State ex rel. Edmisten v. Challenge, Inc.

322 S.E.2d 658, 71 N.C. App. 575, 1984 N.C. App. LEXIS 3910
CourtCourt of Appeals of North Carolina
DecidedDecember 4, 1984
DocketNo. 8310SC1121
StatusPublished
Cited by3 cases

This text of 322 S.E.2d 658 (State ex rel. Edmisten v. Challenge, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
State ex rel. Edmisten v. Challenge, Inc., 322 S.E.2d 658, 71 N.C. App. 575, 1984 N.C. App. LEXIS 3910 (N.C. Ct. App. 1984).

Opinion

EAGLES, Judge.

On the basis of the pleadings and issues of fact found by the Court to be uncontested pursuant to Rule 56(d) of the North Carolina Rules of Civil Procedure, the trial court granted summary judgment against the defendants, finding them in violation of N.C. Gen. Stat. Sec. 14-291.2 (1981) (prohibiting pyramid or chain schemes), and N.C. Gen. Stat. Sec. 75-1.1 (prohibiting unfair and deceptive trade practices). By judgment entered 9 June 1983, the defendants, Challenge, Inc. (Challenge) and certain individuals, all officers, directors or employees of the corporate defendant, were permanently enjoined from operating their business in North Car[577]*577olina, and monetary damages were assessed against them. Defendants appeal.

I

Challenge is a Nevada corporation registered to do business in North Carolina, as well as in approximately twenty other states. Challenge is in the business of selling self-development motivational seminars. More specifically, the motivational course sold by Challenge is given in the form of four different seminars, known collectively as the “Adventure” Series, but which can be purchased separately.

An individual interested in becoming a sales representative or Independent Sales Agent (ISA) for Challenge generally attends an introductory meeting known as the “Shooting Star” Seminar, where he is told about the Challenge marketing program and about the Challenge Adventure series. If an individual decides that he or she wishes to become an ISA, that person must meet certain training requirements: (1) sell courses of a total value of $5,000; (2) attend a salesperson workshop (different from the introductory meeting); and (3) pre-screen two other individuals who may be interested in selling the Challenge courses. The sales trainee receives a 20% commission on his own sales, and the ISA who sponsors the sales trainee receives a 30% commission on the trainee’s sales. A sales trainee may purchase courses himself to meet his sales requirements, but he is not required to do so. Although the participants expressed various motives for doing so, the vast majority of sales trainees met their sales requirement by purchasing the Adventure Series for themselves or their family. Moreover, the trial court ultimately found as an uncontested fact that participants in defendants’ program in North Carolina sold $808,200 worth of courses by selling the seminar to themselves, and only $4,700 worth of courses to persons not involved in defendants’ sales program.

Following the complaint filed by the Attorney General in this matter on 4 September 1980 and the answer filed by defendants on 1 October 1980, extensive discovery ensued. Following discovery, Superior Court Judge Herring, on 9 December 1981, denied plaintiff’s motion for partial summary judgment on the issue of liability for operating a pyramid scheme in violation of G.S. Sec. 14-291.2 (1981) and for engaging in unfair and deceptive trade [578]*578practices in violation of G.S. Sec. 75-1.1 (1981), and further denied “plaintiffs motion under Rule 56(d) . . . specifically finding [that it was] not practicable to ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted. However, such denial is without prejudice as to any potential future motion by said plaintiff under Rule 56(d).”

On 18 December 1981, plaintiff filed a written motion to set forth matters of uncontested fact pursuant to Rule 56(d). In the motion, plaintiff set out thirty-three separate material facts which it believed were uncontroverted. At the hearing on the motion, the defendants stipulated that twelve of these facts were not in controversy, but asserted, without providing specifics, that the remaining twenty-one facts were disputed. Superior Court Judge Farmer, following the hearing, found that the plaintiff, in setting out facts alleged to be uncontested, had “assumed facts not in evidence and incorporated them with facts in evidence.” He further found and concluded that “it [was] not practicable to ascertain what material facts exist without substantial controversy and what material facts [were] actually and in good faith controverted.” Judge Farmer did not deny the plaintiffs motion outright; rather, he ordered the defendant to provide to the court, within a specified time, information as to which portions of each matter defendant contended were controverted. Thereafter, he continued the hearing. Approximately five weeks later, defendants filed the requested information while simultaneously noting, for the first time, their objection to the trial court’s order. The defendants’ response did not contain any new evidence; rather, it consisted of defendants’ argument regarding each of the allegedly controverted matters along with citations to the portions of the court file which purportedly supported their arguments.

On 13 May 1982, Judge Farmer, after making the requisite findings, ordered that all statements of fact listed in plaintiffs motion under Rule 56(d) be deemed established for purposes of trial.

From Judge Farmer’s 9 June 1983 order finding defendants in violation of G.S. Sec. 14-291.2 (1981) and G.S. Sec. 75-1.1 (1981), defendants appeal. They contend that the trial court erred (1) in ordering the defendants to file documents with and provide infor[579]*579mation to the court showing what facts were in good faith controverted because this impermissibly shifted the burden of proof from the State to the defendant; and (2) in finding that each of the matters set forth in plaintiffs motion to set forth matters of uncontested fact was fully supported by the evidence and not in controversy. We disagree.

II

The burden of proof under G.S. Sec. 1A-1, Rule 56 (1983) is on the moving party. The trial court specifically found, initially, that the plaintiff had, in its motion, assumed facts not in evidence and had further found that the evidence was insufficient to establish the non-existence of genuine controversy. Defendants therefore first argue that the trial court’s action in granting the plaintiffs motion under Rule 56(d) was irreconcilably inconsistent with the court’s previous finding and constituted reversible error, especially since the court received no further evidence from the movant.

We disagree with the defendants’ assumption that “[t]he court apparently made this ruling because it did not feel the defendants had produced adequate evidence of controversy . . . [and] improperly shifted the burden of proof to the defendants.” As stated by the plaintiff, the trial judge has a specific duty under Rule 56(d):

[T]he court at the hearing of the motion, by examining the pleadings and the evidence before it and by interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted.

The record in this case was voluminous, containing many affidavits and depositions, transcriptions of tape recorded conversations, and several lengthy and detailed motions, among other items.

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322 S.E.2d 658, 71 N.C. App. 575, 1984 N.C. App. LEXIS 3910, Counsel Stack Legal Research, https://law.counselstack.com/opinion/state-ex-rel-edmisten-v-challenge-inc-ncctapp-1984.