Potts v. Kel, LLC

2021 NCBC 72

• Court: North Carolina Business Court
• Decided: November 5, 2021
• Docket: 16-CVS-2877
• Status: Published

Opinion

Potts v. KEL, LLC, 2021 NCBC 72.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION IREDELL COUNTY 16 CVS 2877

W. AVALON POTTS, derivatively on behalf of Steel Tube, Inc.,

Plaintiff,

v.

KEL, LLC; RIVES & ASSOCIATES, LLP,

Defendants,

and ORDER AND OPINION ON DEFENDANTS’ MOTIONS FOR STEEL TUBE, INC., JUDGMENT NOTWITHSTANDING THE VERDICT AND A NEW TRIAL Nominal Defendant,

and

LEON L. RIVES, II,

Defendant/ Counterclaimant/ Third-Party Plaintiff,

AVALON1, LLC,

Third-Party Defendant/ Counterclaimant.

1. After an eight-day trial, a jury returned verdicts awarding compensatory

and punitive damages against Leon L. Rives, II and Rives & Associates, LLP. Both

have moved for a new trial and for judgment notwithstanding the verdict. For the

following reasons, the Court DENIES the motions.

Moore and Van Allen, PLLC, by Mark A. Nebrig, John T. Floyd, and Benjamin E. Shook, for Derivative Plaintiff W. Avalon Potts and for Counterclaimant Avalon1, LLC. Sharpless McClearn Lester Duffy, PA, by Frederick K. Sharpless and Pamela S. Duffy, for Defendants Leon L. Rives, II and Rives & Associates, LLP.

No counsel appeared for Defendant KEL, LLC or for Nominal Defendant Steel Tube, Inc.

Conrad, Judge.

I. BACKGROUND

2. This case arises out of a dispute between the co-owners of Steel Tube, Inc.

From early 2015 until early 2017, W. Avalon Potts and Leon L. Rives, II were Steel

Tube’s only owners, officers, and directors. Claiming to have discovered an extensive

scheme of fraud and self-dealing by Rives, Potts filed suit and asserted several

derivative claims on Steel Tube’s behalf. Potts also named Rives & Associates, LLP—

a tax and accounting firm whose managing partner is Rives—as a defendant.

3. Not long after the lawsuit began, Potts ousted Rives from Steel Tube. This

was possible because Rives had defaulted on payments that he owed to the original

owner of his shares (one of Steel Tube’s founders), who retained a security interest in

the shares. Potts discovered the default, struck a deal to obtain the security interest,

repossessed the shares, and disposed of them in a public sale. Rives objected,

prompting the parties to add another set of claims related to the reasonableness of

the sale.

4. This litigation has been contentious throughout. At various times, the

parties have sought emergency relief, filed both prediscovery and postdiscovery

dispositive motions, and pursued two rounds of pretrial motions to exclude evidence.

Previous opinions convey much of the procedural history, as well as the allegations and claims, in more detail. See Potts v. KEL, LLC (Potts I), 2018 NCBC LEXIS 24

(N.C. Super. Ct. Mar. 27, 2018) (ECF No. 86); Potts v. KEL, LLC (Potts II), 2019 NCBC

LEXIS 30 (N.C. Super. Ct. May 9, 2019) (ECF No. 131); Potts v. KEL, LLC (Potts III),

2019 NCBC LEXIS 61 (N.C. Super. Ct. Sept. 27, 2019) (ECF No. 151).

5. The parties tried the surviving claims and issues before a jury over eight

days. Below, the Court summarizes the trial evidence, the verdict, and the pending

motions.

A. Evidence at Trial

6. Steel Tube is a carbon steel and galvanized steel tube manufacturer. Its

founders, Potts and Roy Lazenby, began the company in 1990. Each held a fifty

percent ownership interest 1 and served as an officer and director for the next

twenty-five years. (See Joint Stipulation of Facts 2, ECF No. 193 [“Joint

Stipulation”]; Trial Test. of Avalon Potts 8:11–14, ECF No. 257.5 [“Potts”]; Trial Test.

of Roy Lazenby 4:3–10, ECF No. 257.4 [“Lazenby”].)

7. Sometime before the events giving rise to this case, Rives & Associates

began performing tax and accounting services for Steel Tube. Rives, a certified public

accountant, was the firm’s managing partner. His father (also named Leon) and his

brothers (Kellan and Evan) worked there as well. (See Trial Test. of Leon Rives, II

4:23–5:19, 9:12–15, 103:19–104:14, 142:13–143:13, ECF No. 257.6 [“Rives”]; Trial

Test. of Janice Hatchell 6:17–7:4, ECF No. 257.3 [“Hatchell”].)

1 Lazenby actually split his shares with his wife. For clarity, the Court refers to Lazenby as the owner of the shares. 8. In late 2014, Rives and a business associate tried to buy Steel Tube. (See

Rives 12:24–13:3.) Having become familiar with the company’s operations and

finances, Rives saw profit potential. He knew, for example, that Steel Tube’s

equipment was essentially debt-free. (See Rives 13:17–14:12.) If the price was right,

Rives estimated that he and his fellow investor could quadruple their money simply

by selling the equipment. (See Rives 14:13–16:5.) But Potts and Rives could not

settle on terms, and no deal was reached. (See Potts 12:11–14; Rives 32:2–11.)

9. As negotiations with Potts faltered, Rives made a separate deal with

Lazenby. In a share purchase agreement dated 15 January 2015, Rives agreed to buy

Lazenby’s interest in Steel Tube for $600,000. (See Joint Stipulation 3; Rives 17:5–

9; Lazenby 5:17–6:8.) Rives paid nothing up front. Rather, the agreement called for

a $20,000 lump sum payment within sixty days and $6,000 monthly installments

afterward, and Lazenby reserved a security interest in the shares until the debt was

paid. (See Rives 17:5–22; Lazenby 6:15–22.) Also as part of the deal, Rives assured

Lazenby that Steel Tube would pay for his insurance going forward and promised to

“protect” Lazenby’s son, Mike, who worked at Steel Tube. (Rives 82:17–83:9; see also

Lazenby 8:8–17.)

10. This left Potts and Rives as equal co-owners of Steel Tube. At their first

shareholders’ meeting in February 2015, they elected themselves as officers and

directors. They also discussed an understanding that neither would spend more than

$25,000 without first consulting the other. (See Potts 14:1–7; Rives 54:11–24.)

According to Rives, the conversation did not result in a binding, written agreement. (See Rives 54:25–57:9, 165:3–10.) Potts, however, testified that Rives made an oral

promise. His testimony was corroborated by Janice Hatchell, a close advisor and

employee, who attended the meeting. (See Potts 13:18–14:13, 15:17–16:15; Hatchell

13:18–14:11.)

11. Potts believes that Rives never intended to keep this promise. At trial, he

presented testimony and other evidence designed to show that Rives began looting

Steel Tube through a series of self-interested transactions, concealed his actions, and

engaged in a pattern of deception.

12. To start, Potts offered evidence that Rives planned to pay his debt to

Lazenby with Steel Tube’s money, rather than his own. It is undisputed that Rives

cut a $20,000 check from Steel Tube to Lazenby to pay the lump sum. (See Rives

81:22–25.)2 Likewise, on the same day as his first shareholders’ meeting with Potts,

Rives began withdrawing $7,500 per month from Steel Tube’s bank account, more

than covering the $6,000 installments due to Lazenby. (See Rives 57:15–58:10,

61:13–25.) Potts was unaware of any of this and believes that Rives began secretly

taking company funds to pay for a personal debt of $600,000 within hours or days of

promising not to spend over $25,000 without consultation. (See Potts 17:1–8, 26:1–

28:2, 113:23–114:1; Rives 58:2–23, 82:12–16.)

2 Rives testified that this payment was also partly to compensate Roy Lazenby for driving a

truck for Steel Tube from time to time after his resignation. (See Rives 80:4–17 (“As long as Roy drove a truck, that was okay with me. And he did and he loved it.”).) Lazenby denied this. (See Lazenby 6:23–25 (“Q. Did you agree to drive a truck for Steel Tube in exchange for that $20,000? A. No.”).) 13. There was also evidence that, around this time, Rives agreed to give Mike

Lazenby a raise and a guaranteed bonus of $95,000, thus fulfilling the pledge to

protect him. Rives testified that Potts approved the guaranteed bonus, (see Rives

84:3–8), which was supported by a written employment agreement bearing Potts’s

signature. But Hatchell, who took part in the discussions about the terms of the

agreement, denied this and testified as to differences appearing in a draft version of

the agreement, the supposed final version, and the signature page. (See Hatchell

103:7–107:7, 107:19–21.)

14. Next, Potts pointed to Rives’s involvement with Elite Tube & Fab, LLC

(“Elite Tube”). Rives and Todd Berrier (another of Rives’s tax clients) formed Elite

Tube in the spring of 2015 but installed their wives as the company’s nominal owners.

(Trial Test. of Todd Berrier 5:20–6:8, 10:25–11:3, ECF No. 257.1 [“Berrier”].)

Although Elite Tube was really a “50/50 partnership” between Rives and Berrier,

(Berrier 8:22), vesting ownership in their wives meant that “on paper it would not

appear to be that way,” (Berrier 11:21). In Berrier’s words, Rives wanted to hide his

links to Elite Tube due to “his affiliation with Steel Tube.” (Berrier 11:7.) Rives

confirmed as much. (See Rives 90:5–17.)

15. To get Elite Tube up and running, Rives channeled money and equipment

from Steel Tube. This began with a $120,000 check that Elite Tube used to buy a

piece of equipment known as a tube bender. (See Rives 95:12–14; Berrier 16:18–

17:14.) Rives then moved another piece of equipment known as a roll former from

Steel Tube to Elite Tube. (See Rives 96:13–16; Berrier 9:9–18.) Rives also arranged it so that Mike Lazenby would receive a commission from Elite Tube for referrals.

(See Rives 100:9–15; see also Berrier 12:17–13:11.) At no point did Rives tell Potts

about any of this. (See Rives 90:18–91:13, 95:12–18, 96:13–16, 100:9–21.) Likewise,

Berrier had never heard of Potts and was under the false impression that Rives was

Steel Tube’s sole owner. (See Berrier 4:20–5:1.)

