Case Title: Friday Investments, LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.

Citation: 

Docket Number: 248PA16

State: north-carolina

Court: North Carolina Supreme Court

Date: 2017-11-03T00:00:00Z

Document:
IN THE SUPREME COURT OF NORTH CAROLINA 
No. 248PA16   
Filed 3 November 2017 
FRIDAY INVESTMENTS, LLC 
 
 
v. 
BALLY TOTAL FITNESS OF THE MID-ATLANTIC, INC. f/k/a Bally Total Fitness 
of the Southeast, Inc. f/k/a Holiday Health Clubs of the Southeast, Inc. as successor-
in-interest to Bally Total Fitness Corporation; and BALLY TOTAL FITNESS 
HOLDING CORPORATION 
 
On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision 
of the Court of Appeals, ___ N.C. App. ___,  788 S.E.2d 170 (2016), affirming an order 
entered on 13 April 2015 by Judge Jesse B. Caldwell III in Superior Court, 
Mecklenburg County.  Heard in the Supreme Court on 29 August 2017. 
Horack, Talley, Pharr & Lowndes, P.A., by Keith B. Nichols, for plaintiff-
appellee.  
 
Knox, Brotherton, Knox & Godfrey, by Lisa G. Godfrey; and Burt & Cordes, 
PLLC, by Stacy C. Cordes, for defendant-appellants. 
 
NEWBY, Justice.  
 
In this case we consider whether an attorney–client relationship exists 
between defendants and a non-party that contractually agreed to indemnify 
defendants.  Recognizing its tripartite nature, we conclude that the contractual duty 
to defend and indemnify gives rise to an attorney–client relationship.  Nonetheless, 
because defendants failed to request that the trial court provide written findings of 
fact and did not present in a timely manner the documents at issue for appellate 
FRIDAY INVS., LLC V. BALLY TOTAL FITNESS OF THE MID-ATL., INC.  
 
Opinion of the Court 
 
 
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review, we must presume the trial court found facts sufficient to support its 
conclusion.  Given the bare record before us, we cannot conclude that the trial court 
erroneously determined that the attorney–client privilege did not extend to the 
communications at issue.  Accordingly, we modify and affirm the decision of the Court 
of Appeals.  
In February 2000, the predecessor in interest to defendant Bally Total Fitness 
of the Mid-Atlantic, Inc. (Bally Mid-Atlantic) entered into a lease agreement with the 
predecessor in interest to Friday Investments, LLC (plaintiff) for a large commercial 
space in Charlotte, North Carolina, in which to place a health club.1  Codefendant 
Bally Total Fitness Holding Corporation (Bally Holding), the parent company of both 
Bally Mid-Atlantic and the original tenant, guaranteed the lease.  Bally Mid-Atlantic 
later sold some of its health clubs, including the Charlotte club, to Blast Fitness 
Group, LLC (Blast).  The Asset Purchase Agreement between Bally Mid-Atlantic and 
Blast transferred any obligations arising under the real property leases of the clubs 
sold.  The Agreement also included an indemnification clause, wherein Blast agreed 
to “defend, indemnify, and hold [defendants] . . . harmless of, from and against any 
                                            
1 Around 14 February 2000, Tower Place Joint Venture (Original Lessor), as landlord, 
and Bally Total Fitness Corporation (Original Lessee), as tenant, entered into a lease 
agreement for the property at issue.  Friday Investments, LLC (plaintiff) is the current owner 
of the property at issue and successor in interest to Tisano Realty Inc., the successor in 
interest to the Original Lessor.  Defendant Bally Mid-Atlantic is the successor in interest to 
the Original Lessee.   
FRIDAY INVS., LLC V. BALLY TOTAL FITNESS OF THE MID-ATL., INC.  
 
Opinion of the Court 
 
 
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Losses incurred . . . on account of or relating to . . . any Assumed Liabilities, including 
those arising from or under the Real Property Leases after the Closing.”   
On 9 May 2014, plaintiff sued defendants for payment of back rent and other 
charges due under the lease stemming from Blast’s failure to pay rent on the space 
defendants had assigned to Blast.  Defendants notified Blast of the lawsuit, and Blast 
promptly agreed to indemnify and defend defendants in accord with their Agreement.  
During discovery, counsel for plaintiff requested copies of “post-suit correspondence 
and documents exchanged between [defendants] and Blast.”  After defendants 
refused to comply, plaintiff moved to compel production of the requested documents.  
Defendants objected and moved for a protective order, asserting the attorney–client 
privilege.  The trial court orally ordered defendants to produce the documents and a 
privilege log for in camera review.  
On 2 April 2015, after completing its in camera review, the trial court notified 
counsel via e-mail that it had denied defendants’ motion for a protective order and 
granted plaintiff’s motion to compel.  On 13 April 2015, the trial court entered its 
written order summarily denying defendants’ motion for a protective order and 
granting plaintiff’s motion to compel.  At no point did either party request that the 
trial court make written findings of fact and conclusions of law.  Defendants appealed 
the trial court’s interlocutory order, successfully contending that the subject of the 
appeal affects a “substantial right.”  After settling the record on appeal, and after the 
FRIDAY INVS., LLC V. BALLY TOTAL FITNESS OF THE MID-ATL., INC.  
 
