Merrell v. Smith

2020 NCBC 93

Opinion

Merrell v. Smith, 2020 NCBC 93.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 19 CVS 21650 [MASTER FILE] Related Cases: CARL E. MERRELL; LYLE RANSON; 19 CVS 22027 JEANETTE RANSON; CRAIG S. 19 CVS 23665 MILLER; WANDA EDWARDS MILLER; and ROBERT J. NASTASE, 19 CVS 23856

Plaintiffs, ORDER AND OPINION ON v. DEFENDANT CAROLINA BEVERAGE GROUP, LLC’S JAMES M. SMITH; JENNIFER MOTION TO DISMISS COMPLAINTS SMITH; and CAROLINA BEVERAGE UNDER RULE 12(b)(6) OF THE GROUP, LLC f/k/a CAROLINA BEER NORTH CAROLINA RULES OF & BEVERAGE, LLC, CIVIL PROCEDURE Defendants. [AMENDED] 1

1. THIS MATTER is before the Court on the Motion to Dismiss Complaints

Under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure (the “Motion to

Dismiss” or the “Motion”) filed by Defendant Carolina Beverage Group, LLC, f/k/a

Carolina Beer & Beverage, LLC (“CBB”), in three pending Mecklenburg County

actions the Court refers to collectively as the “CBB Cases”: (1) Merrell, et al. v. Smith,

et al., (19 CVS 21650); (2) Strack, et al. v. Smith, et al., (19 CVS 22027); and (3)

Cochrane, et al. v. Smith, et al., (19 CVS 23665). 2

2. Although the Court has not determined whether the CBB Cases shall be

consolidated for trial, the Court and the parties previously agreed on a coordinated

approach to discovery and motions practice. (See ECF Nos. 25 [19 CVS 21650]; 34

1 This Amended Order and Opinion is being issued to correct the case caption.

2 A fourth case involving similar allegations, Short v. Smith, et al., was voluntarily dismissed on September 28, 2020. (ECF No. 86 [19 CVS 23856].) [19 CVS 22027]; 18 [19 CVS 23665] [“Case Mgmt. Plan”].) Consistent with that

agreement, CBB filed the Motion to Dismiss as one coordinated motion, along with a

Memorandum in Support of the Motion, requesting dismissal of all claims that the

plaintiffs in the CBB Cases (together, “Plaintiffs”) have asserted against CBB. (ECF

Nos. 45–46 [19 CVS 21650]; 60–61 [19 CVS 22027]; 46–47 [19 CVS 23665] [“Mot. to

Dismiss” and “Mem. in Supp.”].) The three operative complaints subject to the Motion

to Dismiss are (1) the Second Amended Complaint filed in Merrell (the “Merrell

Complaint”); (2) the Second Amended Complaint filed in Strack (the “Strack

Complaint”); and (3) the Amended Complaint filed in Cochrane (the “Cochrane

Complaint”) (together, “Plaintiffs’ Complaints”). (ECF Nos. 24 [19 CVS 21650]

[“Merrell Compl.”]; 33 [19 CVS 22027] [“Strack Compl.”]; 7 [19 CVS 23665]

[“Cochrane Compl.”].)

3. For the reasons set forth in this Order and Opinion, the Court GRANTS in

part and DENIES in part the Motion to Dismiss.

Hemmings & Stevens, by Aaron C. Hemmings, for Plaintiffs.

Winston & Strawn, LLP, by Amanda L. Groves, Kevin Y. Zhao, and Timothy G. Hughes, for Defendant Carolina Beverage Group, LLC, f/k/a Carolina Beer & Beverage, LLC.

Robinson, Judge. I. FACTUAL BACKGROUND 3

4. The Court does not make findings of fact on a Rule 12(b)(6) motion to

dismiss. Instead, the Court only recites the factual allegations, taken from Plaintiffs’

Complaints and their attachments, that are relevant to the Court’s determination of

the Motion to Dismiss.

A. Introduction

5. The parties vary across the CBB Cases, but each action involves the same

core allegations. (See generally Merrell Compl.; Strack Compl.; Cochrane Compl.)

Plaintiffs are former members of CBB, a North Carolina limited liability company

(“LLC”), and allege that Defendant James Michael Smith (“Michael”), a CBB officer

possessing inside information, selectively notified the late Richard C. Siskey

(“Siskey”) in 2006 that a private equity firm had expressed interest in purchasing

CBB and that CBB was also close to finalizing a lucrative bottling franchise

deal. (Merrell Compl. ¶¶ 1, 4, 12, 14, 34.)

6. After learning this inside information, Siskey allegedly devised a

fraudulent scheme to purchase Plaintiffs’ respective ownership interests in CBB, at

less than the true value of the interests, prior to CBB’s sale. (Merrell Compl. ¶¶ 35,

49.) Plaintiffs claim that Michael and his wife Defendant Jennifer Smith (“Jennifer”),

an employee of CBB (together, the “Smiths”), helped Siskey defraud Plaintiffs by

3 Plaintiffs’ Complaints each contain nearly verbatim factual allegations about the alleged fraudulent scheme underpinning the CBB Cases. Therefore, the Court deems it appropriate, for purposes of enhancing readability and avoiding unnecessarily large citations, to cite to the numbered allegations in one complaint only, the Merrell Complaint, for much of this section. The Court notes where there are specific allegations that vary within or across each of Plaintiffs’ Complaints. concealing the inside information about CBB from Plaintiffs, and in return for their

help, Siskey gave the Smiths many lavish gifts. (Merrell Compl. ¶¶ 13, 39, 44, 67.)

7. According to Plaintiffs, the scheme perpetrated by Siskey and the Smiths

resulted in Siskey unfairly reaping millions of dollars following the sale of CBB while

Plaintiffs received nothing when CBB was sold. (Merrell Compl. ¶¶ 1, 4–5, 82.)

B. The Parties 4

8. Although the parties differ across the three CBB Cases, the plaintiffs in

each case assert identical claims against CBB and the Smiths.

9. The Merrell case involves claims by Carl E. Merrell, Lyle Ranson, Jeanette

Ranson, Craig S. Miller, Wanda Edwards Miller, and Robert J. Nastase against CBB

and the Smiths. (Merrell Compl. ¶¶ 6–14.)

10. In the Strack action, Jeffrey A. Strack, Penny N. Strack, James C. Wilson,

Roy Lynam, Pamela Boileau, Dallas Pendry, Jr., Mallory Johnson, Rita Dilling,

Carolyn Crozier, Thomas J. Crozier, Jr., and Kent Kalina have brought claims

against CBB; the Smiths; Metropolitan Life Insurance Company (“MetLife

Insurance”); MSI Financial Services, Inc., f/k/a MetLife Securities, Inc. (“MSI”)

(MetLife Insurance and MSI together, the “MetLife Defendants”); and the estate of

Siskey, as administered by F. Lane Williamson (“Siskey’s Estate”). 5 (Strack Compl.