16. Another issue concerned a $62,875 distribution that Rives took at the end of

2015 to cover his tax liability. Rives did not deny taking the distribution; rather, he

maintained that Potts approved it. (See Rives 112:25–114:5, 197:11–198:25; see also

Trial Test. of Diane Tomlin 25:11–20, ECF No. 257.7 [“Tomlin”].) Potts testified not

only that he had not approved the distribution but also that Rives had agreed not to

take one due to Steel Tube’s weak financial position. (See Potts 53:1–9; see also

Hatchell 43:9–44:24.) Potts and Hatchell further testified that, at the time Rives said

he would not take a distribution, he had already done so without telling them. (See

Potts 54:19–55:3; Hatchell 45:1–16; see also Rives 114:6–13 (“Q. So the answer is, yes,

when you’re meeting with Mr. Potts about it you had already taken the money? A.

Yes.”), 116:11–18 (“Q. When you met with him on Monday the 21st, you didn’t tell

him that you had already taken the money, did you? A. I don’t know if I did or not.”).)

17. During trial, Potts also questioned a transaction involving KEL, LLC—a

company owned and operated by Rives’s brothers. In April 2016, Rives helped form

KEL and, shortly after, engaged it to handle Steel Tube’s trucking needs. (See Rives

102:15 (“I’m not saying that I didn’t have any involvement . . . .”); see also Rives

103:7–18, 186:16–187:4.) Rives did not tell Potts or Hatchell about his involvement or that his brothers owned KEL. (See Rives 104:14–17; Hatchell 57:3–9.) Asked why,

Rives said that it was none of their business. (See Rives 105:11–16 (“Q. And you

didn’t mention to Mr. Potts or Ms. Hatchell that your brothers owned KEL because,

in your words, it was none of their business. A. I agree with you.”); see also Rives

106:21–107:2.) In addition, there was evidence showing that Rives signed all checks

paid to KEL rather than having Potts sign them—a departure from the usual

practice. (See Potts 22:1–11, 34:12–35:20, 88:17–25; Rives 109:21–110:8; Tomlin

7:10–19, 9:8–15.)

18. The deal with KEL raised red flags for Hatchell because Steel Tube had

always handled trucking operations internally and had made a profit doing so.

According to Hatchell, Steel Tube began losing money due to KEL’s commissions and

lax payment of invoices. In an e-mail exchange with Rives, she remarked that “KEL

sounds like a very questionable company” and suggested consulting a lawyer.

(Hatchell 55:9–19.) Saying nothing about his involvement with KEL or his brothers’

ownership, Rives promised to investigate and then assured Hatchell that everything

“should be fine.” (Hatchell 55:20–56:16; see also Rives 111:3–21.)

19. In the summer of 2016, Potts and Hatchell grew suspicious. Hatchell began

investigating Steel Tube’s records and, according to her testimony, discovered Rives’s

cash withdrawals, payments to Roy Lazenby, and involvement with Elite Tube. (See

Hatchell 31:25–36:23.) She also claimed to have discovered that the financial reports

she had received from Rives did not match what was in the company’s computer

system. (See Hatchell 23:2–16, 33:20–34:2, 57:23–58:9.) Convinced that the depletion of cash was financially ruinous for Steel Tube, Potts confronted Rives. (See Potts

27:16–28:11.) Rives left the company and did not return. (See Rives 77:7–78:20.) To

ease what he believed to be Steel Tube’s dire condition, Potts injected $3 million of

his own money. (See Potts 59:6–9.)

20. Steel Tube hired an accounting firm to investigate further. (See Hatchell

60:5–16.) Michael Borden, a CPA with Cannon & Company, testified that his firm

found errors in Steel Tube’s tax filings. Its 2015 tax return, for example, misstated

its end-of-year stock and loan basis, mistreated Rives’s $62,875 distribution, and

improperly accounted for goodwill and special depreciation. (See Trial Test. of

Thomas Borden 8:2–10:9, 16:15–17:14, ECF No. 257.2 [“Borden”].) In addition, a

form used to convert Steel Tube into a subchapter S-corporation erroneously

identified Rives as a shareholder as of October 2014 rather than January 2015. (See

Borden 12:14–13:11.) 3 These errors benefited Rives. (See, e.g., Rives 29:21–30:11;

Borden 9:4–8, 15:25–16:8.) Steel Tube, on the other hand, incurred expenses in

amending and correcting the filings. (See, e.g., Borden 14:8–15:4, 18:22–19:3; Trial

Test. of Gregory Reagan 41:10–42:5, ECF No. 217 [“Reagan”].)

21. The parties offered differing views at trial concerning who was responsible

for the tax filings. Rives testified that he prepared all the forms and that his firm,

3 Rives testified that he and Roy Lazenby had a deal in place by October 2014 that supported

the S-corporation election. (See, e.g., Rives 19:8–10 (“Q. Isn’t it true, sir, that you told the IRS that you bought Mr. Lazenby’s shares on October 1st of 2014? A. That’s what me and Roy had agreed upon.”).) Lazenby contradicted that testimony. (See, e.g., Lazenby 13:12–18 (“Q. What date did you sell your shares in Steel Tube to Mr. Rives? A. January the 15th, 2015.”), 26:19–21 (“Q. Did you still own your shares of [Steel Tube] on January 14, 2015? A. Yes.”).) Rives & Associates, was not responsible. (See, e.g., Rives 24:15–17, 26:6–13, 118:10–

23.) But other evidence showed that Rives used his firm’s software to prepare the

forms, that his partners and staff reviewed them, that his father was named as the

paid preparer for the 2015 tax return, and that the cover letters received by Steel

Tube carried a Rives & Associates logo and stated that the firm had prepared the

documents. (See, e.g., Rives 21:12–23:10, 118:10–123:8; Reagan 44:3–24.)

22. Two events that occurred after this suit began were also the subject of

testimony. First, the parties stipulated that Rives defaulted on his payments to Roy

Lazenby. Through an entity called Avalon1, LLC, Potts acquired Lazenby’s security

interest and repossessed the shares. (See Joint Stipulation 3.) Later, Avalon1 put

Rives’s shares up for bid at a public auction and, as the only bidder, bought them for

$200,000 on 5 June 2017. (See Joint Stipulation 3–4.) The parties disputed whether

Avalon1 properly notified Rives of the sale and whether the auction price accurately

reflected the value of the shares. (See, e.g., Hatchell 95:10–24.)

23. Second, although Elite Tube was once a defendant in this case, the claims

against it were settled before trial. (See Berrier 20:13–21:5.) The parties stipulated

that Potts recovered $120,000 and certain equipment from Elite Tube. (See Potts

108:13–24.) Berrier confirmed the settlement during his testimony. (See Berrier

21:18–23.)

24. Rounding out the trial evidence, Potts offered the expert testimony of

Gregory Reagan. One aspect of his testimony related to the code of conduct and

professional standards for CPAs, including obligations to maintain objectivity, to monitor conflicts of interest, and not to deceive clients. (See Reagan 47:18–50:19.)

According to Reagan, Rives & Associates had no “quality control system” to manage

conflicts of interest and avoid harm to clients. (See Reagan 50:13–19.)

25. Reagan also testified as to damages. Among other things, Reagan addressed

how much money Rives withdrew from Steel Tube, the amounts given to Roy and

Mike Lazenby to pay Rives’s debt and related promises, the tax distribution in

December 2015, and losses from the transaction with KEL. (See, e.g., Reagan 92:7–

94:21.)

26. Reagan further testified that Rives’s misconduct devastated Steel Tube’s

working capital. (See Reagan 53:23–56:2.) Comparing working capital in a company

to “blood in your body,” Reagan explained that “[i]f you don’t have working capital

you can’t operate.” (Reagan 54:13–15.) During Rives’s tenure, Steel Tube’s working

capital swung from positive $600,000 to negative $1.6 million—a drop so large that

Steel Tube “became an unstable business, and actually it became insolvent.” (Reagan

55:7–16.) This, he said, contributed to the diminution of Steel Tube’s value by more

than $1.3 million, (see Reagan 98:1–20), as well as nearly $300,000 in interest on

loans to keep the company afloat, (see Reagan 60:8–22, 97:6–25). Reagan tallied over

$2.2 million in total damages. 4 (See Reagan 98:21–99:1.)

4 This figure was substantially less than Potts originally sought. In a pretrial ruling, the Court excluded several opinions offered by Reagan that involved another $400,000 or so in purported damages to Steel Tube. See Potts III, 2019 NCBC LEXIS 61, at *22–25. At trial, the Court excluded additional amounts based on challenges by Defendants. (See Reagan 88:21–90:1.) The Court overruled a number of other objections by Defendants, many of which are discussed below in connection with the analysis of the pending motions. 27. This expert testimony was largely unrebutted. Although Defendants

extensively cross-examined Reagan, they presented no expert testimony of their own.

B. Procedural Posture

28. At the close of Potts’s evidence, Defendants moved for a directed verdict on

all claims against them. The Court granted the motion in part, dismissing Potts’s

claims for conspiracy and facilitation of fraud but deferring a ruling on other claims.

At the close of all evidence, the Court denied Defendants’ renewed motion. Potts also

moved for a directed verdict, which the Court granted, dismissing Rives’s

counterclaims for breach of fiduciary duty, declaratory judgment, and quantum

meruit. (See Final Judgment 2, ECF No. 212.)

29. Ten issues were submitted to the jury. These included issues related

to Potts’s derivative claims against Rives for breach of fiduciary duty, constructive

fraud, conversion, and fraud; Potts’s derivative claim against Rives & Associates for

professional negligence; and the dispute over the reasonableness of Avalon1’s sale of

Rives’s shares of Steel Tube. The jury returned a verdict largely in favor of Potts but

did not award the full amount of damages that he had sought. In short, the jury

found Rives liable for breach of fiduciary duty, constructive fraud, and conversion and

awarded damages of $1,285,750 for those three claims. In addition, the jury found

Rives liable for fraud and awarded another $390,096 in damages. With respect to

professional negligence, the jury found Rives & Associates liable in the amount of

$40,000. Finally, the jury found that Avalon1 had provided reasonable notification to Rives of the public sale of his shares and that it had sold the shares in a

commercially reasonable manner. (See Verdict Sheet, ECF No. 209.)

30. At Defendants’ request, the Court bifurcated issues related to punitive

damages. In this second phase, the jury again returned a verdict in favor of Potts

and awarded punitive damages of $300,000 against Rives and $200,000 against Rives

& Associates. (See Suppl. Verdict Sheet, ECF No. 211.)

31. After the Court entered final judgment, Defendants timely moved for

judgment notwithstanding the verdict and for a new trial. (ECF Nos. 213, 215.)

These motions are now ripe for resolution.

II. MOTION FOR JNOV

32. “When a motion for judgment notwithstanding the verdict is joined with a

motion for a new trial, it is the duty of the trial court to rule on both motions.” Clayton

v. Branson, 170 N.C. App. 438, 442 (2005) (citation and quotation marks omitted). In

the interests of judicial economy, courts should consider the motion for judgment

notwithstanding the verdict (“JNOV”) before turning to the motion for new trial. Id.