Opinion of the Court 
 
 
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briefing deadline had passed, defendants moved to submit the documents at issue 
under seal for in camera review by the Court of Appeals.   
The Court of Appeals affirmed the trial court’s grant of plaintiff’s motion to 
compel.  Friday Invs., LLC v. Bally Total Fitness of the Mid-Atl., Inc.,  ___ N.C. App. 
___, 788 S.E.2d 170 (2016).  Before discussing the merits of the appeal, the Court of 
Appeals denied defendants’ request to present the records for appellate review as 
untimely because the request was made after plaintiff had submitted its brief to the 
Court of Appeals.  Id. at ___, 788 S.E.2d at 175; see N.C. R. App. P. 9(b)(5)(a).  On the 
merits, the Court of Appeals held that a tripartite attorney–client relationship did 
not exist between defendants and Blast because “an indemnification provision in an 
asset purchase agreement, standing alone, is insufficient to create a common legal 
interest between a civil litigant indemnitee and a third-party indemnitor.”  Friday 
Invs., LLC, ___ N.C. App. at ___,  788 S.E.2d at 172.  The Court of Appeals reasoned 
that defendants and Blast shared merely a common business interest and that this 
distinction rendered inapplicable our previous decision in Raymond v. North Carolina 
Police Benevolent Ass’n, 365 N.C. 94, 98, 721 S.E.2d 923, 926 (2011) (recognizing the 
tripartite attorney–client relationship).  As a result, the attorney–client privilege did 
not extend to the communications between defendants and Blast.  This Court allowed 
discretionary review.  Friday Invs., LLC v. Bally Total Fitness of the Mid-Atl., Inc., 
369 N.C. 185, 793 S.E.2d 685 (2016).   
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Opinion of the Court 
 
 
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“The primary purpose of the discovery rules is to facilitate the disclosure prior 
to trial of any unprivileged information that is relevant and material to the lawsuit 
so as to permit the narrowing and sharpening of the basic issues and facts that will 
require trial.”  Bumgarner v. Reneau, 332 N.C. 624, 628, 422 S.E.2d 686, 688-89 
(1992) (emphasis added) (citation omitted).  Rule 26 provides for a broad scope of 
discovery, allowing “[p]arties [to] obtain discovery regarding any matter, not 
privileged, which is relevant to the subject matter involved in the pending action.”  
N.C.G.S. § 1A-1, Rule 26(b)(1) (2015) (emphasis added).   
“The attorney-client privilege is the oldest of the privileges for confidential 
communications known to the common law.”  Upjohn Co. v. United States, 449 U.S. 
383, 389, 101 S. Ct. 677, 682, 66 L. Ed. 2d 584, 591 (1981) (citation omitted).  For the 
privilege to apply and thus exclude relevant evidence, “the relation of attorney and 
client [must have] existed at the time the [particular] communication was made.”  In 
re Investigation of Miller, 357 N.C. 316, 335, 584 S.E.2d 772, 786 (2003) (quoting State 
v. McIntosh, 336 N.C. 517, 523, 444 S.E.2d 438, 442 (1994)).   
Historically, an attorney–client relationship arises between an attorney and a 
single client the attorney represents.  See id. at 335, 584 S.E.2d at 786.  This Court, 
however, has also recognized a multiparty attorney–client relationship in which an 
attorney represents two or more clients.  See Dobias v. White, 240 N.C. 680, 685, 83 
S.E.2d 785, 788 (1954) (indicating that an attorney–client relationship can exist when 
“two or more persons employ the same attorney to act for them in some business 
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Opinion of the Court 
 