¶¶ 8–20, 23–25.)

4 On May 28, 2020, Plaintiffs in all three CBB Cases voluntarily dismissed all their claims against Home Run Holdings, LLC. (ECF Nos. 41 [19 CVS 21650]; 56 [19 CVS 22027]; 40 [19 CVS 23665].)

5 Scott Keck, a former plaintiff in the Strack case, voluntarily dismissed all his claims against all defendants on September 28, 2020. (ECF No. 102 [19 CVS 22027].) 11. Finally, in the Cochrane litigation, Jeffrey Neal Cochrane and Gary Alan

Cochrane, as co-administrators of the estate of Ralph Neal Cochrane, 6 have brought

claims against CBB, the Smiths, the MetLife Defendants, 7 and Siskey’s

Estate. 8 (Cochrane Compl. ¶¶ 8–11, 14–16.)

C. CBB’s Formation

12. Michael formed CBB in 1997. (Merrell Compl. ¶¶ 21.) That same year, he

and Siskey became business partners when they formed an entity called Wall Street

Investments, LLC, f/k/a Consolidated Investments, LLC. (Merrell Compl. ¶¶ 20, 24.)

Three years later, Michael asked Siskey to help him raise capital to launch

CBB. (Merrell Compl. ¶ 26.) At the time, Siskey worked as an insurance agent and

securities broker for the MetLife Defendants. (Merrell Compl. ¶ 22.) Siskey agreed

to help Michael, and they both began marketing CBB to Siskey’s existing insurance

and investment clients, which included Plaintiffs. (Merrell Compl. ¶¶ 27–29.)

13. With Siskey’s assistance, Michael was able to raise the start-up capital for

CBB by selling ownership interests in CBB to thirty-five of Siskey’s clients, including

Plaintiffs. (Merrell Compl. ¶ 30.) Plaintiffs purchased their respective interests in

CBB between 2001 and 2003. (Merrell Compl. ¶¶ 101–02, 119–21, 139–41, 159–61;

6 Ralph Neal Cochrane, now deceased, was a former member of CBB. His sons Jeffery Neal Cochrane and Gary Alan Cochrane were not members, though they seek relief on behalf of their father’s estate. (Cochrane Compl. ¶¶ 1, 8, 164–65, 176.)

7 The MetLife Defendants have filed a separate motion to dismiss in the Strack and Cochrane actions, which the Court will address in a separate order and opinion. (ECF Nos. 62 [19 CVS 22027]; 48 [19 CVS 23665].)

8 On October 30, 2020, the Cochrane plaintiffs voluntarily dismissed the claims asserted against John D. Phillips in that case. (ECF No. 89 [19 CVS 23665].) Strack Compl. ¶¶ 147–48, 165–67, 187–88, 236–37, 256–57, 279–80, 298–99, 319–21,

340–41; Cochrane Compl. ¶¶ 164–65.)

14. After raising the start-up capital for CBB, and during the time period

relevant to Plaintiffs’ allegations, Michael was CBB’s majority interest holder and its

Chief Executive Officer (“CEO”), and Jennifer was employed by CBB as a Special

Projects Leader. (Merrell Compl. ¶¶ 12–13, 31.) Siskey received a five percent

ownership interest in CBB for his assistance, which he eventually sold back to the

company and to some of his clients between 2003 and 2005. (Merrell Compl. ¶¶ 27,

31, 33.)

D. The Alleged Fraudulent Scheme Begins

15. The alleged scheme at the center of Plaintiffs’ Complaints began with an

email from Michael to Siskey dated December 11, 2006, in which Michael

communicated that he had been “approached by an investment group seeking to

purchase [CBB]” and that CBB was close to finalizing a “Cap Can [franchise]

deal.” (Merrell Compl. ¶ 34, Ex. 1.) Upon receiving this “material non-public insider

information,” Siskey formed a plan to “fraudulently purchase” the ownership

interests of the clients he had previously advised to invest in CBB, so he could “cash

in on the impending sale” of CBB. (Merrell Compl. ¶ 35.)

16. Recognizing that Michael, as CBB’s majority interest holder, would need to

approve the transfer of any ownership interests in the company (CBB had a right of

first refusal), Siskey sought to secure Michael’s cooperation in his scheme to purchase

his clients’ interests. (Merrell Compl. ¶¶ 36–37.) Plaintiffs claim that, in early 2007, Siskey and the Smiths “formed and agreed upon a plan with . . . Siskey to allow

[Siskey] to fraudulently purchase shares of stock in [CBB] from his clients.” (Merrell

Compl. ¶ 39.) The plan, according to Plaintiffs, involved the Smiths concealing from

Siskey’s clients the same material inside information that Michael had selectively

given to Siskey, so that Siskey could mislead his clients when advising them to sell

their interests in CBB. (Merrell Compl. ¶¶ 47–49.) In exchange for their assistance,

Siskey allegedly gave the Smiths many expensive gifts. (Merrell Compl. ¶¶ 37–38,

40, 67–68.)

E. The Smiths’ Communications with Siskey and CBB’s Members

17. After Siskey and the Smiths developed a plan to defraud Siskey’s clients,

the Smiths regularly updated Siskey on the progress of CBB’s negotiations with (1)

the private equity firm seeking to purchase CBB and (2) Austria-based company Red

Bull regarding a distribution contract. (Merrell Compl. ¶¶ 41, 81.)

18. Plaintiffs also identify the following communications between the Smiths

and Siskey that took place in 2007, which Plaintiffs contend were connected to the

plan to defraud Siskey’s clients, including Plaintiffs.

a. On February 14, 2007, Michael sent an email to Siskey, in which

Michael stated that he had recently reported to Plaintiffs’ Individual

Retirement Account (“IRA”) custodian that the CBB stock that Plaintiffs

owned was worth $150,000 per share. (Merrell Compl. ¶ 48, Ex.

6.) Michael made this valuation “for the purpose of

misleading . . . Plaintiffs and allowing . . . Siskey to make misrepresentations to his clients.” 9 (Merrell Compl. ¶ 48.)

b. On February 21, 2007, Jennifer emailed Siskey to give him advance

notice of an upcoming annual business meeting for CBB’s members,

scheduled for March 29, 2007. (Merrell Compl. ¶ 45, Ex. 5.)

c. On November 12, 2007, Sisky sent an email to Jennifer with a list of

clients, including some of the plaintiffs, from whom Siskey allegedly

“had fraudulently obtained an agreement to redeem their [CBB]

stock.” (Merrell Compl. ¶ 61, Ex. 13.) In that email, Siskey asked

Jennifer how he should deliver to the Smiths the consent forms for those

stock transfers. (Merrell Compl., Ex. 13.) Jennifer responded that

Siskey could either send the forms by overnight mail or he could hand

deliver them to the Smiths’ home. (Merrell Compl., Ex. 14.)

d. In a November 13, 2007 email exchange between Siskey and Jennifer,

Siskey referred to “Operation Zero,” which Plaintiffs contend was the

name Siskey and the Smiths gave to their fraudulent scheme. (Merrell

Compl. ¶ 64, Ex. 16.)

