions by PCJ corporate officials. Cost will be
entirely dependent on the extent and quality of same.” 8
[22] Included in the contractual agreements for the sale of Wild Flour (the
“Transaction”) were a Franchise Agreement 9 and a Uniform Franchise Offering Circular
(“UFOC”). 10 The Franchise Agreement made no representations as to the costs
required to turn Wild Flour into a PCJ Café and made only oblique reference to the
UFOC for franchise requirements. 11 While the UFOC did not make representations or
warranties as to the costs associated with turning Wild Flour into a PCJ Café, it did
provide an estimated range for typical costs associated with creating a PCJ Café. 12
The Franchise Agreement also included a merger clause expressly excluding prior
negotiations between parties and language indicating that the documents executed at
closing governed the entire agreement. 13
[23] On September 26, 2005, prior to signing the Franchise Agreement,
Plaintiff David L’Heureux signed a letter acknowledging that he had read the UFOC. 14
This letter included a provision that no statements or promises that were not authorized
7 Br. Supp. Defs.’ Mot. Summ. J., Ex. H. 8 Pls.’ Mot. Summ. J. Supp. Br., Ex. M. 9 Br. Supp. Defs.’ Mot. Summ. J., Ex. F. 10 Answer Am. Compl., Ex. A. 11 Although Defendants contend that the Franchise Agreement references the UFOC, the court cannot find any such direct reference. Rather, the Franchise Agreement does refer to the “Manual,” the table of contents of which was provided to Plaintiffs. Br. Supp. Defs.’ Mot. Summ. J., Ex. F. The absence of a direct reference between the documents notwithstanding, the Plaintiffs received, and are charged with, knowledge of both the Franchise Agreement and the UFOC. 12 Br. Supp. Defs.’ Mot. Summ. J., Ex. F. 13 Id. 14 Pls.’ Mot. Summ. J. Supp. Br., Ex. B-1. and which may be untrue, inaccurate or misleading were made to David L’Heureux by
PCJ employees or authorized representatives. 15
[24] On October 25, 2005, the Transaction closed, and L’Heureux Enterprises
purchased the assets of Wild Flour. 16 These assets included a bakery contract to
produce the baked goods for all Wilmington PCJ Café locations and the Franchise
Agreement with PCJ Franchising to operate a PCJ Café. 17
[25] Plaintiffs subsequently met with David Ports, a PCJ architect. 18 On
October 31, 2005, Ports provided a design proposal, and on November 11, 2005, he
provided a budget estimate in the range of $133,025 to $172,325 to upfit the Wild Flour
space into a PCJ Café. 19 On December 6, 2005, David L’Heureux e-mailed Reynolds
with regard to the estimated costs. 20
[26] Reynolds responded to David L’Heureux’s e-mail on December 9, 2005,
stating that PCJ is a separate entity from Wild Flour and that operation of the granted
PCJ Café must be in conformity with that of all other PCJ Café franchises. 21
[27] On December 22, 2005, Huffman e-mailed Reynolds and David
L’Heureux, stating her understanding that there would not be a minimum requirement
for renovations in order to operate a PCJ Café 22 in the Wild Flour space.
[28] In early 2006, Plaintiffs ceased operating their business at the existing
Wild Flour facility.
[29] On or about June 5, 2006, Plaintiffs sold Wild Flour for $106,360. 23
15 Id. 16 Br. Supp. Defs.’ Mot. Summ. J., Ex. K. 17 Id. 18 Pls.’ Mot. Summ. J. Supp. Br., § II. The record is unclear as to whether Ports worked for PCJ, PCJ Franchising or PCJ Ventures. 19 Id. 20 Id., Ex. O. 21 Id., Ex. P. 22 Id., Ex. Q. IV.
THE MOTIONS – DISCUSSION
[30] Under Rule 56(c), summary judgment is to 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. When the forecast of evidence
demonstrates that the plaintiff cannot satisfy an essential element of a claim or
overcome an affirmative defense established by the defendant, summary judgment for
the defendant should be granted. Grayson v. High Point Dev. Ltd. P’ship, 175 N.C.
App. 786, 788 (2006).
[31] Rule 8(a)(1) provides that a pleading setting forth a claim for relief shall
contain ”[a] short and plain statement of the claim sufficiently particular to give the court
and the parties notice of the transactions, occurrences, or series of transactions or
occurrences, intended to be proved showing that the pleader is entitled to relief . . . .”
[32] The Complaint in this case is drafted awkwardly and contains extensive
and unnecessary recitations of evidentiary material that go far beyond the requirements
of notice pleading envisioned by Rule 8. In presenting pleadings containing claims or
defenses, counsel is cautioned henceforth to be advertent to the pleading requirements
of the Rules.