33. A motion for JNOV under Rule 50(b) “tests the legal sufficiency of the

evidence to take the case to the jury and support a verdict for the nonmovant.”

Scarborough v. Dillard’s, Inc., 363 N.C. 715, 720 (2009) (citation and quotation marks

omitted). The motion “is essentially a renewal of an earlier motion for directed

verdict.” Id. (citation and quotation marks omitted). Thus, a party may move for

JNOV only on the same issues that were raised in the earlier motion for directed verdict. See Shaw v. Gee, 2018 NCBC LEXIS 109, at *11 (N.C. Super. Ct. Oct. 19,

2018) (citing N.C. R. Civ. P. 50(b)(1)).

34. The moving party “bears a heavy burden.” Taylor v. Walker, 320 N.C. 729,

733 (1987). Granting JNOV is improper “unless it appears, as a matter of law, that

a recovery cannot be had by the plaintiff upon any view of the facts which the evidence

reasonably tends to establish.” Scarborough, 363 N.C. at 720 (citation and quotation

marks omitted). A motion for JNOV “is cautiously and sparingly granted,” Bryant v.

Nationwide Mut. Fire Ins. Co., 313 N.C. 362, 369 (1985), and should be denied if there

is “more than a scintilla of evidence” to support the claim, Morris v. Scenera Rsch.,

LLC, 368 N.C. 857, 861 (2016) (citation and quotation marks omitted). A scintilla is

“very slight evidence” but must “do more than raise a suspicion, conjecture, guess,

surmise, or speculation as to the pertinent facts.” Id. (citations and quotation marks

omitted). In ruling on the motion, the Court “must consider the evidence in the light

most favorable to the nonmoving party, giving him the benefit of all reasonable

inferences to be drawn therefrom and resolving all conflicts in the evidence in his

favor.” Taylor, 320 N.C. at 733–34.

35. Defendants have moved for JNOV on the fraud claim against Rives, the

punitive damages award against Rives & Associates (but not the underlying

professional negligence claim), and the finding that Avalon1 gave reasonable

notification to Rives before disposing of his stock. (See Br. in Supp. JNOV 9, 16, 20,

ECF No. 214.) A. Fraud

36. A claim for fraud has five “essential elements”: “(1) False representation or

concealment of a material fact, (2) reasonably calculated to deceive, (3) made with

intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured

party.” Ragsdale v. Kennedy, 286 N.C. 130, 138 (1974). The plaintiff’s reliance on

the fraudulent misrepresentation “must be reasonable.” Forbis v. Neal, 361 N.C. 519,

527 (2007). “Whether each of the elements of actual fraud and reasonable reliance

are met are ordinarily questions for the jury ‘unless the facts are so clear that they

support only one conclusion.’ ” Head v. Gould Killian CPA Grp., P.A., 371 N.C. 2, 9

(2018) (quoting Forbis, 361 N.C. at 527).

37. Potts bases this claim on Rives’s representations that he would not spend

more than $25,000 without consulting Potts and that “he would not take any

monetary distributions from Steel Tube without Potts’s approval.” (Jury Instrs. 16,

ECF No. 208; see also Verified Am. Compl. ¶ 59, ECF No. 17.) In his JNOV motion,

Rives does not address the second representation. Rather, he raises three discrete

arguments concerning only the promise not to spend over $25,000 without Potts’s

approval.

1. Date of Misrepresentation

38. First, Rives argues that Potts did not present enough evidence to show when

the misrepresentation was made. In support, Rives contends that “[t]he plaintiff

must show the date [of the alleged misrepresentation] with definiteness and specificity” but that Potts gave conflicting testimony on the subject. (Br. in Supp.

JNOV 11–12.)

39. This argument is rooted in a misunderstanding of the law. A

“misrepresentation must be definite and specific” to support a claim for fraud, “but

the specificity required depends upon the tendency of the statements to deceive under

the circumstances.” Ragsdale, 286 N.C. at 139. There is no requirement that a

plaintiff prove that the misrepresentation was made on a specific date. It is enough

to plead and prove the approximate time period and related circumstances. See, e.g.,

Terry v. Terry, 302 N.C. 77, 80–87 (1981) (addressing allegation that fraud occurred

in the “two months prior to [plaintiff’s father’s] death”); Perkins v. HealthMarkets,

Inc., 2007 NCBC LEXIS 25, at *12 (N.C. Super. Ct. July 30, 2007) (addressing

allegation that misrepresentation was made “sometime in mid-November 2003”).

40. More than one witness testified that Rives made a definite and specific

promise not to spend over $25,000 unless Potts agreed. (See, e.g., Potts 14:2–7, 76:17–

18; Hatchell 13:20–14:11.) In addition, Potts and Hatchell each testified that Rives

made the promise at the directors’ meeting on 6 February 2015 or around that time.

(See Potts 14:2–8, 16:9–15, 113:2–6, 151:4–7; Hatchell 9:9–12, 13:18–14:11.) Rives

likewise confirmed that he discussed a spending limit with Potts in February 2015,

although he denied that any promise resulted from those discussions. (See Rives

54:8–24.) That is more than enough evidence to support the jury’s verdict. See, e.g.,

Ragsdale, 286 N.C. at 139; Hudgins v. Wagoner, 204 N.C. App. 480, 490 (2010). 41. Rives points to other evidence that could be viewed as favorable to his

defense. As an example, the minutes of the directors’ meeting do not refer to limits

on dispositions over $25,000. (See Potts 76:9–14.) In addition, Potts sometimes

misstated the date of the directors’ meeting and at other times testified that he could

not recall the exact date of the misrepresentation. (See Potts 16:9–15, 72:22–25,

76:19–77:1.) These discrepancies go to the credibility and weight—not the

sufficiency—of the evidence and were for the jury to resolve. Indeed, even discounting

Potts’s testimony, the jury was entitled to credit Hatchell’s independent testimony

concerning the circumstances of the misrepresentation. See, e.g., Aldridge v. Hasty,

240 N.C. 353, 362 (1954) (stressing that it is up to the jury to “reconcile the

inconsistent, conflicting, or contradictory testimony”).

2. Meeting of the Minds

42. Second, Rives contends that he and Potts discussed a limitation on

expenditures, acquisitions, and dispositions of property in the context of a draft

shareholder agreement. Because the shareholder agreement was never finalized and

executed, he contends, there was no “meeting of the minds,” no valid contract, and no

promissory misrepresentation. (Br. in Supp. JNOV 12–14.)

43. The Court disagrees. Viewed in a light most favorable to Potts, the evidence

tends to show that there was an oral agreement concerning expenditures over

$25,000 and, thus, a meeting of the minds. (See, e.g., Potts 14:2–15, 70:10–72:10;

Hatchell 13:18–14:11, 146:19–147:13.) Whether Potts and Rives did or did not

memorialize their agreement in a written contract is irrelevant. 44. And in any event, Potts had no burden to prove a meeting of the minds. He

offered evidence that Rives falsely promised not to spend more than $25,000 without

approval. Assuming the other elements of fraud are met, that false promise may

support a claim for fraud even if Potts and Rives did not enter into a binding, written

contract. See, e.g., Hudgins, 204 N.C. App. at 486–92 (affirming denial of JNOV

motion); Leftwich v. Gaines, 134 N.C. App. 502, 507–10 (1999) (affirming denial of

directed verdict and JNOV motions); Wood v. Nelson, 5 N.C. App. 407, 409–11 (1969)

(affirming denial of motion for nonsuit).

3. Intent to Deceive

45. Finally, Rives argues that there was insufficient evidence of intent to

deceive. In his view, the evidence does not show that he made the promise regarding

expenditures over $25,000 with no intent to keep it. (See Br. in Supp. JNOV 14–15.)

46. Usually, “an unfilled promise cannot be made the basis for an action for

fraud.” Pierce v. Am. Fid. Fire Ins. Co., 240 N.C. 567, 571 (1954). But “[a] promissory

misrepresentation may constitute actionable fraud when it is made with intent to

deceive the promisee, and the promisor, at the time of making it, has no intent to

comply.” Hudgins, 204 N.C. App. at 490–91 (citation and quotation marks omitted);

see also Braun v. Glade Valley Sch., Inc., 77 N.C. App. 83, 87 (1985). Thus, there

must be evidence from which the “jury may reasonably infer that the defendant did

not intend to carry out such representations when they were made.” Whitley v.

O’Neal, 5 N.C. App. 136, 139 (1969); see also Hardin v. KCS Int’l, Inc., 199 N.C. App.

687, 700 (2009). 47. Direct evidence is not required. “Juries often have little access to direct

evidence of a person’s intent and therefore may infer intent from the totality of the

properly admitted evidence.” Hudgins, 204 N.C. App. at 491. Circumstantial

evidence of intent may include, among other things, a motive to deceive, close

proximity between the promise and the breach, efforts to conceal nonperformance

from the promisee, and a broader pattern of deceit. See, e.g., Calloway v. Wyatt, 246

N.C. 129, 133–34 (1957); Jones v. Harrelson & Smith Contractors, LLC, 194 N.C. App.

203, 214–15 (2008), aff’d per curiam, 363 N.C. 371 (2009); Hunter v. Guardian Life

Ins. Co. of Am., 162 N.C. App. 477, 481 (2004); Meekins v. Box, 152 N.C. App. 379,

386–89 (2002); Carver v. Roberts, 78 N.C. App. 511, 513–14 (1985).

48. At trial, Potts offered considerable evidence of Rives’s intent to deceive. The

evidence showed, for example, that Rives owed $600,000 to Roy Lazenby. (See Rives

17:5–11; Lazenby 5:17–6:14, 7:12–8:7.) Rives did not put any of his own money

toward that debt. Rather, he paid for Lazenby’s shares with Steel Tube’s money—a

direct transfer of $20,000 to Lazenby as a down payment and additional monthly

payments taken from withdrawals (another $100,000 or so over time) that Rives

made from company accounts. (See Rives 17:5–18:10, 79:19–82:11; Hatchell 38:11–

16; Tomlin 16:8–13, 20:19–21:5.) Indeed, Rives began making these transfers and

withdrawals just after the February 2015 meeting with Potts. (See Potts 17:1–8,

Tomlin 14:10–25, 19:25–21:5.) This short period between promise and breach

suggests that Rives never intended to keep his promise, and the use of company funds to pay his sizeable personal debt is strong evidence of motive to deceive. See, e.g.,

Hudgins, 204 N.C. App. at 491.