19. The Smiths also communicated with CBB’s members in 2007. On March 2,

2007, Jennifer sent an email to CBB’s members, giving them notice of the March 29,

2007 annual business meeting. (Merrell Compl., Ex. 5.) This March 2, 2007 notice

9 Although Plaintiffs’ Complaints each contain the general allegation that Michael reported this value to Plaintiffs’ IRA custodian, the complaints do not specifically allege that Craig S. Miller, Wanda Edwards Miller, Jeffrey A. Strack, Penny N. Strack, and James C. Wilson had an IRA account with this custodian. (See Merrell Compl. ¶¶ 137–55); Strack Compl. ¶¶ 142– 80.) did not disclose to the members the CBB inside information that Michael had shared

with Siskey in December 2006. (Merrell Compl. ¶ 45, Ex. 5.) Nor did Michael disclose

this information to CBB’s members at the March 29, 2007 meeting. (Merrell Compl.

¶ 45.)

F. Siskey Purchases Plaintiffs’ Ownership Interests in CBB

20. From September 2007 through March 2008, Siskey purchased 15.25 shares

of CBB stock from his clients, including Plaintiffs, for total payments of

$3,872,500. (Merrell Compl. ¶¶ 53, 57, 103–06, 122–26, 142–46, 162–65, Ex. 7;

Strack Compl. ¶¶ 102, 108, 149–51, 168–71, 190–93, 238–242, 260–63, 282–84, 301–

03, 323–25, 342–45, Ex. 22; Cochrane Compl. ¶¶ 117, 125, 168–69, Ex. 24.) According

to Plaintiffs, the Smiths knew about all these transactions because Michael and

Jennifer together processed them, and Michael approved them as the holder of a

majority interest in CBB. (Merrell Compl. ¶¶ 54–55.)

21. Siskey allegedly acquired Plaintiffs’ shares by employing two tactics. One

tactic was to advise some plaintiffs that the time was right to redeem their CBB stock

for a profit. (See Merrell Compl. ¶¶ 103–06, 142–46, 162–65; Strack Compl. ¶¶ 149–

51, 168–71, 190–93, 260–63, 282–84, 301–03, 323–25, 342–45; Cochrane Compl. ¶¶

168–69.) After these plaintiffs agreed to redeem their stock, Siskey bought the stock

for himself. (See, e.g., Merrell Compl. ¶ 106.) Siskey’s other tactic was to offer to

purchase some plaintiffs’ CBB stock directly for a price above what they had initially

paid for the stock. (Merrell Compl. ¶¶ 122–26; Strack Compl. ¶¶ 238–42.) 22. Regardless of whether they agreed to redeem their CBB stock or sell it

directly to Siskey, Plaintiffs allege that neither Siskey nor the Smiths disclosed to

Plaintiffs prior to the sale the same CBB inside information Michael had previously

given to Siskey. (Merrell Compl. ¶¶ 109, 129.) Had they known about this

information, Plaintiffs allege they would not have sold their stock. (Merrell Compl.

¶ 180.)

23. Plaintiffs also assert that the Smiths continued to withhold this

information from them and process/approve stock transfer forms even after a law firm

representing CBB delivered a letter dated October 3, 2007 to Siskey (with a copy to

Michael) that stated as follows:

Dear Rick [Siskey]:

We have recently found out from Michael Smith that Carolina Beer & Beverage, LLC management has been looking at certain options regarding a sale of either a portion or all of the company’s business assets. It is our understanding that you have also recently been made aware of this possible sale. Given this information and the recent proposed transfers of membership interests to you, we believe that we should inform you of possible liabilities that may arise in this situation.

In our opinion, the broad reach of the securities antifraud rule 10B-5 applies to these transactions. Among other restrictions, rule 10B-5 makes it unlawful for any person to make any untrue statement of a material fact or to omit to state a material fact in connection with the purchase or sale of any security. In particular, if you have knowledge regarding the company and its future plans, including the plans to sell the company, then you must share that knowledge with the members of the company whose interests you intend to buy. This fact is very material to the members’ decisions to sell their interests.

You should also know that the rules and regulations related to Rule 10B- 5 imply a right to a private remedy for violation of the rules. Thus, any investor from whom you purchase an interest that is not fully informed of all the information you know may have a cause of action against you. We do not know what you or the investors are aware of but given the information we have recently learned from Mr. Smith, we wanted to make sure we informed you of possible issues that may arise regarding proposed transfers once you have become aware of the sale of the company.

Given this information, we have advised Mr. Smith to withhold his consent from transfers of any more interests until all members of the company are made aware of management’s current plans. We believe that this action is prudent given the possible liability that may be incurred by many different parties if any more sales of interests occur without all parties having knowledge of all the relevant information. We understand that Mr. Smith is sending a notice to all investors soon.

If you have any questions or require anything further regarding these matters, please contact me.

Sincerely,

WISHART, NORRIS, HENNINGER & PITTMAN, P.A.

Gary W. Smith

cc: Mr. Michael Smith, Carolina Beer & Beverage, LLC

(Merrell Compl., Ex. 11; see also Merrell Compl. ¶¶ 56–58.)

G. The SunTx Partners Sale and the Red Bull Deal

24. In 2009, private equity firm SunTx Partners purchased CBB. (Merrell

Compl. ¶¶ 76–77.) CBB also finalized the distribution contract with Red Bull that

year. (Merrell Compl. ¶ 81.)

25. According to Plaintiffs, as a direct result of the SunTx Partners transaction,

Siskey received over $20,000,000 based on his ownership of the 15.25 shares of CBB

stock he had fraudulently purchased from his clients, including Plaintiffs, for

$3,872,500. (Merrell Compl. ¶ 80, Ex. 7.) Plaintiffs, on the other hand, received nothing from the sale of CBB. (Merrell Compl. ¶ 82.) Plaintiffs allege that SunTx

Partners ultimately sold its majority interest in CBB to Byrnwood Partners in May

2018, leading to more distributions for CBB’s members, including Siskey’s Estate, as

a result of that transaction. (Merrell Compl. ¶ 92–93.)