[33] The court will examine the Motions in the context of each of Plaintiffs’
respective Claims.
23 Id., Ex. Z. A.
Plaintiffs’ First Claim – Misrepresentation, Fraud and Deceit.
[34] In substance, Plaintiff’s First Claim is stated as a fraud claim. It is based
upon allegations of active fraud, knowing and purposeful misrepresentation and deceit.
[35] It is well settled in North Carolina that to support a claim for fraud, a
plaintiff must prove that there existed (a) false representation or concealment of a
material fact; (b) that was reasonably calculated to deceive; (c) that was made with an
intent to deceive; (d) did in fact deceive, i.e., was relied upon and (e) resulted in
damage to the injured party. State Properties, LLC v. Ray, 155 N.C. App. 65 (2002);
Helms v. Holland, 124 N.C. App. 629, 634 (1996).
[36] Further, if there was in fact reliance upon the representation or
concealment, an actionable claim for fraud requires the reliance to have been
reasonable. Johnson v. Owens, 263 N.C. 754 (1965).
[37] Reliance is reasonable if the plaintiff has made an independent
investigation or if the plaintiff was not informed of the true condition of the subject matter
at issue. Reliance is not reasonable where the plaintiff could have discovered the truth
of the matter through reasonable diligence, but failed to investigate, Calloway v. Wyatt,
246 N.C. 129 (1957); or if the plaintiff was informed of the true condition of the subject
matter. Sullivan v. Mebane Packaging Group, Inc., 158 N.C. App. 19, 26 (2003); Jay
Group, Ltd. v. Glasgow, 139 N.C. App. 595 (2000). The reasonableness of a party’s
reliance is a question for the jury, unless the facts are so clear that they support only
one conclusion. Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C. 214
(1999); State Properties,155 N.C. App. at 73. [38] Under the undisputed facts of this matter, the court is forced to conclude
that Plaintiffs’ reliance on any alleged misrepresentations or concealments as a matter
of law was unreasonable. The Plaintiffs signed the Franchise Agreement, and are
charged with knowing the true nature of the contractual documents. Plaintiff David
L’Heureux also signed a statement acknowledging that he had read and understood the
UFOC. 24 Defendant Reynolds clearly and explicitly stated in a counteroffer that he
could not warrant that the costs of upfitting the kiosk into a PCJ Café would not exceed
$50,000. 25 The final contractual documents are not inconsistent with the prior
disclaimer. Had Plaintiffs used reasonable diligence, they would have recognized this
consistency.
[39] Further, Plaintiffs did not use reasonable diligence in relying on the word
of Huffman over clearly contrary language in the Franchise Agreement, the UFOC and
the Agreement for the Purchase of Assets (the “Sales Contract”). 26 Likewise, e-mail
correspondence dated December 22, 2005, from Huffman to David L’Heureux and
Reynolds with regard to the “minimum requirement for . . . renovations in order to
operate a [PCJ Café] . . .”27 in the Wild Flour space took place after closing on the sale
of Wild Flour to Plaintiffs. Accordingly, the e-mail could not have been relied upon in
Plaintiffs’ decision to go forward.
[40] Plaintiffs’ forecast of evidence also fails to support an inference that they
(a) were denied an opportunity to investigate the subject matter of the claim, or (b) could
not discover the truth about the contract by exercise of reasonable diligence or (c) were
induced to forego additional investigation by Reynolds’ misrepresentations. Our courts
24 Id., Ex. B-1. 25 Br. Supp. Defs.’ Mot. Summ. J., Ex. H. 26 Defs.’ Br. Opp. Pl. Mot. Summ. J., Ex. C. 27 Pls.’ Mot. Summ. J. Supp. Br., Ex. Q. have held that such facts are necessary to support a fraud claim. State Properties, 155
N.C. App. at 73. See also, Oberlin Capital, LP v. Slavin, 147 N.C. App. 52, 59-60
(2001); Hearne v. Statesville Lodge No. 687, 143 N.C. App. 560 (2001); Hudson-Cole
Dev. Corp. v. Beemer, 132 N.C. App. 341, 346 (1999).
[41] Consequently, based upon the undisputed facts of this action, the court is
forced to conclude that any reliance by the Plaintiffs upon representations made by or in
behalf of one or more of the Defendants was unreasonable. Therefore, as a matter of
law the Plaintiffs cannot prove the reliance element required to support the allegations
of misrepresentation, fraud and deceit contained in their First Claim.