49. Furthermore, Potts offered evidence of a pattern of deception and a larger

scheme of self-dealing. For example, at the end of 2015, Rives promised not to take

a distribution to cover his tax liability even though he had already done so. (See Rives

114:11–13 (“Q. So the answer is, yes, when you’re meeting with Mr. Potts about it you

had already taken the money? A. Yes.”); see also Potts 53:1–55:3; Hatchell 43:9–17;

Tomlin 25:11–20.) Likewise, Rives funneled cash and equipment—worth hundreds

of thousands of dollars—to companies in which he and his family held interests. (See,

e.g., Rives 75:7–76:19, 91:10–92:3, 94:10–95:7, 101:22–25.)

50. Other evidence suggests that Rives tried to cover up his actions. When

confronted about the monthly withdrawals, for example, Rives denied taking them

and then continued to do so. (See Potts 17:9–17, 18:11–23, 28:7–11; Hatchell 75:19–

25.) In addition, Rives named his wife as a straw owner of Elite Tube to conceal his

involvement with the company. (See Rives 90:11–17 (“I did not want that to be public

knowledge necessarily. I do lots of things that I don’t necessarily want to be public

knowledge.”); see also Berrier 10:25–11:21.) Likewise, Rives said nothing about his

or his brothers’ involvement with KEL, and he made sure to sign checks to KEL even

though Potts usually signed Steel Tube’s checks. (See Rives 105:11–107:2, 109:21–

110:8.) And there was also evidence that Rives supplied false information to Potts

and Hatchell and manipulated the company’s books and financial reports. (See, e.g., Hatchell 33:20–34:2, 35:10–36:23, 57:23–25, 60:17–20, 70:9–17, 71:10–72:6, 74:4–11;

Reagan 28:16–24, 29:5–20.)

51. Taken together, this evidence amply supports the verdict. Presented with

“evidence of concealment, evasion, and ulterior motives,” the jury could have

reasonably inferred that Rives had no intent to keep his promises not to take

distributions or spend over $25,000 without Potts’s approval. Brown v. Secor, 2020

NCBC LEXIS 134, at *17 (N.C. Super. Ct. Nov. 13, 2020).

4. Summary

52. In sum, Rives has not carried his heavy burden to overturn the jury’s verdict

as to the fraud claim.

B. Punitive Damages

53. During the compensatory phase, the jury found both Defendants liable—

Rives for breach of fiduciary duty, conversion, constructive fraud, and fraud, and

Rives & Associates for professional negligence. (See Verdict Sheet.) The jury then

awarded punitive damages of $300,000 against Rives and $200,000 against Rives &

Associates. (See Suppl. Verdict Sheet, Issue No. 2.) Rives & Associates challenges

the punitive damages award against it.

54. Punitive damages are appropriate “to punish a defendant for egregiously

wrongful acts and to deter the defendant and others from committing similar

wrongful acts.” N.C.G.S. § 1D-1. Punitive damages may be awarded only if an

aggravating factor—fraud, malice, or willful and wanton conduct—“was present and was related to the injury for which compensatory damages were awarded.” Id.

§ 1D-15(a).

55. The Court instructed the jury on willful or wanton conduct and fraud, but

not malice. (See Suppl. Jury Instrs. 3, ECF No. 210.) By statute, willful or wanton

conduct is “the conscious and intentional disregard of and indifference to the rights

and safety of others, which the defendant knows or should know is reasonably likely

to result in injury, damage, or other harm.” N.C.G.S. § 1D-5(7). It means “more than

gross negligence.” Id. Additionally, fraud “does not include constructive fraud unless

an element of intent is present.” Id. § 1D-5(4).

56. A corporate defendant may be held liable for punitive damages in two ways:

(1) on a theory of direct liability when the “corporation’s acts or policies constitute the

aggravating factor,” Everhart v. O’Charley’s, Inc., 200 N.C. App. 142, 153 (2009), and

(2) on a theory of vicarious liability when “the officers, directors, or managers of the

corporation participated in or condoned the conduct constituting the aggravating

factor giving rise to punitive damages,” N.C.G.S. § 1D-15(c). See also Everhart, 200

N.C. App. at 152–53 (distinguishing between a corporate defendant’s direct and

vicarious liability for punitive damages). Here, the jury was instructed only on

vicarious liability. (See Suppl. Jury Instrs. 3.)

1. Professional Negligence as a Basis for Punitive Damages

57. Rives & Associates begins by arguing that “[a] claim for professional

negligence does not support an award of punitive damages . . . .” (Br. in Supp. JNOV

16.) It cites no authority for this position, which is inconsistent with the governing statute and case law. Although section 1D-15 bars punitive damages “solely for

breach of contract,” it has no similar exclusion for professional negligence or any other

type of negligence claim. N.C.G.S. § 1D-15(d). Indeed, our Supreme Court has held

that a claim for ordinary negligence may support a demand for punitive damages if

the plaintiff pleads and proves related willful and wanton conduct. See Estate of Long

v. Fowler, 378 N.C. 138, 150–54 (2021). Accordingly, a claim for professional

negligence may support an award of punitive damages so long as the other

requirements of section 1D-15 are met.

2. Scope of Vicarious Liability for Punitive Damages

58. Rives & Associates next argues—in a single paragraph—that limited

liability partnerships may never be held vicariously liable for punitive damages.

Section 1D-15(c) states that punitive damages “shall not be awarded against a person

solely on the basis of vicarious liability for the acts or omissions of another” except

“if, in the case of a corporation, the officers, directors, or managers of the corporation

participated in or condoned the conduct constituting the aggravating factor giving

rise to punitive damages.” N.C.G.S. § 1D-15(c) (emphases added). According to Rives

& Associates, this means that punitive damages may not be awarded “against entities

other than corporations”—presumably including limited liability partnerships,

limited liability companies, and all other entities other than those organized under

the North Carolina Business Corporation Act. (Br. in Supp. JNOV 17.)

59. No court has interpreted section 1D-15(c) in that fashion. Indeed, numerous

cases have applied the statute to partnerships and other entities. See, e.g., Austin v. Bald II, L.L.C., 189 N.C. App. 338, 344–45 (2008) (reversing trial court’s refusal to

instruct jury as to demand for punitive damages against limited liability company);

Phillips v. Rest. Mgmt. of Carolina, L.P., 146 N.C. App. 203, 215–16 (2001) (applying

statute to limited partnership but denying punitive damages on other grounds); Abel

v. Carolina Stalite Co., LP, 2004 U.S. Dist. LEXIS 5303, at *17–19 (M.D.N.C. Mar.

18, 2004) (denying motion for summary judgment by limited partnership). 5 And the

federal Court of Appeals for the Fourth Circuit has rejected the position pressed by

Rives & Associates: “Although the statute specifically refers to ‘corporations’ and not

other business entities with employees, North Carolina courts nonetheless apply the

statute to limited liability companies and partnerships.” Vandevender v. Blue Ridge

of Raleigh, LLC, 2018 U.S. App. LEXIS 24196, at *8–9 (4th Cir. Aug. 2, 2018)

(emphasis added).

60. The Court sees no reason to find fault in these decisions. Because the

statute does not define “corporation,” the term takes its ordinary meaning. See

Morgan v. Hertford, 70 N.C. App. 725, 728 (1984). Dictionaries offer various

formulations, 6 but all say roughly the same thing: “a single person or object treated

5 See also, e.g., Slattery v. AppyCity, LLC, 2021 NCBC LEXIS 24, at *29–31 (N.C. Super. Ct.

Mar. 24, 2021); BDM Invs. v. Lenhil, Inc., 2014 NCBC LEXIS 6, at *50–51 (N.C. Super. Ct. Mar. 20, 2014), aff’d, 264 N.C. App. 282 (2019); McKiver v. Murphy-Brown, LLC, 980 F.3d 937, 965–72 (4th Cir. 2020); Pracht v. Saga Freight Logistics, LLC, 2015 U.S. Dist. LEXIS 138230, at *12–22 (W.D.N.C. Oct. 9, 2015); Jenkins v. Receivables Performance Mgmt., LLC, 2010 U.S. Dist. LEXIS 91635, at *4–6 (W.D.N.C. Sept. 1, 2010).

6 Compare Corporation, Merriam-Webster, https://www.merriam-webster.com/dictionary/ corporation (“a body formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession”), with Corporation, Webster’s New World Dictionary (1967 ed.) (“a group of people who get a charter granting them as a body certain of the legal rights and liabilities of a single individual”); compare Corporation, Black’s Law Dictionary by the law as having a legal individuality or entity other than that of a natural

person.” Id. (quoting Webster’s Third New International Dictionary 510 (1968)). This

expansive definition goes beyond entities organized under the North Carolina

Business Corporation Act and is broad enough to apply when, as here, a partnership

exists as an entity distinct from its members. See Trujillo v. N.C. Grange Mut. Ins.

Co., 149 N.C. App. 811, 815 (2002) (“A partnership is a distinct entity from the

individual members constituting it.” (citation and quotation marks omitted)); cf.

Goldstein v. Roxborough Real Estate LLC, 677 Fed. App’x 796, 798 (3d Cir. 2017)

(“Corporations, including limited partnerships, may appear in federal court only

through counsel.” (emphasis added)).

61. For the first time in its reply brief, Rives & Associates argues that this

interpretation conflicts with the nature of limited liability partnerships and would

improperly render some partners “personally liable” for the conduct of others. (Reply

Br. in Supp. JNOV 11, ECF No. 225.) This is not convincing. It is the partnership as

an entity that is liable. And by statute, a partner in a limited liability partnership

“is not individually liable for debts and obligations of the partnership . . . solely by

reason of being a partner.” N.C.G.S. § 59-45(a1). Just as the partners of Rives &

(10th ed. 2014) (“a group or succession of persons established in accordance with legal rules into a legal or juristic person that has a legal personality distinct from the natural persons who make it up, exists indefinitely apart from them, and has the legal powers that its constitution gives it”), with Corporation, Black’s Law Dictionary (4th ed. 1951) (“An artificial or legal entity created by or under the authority of the laws of a state . . . ordinarily consisting of an association of numerous individuals, who subsist as a body politic under a special denomination, which is regarded in law as having a personality and existence distinct from that of its several members . . . and . . . acting as a unit or single individual in matters relating to the common purpose of the association”). Associates are not personally liable for compensatory damages awarded against the

firm for professional negligence, neither are they personally liable for punitive

damages. Thus, no conflict arises from applying section 1D-15(c) to limited liability

partnerships. On the other hand, construing section 1D-15(c) in the narrow fashion

urged by Rives & Associates would undermine the statute’s purpose, which is to

punish and deter wrongful acts. See id. § 1D-1; Rhyne v. K-Mart Corp., 358 N.C. 160,

166–67 (2004).