II. PROCEDURAL BACKGROUND

26. Plaintiffs initiated the CBB Cases in November 2019 (Merrell and Strack)

and December 2019 (Cochrane). (ECF Nos. 2 [19 CVS 21650]; 3 [19 CVS 22027]; 3

[19 CVS 23665].) Each case was designated to the Business Court and assigned to

the undersigned. (ECF Nos. 1 [19 CVS 21650]; 1, 2 [19 CVS 22027]; 1, 2 [19 CVS

23665].) The three operative complaints challenged by the Motion to Dismiss were

filed on January 28, 2020 (Cochrane) and March 10, 2020 (Merrell and

Strack). (Merrell. Compl.; Strack Compl.; Cochrane Compl.)

27. On June 1, 2020, CBB timely filed the Motion to Dismiss. (Mot. to Dismiss.)

The Motion has been fully briefed. (Mem. in Supp.; ECF Nos. 58 [19 CVS 21650]; 80

[19 CVS 22027]; 63 [19 CVS 23665] [“Mem. in Opp’n”]; ECF Nos. 61 [19 CVS 21650];

83 [19 CVS 22027]; 66 [19 CVS 23665] [“Reply Br.”].) On October 5, 2020, the Court

held a hearing by video conference on the Motion, at which all parties were

represented by counsel. The Motion is now ripe for resolution.

III. LEGAL STANDARD

28. When ruling on a Rule 12(b)(6) motion to dismiss, the Court views the

complaint’s allegations in the light most favorable to the plaintiff. See Christenbury

Eye Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d 888, 891 (2017). The Court analyzes “whether, as a matter of law, the allegations of the complaint . . . are

sufficient to state a claim upon which relief may be granted under some legal

theory[.]” Harris v. NCNB Nat’l Bank, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840

(1987). As part of this analysis, the Court treats all well-pleaded factual allegations

as true. See Krawiec v. Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018). The

Court, however, is not required “to accept as true allegations that are merely

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope

Hosp., Inc. v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274, 620

S.E.2d 873, 880 (2005) (citation omitted). Additionally, the Court may consider

documents attached to and incorporated into the complaint without converting the

Rule 12(b)(6) motion to dismiss into a motion for summary judgment. See Moch v.

A.M. Pappas & Assocs., LLC., 251 N.C. App. 198, 206, 794 S.E.2d 898, 903 (2016).

29. Granting a Rule 12(b)(6) motion is proper when “(1) the complaint on its

face reveals that no law supports the plaintiff’s claim; (2) the complaint on its face

reveals the absence of facts sufficient to make a good claim; or (3) the complaint

discloses some fact that necessarily defeats the plaintiff’s claim.” Corwin v. British

Am. Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729, 736−37 (2018) (citation

omitted). The Supreme Court of North Carolina “routinely uses [this] Rule 12(b)(6)

standard . . . in assessing the sufficiency of complaints in the context of complex

commercial litigation.” Id. at 615 n.7, 821 S.E.2d at 737. IV. ANALYSIS

30. CBB moves to dismiss each of the following eight claims that Plaintiffs have

asserted against it: (1) breach of fiduciary duty, (2) fraud by omission/concealment,

(3) fraud in the inducement, (4) state securities fraud, (5) constructive fraud, (6) civil

conspiracy, (7) negligent misrepresentation in the alternative, and (8) vicarious

liability/respondeat superior. (Mot. to Dismiss; Mem. in Supp. 2, 7.) As an artificial

entity, CBB can only act through its agents, see Technetics Group Daytona, Inc. v. N2

Biomedical, LLC, 2018 NCBC LEXIS 116, at *7 (N.C. Super. Ct. Nov. 8, 2018), which

makes Plaintiffs’ vicarious liability/respondeat superior claim the natural starting

point for the Court’s analysis. 10

A. Vicarious Liability/Respondeat Superior

31. Relying on the respondeat superior doctrine, Plaintiffs assert that CBB is

vicariously liable for the claims they have lodged against the Smiths (i.e., breach of

fiduciary duty, fraud by omission/concealment, fraud in the inducement, state

securities fraud, constructive fraud, civil conspiracy, and negligent

misrepresentation). (See Merrell Compl. ¶ 287; Strack Compl. ¶ 524; Cochrane

Compl. ¶ 365.)

32. Under the respondeat superior doctrine, an employer may be held

vicariously liable for its employee’s misconduct in three situations: (1) when the

10 Although Plaintiffs’ Complaints repeatedly allege that CBB and Michael are or acted as “alter egos” of each other, (see, e.g., Merrell Compl. ¶¶ 16, 179, 208, 211, 221, 278), Plaintiffs have not asserted a veil piercing claim or otherwise pled the elements to support such a claim. See Gurkin v. Sofield, 2020 NCBC LEXIS 49, at *22–24 (N.C. Super. Ct. Apr. 15, 2020) (explaining the doctrine of reverse veil piercing, under which an entity can be held personally liable for its majority owner’s actions). misconduct is expressly authorized by the employer; (2) when the misconduct is

committed within the scope of the employee’s employment and in furtherance of the

employer’s business; or (3) when the misconduct is ratified by the employer. White

v. Consol. Planning, Inc., 166 N.C. App. 283, 296, 603 S.E.2d 147, 157 (2004).

33. Plaintiffs appear to argue that CBB can be held vicariously liable for the

Smiths’ alleged misconduct on the basis of all three situations described

above. (Mem. in Opp’n 4–5.) However, Plaintiffs’ Complaints specifically assert a

scope of employment theory, and they do not contain factual allegations suggesting

that Plaintiffs are pursuing a respondeat superior claim against CBB based on the

other two situations. (See Merrell Compl. ¶ 286; Strack Compl. ¶ 523; Cochrane

Compl. ¶ 364.) Therefore, the Court will only analyze whether Plaintiffs have

sufficiently stated a claim for respondeat superior liability against CBB with regard

to the scope of employment situation, not the other two situations.

34. The jury ordinarily decides whether an employee’s misconduct was

committed within the scope of his/her employment and in furtherance of the

employer’s business. See Medlin v. Bass, 327 N.C. 587, 593, 398 S.E.2d 460, 463

(1990). But when the misconduct is “so clearly outside the scope of employment,” the

trial court may resolve a respondeat superior claim, as a matter of law, in favor of the

employer. Id. at 594, 398 S.E.2d at 464.

35. Here, CBB contends that the Smiths’ alleged misconduct, “engaging in a

private fraud scheme,” was “clearly outside of the legitimate scope of their

relationship with [CBB].” (Mem. in Supp. 12.) CBB also argues that Plaintiffs’ Complaints establish that this alleged scheme only furthered the Smiths’ private

interests, not CBB’s business, since Plaintiffs allege that the Smiths and Siskey, not

CBB, were the sole beneficiaries of the scheme to defraud Plaintiffs. (Mem. in Supp.

11–13.)