 
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transaction”).  “The rationale for recognizing this tripartite attorney-client 
relationship is that individuals with a common interest in the litigation should be 
able to freely communicate with their attorney, and with each other, to more 
effectively defend or prosecute their claims.”  Raymond, 365 N.C. at 99, 721 S.E.2d at 
926 (citation omitted).  
In Raymond a former police officer and member of the Southern States Police 
Benevolent Association (SSPBA) contacted the SSPBA and spoke with an SSPBA 
attorney in confidence, seeking legal advice regarding his recent demotion.  Id. at 95-
96, 721 S.E.2d at 924-25.  The SSPBA then referred the officer to outside legal counsel 
paid for by the SSPBA.  As a dues-paying member, the former officer’s SSPBA 
membership entitled him to various SSPBA services, including legal representation 
in grievance and disciplinary matters.  Recognizing the tripartite nature of the 
arrangement, this Court held that an attorney–client relationship existed between 
the former police officer, the SSPBA and its attorney, and the outside legal counsel 
selected by the association to represent the former officer.  Id. at 99, 721 S.E.2d at 
927.  As such, any communications between them that also satisfied the five-factor 
test articulated in State v. Murvin, 304 N.C. 523, 531, 284 S.E.2d 289, 294 (1981), 
were privileged.  Raymond, 365 N.C. at 100-01, 721 S.E.2d at 927-28. 
Our decision in Raymond analogized the relationship between the officer, the 
SSPBA and an attorney for the association, and outside defense counsel to those 
relationships common in the insurance context.  See id. at 98, 721 S.E.2d at 926 (“In 
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Opinion of the Court 
 
 
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the insurance context, courts find that the attorney defending the insured and 
receiving payment from the insurance company represents both the insured and the 
insurer . . . .” (citing Nationwide Mut. Fire Ins. Co. v. Bourlon, 172 N.C. App. 595, 
602-03, 617 S.E.2d 40, 46 (2005), aff’d per curiam, 360 N.C. 356, 625 S.E.2d 779 (2006) 
(mem.))).  As in the insurance context, a tripartite attorney–client relationship arose 
from the officer and the SSPBA’s common interest in the litigation, stemming from 
the officer’s contractual relationship with the SSPBA as a dues-paying member.  See 
Raymond, 365 N.C. at 98, 721 S.E.2d at 926 (“[N]otwithstanding that usually only 
the insured has been sued, a tripartite attorney-client relationship exists because the 
interests of both the insured and the insurer in prevailing against the plaintiff’s claim 
are closely aligned.”). 
“[A] contractual duty to defend and indemnify creates a common interest and 
tripartite relationship between the insurer, the insured, and the defense attorney.”  
Id. at 98-99, 721 S.E.2d at 926 (citing Bourlon, 172 N.C. App. at 603-05, 617 S.E.2d 
at 46-47).  Like the common interest found between the insurer and the insured, an 
indemnification agreement creates a common interest between the indemnitor and 
the indemnitee in that the indemnitor contractually shares in the indemnitee’s legal 
well-being because the agreement subjects the indemnitor to the “damages assessed 
and loss resulting from an adverse judgment.”  Queen City Coach Co. v. Lumberton 
Coach Co., 229 N.C. 534, 536, 50 S.E.2d 288, 289 (1948) (citation omitted); see also 
Dixie Container Corp. of N.C. v. Dale, 273 N.C. 624, 627, 160 S.E.2d 708, 711 (1968) 
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Opinion of the Court 
 
 
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(noting that an indemnity contract “will be construed to cover all losses, damages, 
and liabilities which reasonably appear to have been within the contemplation of the 
parties”).   The fact that indemnification relates to a business purpose does not sever 
but strengthens that common interest.   See Dobias, 240 N.C. at 685, 83 S.E.2d at 788 
(recognizing an attorney–client relationship between more than two individuals 
when “two or more persons employ the same attorney to act for them in some business 
transaction”).  As a result, a tripartite attorney–client relationship arises because the 
interests of both the indemnitor and indemnitee in prevailing against the plaintiff’s 
claim are contractually aligned, notwithstanding that usually only the indemnitee 
has been sued.  See Raymond, 365 N.C. at 98, 721 S.E.2d at 926.   
In all significant ways, the question of the formation of an attorney–client 
relationship here is indistinguishable from that resolved by our decision in Raymond.  
Blast contractually agreed to indemnify and defend defendants against any losses 
incurred relating to their real property lease.  After this litigation commenced, 
defendants notified Blast of the litigation, and Blast engaged counsel to defend the 
case under the indemnification agreement.  Like the common interest found in the 
insurance context, Blast’s interest in defendants’ legal well-being as indemnitees 
creates the common interest in this litigation:  The indemnification provision subjects 
Blast to any damages that result from an adverse judgment against defendants.  
Accordingly, a tripartite attorney–client relationship exists between defendants, 
Blast, and their defense counsel. 
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Opinion of the Court 
 
 
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The mere fact that an attorney–client relationship exists, however, does not 
automatically trigger the attorney–client privilege.  See Dobias, 240 N.C. at 684, 83 
S.E.2d at 788 (Simply because “the evidence relates to communications between 
attorney and client alone does not require its exclusion.”).  For the attorney–client 
privilege to apply, the communication must satisfy the five-factor Murvin test: 
(1) the relation of attorney and client existed at the time 
the communication was made, (2) the communication was 
made in confidence, (3) the communication relates to a 
matter about which the attorney is being professionally 
consulted, (4) the communication was made in the course 
of giving or seeking legal advice for a proper purpose 
although litigation need not be contemplated and (5) the 
client has not waived the privilege. 
 