62. The Court therefore concludes that section 1D-15(c) does not bar an award

of punitive damages against Rives & Associates on a theory of vicarious liability.

3. Sufficiency of the Evidence

63. Rives & Associates also argues that it cannot be held vicariously liable for

Rives’s conduct because there was insufficient evidence that Rives was acting as an

agent of Rives & Associates rather than Steel Tube. (See Br. in Supp. JNOV 18–19;

Reply Br. JNOV 11–14.) The Court concludes that there was sufficient evidence to

support the jury’s verdict.

64. First, Rives & Associates has not challenged the sufficiency of the evidence

as to the underlying professional negligence claim. The evidence shows that Rives

improperly backdated Steel Tube’s S-corporation election form, voiding the election.

(See Rives 28:9–24, 173:13–24; Borden 23:14–24:4; Reagan 41:10–22.) In preparing

the company’s tax returns, Rives miscategorized his $62,875 distribution, improperly

addressed goodwill and special depreciation, and made other errors. (See, e.g., Rives

179:21–180:11; Reagan 27:19–32:6; Borden 8:2–10:1, 15:7–17:14; Hatchell 112:5– 113:13.) Many of these errors were designed to benefit Rives—for example, allowing

him to claim Steel Tube’s losses on his personal tax return—but ultimately harmed

Steel Tube through tax penalties and other expenses. (See Reagan 118:15–119:10.)

65. Second, there was ample evidence that Rives performed this work on behalf

of Rives & Associates. (See, e.g., Reagan 42:23–44:24.) Cover letters received by Steel

Tube carried a Rives & Associates logo and referred to “professional services rendered

in connection with the preparation of” tax filings that “we” (Rives & Associates)

compiled. (Rives 21:12–23:10, 119:6–123:8.) In addition, others at Rives &

Associates, including partners, reviewed the documents. (See Rives 27:3–12, 118:10–

119:5, 138:11–139:15.) And the documents identified the firm itself and a partner

other than Rives as the “paid preparer.” (Rives 24:18–22, 25:17–26:9, 124:3–8; see

also Hatchell 108:13–109:15; Borden 5:11–19.) According to Hatchell, Steel Tube and

its employees viewed both Rives and Rives & Associates as responsible for Steel

Tube’s tax filings. (See Hatchell 27:6–9, 29:20–21; see also Borden 5:11–13.)

66. Although Rives insists that his duties for Rives & Associates were distinct

from his duties for Steel Tube, the jury was not required to credit his testimony. Quite

a bit of evidence suggests that the lines were blurred. Rives & Associates had, after

all, served as Steel Tube’s accounting firm for several years before Rives acquired an

interest in the company. (See Rives 9:8–15; Hatchell 6:17–22.) And when Rives

joined Steel Tube, he promised that “[he] and his firm, Rives and Associates, would

take care of . . . the financial matters” at Steel Tube. (Hatchell 11:16–24; see also

Hatchell 27:6–9, 29:20–21, 84:25–85:4.) This is supported by the documents themselves, which purport to come from Rives & Associates, and by the fact that

employees of the firm, including Rives’s brothers, made themselves available to

answer questions about the returns. (See, e.g., Hatchell 27:10–28:25.)

67. Third, the jury reasonably found the necessary aggravating factor by clear

and convincing evidence. Rives & Associates argues that the evidence of fraud is not

pertinent because the fraud claim is against Rives, not the firm, and is unrelated to

the tax filings. (See Reply Br. JNOV 8, 10 n.1.) Not so. Fraudulent conduct may

support punitive damages even without a claim for fraud. See Dailey v. Integon Gen.

Ins. Corp., 75 N.C. App. 387, 395–96 (1985). The question is whether there is

evidence of deceitful conduct related to the professional negligence claim. See, e.g.,

Bogovich v. Embassy Club of Sedgefield, Inc., 211 N.C. App. 1, 15–17 (2011). Here,

the conduct is related because there is evidence that Rives falsified the tax documents

at issue to advance and to conceal his fraud and other wrongdoing. (See, e.g., Hatchell

108:14–113:13 (misidentification of bender); Borden 10:15–11:12 (treatment of

compensation), 15:7–16:8 (unverified assets).)

68. Moreover, some evidence suggests that Rives had the support of the firm.

Other partners and employees of Rives & Associates reviewed and approved filings

over an extended period of time. (See Rives 27:3–12, 118:10–119:5, 138:11–139:15;

Reagan 43:24–44:24.) There was also evidence, apart from the negligent tax work, to

show that the firm’s partners and employees participated in and benefited from

Rives’s wrongdoing: his brothers were not only the undisclosed owners of KEL but

also insiders at Rives & Associates. (See Rives 142:13–143:13; Hatchell 49:8–50:12.) In addition, Reagan testified—without rebuttal—that Rives & Associates had a duty

to implement policies and procedures to identify and monitor conflicts of interest. No

such policies existed. (See Reagan 8:21–9:5, 49:23–50:19.) In other words, over a

period of about two years, the partners and employees of Rives & Associates reviewed

and helped prepare negligent tax documents that furthered the fraud of the firm’s

managing partner, all while failing to adopt even the most basic, industry-standard

guardrails. From this evidence, the jury could have reasonably found “a repeated

course of conduct which constituted a callous or intentional indifference” to the

plaintiff’s rights. Patrick v. Williams, 102 N.C. App. 355, 369 (1991).

4. Constitutional Challenge

69. Defendants assert that “submission of punitive damages is in violation” of

the Fifth, Eighth, and Fourteenth Amendments to the United States Constitution

and the Law of the Land Clause of the North Carolina Constitution. (Br. in Supp.

JNOV 19.) They advance no argument in support of that assertion, and the Court’s

instructions complied with the punitive damages statute. Therefore, they have not

overcome the presumption of constitutionality. See Rhyne, 358 N.C. at 167–68;

Arizona v. United States, 567 U.S. 387, 415 (2012).

5. Summary

70. For all these reasons, the Court denies the motion for JNOV as to the

punitive damages award. C. Notification of Disposition of Collateral

71. In his deal with Rives, Roy Lazenby received a security interest in the stock

that he was selling. Avalon1 later acquired the security interest from Lazenby and,

when Rives defaulted, repossessed the shares and disposed of them through a public

sale. (See Joint Stipulation 3–4.) At trial, the jury rendered a verdict that Avalon1

gave Rives reasonable notification of the public sale. (See Verdict Sheet, Issue No.

7(a).) Rives now seeks JNOV on the ground that this verdict is not supported by the

evidence. (See Br. in Supp. JNOV 20–21.)

72. Before disposing of collateral, a secured party must send the debtor “an

authenticated notification of disposition.” N.C.G.S. § 25-9-611(c)(1); see also id.

§ 25-9-610(b). Notice may be sent by mail “addressed to any address reasonable

under the circumstances,” id. § 25-9-102(77)(a), and may be valid “whether or not the

other person actually comes to know of it,” id. § 25-1-202(d). Commercial

reasonableness is “an issue of fact determined in light of the relevant circumstances

of each case.” Com. Credit Grp., Inc. v. Barber, 199 N.C. App. 731, 737 (2009) (citation

and quotation marks omitted).

73. It is undisputed that Avalon1 sent a notification to a known address for

Rives. He did not receive the notification, however, because he had separated from

his wife and no longer lived at the address. According to Rives, it was well known

that he had moved to a new address, and the notification was not reasonable as a

result. 74. Viewed in a light most favorable to Avalon1, the evidence supports the

verdict. Hatchell testified that she used the address that appeared in Rives’s K-1 and

company life insurance policy and that Rives himself had confirmed in his answer 7

in this litigation. (See Hatchell 95:10–24; see also Rives 132:11–133:1.) She further

testified that Rives had not informed her that he had relocated. (See Hatchell 96:4–

9; see also Tomlin 50:9–17 (testimony of Tomlin that she was unaware Rives had

separated from his wife).) Rives maintains that, given the uncertainty over his living

arrangements, Avalon1 should have sent notice to his counsel, but that is not

required by the statute. Whether notification is reasonable is a fact-intensive inquiry

that demands consideration of the circumstances as a whole. Weighing all the

evidence, the jury could have concluded that Avalon1 sent the notification to Rives’s

last known address and that it was reasonable to do so. Rives has not shown that he

is entitled to JNOV on this issue.

III. MOTION FOR A NEW TRIAL

75. Defendants have also moved for a new trial under Rule 59. They assert

numerous, scattershot arguments touching on many issues of liability and damages.

Before considering each argument in turn, the Court first summarizes the legal

principles governing motions for new trial.

7 It is perhaps worth noting that Rives was given a chance to explain why he had admitted

living at the address in his answer when, in fact, he had moved. Instead, he denied having made the admission at all. Given a copy of the answer to refresh his recollection, Rives simply denied what his pleading said. (See Rives 134:11–136:6.) A. Legal Standards

76. Under Rule 59, a trial court may order a new trial on various grounds,

including the following:

(1) Any irregularity by which any party was prevented from having a fair trial; ... (6) Excessive or inadequate damages appearing to have been given under the influence of passion or prejudice; (7) Insufficiency of the evidence to justify the verdict or that the verdict is contrary to law; (8) Error in law occurring at the trial and objected to by the party making the motion, or (9) Any other reason heretofore recognized as grounds for new trial.

N.C. R. Civ. P. 59(a)(1), (6)–(9). Granting a new trial under Rule 59 is within the

Court’s sound discretion. See Xiong v. Marks, 193 N.C. App. 644, 654 (2008). The

exception is Rule 59(a)(8), which can involve questions of law. See id.

77. Under Rule 59(a)(1), the Court considers whether there was some

irregularity or error that prejudiced the moving party. See Sisk v. Sisk, 221 N.C. App.

631, 635 (2012).

78. To determine whether a damages award was excessive or inadequate under

Rule 59(a)(6), the Court “must consider the testimony and evidence presented at

trial.” Guox v. Satterly, 164 N.C. App. 578, 581 (2004). A new trial will be denied if

the movant points to nothing other than the award itself to suggest that the jury

disregarded the Court’s instructions or awarded punitive damages under the

influence of passion or prejudice. See Everhart, 200 N.C. App. at 161. A new trial is

not warranted if the verdict “was consistent with plaintiff’s evidence,” even if “it is unclear exactly how the jury reached its overall figure.” Blakeley v. Town of

Taylortown, 233 N.C. App. 441, 449 (2014).