36. The Court is not persuaded. To begin with, CBB does not to cite to, and the

Court’s research has not revealed, any controlling law requiring a plaintiff to

specifically plead that an employer benefited from its employee’s misconduct to

sustain a respondeat superior claim against the employer. Cf. Troxler v. Charter

Mandala Ctr., Inc., 89 N.C. App. 268, 271, 365 S.E.2d 665, 668 (1988) (“To be within

the scope of employment, an employee, at the time of the incident, must be acting in

furtherance of the principal’s business and for the purpose of accomplishing the

duties of his employment. . . . If an employee departs from that purpose to accomplish

a purpose of his own, the principal is not liable.”). Therefore, Plaintiffs’ failure to

specifically allege that CBB benefited from the Smiths’ conduct is not fatal to their

vicarious liability/respondeat superior claim against CBB. 11 In addition, by narrowly

focusing on who benefited from the alleged fraud, CBB overlooks the Court of Appeals’

11 Notably, CBB attempts to distinguish Plaintiffs’ vicarious liability/respondeat superior claim from the respondeat superior claim that the Court declined to dismiss in another case involving the MetLife Defendants and Siskey, Aldridge v. Metro. Life Ins. Co., 2019 NCBC LEXIS 116, at *61–65 (N.C. Super. Ct. Dec. 31, 2019). (Mem. in Supp. 13.) However, CBB ignores the Court’s determination in Aldridge that the MetLife Defendants’ contention—that “the activities conducted” by the MetLife Defendants’ employees “were private matters that personally benefitted Siskey, not the MetLife Defendants”—required the Court to “go[] beyond the allegations contained in the four corners of the Complaints and [was] therefore not appropriate on the Court’s consideration of the Rule 12(b)(6) motions.” 2019 NCBC LEXIS 116, at *62. Importantly, the Court did not conclude in Aldridge that a plaintiff is required to specifically plead that the employer benefited from its employee’s misconduct in order to maintain a respondeat superior claim. See id. at *61–65. decision in White v. Consolidated Planning, Inc., 166 N.C. App. at 283, 603 S.E.2d at

147, which provides useful guidance concerning the scope of employment issue in the

context of alleged fraudulent conduct.

37. There, the Court of Appeals considered whether an employee’s alleged

intentional misconduct (misappropriating a plaintiff investor’s funds) had been

committed within the scope of his employment with the defendant insurance

company. Id. at 287–91, 296, 603 S.E.2d at 152–54, 157. In analyzing this issue, the

Court of Appeals explained that “the critical question [was] whether the [misconduct]

was committed in the course of activities that the employee was authorized to

perform.” Id. at 298, 603 S.E.2d at 158 (emphasis added); see also id. at 297, 603

S.E.2d at 157 (“The general rule is that a principal is responsible to third parties for

the fraud of its agent while acting within his authority.” (quoting Thrower v. Coble

Dairy Prods. Co-operative, Inc., 249 N.C. 109, 111, 105 S.E.2d 428, 430 (1958))). And

since the plaintiff had presented evidence showing that the employee had been able

to misappropriate the funds by exploiting his assigned jobs duties, the Court of

Appeals concluded that there was a genuine issue of material fact as to whether the

employee had acted within the scope of his employment with the defendant. Id. at

299–300, 603 S.E.2d at 159.

38. Here, there are allegations that, if proven true, could support a

determination that the Smiths were able to, in conjunction with Siskey, defraud

Plaintiffs by exploiting their assigned job duties as CEO and Special Projects Leader

of CBB, similar to how the employee exploited his assigned job duties in White. For example, Michael’s email to Siskey stating that Michael had been approached by an

investment group interested in purchasing CBB contained Michael’s CEO title. (See,

e.g., Merrell Compl. ¶ 34, Ex. 1.) That email is relevant to Plaintiffs’ claims. Also,

when Jennifer emailed Siskey to give him advance notice about the March 29, 2007

business meeting for CBB’s members, it appears that she sent that email from her

“carolinabeer.com” account. (See, e.g., Merrell Compl. ¶ 45, Ex. 5.) This

communication is relevant to Plaintiffs’ claims because Siskey apparently was not a

member of CBB at the time. Lastly, when Siskey and Jennifer exchanged emails

about stock transfer consent forms that needed to be processed and approved by the

Smiths in connection with the alleged plan to defraud Plaintiffs, it appears that

Jennifer again used her “carolinabeer.com” account for these

communications. (Merrell Compl. ¶¶ 61–63, Ex. 13–15.)

39. At this preliminary stage, then, the Court concludes that Plaintiffs have

sufficiently stated a respondeat superior claim against CBB based on a scope of

employment theory. Thus, to the extent that Plaintiffs’ vicarious liability/respondeat

superior claim against CBB is premised on this theory, the Court denies CBB’s

request to dismiss the claim. CBB is free to revisit this scope of employment issue

after discovery and on a more developed record.

B. Breach of Fiduciary Duty and Constructive Fraud

40. The Court next turns to Plaintiffs’ breach of fiduciary duty and constructive

fraud claims against CBB. These two claims are legally distinct. See White, 166 N.C. App. at 294–95, 603 S.E.2d at 155–56. However, as alleged by Plaintiffs here, both

claims rest on the alleged existence of a fiduciary relationship.

41. Plaintiffs allege, and CBB denies, that they had a fiduciary relationship

with CBB when the Smiths and Siskey conspired to induce Plaintiffs to sell their CBB

stock. (See Merrell Compl. ¶¶ 182, 250; Strack Compl. ¶¶ 362, 479; Cochrane Compl.

¶¶ 199, 316.) Thus, the Court must determine, as a threshold matter and in the

absence of a written agreement providing otherwise, whether Plaintiffs have alleged

sufficient factual allegations to support their contention that CBB, under North

Carolina law, owed a fiduciary duty to Plaintiffs as its members. CBB contends that,

in accordance with well-established corporate law principles, CBB did not owe such

a duty to its members. (Mem. in Supp. 13–17.) The Court agrees.

42. This Court has previously ruled that a corporation does not owe a reciprocal

fiduciary duty to its directors and officers. See Talisman Software, Sys. & Servs. v.

Atkins, 2015 NCBC LEXIS 108, at *12 (N.C. Super. Ct. Nov. 18, 2015) (“In North

Carolina, while directors and officers of a corporation generally owe a fiduciary duty

to the corporation, . . . a corporation does not owe a reciprocal fiduciary duty to its

directors and officers.” (citations omitted)); Kingsdown, Inc., v. Hinshaw, 2015 NCBC

LEXIS 30, at *27 n.9 (N.C. Super. Ct. Mar. 25, 2015) (stating that an officer’s

contention that the corporation owed her a fiduciary duty “is simply not the

law”). This same reasoning should apply here, particularly because by default an LLC’s members do not owe a fiduciary duty to the LLC in the first place. 12 See Kaplan

v. O.K. Techs., L.L.C., 196 N.C. App. 469, 473, 675 S.E.2d 133, 137 (2009).