[42] As to this First Claim, there exist no genuine issues as to any material
fact, and the Defendants are entitled to summary judgment in their favor with regard to
such Claim.
B.
Plaintiffs’ Second Claim – Negligent Misrepresentation.
[43] To support a claim for negligent misrepresentation, a plaintiff must prove
that (a) it justifiably relied, (b) to its detriment, (c) upon information prepared by a
defendant without reasonable care and (d) that the defendant was one who owed
plaintiff a duty of care. Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529,
532 (2000). As is the case with allegations of fraud, reasonable reliance is also a
required element of negligent misrepresentation. MacFadden v. Louf, 182 N.C. App.
745, 749 (2007), citing Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C.
214, 224 (1999). [44] As discussed, supra, with regard to Plaintiffs’ First Claim, the court has
concluded that Plaintiffs are not able to demonstrate reasonable reliance with respect to
any misrepresentations or concealments by or in behalf of Defendants.
[45] Consequently, as to this Second Claim, there exist no genuine issues as
to any material fact, and the Defendants are entitled to summary judgment in their favor
with regard to such Claim.
C.
Plaintiffs’ Third Claim – Unfair and Deceptive Trade Practices.
[46] In order to state a claim for unfair and deceptive trade practices (“UDTP”)
pursuant to the provisions of N.C. Gen. Stat. Chapter 75, the plaintiff must prove the
existence of (a) an unfair or deceptive act or practice or an unfair method of competition
(b) in or affecting commerce (c) that proximately caused actual injury. Johnson v.
Phoenix Mutual Life Ins. Co., 300 N.C. 247, 266 (1980) (in order to establish that an act
is “unfair,” it must “offend established public policy” or be “immoral, unethical,
oppressive, unscrupulous, or substantially injurious to a consumer”).
[47] In support of their Third Claim, Plaintiffs rely upon conclusory allegations
to the effect that the various Defendants, through Reynolds, made intentional
misrepresentations calculated to induce Plaintiffs to enter into the Transaction.
However, Plaintiffs have not forecast evidence sufficient to support their allegations of
unfair or deceptive acts or practices on the part of Defendants. Instead, the forecast of
undisputed admissible evidence shows that Defendants made no guarantees and
provided appropriate disclosures and documents to the Plaintiffs before the Transaction
closed. While the disclosures and documents unfortunately appear not to have been
adequately digested, investigated or understood by Plaintiffs, the forecast evidence does not establish any violation of duty on the part of Defendants to educate Plaintiffs
on the plain meaning of the contractual documents involved in the Transaction.
[48] The Plaintiffs’ conclusory allegations of wrongdoing by Defendants are
not sufficient. There must be a forecast of a sufficient evidentiary foundation for each of
the elements of a UDTP Claim for it to survive summary judgment dismissal. First
Atlantic Management Corp. v. Dunlea Realty Co., 131 N.C. App. 242 (1998). Here,
based upon the forecast of undisputed evidence, the court is forced to conclude that the
evidence does not support Plaintiffs’ allegations that Defendants’ actions constituted an
unfair or deceptive act.
[49] As to this Third Claim, there exist no genuine issues as to any material
fact, and the Defendants are entitled to summary judgment in their favor with regard to
D.
Plaintiffs’ Fourth Claim – Breach of Contract/Breach of Express Warranty
[50] In their Fourth Claim, the Plaintiffs allege that Defendants breached
certain contractual obligations with regard to Plaintiffs’ acquisition of Wild Flour and the
Port City Java kiosk, and the prospective upfit of the Port City Java kiosk into a PCJ
Café. The substance of Plaintiffs’ contention is that Defendants contractually agreed
and/or expressly warranted that the cost of upfitting the Port City Java kiosk into a PCJ
Café would not exceed a specified amount, and that Defendants breached this
agreement to the financial detriment of Plaintiffs.
[51] In North Carolina, it is established that a contract is interpreted by
examining the language of the entire contract for indicators of the parties’ intent at the
moment of contract execution. State v. Phillip Morris USA, Inc., 359 N.C. 763, 773 (2005). This intention is to be gathered from the entire instrument, viewing it from its
four corners. Jones v. Palace Realty Co., 226 N.C. 303, 305 (1946). If there is only
one reasonable interpretation of the contract, the courts “may not, under the guise of
construing an ambiguous term, rewrite the contract or impose liabilities on the parties
not bargained for and found therein.” Woods v. Nationwide Mutual Ins. Co., 295 N.C.
500, 506 (1978) (applying general contract principles in an insurance contract case).