Murvin, 304 N.C. at 531, 284 S.E.2d at 294 (citing 1 Henry Brandis, Jr., Stansbury’s 
North Carolina Evidence § 62 (1973)).  “[I]f any one of these five elements is not 
present in any portion of an attorney-client communication, that portion of the 
communication is not privileged.”  Brown v. Am. Partners Fed. Credit Union, 183 N.C. 
App. 529, 534, 645 S.E.2d 117, 121 (2007) (quoting In re Miller, 357 N.C. at 335, 584 
S.E.2d at 786).  “The trial court is best suited to determine, through a fact-sensitive 
inquiry, whether the attorney-client privilege applies to a specific communication.”  
Raymond, 365 N.C. at 100, 721 S.E.2d at 927 (emphasis added) (citing In re Miller, 
357 N.C. at 336, 584 S.E.2d at 787).   
“Findings of fact and conclusions of law are necessary on decisions of any 
motion . . . only when requested by a party . . . .”  N.C.G.S. § 1A-1, Rule 52(a)(2) 
FRIDAY INVS., LLC V. BALLY TOTAL FITNESS OF THE MID-ATL., INC.  
 
Opinion of the Court 
 
 
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(2015).  The purpose of requiring findings of fact and conclusions of law by the trial 
court “is to allow meaningful review by the appellate courts.”  O’Neill v. S. Nat’l Bank 
of N.C., 40 N.C. App. 227, 231, 252 S.E.2d 231, 234 (1979) (citation omitted).  “When 
the trial court is not required to find facts and make conclusions of law and does not 
do so, it is presumed that the court on proper evidence found facts to support its 
judgment.”  Estrada v. Burnham, 316 N.C. 318, 324, 341 S.E.2d 538, 542 (1986), 
superseded by statute, N.C.G.S. § 1A-1, Rule 11(a) (Cum. Supp. 1988), on other 
grounds as stated in Turner v. Duke Univ., 325 N.C. 152, 163-64, 381 S.E.2d 706, 712-
13 (1989) (citations omitted).  
A trial court’s discovery ruling is reviewed for abuse of discretion, see Firemen’s 
Mut. Ins. Co. v. High Point Sprinkler Co., 266 N.C. 134, 143, 146 S.E.2d 53, 62 (1966), 
and will be overturned “only upon a showing that its ruling was manifestly 
unsupported by reason and could not have been the result of a reasoned decision,” In 
re Foreclosure of Lucks, 369 N.C. 222, 228, 794 S.E.2d 501, 506 (2016) (quoting State 
v. Riddick, 315 N.C. 749, 756, 340 S.E.2d 55, 59 (1986)).   
Though a tripartite attorney–client relationship exists, we cannot conclude, 
given the bare record before us, that the trial court abused its discretion or misapplied 
the law in compelling disclosure of the communications at issue.  The underlying trial 
court order compelling discovery contains neither findings of fact nor conclusions of 
law, as neither party requested them.  Therefore, we must presume that the trial 
court found facts sufficient to support its determination that the communications at 
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Opinion of the Court 
 
 
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issue were not privileged.  Moreover, defendants did not properly present the 
allegedly privileged documents for appellate review.  See State v. Alston, 307 N.C. 
321, 341, 298 S.E.2d 631, 644 (1983) (“It is the appellant’s duty and responsibility to 
see that the record is in proper form and complete.”).  As such, the record merely 
contains a privilege log that briefly describes each of the allegedly privileged 
documents.  Nothing in the privilege log or the trial court’s order suggests that the 
trial court erroneously concluded that a tripartite attorney–client relationship had 
not formed or that the court misapplied the five-factor Murvin test.  Given the record 
before us, we cannot conclude that the trial court’s decision was so arbitrary that it 
could not have been the result of a reasoned decision.   
In sum, we hold that Blast’s contractual duty to defend and indemnify 
defendants created a tripartite attorney–client relationship.  Nonetheless, the record 
before us fails to indicate that the trial court abused its discretion in determining that 
the post-litigation communications between defendants and Blast were not 
privileged.  Accordingly, we modify and affirm the decision of the Court of Appeals.  
We remand this case to the Court of Appeals for further remand to the trial court for 
additional proceedings not inconsistent with this opinion.  
MODIFIED AND AFFIRMED; REMANDED.