43. It appears that Plaintiffs contend that CBB owed them a fiduciary duty on

the basis of Michael’s alleged status as CBB’s majority interest holder. (Mem. in

Opp’n 2.) This argument misses the mark. Any fiduciary duty arising from Michael’s

status as CBB’s majority interest holder is a duty he, not CBB, owed to Plaintiffs. See

Corwin, 371 N.C. at 616, 821 S.E.2d at 737 (noting that “the majority stockholder of

a corporation owes fiduciary duties to the minority stockholders”); Fiske v. Kieffer,

2016 NCBC LEXIS 22, at *9 (N.C. Super. Ct. Mar. 9, 2016) (explaining that, under

some circumstances, “a holder of a majority interest who exercises control over the

LLC owes a fiduciary duty to minority interest members”); see also Bateman v. JAB

Wireless, No. 2:14-cv-147-RJS, 2015 U.S. Dist. LEXIS 88094, at *12 (D. Utah July 6,

2015) (“The existence of a fiduciary relationship between a majority shareholder and

minority shareholders is not a remarkable proposition. And it is not the same thing

as a fiduciary relationship between a corporation and its own shareholders.”).

44. And to the extent that Plaintiffs seek to hold CBB vicariously liable for the

Smiths’ alleged breach of fiduciary duty and constructive fraud by operation of the

respondeat superior doctrine, this theory fares no better. (See Merrell Compl. ¶ 287;

12 The Court makes no determination as to whether CBB’s operating agreement might create a fiduciary relationship between CBB and its members (however unlikely that may be), since the Court has not been presented with the operating agreement for review and the fiduciary duty claimed by Plaintiffs here does not arise from any language in an operating (or other written) agreement but solely by virtue of Michael’s majority interest in CBB. See Strategic Mgmt. Decisions v. Sales Performance Int’l, 2017 NCBC LEXIS 69, at *10–11 (N.C. Super. Ct. Aug. 7, 2017) (“The rights and duties of LLC members are ordinarily governed by the company’s operating agreement, not by general principles of fiduciary relationships.”). Strack Compl. ¶ 524; Cochrane Compl. ¶ 365.) Indeed, permitting Plaintiffs as CBB’s

members to hold the LLC vicariously liable for its agents’ alleged breach of fiduciary

duty or constructive fraud would effectively shift the cost of these torts from the

agents to the members, the group harmed by these torts, given that the members own

the LLC. See, e.g., Radol v. Thomas, 772 F.2d 244, 258–59 (6th Cir. 1985) (relying on

this reasoning in rejecting an attempt by a corporation’s shareholders to hold the

corporation vicariously liable for its directors’ breach of fiduciary duty). “[S]uch a

result would be flatly inconsistent with the rationale of vicarious liability.” Id. at 259.

45. In sum, having considered North Carolina’s default rules for LLCs and

other relevant corporate law principles, the Court concludes that Plaintiffs have not

alleged facts sufficient to establish the existence of a fiduciary relationship between

them and CBB. Nor may they hold CBB vicariously liable for the Smiths’ alleged

breach of fiduciary duty and constructive fraud on the pleaded facts. Consequently,

Plaintiffs’ breach of fiduciary duty and constructive fraud claims against CBB,

whether asserted directly or vicariously, are dismissed.

C. Fraud by Omission/Concealment and Fraud in the Inducement

46. Next, the Court considers Plaintiffs’ two common law fraud claims against

CBB: fraud by omission/concealment and fraud in the inducement. It is unclear from

Plaintiffs’ Complaints how exactly these two claims differ. At bottom, both claims

are based on the same core allegations, specifically, that the Smiths concealed

material information from Plaintiffs relating to Plaintiffs’ decision to sell their

ownership interests in CBB. (See Merrell Compl. ¶¶ 184–201, 203–16; Strack Compl. ¶¶ 383–96; 409–24; Cochrane Compl. ¶¶ 220–33; 246–61.) Moreover, Plaintiffs’

briefing is completely devoid of any discussion about their fraud in the inducement

claim. (See generally Mem. in Opp’n.) The Court thus concludes that Plaintiffs’ two

fraud claims against CBB are identical to each other, and as a result, the Court will

analyze both claims together as one fraudulent concealment claim.

47. The elements of fraud are a “[f]alse representation or concealment of a

material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4)

which does in fact deceive, (5) resulting in damage to the injured party.” Forbis v.

Neal, 361 N.C. 519, 526–27, 649 S.E.2d 382, 387 (2007) (citation

omitted). Fraudulent concealment, also referred to as fraud by omission, occurs when

one party was required (i.e. had a duty), but failed, to disclose to another party

material information relating to a transaction between the parties. See Harton v.

Harton, 81 N.C. App. 295, 297, 344 S.E.2d 117, 119 (1986); Lawrence v. UMLIC-Five

Corp., 2007 NCBC LEXIS 20, at *7–9 (N.C. Super. Ct. June 18, 2007). Because

“silence is fraudulent only when there is a duty to speak,” to state a claim for fraud

by omission, the plaintiff must allege that the defendant “had a duty to disclose

material information to [the plaintiff].” Lawrence, 2007 NCBC LEXIS 20, at *8 (citing

Griffin v. Wheeler-Leonard & Co., 290 N.C. 185, 198, 225 S.E.2d 557, 565 (1976)). A

duty to disclose arises when:

(1) there is a fiduciary relationship between the parties to the transaction; (2) a party has taken affirmative steps to conceal material facts from the other; or (3) 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. Christenbury Eye Ctr., P.A. v. Medflow, Inc., 2015 NCBC LEXIS 64, at *14 (N.C.

Super. Ct. June 19, 2015) (quoting Harton, 81 N.C. App. at 298, 344 S.E.2d at 119).

48. Fraud by omission must be pled with particularity. See N.C.G.S. § 1A-1,

Rule 9(b). As this Court has observed, “fraudulent concealment or fraud by omission

is, by its very nature, difficult to plead with particularity.” Lawrence, 2007 NCBC

LEXIS 20, at *9 (quoting Breeden v. Richmond Cmty. Coll., 171 F.R.D. 189, 195

(M.D.N.C. 1997)). In Lawrence, the Court adopted the following factors to assist it in

testing the sufficiency of allegations supporting a fraud by omission claim under Rule

9(b):

(1) the relationship [between plaintiff and defendant] giving rise to the duty to speak; (2) the event or events triggering the duty to speak and/or the general time period over which the relationship arose and the fraudulent conduct 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 by withholding information; (6) why plaintiff's reliance on the omission was both reasonable and detrimental; and (7) the damages proximately flowing from such reliance.