79. Under Rule 59(a)(7), a new trial may be granted based on insufficiency of

evidence or a verdict contrary to law. As to insufficiency of evidence, a new trial is

proper only if “the verdict was against the greater weight of the evidence.” Justus v.

Rosner, 371 N.C. 818, 825 (2018) (citation and quotation marks omitted). A new trial

is improper if the jury’s determination of a “fact-intensive question” was “reasonable”

and did not “amount to a ‘substantial miscarriage of justice.’ ” Chalk v. Braakman,

2019 N.C. App. LEXIS 263, at *16 (N.C. Ct. App. Mar. 19, 2019) (quoting Justus, 371

N.C. at 825).

80. Under Rule 59(a)(8), the movant must have made a timely objection. See

Piazza v. Kirkbride, 372 N.C. 137, 165–166 (2019). When the movant takes issue

with the failure to provide a jury instruction, including a limiting instruction, he must

show (1) that the requested instruction “was a correct statement of law and was

supported by the evidence”; (2) that the instruction given by the Court, “considered

in its entirety, failed to encompass the substance of the law”; and (3) that the failure

to give the instruction “likely misled the jury.” Godfrey v. Res-Care, Inc., 165 N.C.

App. 68, 78 (2004). The movant must also show that he was prejudiced by the

omission. See Trang v. L J Wings, Inc., 268 N.C. App. 136, 139 (2019).

81. Finally, Rule 59(a)(9) authorizes the Court “to order a new trial when the

ends of justice will be served.” Boykin v. Wilson Med. Ctr., 201 N.C. App. 559, 561

(2009) (citation and quotation marks omitted). Under this provision, a new trial is proper to prevent a “palpable miscarriage of justice,” when “justice and equity so

require,” or “when it would work an injustice to let the verdict stand.” Id. (citations

B. General Mismanagement

82. According to Defendants, Potts pursued a theory of liability at trial (based

on mismanagement) that differed from the theory pleaded in his amended complaint

(based on self-dealing). Although their briefing is somewhat unclear, Defendants

appear to argue that the Court should have sustained their objections to four

categories of damages evidence: loan interest incurred by Steel Tube, diminution in

the company’s value, compensation paid to Mike Lazenby, and health insurance

premiums paid on behalf of Roy Lazenby and his wife. Defendants argue that

admission of this evidence was contrary to the pretrial Daubert ruling and that, based

on this evidence, the jury awarded damages unrelated to the self-dealing transactions

at issue. (See Br. in Supp. New Trial 13–16, ECF No. 216.)

83. This argument mischaracterizes the pretrial proceedings and the evidence

at trial. To start, the Court’s rulings at trial were not inconsistent with the Daubert

order. Consider, for example, the evidence related to loan interest. In their pretrial

motion, Defendants moved to exclude Reagan’s opinion on that issue on grounds—

raised for the first time in a reply brief—that had nothing to do with the underlying

theory of liability. The Court concluded that Reagan’s opinion was neither unreliable

nor speculative and declined to exclude it. See Potts III, 2019 NCBC LEXIS 61, at

*20–22. Likewise, although Defendants objected to Reagan’s opinions about Mike Lazenby’s compensation and about insurance payments for Roy Lazenby and his wife,

“their barebones arguments provide[d] no reasoned basis to exclude” those opinions.

Id. at *15 n.3. Defendants did not challenge Reagan’s opinion regarding diminution

in value at all. See id. at *20. In short, the Court either declined to exclude this

evidence before trial or was never asked to do so.

84. To be sure, the Court agreed with Defendants that several other opinions

offered by Reagan were irrelevant because they went to issues outside the amended

complaint. See id. at *22–25. This favorable decision, which greatly reduced

Defendants’ damages exposure, remained effective throughout trial. The excluded

evidence was not introduced, and Defendants do not argue otherwise. Again, there

was no inconsistency between the pretrial and trial rulings.

85. Furthermore, Defendants have not given any persuasive reason why the

disputed evidence should have been excluded at trial. Potts offered substantial

evidence to show that each category of damages stemmed from Rives’s self-dealing.

This included expert testimony from Reagan showing that Rives’s self-dealing wiped

out Steel Tube’s working capital, decimated its value, and necessitated sizeable loans.

(See, e.g., Reagan 23:14–24:4, 53:23–56:2, 60:10–62:2, 171:10–173:12.) Likewise,

other testimony tended to show that Rives channeled Steel Tube’s funds to the

Lazenby family—increased salary, bonus payment, and insurance benefits—as part

of his personal deal to buy shares in the company. (See, e.g., Rives 82:17–84:8,

157:14–17; Lazenby 8:8–24; Reagan 26:21–27:5, 36:11–37:24.) 8

8 Defendants advance additional, overlapping challenges to the sufficiency of this evidence

elsewhere in their briefs. The Court addresses those arguments below. 86. In any event, even if this evidence touched on mismanagement as well as

self-dealing, the result would be the same. In response to Potts’s motions in limine,

Defendants stated their intention to offer evidence that, in their view, would show

Rives’s sound, good-faith management of Steel Tube. (See Order Pl.’s Mots. Limine

¶ 21, ECF No. 200 [“MIL Order”].) The Court denied Potts’s motion to exclude such

evidence for several reasons but warned Rives that if he attempted “to show the value

of his services by offering evidence of decisions he made to benefit Steel Tube, that

would likely open the door for Potts to introduce evidence of Rives’s alleged

mismanagement.” (MIL Order ¶ 24.) That’s exactly what happened. Defendants

cross-examined the first witness about Rives’s managerial success, inquiring about

his business strategies and efforts to improve sales and profit margins. (See, e.g.,

Potts 91:16–93:24, 119:16–120:5, 137:20–146:20.) Counsel for Defendants also asked

several other witnesses whether Rives’s management benefited Steel Tube. (See, e.g.,

Hatchell 135:7–139:19; Tomlin 33:16–34:12; Reagan 153:17–156:9.) Having opened

the door to evidence of Rives’s mismanagement, Defendants cannot now protest that

it should have been excluded. See Middleton v. Russell Grp., Ltd., 126 N.C. App. 1,

23–24 (1997) (“[W]hen a party first raises an issue, it opens the door to questions in

response to that issue and cannot later object to testimony regarding the subject

raised.”).

87. For similar reasons, Defendants’ requested instructions were not

appropriate. It would have been inappropriate to instruct the jury not to consider

whether Rives’s management “was reasonable and prudent” when Defendants, not Potts, were first to introduce evidence on that subject. In addition, the Court properly

instructed the jury that Potts had “the burden to prove by the greater weight of the

evidence that Rives entered into one or more conflict-of-interest transactions” and

“that Rives proximately caused damage to Steel Tube.” (Jury Instrs. at 10, 12.) The

Court further instructed the jury that, if it found that one or more transactions were

not conflict-of-interest transactions, “then Rives is entitled to a presumption that he

acted with due care and on an informed basis as to those transactions.” (Jury Instrs.

at 12.) These were correct statements of law that appropriately instructed the jury

as to the nature of the disputed issues and the elements of a claim for breach of

fiduciary duty. Defendants have not shown that the failure to give their proposed

limiting instruction resulted in prejudice or was likely to mislead the jury.

C. Loan Interest

88. The evidence of loan interest discussed in the previous section is also the

basis of Defendants’ second argument. Defendants argue that the evidence tying the

loans to Rives’s self-dealing was insufficient and that the Court should have

instructed the jury not to consider any evidence relating to payment of interest. (See

Br. in Supp. New Trial 16–18.)

89. Whether there was a causal connection between Rives’s self-interested

transactions and the loans at issue is simply an evidentiary dispute. The jury heard

expert testimony that Rives’s self-dealing severely impaired Steel Tube’s working

capital and that it covered its losses through loans. (See, e.g., Reagan 23:14–29:7,

53:18–62:2, 97:6–22, 171:10–173:12.) Rives points to evidence that Potts knew about or approved the loans and that the loans went toward equipment purchases, not

self-dealing. (See, e.g., Rives 165:11–169:5.) But Potts offered competing evidence to

show that certain purchases Rives claimed to have made with the loan proceeds were

fictitious and that Rives covered this up by falsifying information in Steel Tube’s

books. (See, e.g., Hatchell 33:20–34:2, 39:18–40:12, 41:13–42:2.) Deciding which

evidence to believe was for the jury. Certainly, the verdict is not against the greater

weight of the evidence.

90. Defendants also fault Reagan’s analysis. He failed, they contend, to account

for other factors that could have affected Steel Tube’s financial position. They take

issue, too, with his supposed reliance on financial data that was not introduced into

evidence or found in his expert report. The Court rejected similar arguments when

it denied Defendants’ pretrial Daubert motion, observing that Defendants had failed

to identify “any principle of economics in conflict with Reagan’s analysis” and that

Reagan’s conclusion was based on opinions concerning capital depletion and

diminution in value that Defendants had not challenged. Potts III, 2019 NCBC

LEXIS 61, at *19–21. Defendants have offered no reason to revisit that ruling.

91. What is more, Reagan testified that he did consider other factors and

alternative explanations. To understand the decline in working capital, Reagan

looked to industry trends in steel prices and financial performance but did not find a

reason for Steel Tube’s deteriorating bottom line. (See Reagan 58:10–60:7.) And he

explained the basis for his opinions, including consideration of original and amended

financial statements prepared by Cannon & Company during its investigation after Rives’s departure. (See Reagan 19:5–20:14, 176:7–177:24.) Defendants had a full

and fair opportunity to cross-examine Reagan on these issues. Whether Reagan had

a convincing factual basis for his opinion goes to the credibility and weight of his

testimony, not admissibility. See, e.g., Kerry Bodenhamer Farms, LLC v. Nature’s

Pearl Corp., 2018 NCBC LEXIS 239, at *12 (N.C. Super. Ct. Dec. 27, 2018) (citing

cases).

92. In short, the evidence offered by each side “merely created a question of fact

for the jury.” Cooke v. Cooke, 2005 N.C. App. LEXIS 719, at *12 (N.C. Ct. App. Apr.

5, 2005). Its verdict was “reasonable” and supported by the evidence. Chalk, 2019

N.C. App. LEXIS 263, at *16. Further, because there was sufficient evidence linking

the interest payments to Rives’s misconduct, there was no error in refusing

Defendants’ request to instruct the jury not to “consider any evidence relating to

payment of interest” when evaluating damages. (Br. in Supp. New Trial 18.)

