Merrell v. Smith

2021 NCBC 15
CourtNorth Carolina Business Court
DecidedMarch 4, 2021
Docket19-CVS-21650
StatusPublished

This text of 2021 NCBC 15 (Merrell v. Smith) 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.

Bluebook
Merrell v. Smith, 2021 NCBC 15 (N.C. Super. Ct. 2021).

Opinion

Merrell v. Smith, 2021 NCBC 15.

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,

Plaintiffs,

v. ORDER AND OPINION ON DEFENDANTS METROPOLITAN JAMES M. SMITH; JENNIFER LIFE INSURANCE COMPANY AND SMITH; and CAROLINA BEVERAGE MSI FINANCIAL SERVICES, INC.’S GROUP, LLC f/k/a CAROLINA BEER PARTIAL MOTION TO DISMISS & BEVERAGE, LLC,

Defendants.

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

“Motion to Dismiss”) filed by defendants Metropolitan Life Insurance Company

(“MetLife”) and MSI Financial Services, Inc. (“MSI”) (together, the “MetLife

Defendants”) in Strack, et al. v. Smith, et al., (19 CVS 22027). (Mot. to Dismiss, ECF

No. 62.) The Strack action is one of three Mecklenburg County actions currently

pending before the Court involving claims against Carolina Beverage Group, LLC,

f/k/a Carolina Beer & Beverage, LLC (“CBB”), James Michael Smith (“Michael

Smith”), Jennifer Smith (Michael Smith and Jennifer Smith together, the “Smiths”),

the MetLife Defendants, and the estate of the late Richard C. Siskey (“Siskey”), as

administered by F. Lane Williamson (“Siskey’s Estate”). The Court refers to the three 1 actions—(1) Merrell, et al. v. Smith, et al., (19 CVS 21650); (2) Strack; and (3)

Cochrane, et al. v. Smith, et al., (19 CVS 23665)—together as the “CBB Cases.” 2

2. Through the Motion to Dismiss and pursuant to North Carolina Rule of

Civil Procedure 12(b)(6), the MetLife Defendants seek dismissal of the breach of

fiduciary duty and constructive fraud claims brought against them by plaintiffs

Jeffrey A. Strack, Penny N. Strack, James C. Wilson, Pamela Boileau, Dallas Pendry,

Jr., Mallory Johnson, Rita Dilling, Carolyn Crozier, Thomas J. Crozier, Jr., and Kent

Kalina (together, “Plaintiffs”) in the Strack case. 3 (Mot. to Dismiss 1–2). The

operative complaint challenged by the Motion to Dismiss is Plaintiffs’ Second

Amended Complaint. (Second Am. Compl., ECF No. 33.)

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

the Motion to Dismiss.

Hemmings & Stevens, PLLC, by Aaron C. Hemmings, for plaintiffs.

Alexander Ricks, PLLC, by Alice C. Richey, Mary K. Mandeville, and Benjamin F. Leighton; and Morgan, Lewis & Bockius, LLP, by T. Peter R. Pound and John A. Vassallo, III, for defendants Metropolitan Life Insurance Company and MSI Financial Services, Inc.

Robinson, Judge.

1 A fourth case involving similar allegations, Short v. Smith, et al., has been voluntarily dismissed. (ECF No. 86 [19 CVS 23856].)

2 Although the Court has not determined whether the CBB Cases shall be consolidated for trial, the parties in each case, with the Court’s approval, have agreed on a coordinated approach to discovery and motions practice. (See ECF Nos. 25, 34 [19 CVS 21650]; 34, 49 [19 CVS 22027]; 18, 33 [19 CVS 23665].)

3 Scott Keck and Roy Lynam, who were originally plaintiffs in the Strack case, have voluntarily dismissed all their claims against the MetLife Defendants. (ECF Nos. 102, 129.) The MetLife Defendants are not parties to the Merrell litigation, and the claims against the MetLife Defendants in the Cochrane case have been voluntarily dismissed. (ECF Nos. 24 [19 CVS 21650]; 113 [19 CVS 23665].) I. FACTUAL AND PROCEDURAL BACKGROUND

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

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

Second Amended Complaint and its attachments, that are relevant to the Court’s

determination of the Motion to Dismiss.

A. The Parties

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

company. (Second Am. Compl. ¶¶ 4–6, 20.) Plaintiffs were also investment clients 4

of the MetLife Defendants during the time period relevant to the Second Amended

Complaint. (Second Am. Compl. ¶¶ 2–3.)

6. MetLife is a New York corporation. (Second Am. Compl. ¶ 23.) MetLife

sells life insurance policies and other financial products. (Second Am. Compl. ¶ 23.)

MSI is a Delaware corporation. (Second Am. Compl. ¶ 24.) MSI was a wholly owned

subsidiary of MetLife during the time period relevant to the Second Amended

Complaint. (Second Am. Compl. ¶ 24.) MSI is registered with the Securities and

Exchange Commission as a broker-dealer under section 15(b)(1) of the Securities

Exchange Act of 1934 and is also a registered investment advisor under N.C.G.S. §

78C-2. (Second Am. Compl. ¶ 24.) At all times relevant to the Second Amended

Complaint, the MetLife Defendants had offices in Charlotte, North Carolina, and they

4 Plaintiffs Carolyn Crozier, Thomas J. Crozier, Jr., and Kent Kalina allege that they were insurance clients of the MetLife Defendants, as well as investment clients. (Second Am. Compl. ¶¶ 312, 335.) conducted business in this State under the registered trade name “Wall Street

Capitol.” (Second Am. Compl. ¶¶ 23–24.)

B. The Alleged Fraudulent Scheme at the Center of the CBB Cases

7. The CBB Cases all arise from the same alleged fraudulent scheme carried

out by Siskey and the Smiths. The Court previously recited in detail the factual

allegations surrounding this scheme in its 22 December 2020 Order and Opinion on

CBB’s motion to dismiss in each of the CBB Cases. See Merrell v. Smith, 2020 NCBC

LEXIS 150, at *2–14 (N.C. Super. Ct. Dec. 22, 2020). Therefore, the Court here will

only summarize the core allegations regarding the scheme, taken from the Second

Amended Complaint, to provide context for the Court’s analysis. 5

8. Plaintiffs allege that they each purchased ownership interests in CBB

during the early 2000s based on Siskey’s advice. (Second Am. Compl. ¶ 4–5.) At the

time, Siskey worked as an insurance agent and securities broker for the MetLife

Defendants, and he also had a separate preexisting business relationship with

Michael Smith, CBB’s majority interest holder and Chief Executive Officer. 6 (Second

Am. Compl. ¶¶ 70–73.) After Plaintiffs purchased their CBB ownership interests,

they received information about matters relating to the company from CBB, Michael

5 As observed by the Court in its 22 December 2020 Order and Opinion, the operative complaints in the CBB cases “each contain nearly verbatim factual allegations about the alleged fraudulent scheme underpinning the CBB Cases.” See Merrell, 2020 NCBC LEXIS 150, at *2 n.3.

6The Second Amended Complaint does not allege any business dealings between the MetLife Defendants and CBB or Michael Smith. (See generally Second Am. Compl.) Smith, Jennifer Smith (Michael’s wife and an employee of CBB), or Siskey. (Second

Am. Compl. ¶¶ 19, 79.)

9. According to Plaintiffs, in 2006, Michael Smith selectively notified Siskey,

who was not a member of CBB, that a private equity firm had expressed interest in

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

franchise deal with Austria-based company Red Bull. (Second Am. Compl. ¶¶ 80–81,

88.) After learning this inside information, Siskey allegedly devised a fraudulent

scheme to purchase Plaintiffs’ respective membership interests in CBB, at less than

the true value of the interests, prior to CBB’s sale. (Second Am. Compl. ¶ 82.)

Plaintiffs claim that the Smiths helped Siskey defraud Plaintiffs by concealing the

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2021 NCBC 15, Counsel Stack Legal Research, https://law.counselstack.com/opinion/merrell-v-smith-ncbizct-2021.