Id. at *9–10 (quoting Breeden, 171 F.R.D. at 195–96). In addition, the Court has

explained that “[t]o show a duty to disclose based on affirmative steps to conceal a

material fact, a plaintiff must allege the specific affirmative acts taken to conceal that

fact.” Vitaform, Inc. v. Aeroflow, Inc., 2020 NCBC LEXIS 132, at *31 (N.C. Super. Ct.

Nov. 4, 2020).

49. With these principles in mind, the Court turns to CBB’s contentions. CBB

seeks dismissal of Plaintiffs’ fraudulent concealment claim on two grounds. CBB first

argues that, to the extent this claim is based on an alleged fiduciary duty owed by the Smiths/CBB to Plaintiffs, the claim should be dismissed. (Mem. in Supp. 18–19.)

Second, it contends that the claim is not pled with sufficient particularity. (Mem. in

Supp. 19–22.) The Court addresses each of these arguments in turn.

50. As set forth above in section IV.B., CBB did not owe a fiduciary duty to

Plaintiffs, and it also cannot be held vicariously liable for the Smiths’ alleged breach

of fiduciary duty. Therefore, Plaintiffs’ fraudulent concealment claim against CBB

cannot be based on a purported fiduciary relationship with CBB. However, having

carefully examined Plaintiffs’ Complaints, the Court concludes that Plaintiffs have

met the heightened pleading standard for a fraudulent concealment claim based on

affirmative steps taken to conceal material facts.

51. First, Plaintiffs have pled the five general elements of fraud. (See Merrell

Compl. ¶¶ 189–99; Strack Compl. ¶¶ 388–96, 405–06; Cochrane Compl. ¶¶ 225–33,

242–43.) In addition, Plaintiffs’ Complaints on balance contain sufficient factual

allegations to put CBB on notice of the nature of Plaintiffs’ fraud claim against CBB,

consistent with the Lawrence factors as well as the purpose behind the Rule 9(b)

particularity requirement. See Biopharm., Inc. v. RSM US LLP, 2018 NCBC LEXIS

101, at *63 (N.C. Super. Ct. Sept. 28, 2018) (“The purpose of Rule 9(b) is to provide a

defendant with sufficient notice of the fraud alleged ‘in order to meet the charges.’”

(quoting Terry v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678 (1981))).

52. Indeed, Plaintiffs specifically allege that the information that Michael

shared with Siskey about an investment group being interested in purchasing CBB

was material to Plaintiffs’ decision to sell their CBB stock “because neither . . . Plaintiffs nor any reasonable person would have sold their shares, much

less to . . . Siskey,” if that information had been disclosed to them. (E.g., Merrell

Compl. ¶ 190.) Plaintiffs also point to specific affirmative acts that the Smiths took

to conceal this alleged material information. These acts include: (1) Michael’s

decision to give Siskey the information, but not Plaintiffs; (2) the Smiths’

communications with CBB’s members in 2007 that omitted this same information

(i.e., Jennifer’s March 2, 2007 email to the members and the March 29, 2007 business

meeting); and (3) the Smiths’ continued concealment of the information amid their

processing/approval of Plaintiffs’ stock transfer forms after CBB’s legal counsel

notified Siskey by letter dated October 3, 2007 (with a copy to Michael) that not

disclosing to CBB’s members the information about the potential sale of the company

could trigger a federal securities law violation. (See Merrell Compl. ¶¶ 34; 45, 56,

Exs. 11–13; Strack Compl. ¶¶ 81, 92, 106, Exs. 26–28; Cochrane Compl. ¶¶ 98, 111,

123, Exs. 30–32.)

53. All of these allegations, viewed together and in the light most favorable to

Plaintiffs, state with sufficient particularity a fraudulent concealment claim against

CBB based on the Smiths’ failure to disclose to Plaintiffs the same material

information that had been provided to Siskey in connection with Plaintiffs’ decision

to sell their CBB stock. Thus, the Court declines to dismiss Plaintiffs’ fraud in the

inducement claim and fraud by omission/concealment claim against CBB, whether

asserted directly or vicariously. D. State Securities Fraud

54. The Court next addresses Plaintiffs’ claim against CBB under the North

Carolina Securities Act (the “NCSA”).

55. Plaintiffs allege that CBB violated sections 78A-12(a)(1) and 78A-12(a)(5)

of the NCSA, thereby triggering liability under section 78A-56(b1) of the statute. (See

Merrell Compl. ¶ 221; Strack Compl. ¶ 431; Cochrane Compl. ¶ 268.) Section 78A-

12(a)(1) makes it unlawful to “[w]illfully quote a fictitious price with respect to a

security” while section 78A-12(a)(5) makes it unlawful to “[e]mploy any other

deceptive or fraudulent device, scheme, or artifice to manipulate the market in a

security, including the issuance, with the intent to deceive or defraud, of analyses,

reports, or financial statements that are false or misleading in any material

respect.” N.C.G.S. § 78A-12(a)(1), (5). 13 Violating these two provisions can lead to

primary liability under section 78A-56(b1). See N.C.G.S. § 78A-56(b1); see also

Tillery Envtl. LLC v. A&D Holdings, Inc., 2018 NCBC LEXIS 13, at *60–74 (N.C.

Super. Ct. Feb. 9, 2018) (explaining the distinction between primary and secondary

liability under the NCSA).

56. In addition, Plaintiffs allege that CBB is liable as a “control person” under

section 78A-56(c)(1) of the NCSA. (See Merrell Compl. ¶ 224; Strack Compl. ¶ 434;

Cochrane Compl. ¶ 271.) In pertinent part, section 78A-56(c)(1) imposes secondary

liability on “[e]very person who directly or indirectly controls a person liable under

subsection (a), (b), or (b1) of [section 78A-56].” N.C.G.S § 78A-56(c)(1); see also Tillery,

13The acts proscribed by section 78A-12 are considered “manipulation of the market.” See N.C.G.S. § 78A-12. 2018 NCBC LEXIS 13, at *64–66 (explaining secondary liability under section 78A-

56(c) of the NCSA). Accordingly, to state a claim against a “control person” under

section 78A-56(c)(1), the plaintiff must first state a claim against a person liable

under sections 78A-56(a), 78A-56(b), or 78A-56(b1). See Tillery, 2018 NCBC LEXIS

13, at *68 (“[T]o bring a claim against a person under [section 78A-56(c)(1)], the

claimant must first state a claim against the primarily liable person.”). Plaintiffs

here specifically allege that CBB exercised control over Siskey in connection with the

misconduct that created primary liability for Siskey under sections 78A-56(b) and

78A-56(b1), thus making CBB secondarily liable as a “control person” pursuant to

section 78A-56(c)(1). (See Merrell Compl. ¶ 224; Strack Compl. ¶ 434; Cochrane

Compl. ¶ 271.)