D. Diminution in Value

93. Next, Defendants revisit Reagan’s calculation of the diminution in Steel

Tube’s value. Once more, Defendants contend that there was insufficient evidence

tying Steel Tube’s decline in value to Rives’s self-dealing. (See Br. in Supp. New Trial

18–20.) But again, the disputed evidence created a jury question. Potts’s expert,

Reagan, testified extensively on the subject. (See, e.g., Reagan 23:14–24:4, 53:23–

55:14, 60:23–62:2, 98:1–20, 99:17–101:11.) The jury was free to discount Rives’s

competing explanation, and it had sufficient evidence to support its presumed finding

that Rives’s self-dealing caused these losses. 94. Defendants also contend that Reagan’s methodology was faulty because,

during cross-examination, he admitted that his calculation contained an error. (See

Reagan 194:19–200:5.) This miscalculation does not call for a new trial. For one

thing, the error and Reagan’s explanation for it go to his credibility—a matter for the

jury. See Horne v. Trivette, 58 N.C. App. 77, 82 (1982) (holding new trial unwarranted

when “[t]he changes in [the witness’s] testimony . . . affect[ed] his credibility, and it

was for the jury to determine whether they believed his inconsistent testimony”).

95. For another, Defendants suffered no prejudice. Through several rounds of

cross-examination and redirect, Reagan testified that Steel Tube’s diminution in

value was greater than he had originally calculated. But rather than seek the

corrected, higher amount, Potts asked the jury to award only the lesser amount as

damages. (See Reagan 203:9–21, 211:13–17, 212:24–213:25.) Thus, the error favored

Defendants.

96. It also merits mention that Defendants did not depose Reagan during

discovery or produce their own expert to rebut his testimony. Nor did they challenge

his calculation of diminution in value or his underlying methodology in their pretrial

Daubert motion. See Potts III, 2019 NCBC LEXIS 61, at *20 (observing that

Defendants had not objected to Reagan’s opinion on diminution in value, “much less

identif[ied] any flaw in the methodology used to calculate these figures”). And at no

point have Defendants argued that damages in the form of diminished value are too

speculative, too remote, or otherwise unavailable as a matter of law. 97. One more argument deserves mention. In a single paragraph without

citations, Defendants contend that the evidence of diminished value led to a double

recovery. (See Br. in Supp. New Trial 20.) This, too, is unpersuasive. Defendants do

not point to specific evidence of double counting, do not suggest that they attempted

to cross-examine Reagan on the issue, and offered no rebuttal expert testimony to

support their position. In addition, even if Reagan had double counted, his purported

error was not “apparently embraced by the jury,” as Defendants contend. (Br. in

Supp. New Trial 20.) The jury awarded Potts about $500,000 less than he sought,

and the Court sees no basis to conclude that the verdict amounted to a double

recovery. See Dafford v. JP Steakhouse LLC, 210 N.C. App. 678, 687 (2011)

(“[W]hether plaintiff’s calculation is correct or not is irrelevant since the jury, as the

trier of fact, may award damages based on the evidence they find credible and may

disregard the evidence they did not find credible.”); Von Pettis Realty, Inc. v. McKoy,

135 N.C. App. 206, 211 n.4 (1999) (holding that because the jury’s award was

substantially less than the total amount requested, the exact amount of special and

consequential damages awarded was “not material”).

E. Mike Lazenby’s Compensation

98. Defendants also challenge the sufficiency of the evidence concerning

damages resulting from compensation paid to Mike Lazenby. They reiterate their

view that the compensation was unrelated to Rives’s self-dealing and further argue

that Rives was not at fault because Potts signed Mike’s employment agreement. (See

Br. in Supp. New Trial 21–22.) 99. The evidence supports the verdict. Among other things, there was evidence

tending to show that Mike’s compensation was part of Rives’s scheme of self-dealing.

When Rives first acquired Roy Lazenby’s shares, he promised to “protect” Mike.

(Rives 82:23–83:9.) This protection took the form of an employment agreement that

guaranteed Mike a raise and a bonus not dependent on job performance. (See Rives

83:10–16, 84:3–8; Hatchell 103:21–107:3.) From this evidence, the jury could have

inferred that Rives used Steel Tube’s assets to satisfy a personal commitment, just

as he had used Steel Tube’s assets to pay for his purchase of the shares.

100. In addition, other evidence suggests that Mike aided Rives with other

self-interested transactions, including those involving Elite Tube. Notably, Rives

ensured that Mike received a commission—in addition to the raise and bonus—that

was to be paid by Elite Tube. (See Rives 100:9–19; see also Berrier 12:17–13:6.) The

jury could have inferred that Rives increased Mike’s pay and gave him a bonus to

induce him to assist in a scheme of self-dealing and deception.

101. Although Defendants argue that Potts knew about and signed the

employment agreement, the evidence was contested. Potts was unaware, for

example, that benefits given to Mike would satisfy a condition of Rives’s share

purchase from Roy Lazenby. (See Rives 82:23–83:9.) Thus, the jury may have

concluded that Rives did not disclose all material facts about the transaction. See

N.C.G.S. § 55-8-31(a)(1), (2). In addition, Hatchell participated in discussions

concerning the new employment agreement and testified that it was not to include a

guaranteed bonus. (See Hatchell 103:12–19.) As further support, Potts introduced into evidence two versions of the agreement—an unsigned version allowing a

potential bonus and a signed version promising a guaranteed bonus—and highlighted

irregularities with the signature page, contending that there was an implication of

tampering. (See Hatchell 104:14–107:7, 107:19–21.) The jury was entitled to weigh

this evidence in connection with the credibility of each witness.

102. And because this evidence was properly admitted, there was no error in

rejecting Defendants’ proposed instruction that the jury should not consider any

request for damages resulting from Mike Lazenby’s employment contract. Also, given

the disputed evidence, Defendants’ description of the agreement as an “employment

contract entered into between Avalon Potts and Michael Lazenby” was

inappropriately argumentative. (Br. in Supp. New Trial 22.)

F. KEL Transactions

103. At trial, Reagan testified that Steel Tube incurred almost $85,000 in

damages due to losses related to the trucking services agreement with KEL. (See

Reagan 94:2–5.) Defendants argue that there was insufficient evidence to support

these damages. They say that Reagan failed to consider various factors—for example,

the market value of shipping charges, brokerage fees imposed by KEL, and potential

cost savings to Steel Tube—and that the oversight rendered his calculations “too

conjectural” to support the verdict. (Br. in Supp. New Trial 20–21.)

104. As Potts correctly observes, Defendants waived any objection to Reagan’s

testimony about KEL. (See Opp’n New Trial 13.) In lieu of objecting at trial,

Defendants’ counsel acknowledged that Reagan’s testimony concerning “[e]xcessive payments to KEL . . . will be a subject to [sic] cross-examination.” (Reagan 65:4–6;

see also, e.g., Reagan 35:6–36:10 (no objection to KEL-related testimony).) It is too

late now to contend that Reagan’s testimony should have been excluded. See, e.g.,

State v. Barton, 335 N.C. 696, 709–10 (1994).

105. In any event, the evidence supports the verdict. Reagan testified that,

before engaging KEL, Steel Tube recovered its shipping costs and earned a profit

through a delivery charge. Under the KEL contract, however, Steel Tube paid fees

rather than earning a return. The switch led to a significant net loss for Steel Tube.

(See, e.g., Reagan 35:15–36:10, 146:18–147:15, 150:8–152:22.) On cross-examination,

Defendants asked Reagan about the factors identified in their briefing. Reagan

answered those questions and explained how he considered each factor or why, in his

view, a given factor was irrelevant. (See, e.g., Reagan 148:24–149:9, 150:21–151:14,

153:3–156:16.) Because Defendants offered no expert of their own, Reagan’s

testimony was unrebutted. Considering the entire record, the verdict was not

“against the greater weight of the evidence” and does not threaten a “substantial

miscarriage of justice.” Justus, 371 N.C. at 825 (citations and quotation marks

omitted); see also Boykin, 201 N.C. App. at 561.

106. Defendants also object to the jury instructions as to the law governing

conflict-of-interest transactions. They contend that the Court should have instructed

the jury that “a familial relationship with another person who is an officer or director

with the other party to a corporate transaction does not, by itself, give rise to a conflict

of interest.” (Br. in Supp. New Trial 21.) 107. This argument is unconvincing. The Court instructed the jury that “[a]

conflict-of-interest transaction is defined as a transaction with the corporation in

which the director or officer of the corporation has a direct or indirect interest.” (Jury

Instrs. 10.) The Court further instructed the jury that “[t]he test of whether a director

or officer has a direct interest in a transaction is a matter of common sense” and that

an indirect interest may exist if, for example, “another entity in which [he] has a

material financial interest is a party to the transaction.” (Jury Instrs. 11.) These

instructions mirror the governing statute. See N.C.G.S. § 55-8-31(a), (b) (addressing

conflicts of interest for directors). The statute does not define a direct conflict of

interest. But as this Court and leading commentators have observed, what makes a

direct conflict “is left to ‘common sense.’ ” Battleground Veterinary Hosp., P.C. v.

McGeough, 2007 NCBC LEXIS 33, at *27 (N.C. Super. Ct. Oct. 19, 2007) (quoting

Russell M. Robinson, II, Robinson on North Carolina Corporation Law 15-3 (7th ed.

2006)). Thus, the instructions correctly stated the law.

108. Defendants’ proposed instruction, on the other hand, does not accurately

state the law. Nothing in the text of the statute states that a conflict cannot arise

from a familial relationship. See N.C.G.S. § 55-8-31. Moreover, section 55-8-31 is

based on a model act, whose drafters clarified in an associated comment that “a

director should normally be viewed as interested in a transaction if he or the

immediate members of his family have a financial interest in the transaction or a

relationship with the other parties to the transaction such that the relationship might

reasonably be expected to affect his judgment in the particular matter in a manner adverse to the corporation.” Id. § 55-8-31, cmt. 5 (emphasis added); see also

Battleground Veterinary Hosp., 2007 NCBC LEXIS 33, at *27. Defendants look past

the statutory text and related commentary, relying instead solely on dictum in a case

involving a different issue and in a different procedural posture. See Geitner v.

Mullins, 182 N.C. App. 585, 591–93 (2007) (addressing director votes, not conflicted

transactions with corporation); see also id. at 596 (Geer, J., concurring in the result)

(noting that majority’s discussion of conflict-of-interest transactions was unnecessary

to decision).

109. Had the Court instructed the jury that familial relationships always result

in a conflict, it would have been error. But that is not what the Court instructed.