The parol evidence rule precludes admission of extrinsic evidence of prior or
contemporaneous negotiations or conversations that contradict such a fully integrated
written contract. Craig v. Kessing, 297 N.C. 32, 34-35 (1979). Extrinsic evidence is
allowed, however, to show that fraud prevented a meeting of the minds and the
consequent formation of a contract. Cunningham v. Brown, 51 N.C. App. 264, 270
(1981).
[52] In the instant case, Plaintiffs contend the court should consider a wide
range of communications and conversations that took place between them and one or
more of Defendants, or their representatives, prior to execution of the contractual
documents involved in the Transaction. Plaintiffs contend that Reynolds made
fraudulent misrepresentations in order to induce Plaintiffs to purchase Wild Flour. As
discussed in the court’s analysis of Plaintiffs’ First and Second Claims, supra, a claim
for fraud requires a showing of reasonable reliance; and based upon the forecast of
undisputed admissible evidence in this case, the Plaintiffs cannot make a showing of
reasonable reliance on any misrepresentations or communications contrary to the
contractual documents. As such, the contractual documents may only be read within
the meaning of their four corners. [53] Neither the Franchise Agreement, the UFOC nor any of the other
documents involved in closing of the Transaction contain representations as to the cost
necessary to upfit a PCJ Café. To the contrary, the Franchise Agreement specifically
disclaims any warranties as to “the amount which franchisee may be required to
expend” with regard to “furniture, furnishings, trade fixtures and furniture, furnishings,
trade fixtures (sic) and equipment, food and beverage products, supplies and materials
used in connection with” a PCJ Café. 28 The UFOC estimates, but does not warrant, the
initial investment cost to develop a PCJ Café. The foregoing provisions are stated
clearly within the contract documents and stand in direct contradiction to any prior
conversations between Plaintiffs and any Defendant or representative thereof
speculating the costs of upfitting and renovation.
[54] Moreover, the Franchise Agreement contains clear and unambiguous
merger language, which provides:
This Agreement, together with the Application, constitutes the entire Agreement of the Parties and supersedes all prior negotiations, commitments, representations and undertakings of the Parties with respect to the subject matter of this Agreement. 29
....
This Agreement and the documents referred to herein constitute the entire agreement between the Parties hereto with respect to the subject matter hereof, superseding and canceling any and all prior and contemporaneous agreements, understandings, representations, inducements and statements, oral or written, of the parties in connection with the subject matter hereof. 30
28 Br. Supp. Defs.’ Mot. Summ. J., Ex. F, p. 13, ¶ 5.6. 29 Id. at p. 2, ¶ 10. 30 Id. at p. 51, ¶ 26.4. [55] The Franchise Agreement also provides that “oral statements made by
Franchisor’s employees or agents . . . do not constitute warranties.” 31
[56] Further, the Sales Contract provides that “[no] modifications hereof or
other purported agreements of the parties shall be enforceable unless the same are in
writing and signed by all parties.” 32
[57] Plaintiffs, in what the undisputed facts reflect was an arms-length business
transaction, had the opportunity to and did review the Franchise Agreement, the UFOC,
the Sales Contract and any supporting documents prior to signing the Franchise
Agreement and prior to closing on the Transaction. Specifically, the Franchise
Agreement provides, in capitalized letters:
FRANCHISEE EXPRESSLY ACKNOWLEDGES THAT IT HAS ENTERED INTO THIS FRANCHISE AGREEMENT AS A RESULT OF ITS OWN INDEPENDENT INVESTIGATION AND AFTER CONSULTATION WITH ITS OWN ATTORNEY, AND NOT AS A RESULT OF ANY REPRESENTATIONS OF FRANCHISOR, ITS AGENTS, OFFICERS OR EMPLOYEES, EXCEPT AS CONTAINED HEREIN. 33
[58] The forecast of admissible evidence simply does not support either the
Plaintiffs’ contentions as to construction of the contractual documents arising from the
Transaction or their contentions of breach of contract or of express warranty.
[59] As to this Fourth Claim, there exist no genuine issues as to any material
fact, and the Defendants are entitled to summary judgment in their favor with regard to
31 Id. at p. 13, ¶ 5.6. 32 Sales Contract, ¶ 18. 33 Br. Supp. Defs.’ Mot. Summ. J., Ex. F, p. 51, ¶ 26.4. E.
Plaintiffs’ Fifth Claim – Piercing the Corporate Veil (Defendant Reynolds).
[60] Plaintiffs contend that Reynolds should have personal liability for Plaintiffs’
first four Claims. Their theory is that Defendant Wild Flour was the mere instrumentality
of Reynolds and that Reynolds therefore should be personally liable for any actionable
wrongs or breaches by Wild Flour.
[61] They argue that the veil of protection typically offered to its members by
Wild Flour’s limited liability company form of organization under N.C. Gen. Stat. Chapter
57C should be disregarded, or “pierced,” in this action as to Reynolds.
[62] It is well established that in certain circumstances North Carolina will
disregard the separate and independent existence of a corporation or limited liability
company to hold a shareholder or member liable for the business entity’s conduct when
necessary to prevent fraud or to achieve equity. 18 Am. Jur. 2d, Corporations § 47
(1008). However, the North Carolina courts do not invoke this doctrine lightly because it
removes legal protections explicitly adopted. Department of Transp. v. Airlie Park, Inc.,
156 N.C. App. 63, 68, appeal dismissed by 357 N.C. 504, 587 (2003); Keener Lumber
Co. v. Perry, 149 N.C. App. 19, 37, disc. rev. denied, 356 N.C. 164 (2002) (quoting
Dorton v. Dorton, 77 N.C. App. 667, 672 (1985)) (noting that piercing the corporate veil
is “‘a drastic remedy’ and ‘should be invoked only in an extreme case where necessary
to serve the ends of justice’”); Cherry v. State Farm Mutual Automobile Ins. Co., 162
N.C. App. 535, 542 (2004). Typically, this remedy is available only when the business
entity is acting as the alter ego or the “mere instrumentality” of the member or
shareholder. B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 8 (1966). [63] Although generally reluctant to invoke this doctrine, our courts recognize
three necessary elements required for a “piercing of the veil” claim to go forward. Glenn
v. Wagner, 313 N.C. 450, 454-55 (1985). They are:
(a) A showing of control by the target individual defendant. This
means not mere majority or complete stock control, but complete domination, not
only of finances, but of policy and business practice in respect to the transaction
attacked so that the business entity as to the transaction complained of had at
the time no separate mind, will or existence of its own. Id.
(b) Such control must have been used by the target defendant to
commit a fraud or other wrong, to perpetrate the violation of a statutory or other
positive legal duty, or to do a dishonest and unjust act in contravention of
plaintiff’s legal rights. Id.
(c) The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of. Id.
[64] In assessing such a claim, the court must consider several factors,
including (a) adequacy of capitalization of the business entity, (b) non-compliance with
corporate formalities, (c) whether there is such complete domination and control of the
business entity so that it has no independent identity and (d) whether there is excessive
fragmentation of a single enterprise into separate corporations. Id. at 455.
[65] Here, this court has ruled, supra, that none of Plaintiffs’ first four Claims
are supported by the forecast of undisputed evidence, and that Defendants are entitled
to summary judgment in their favor as to such Claims. Accordingly, there exists no
underlying breach of duty to support a piercing claim against Reynolds. [66] However, even if any of Plaintiffs’ first four Claims were to survive
summary judgment, the court is forced to conclude that the evidentiary forecast here
does not support this Fifth Claim. Although Reynolds was an agent of Wild Flower
during times material to this action, there is no forecast of evidence that he had
complete control over the company. Rather, Wild Flour was owned by Java Partners,
LLC and another member that is not a party defendant to this action. Moreover,
Reynolds owns Java Partners, LLC with at least one other member not a party to this
action. 34
[67] Furthermore, there is no allegation or showing here that Wild Flour was
inadequately capitalized, that Reynolds failed to comply with corporate formalities or
that the company was excessively fragmented. Plaintiffs do allege that Reynolds
exercised complete domination and control over Wild Flour to the extent that Wild Flour
did not have its own identity. However, the forecast of admissible evidence does not
support that allegation, and the court concludes that these facts do not support
application of the doctrine of piercing the corporate veil.
[68] As to this Fifth Claim, there exist no genuine issues as to any material
fact, and Defendant Reynolds is entitled to summary judgment in his favor with regard
to such Claim.
V.
CONCLUSION
NOW THEREFORE, based upon the foregoing, it is ORDERED that:
[69] Defendants’ Motion for Summary Judgment is GRANTED as to all Claims
stated in the Complaint, and each of said Claims hereby is DISMISSED.
34 Reynolds Dep., p. 37. [70] The Plaintiffs’ Motion for Summary Judgment in this civil action is
DENIED.
[71] In the discretion of the court, the Plaintiffs’ Motion to Strike is DENIED.
[72] This matter will come before the court for a status conference on
Wednesday, October 7, 2009, at 11:00 a.m., in the North Carolina Business Court at
225 Hillsborough Street, Third Floor, Raleigh, North Carolina. 35
This the 4th day of September, 2009.
35 Note that this is the new Campbell University School of Law location.