57. CBB makes two arguments for dismissal. CBB first contends that because

Plaintiffs’ NCSA claim is “based on the same core of operative facts” as the

Smiths’/CBB’s alleged violation of their fiduciary duties to Plaintiffs, Plaintiffs’ NCSA

claim fails. (Mem. in Supp. 18–19). Second, CBB argues that it was not a “control

person” within the meaning of the NCSA as to the transfer of Plaintiffs’ CBB stock to

Siskey because the transfers were executed by Michael in his capacity as CBB’s

majority interest holder, not in his capacity as an agent of CBB. (Reply Br. 7.) Both

arguments are misguided.

58. First, contrary to CBB’s assertion, Plaintiffs’ Complaints do not reflect that

their NCSA claim is grounded in an alleged fiduciary duty owed to them by the

Smiths/CBB. As noted, Plaintiffs seek to hold CBB both primarily and secondarily liable under sections 78A-56 (b1) and 78A-56(c)(1) of the NCSA, respectively, and

liability under these provisions does not depend on the existence of a fiduciary

relationship. See N.C.G.S §§ 78A-56(b1)–(c)(1).

59. Next, although CBB contends that it “was not a ‘control person’ over the

share transfers” at issue, (Reply Br. 7), Plaintiffs’ Complaints allege that CBB is

secondarily liable as a “control person” under section 78A-56(c)(1) because of Siskey’s

alleged primary liability under sections 78A-56(b) and 78A-56(b1). The critical

question is therefore not whether CBB controlled the share transfers, as CBB avers,

but whether CBB exercised control (direct or indirect) over Siskey, see N.C.G.S. §

78A-56(c)(1). Yet, CBB does not move to dismiss Plaintiffs’ NCSA claim on the basis

that CBB lacked the requisite control over Siskey with respect to his alleged

misconduct, (see generally Mot. to Dismiss), nor argues to that effect, (see generally

Mem. in Supp.; Reply Br.). Moreover, CBB fails to challenge its own alleged primary

liability under sections 78A-56(b1). 14

60. For all these reasons, the Court declines to dismiss Plaintiffs’ NCSA claim

against CBB at this early stage of the litigation.

E. Negligent Misrepresentation

61. Plaintiffs bring a negligent misrepresentation claim against CBB in the

alternative to their fraudulent concealment claim. (Merrell Compl. ¶¶ 265–84;

Strack ¶¶ 493–512; Cochrane Compl. ¶¶ 335–53.) Here again, CBB contends that

14 Consistent with the Court’s determination above in section IV.A. regarding Plaintiffs’ vicarious liability/respondeat claim, Plaintiffs may base CBB’s alleged NCSA primary liability on the conduct of Michael, CBB’s CEO. this claim fails because it is based on the Smiths’/CBB’s alleged violation of their

fiduciary duties to Plaintiffs and because the claim is not pled with sufficient

particularity. (Mem. in Supp. 18–19). The Court agrees that this claim against CBB

is predicated on a fiduciary relationship between the Smiths/CBB and Plaintiffs and

thus should be dismissed.

62. “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.” BDM Invs. v. Lenhil, Inc., 264 N.C. App. 282, 299, 826

S.E.2d 746, 761 (2019) (alterations and citation omitted). Here, Plaintiffs’

Complaints all allege that the Smiths and CBB owed a “fiduciary duty” to

Plaintiffs. (Merrell Compl. ¶¶ 268–69; Strack ¶¶ 496–97; Cochrane Compl. ¶¶ 337–

38.) Plaintiffs’ briefing also repeats that assertion. (Mem. in Opp’n 8–9.) And unlike

Plaintiffs’ fraudulent concealment claim, Plaintiffs’ Complaints do not reveal another

cognizable theory for imposing a duty on CBB as to the negligent misrepresentation

claim even when read in the light most favorable to Plaintiffs.

63. As a result, because the Court has determined that CBB did not owe a

fiduciary duty to Plaintiffs and cannot be held vicariously liable for the Smiths’

alleged breach of fiduciary duty, the Court dismisses Plaintiffs’ negligent

misrepresentation claim against CBB, whether asserted directly or vicariously.

F. Civil Conspiracy

64. Plaintiffs also bring a civil conspiracy claim against CBB. (Merrell Compl.

¶¶ 252–263; Strack Compl. ¶¶ 482–492; Cochrane Compl. ¶¶ 319–334.) CBB challenges this claim on only one ground, namely, that the claim is based on the

Smiths’/CBB’s alleged violation of their fiduciary duties to Plaintiffs. (Mem. in Supp.

18–19). Plaintiffs’ civil conspiracy claim appears to be based on the alleged

fraudulent scheme that Siskey and the Smiths employed to allow Siskey to purchase

Plaintiffs’ ownership interests in CBB. Since Plaintiffs’ fraudulent concealment

claim against CBB has not been dismissed, Plaintiffs may base their civil conspiracy

claim against CBB on the same misconduct giving rise to the fraud claim. See Toomer

v. Garrett, 155 N.C. App. 462, 483, 574 S.E.2d 76, 92 (2002) (“There is no independent

cause of action for civil conspiracy. . . . 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.” (citation omitted)). Accordingly, the Court declines to dismiss

Plaintiffs’ civil conspiracy claim against CBB.

V. CONCLUSION

65. For the foregoing reasons, the Court hereby GRANTS in part and DENIES

in part the Motion to Dismiss as follows.

a. The Court DENIES the Motion to Dismiss as to Plaintiffs’ vicarious

liability/respondeat superior claim against CBB as asserted within

the Merrell Complaint, the Strack Complaint, and the Cochrane

Complaint.

b. The Court GRANTS the Motion to Dismiss as to Plaintiffs’ breach of

fiduciary duty claim and constructive fraud claim against CBB as asserted within the Merrell Complaint, the Strack Complaint, and the

Cochrane Complaint, and those claims are hereby DISMISSED.

c. The Court DENIES the Motion to Dismiss as to Plaintiffs’ fraud by

omission/concealment claim and fraud in the inducement claim

against CBB as asserted within the Merrell Complaint, the Strack

Complaint, and the Cochrane Complaint.

d. The Court DENIES the Motion to Dismiss as to Plaintiffs’ claim

against CBB under the NCSA as asserted within the Merrell

Complaint, the Strack Complaint, and the Cochrane Complaint.

e. The Court GRANTS the Motion to Dismiss as to Plaintiffs’ negligent

misrepresentation claim against CBB as asserted within the Merrell

Complaint, the Strack Complaint, and the Cochrane Complaint, and

that claim is hereby DISMISSED.

f. The Court DENIES the Motion to Dismiss as to Plaintiffs’ civil

conspiracy claim against CBB as asserted within the Merrell

SO ORDERED, this the 22nd day of December, 2020.

/s/ Michael L. Robinson Michael L. Robinson Special Superior Court Judge for Complex Business Cases