And it was not error to allow the jury to consider familial relationships when deciding

whether Rives’s actions presented a conflict of interest. See Godfrey, 165 N.C. App.

at 79–80 (holding that trial court did not err in refusing to give defendant’s requested

jury instruction when “the trial court’s instruction, considered in its entirety,

encompassed the substance of the law”).

G. Elite Tube Transactions

110. Next, Defendants object to the admission of evidence involving transfers of

money and equipment from Steel Tube to Elite Tube. Specifically, Defendants

contend that the admission of evidence involving equipment known as a roll former

and a tube bender was inconsistent with the pretrial Daubert and summary judgment

decisions. They further contend that the jury should have been instructed not to

consider damages related to these transactions. (See Br. in Supp. New Trial 22–24.) 111. These arguments do not merit a new trial. First, as Potts points out,

evidence related to the equipment was relevant to matters other than damages—

including at least Rives’s intent, motive, and overall plan. (See Opp’n New Trial 17.)

Defendants do not argue otherwise. (See Br. in Supp. New Trial 23–24.) Thus,

admitting the evidence was not error.

112. Second, there was no inconsistency between the pretrial and trial rulings.

Long before trial, Potts settled his claims against Elite Tube, and as a result, Steel

Tube recovered $120,000 in funds and equipment that Rives had transferred to Elite

Tube. (See Order Approving Voluntary Dismissal ¶ 4, ECF No. 95.) At summary

judgment, the Court made clear that Potts was not entitled to a double recovery but

noted that the record was unsettled and that Potts had forecast evidence of additional

damages beyond what had been recovered. See Potts II, 2019 NCBC LEXIS 30, at

*19. In its pretrial Daubert order, the Court reinforced that decision by excluding

several of Reagan’s opinions—without objection by Potts—that related to damages

already recovered from Elite Tube. See Potts III, 2019 NCBC LEXIS 61, at *17–18.

At trial, consistent with these decisions, Reagan gave expert testimony regarding

depletion of working capital, diminution of value, and loans and resulting interest—

none of which had been recovered in the settlement with Elite Tube. (See, e.g.,

Reagan 53:23–56:2, 60:8–22.) The admission of this evidence did not contravene

pretrial rulings, and the jury’s award did not result in a double recovery.

113. Third, Defendants’ proposed limiting instructions were not appropriate.

They asked the Court to direct the jury “not to consider any damages arising from” the transfer of equipment to Elite Tube and also “not to consider any damages for the

purchase of the tube bender that was discussed, namely $120,000.00.” (Br. in Supp.

New Trial 23 (emphases added).) As discussed, nothing barred Potts from seeking

additional damages—including damages related to diminution in value and loan

interest—that Steel Tube had not recovered through the settlement with Elite Tube.

114. Fourth, there was little likelihood of jury confusion. At no point did Potts

ask the jury to award the $120,000 that Steel Tube had received from Elite Tube.

And in fact, the parties presented the jury with a stipulation that Steel Tube had

settled its claims against Elite Tube for $120,000, informing the jury that this amount

was no longer at issue. (See Potts 108:13–24; see also Berrier 21:18–23.) Thus, the

jury was correctly informed, and it is presumed to have adhered to its instructions,

including stipulations of evidence. See State v. Cummings, 352 N.C. 600, 623 (2000).

Defendants’ limiting instructions, on the other hand, would not have clarified the

issues for the jury and would have improperly directed the jury to limit its

consideration of damages supported by the evidence.

H. Duplicative Damages

115. The jury returned a verdict with a single damages award for Rives’s breach

of fiduciary duty, constructive fraud, and conversion, and a separate award for Rives’s

fraud. (See Verdict Sheet, Issue Nos. 4, 5(b).) Defendants argue that all the claims

are based on the same underlying facts and that, because the verdict sheet “did not

separate the amount of damages under each claim,” the Court cannot determine

“which claims the verdict was awarded for or how damages were measured.” (Br. in Supp. New Trial 24.) As a result, they contend, it is unclear whether the damages

for fraud are duplicative of the damages for constructive fraud, breach of fiduciary

duty, and conversion.

116. If there was an error, Defendants invited it. In their proposed verdict sheet,

Defendants did not include a separate damages issue for each claim. Rather, their

proposed verdict sheet had the same structure as the one proposed by Potts and the

one adopted by the Court: one line for damages based on breach of fiduciary duty,

constructive fraud, and conversion, and a second line for damages based on fraud.

(See Defs.’ Proposed Verdict Sheet Issue Nos. 5, 9, ECF No. 175.) It is fundamental

that “[a] party may not complain of action which he induced.” Frugard v. Pritchard,

338 N.C. 508, 512 (1994); see also Rowan Cty. Bd. of Educ. v. U.S. Gypsum Co., 332

N.C. 1, 23 (1992) (“Because [defendant] did not object to the verdict form, and indeed

consented to it, it will not be heard to complain on appeal.”). Moreover, lump sum

awards are acceptable and do not justify a new trial. 9

9 See also, e.g., Abernathy v. Ralph Squires Realty Co., 55 N.C. App. 354, 358 (1982) (“The

prohibition against double recovery should not be read to mean that the two theories of recovery cannot be submitted to the jury for its determination of the basis, if any, of liability.”); Jastremski v. United States, 737 F.2d 666, 672 (7th Cir. 1984) (“The failure to divide the lump sum award into discrete elements of recovery does not warrant reversal.”); Greenwood Ranches, Inc. v. Skie Constr. Co., 629 F.2d 518, 521 (8th Cir. 1980) (noting that “a plaintiff is not entitled to a separate compensatory damage award under each legal theory,” but rather “is entitled only to one . . . award if liability is found on any or all of the theories involved”); Dimensions Med. Ctr., Ltd. v. Aetna Life Ins. Co., 1997 U.S. Dist. LEXIS 5595, at *11 n.1 (N.D. Ill. Apr. 22, 1997) (“Because there was a lump sum verdict in this case, however, it is impossible to determine to what extent the award was based on any particular claim. . . . This result is a byproduct of the defendant’s failure to submit or request separate and/or itemized verdict forms for each claim. By doing so, defendant took the risk that the award would be uninterpretable when contesting individual claims. Moreover, a lump-sum award is not a basis, as defendant urges, for granting a new trial.”). 117. In their reply brief, Defendants make a different argument: that the Court

should have itemized the disputed transactions under each issue. They contend that

it was necessary to list each transaction under each claim to avoid the potential for a

double recovery. (See Reply Br. New Trial 8–9, ECF No. 224.) This argument is

untimely. As this Court has observed, “our courts disfavor arguments made for the

first time in a reply brief.” Brown, 2020 NCBC LEXIS 134, at *25. In any event, the

argument makes no sense. Defendants contend that all claims are based on the same

underlying transactions. Itemizing those transactions for each claim would not have

given any additional guidance to the jury, nor would it have guarded against a double

recovery. Furthermore, the itemized list of transactions proposed by Defendants was

incomplete and assumed the truth of their view of the evidence. 10 As discussed

elsewhere in this opinion, the evidence supporting the jury’s verdict was broader than

Defendants contend.

118. Finally, mere uncertainty about how the jury made its calculation is not a

basis for a new trial. Had the jury awarded more than Potts requested, there might

be grounds for concern. But the jury awarded far less than Potts sought. In addition,

its awards were not identical (which might have suggested duplication) but appear to

have been the product of careful consideration of the evidence. Indeed, every

indication is that the jury did not give a double recovery but instead allocated total

damages among the claims. It may be unclear how the jury made that allocation, but

10 Notably, the Court properly identified the property in dispute for the conversion claim in

keeping with the pattern jury instruction for that claim. (Compare N.C.P.I.–Civil 806.00, with Jury Instructions 13–14.) the record supports the overall award, and “it is not for this Court to second-guess

the means by which the jury calculated” it. Lacey v. Kirk, 238 N.C. App. 376, 394

(2014) (cleaned up).

I. Punitive Damages

119. Rives & Associates reiterates its view that no evidence supported the jury’s

award of punitive damages against it. (See Br. in Supp. New Trial 25–26.) The Court

disagrees. For the reasons discussed above, the evidence supports the jury’s verdict,

which was not against the greater weight of the evidence.

120. Rives & Associates also contends that the Court should have instructed the

jury that the firm “could not be liable for any act or omission of Rives unless it was

undertaken in his capacity as an employee and partner of [Rives & Associates], rather

than in his individual capacity.” (Br. in Supp. New Trial 26.) Not so. Consistent

with the pattern instructions, see N.C.P.I.–Civil 810.96, the Court instructed the jury

regarding an award of punitive damages that, “[a]s to Rives & Associates, the third

thing Potts must prove is that the officers, directors, or managers of Rives &

Associates participated in or condoned the fraud or willful or wanton conduct.”

(Suppl. Jury Instrs. 3.) This instruction correctly made no reference to Rives and

followed the governing statute. See N.C.G.S. § 1D-15(c); see also State v. Garcell, 363

N.C. 10, 49 (2009) (“Use of the pattern instructions is encouraged . . . .”); Henry v.

Knudsen, 203 N.C. App. 510, 519 (2010) (observing that use of the pattern

instructions is “the preferred method of jury instruction” (citation and quotation

marks omitted)); Carrington v. Emory, 179 N.C. App. 827, 829 (2006) (same). 121. Moreover, the Court’s instructions did not permit the jury to find Rives &

Associates liable for Rives’s activities in his capacity as an officer and director of Steel

Tube. Rather, as to the claim for professional negligence at the compensatory phase,

the Court instructed the jury that Rives & Associates could be held liable for Rives’s

conduct only if he was acting as an agent of the firm. (See Jury Instrs. 20.) The jury

presumably made that finding, and Rives & Associates has not challenged its liability

for professional negligence.

122. Finally, there was no prejudice. The Court’s instruction was a correct

statement of the law and therefore did not “fail[ ] to encompass the substance of the

law” or mislead the jury. Godfrey, 165 N.C. App. at 78. Because the jury is presumed

to have followed the Court’s instructions, there was no risk of confusion or prejudice.

See Cummings, 352 N.C. at 623; State v. Hoffman, 349 N.C. 167, 185 (1998).

J. Notification of Disposition of Collateral

123. Finally, Rives returns to the public sale of his shares by Avalon1. The issues

and arguments are the same as those in the JNOV motion. (See Br. in Supp. New

Trial 26–27.) Having already concluded that the issue of commercially reasonable

notice was properly submitted to the jury, the Court further concludes that a new

trial is not warranted.

IV. CONCLUSION

124. For all these reasons, Defendants’ motions for judgment notwithstanding

the verdict and for a new trial are DENIED. SO ORDERED, this the 5th day of November, 2021.

/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases