Court Opinion

ID: 9399698
Source: CourtListenerOpinion
Date Created: 2023-06-06 12:05:48.14039+00
Date Added: 2024-06-11T17:19:18.026166
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA22-685

                                 Filed 06 June 2023

Guilford County, No. 21 CRS 028347

STATE OF NORTH CAROLINA

             v.

KURT ANTHONY STORM, Defendant.

      Appeal by Defendant from judgment entered 17 February 2022 by Judge Lora

Christine Cubbage in Guilford County Superior Court. Heard in the Court of Appeals

7 March 2023.

      Attorney General Joshua H. Stein, by Assistant Attorney General Llogan R.
      Walters, for the State.

      Appellate Defender Glenn Gerding, by Assistant Appellate Defender James R.
      Grant, for defendant-appellant.

      MURPHY, Judge.

      Traditionally, a bailor-bailee relationship exists only where an item of personal

property is to be returned to the bailor by the bailee. While narrow exceptions to this

rule have previously led us to include the delivery of a check on behalf of a bailor by

a bailee to a third party within the definition of “bailment,” we have never deviated—

and do not now deviate—so far from the traditional definition of bailment that an

investment adviser, whose work entails complex discretionary judgments about a

client’s money as a fungible asset, would qualify as a “bailee.” Here, where, in the
                                   STATE V. STORM

                                  Opinion of the Court

light most favorable to the State, Defendant agreed to act as an investment adviser

for the alleged victim, his conversion of funds entrusted to him in that capacity could

not have formed the basis of his conviction for conversion of funds by a bailee because

he was not, as a matter of law, a bailee.

                                  BACKGROUND

      On or about June of 2014, Audrey Lewis discontinued her employment at

American National Insurance Company after more than fifteen years to open her own

insurance agency. Shortly thereafter, Lewis began attending networking meetings

for small business owners hosted by Defendant Kurt Anthony Storm. Lewis kept

attending these meetings through 2017, and she developed a friendship with

Defendant, with the two frequently carpooling together.

      In 2017, Lewis received a letter from American National indicating that she

had over $25,000.00 in a retirement fund of which she was previously unaware.

Hoping to reinvest the money and recalling from earlier in their relationship that

Defendant was a financial adviser, Lewis contacted Defendant and asked him to

invest the money on her behalf. In order to invest the money, Defendant set up an

entity called A.R. Lewis, LLC (“ARL”) on 10 April 2017 and created a bank account

on its behalf. Defendant accepted approximately $6,300.00 in cash as a fee for his

investment services, then further accepted a check for $17,500.00 in the name of ARL,

ostensibly to invest on Lewis’s behalf. After Lewis gave Defendant the money, their

agreement was memorialized in the following Promissory Note:

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                                   Opinion of the Court

             Agreement between Kurt Storm and ARLEWIS LLC-
             Audrey Renee Lewis [r]epresenting ARLewis LLC.
             Principal sum of $23,836.09 will be managed by Kurt
             Storm.

             I. Promise to Pay
             Kurt Storm agrees to pay 9% annual rate fixed earnings,
             credited monthly in cash.

             II. Repayment
             The amount this Promissory Note will be returned 12
             months from inception unless death or Storm’s inability to
             perform task [sic] associated with this role and/or mutual
             agreement of both parties.

             III. Transfer of the Promissory Note – POD applies
             as well as this Note as fail-safe [sic]. Entire balance
             will be paid to ARLewis, LLC directly at office 2216
             Meadowview Drive, Greensboro, NC 27407[.]

             IV. Amendment; Modification; Waiver
             No amendment, modification or waiver of any provision of
             this Promissory Note or consent to departure therefrom
             shall be effective unless by written agreement signed by
             both Borrower and Lender.[1]

             V. Successors
             The terms and conditions of this Promissory Note shall
             inure to the benefit of and be binding jointly and severally
             upon the successors, assigns, heirs, survivors and personal
             representatives of Kurt Storm and shall inure to the
             benefit of any holder, its legal representatives, successors
             and assigns.

             VI. Governing Law
             The validity, construction and performance of this
             Promissory Note will be governed by the laws of North
             Carolina, excluding that body of law pertaining to conflicts

      1 No party contends on appeal that this language in the Promissory Note rendered the
agreement a loan rather than an investment.

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                                 Opinion of the Court

            of law. Borrower hereby waives presentment notice of non-
            payment, notice of dishonor, protest, demand and
            diligence.

            The parties hereby indicate by their signatures below that
            they have read and agree with the terms and conditions of
            this agreement in its entirety.

      After several months, in October of 2017, Lewis contacted Defendant again to

inquire as to where the funds went. Lewis made several failed attempts to call and

email Defendant about the funds in October and November of 2017, including one

period during which Defendant blocked Lewis’s email.         Defendant eventually

informed Lewis that he was in poor health, then once again ceased contact until

January of 2018. After Defendant stopped responding for the second time, Lewis

indicated to Defendant in an email dated 11 January 2018 that she would report him

to law enforcement unless she heard from him. After Lewis reported Defendant to

law enforcement, Defendant responded that he would like to “work this out so [there

will] be no bad blood,” and the two arranged to meet at a restaurant. Upon meeting

in person, Defendant presented Lewis with information about other accounts he had

worked on but provided Lewis with no concrete details regarding the money she had

given to him to invest. Nonetheless, in light of Defendant’s presentation, Lewis was

convinced that her money had been invested.

      On 16 January 2018, having received Lewis’s report, the Greensboro Police

Department assigned Detective Michael Montalvo to investigate what had happened

to the funds. After a phone call with Lewis on 25 January 2018 detailing

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                                  Opinion of the Court

substantially the aforementioned facts, Detective Montalvo called Defendant on 29

January 2018 seeking an explanation as to the funds’ whereabouts. The call resulted

in a follow-up meeting in person at Detective Montalvo’s office on 8 February

2018. During the 8 February follow-up, Defendant said of the funds that he was “not

off the hook” and that “[he knew] that [he had] to pay back th[e] money[,]” suggesting

that he pay Lewis back in $150.00 installments once per month. Defendant then

asked Detective Montalvo what kind of criminal proceedings he could expect to see

as a result of the incident, and Montalvo explained that “if you just give [Lewis] the

[$17,500.00] now, this goes away. There won’t be any criminal charges.” Defendant

responded that he didn’t have the money.

      Detective Montalvo’s subsequent investigations revealed no account into which

the funds had ever been placed.

      Defendant was indicted for obtaining property by false pretenses and felony

computer access on 9 July 2018, then subsequently indicted for embezzlement on 6

May 2019 and conversion of property by bailee on 19 April 2021. The indictment for

conversion of property by bailee read as follows:

             The jurors for the State upon their oath present that on or
             about the date of offense shown above and in the county
             named above the defendant named above unlawfully,
             willfully and feloniously did being entrusted with property,
             seventeen thousand five hundred dollars ($17,500.00) in
             good and lawful United States currency owned by Audrey
             Renee Lewis, as a bailee, fraudulently secrete the property
             with the fraudulent intent to convert it to the defendant's
             own use and/or convert the property to the defendant's own

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                                  Opinion of the Court

             use. The value of the property was in excess of four
             hundred dollars ($400.00).

      Defendant was tried on 15 February 2022. During trial, the State voluntarily

dismissed the felony computer access charge. At the close of the State’s evidence,

Defendant moved to dismiss the charges of conversion of property by bailee and

embezzlement. The trial court initially denied the motion; however, after Defendant

renewed the motion at the close of all evidence and made a separate motion to dismiss

for fatal variance between the indictment and evidence, the trial court dismissed the

embezzlement charge. The jury convicted Defendant of the single remaining charge

of felony conversion of property by bailee, and the trial court sentenced him to a

suspended sentence of 6 to 17 months.

                                     ANALYSIS

      On appeal, Defendant argues the trial court erred in failing to dismiss the

charge of felony conversion of property by bailee under N.C.G.S. § 14-168.1 because,

as a matter of law, he did not qualify as a bailee when he took possession of the funds

at issue. Defendant also separately argues the charge should have been dismissed

due to fatal variance between the indictment and the evidence presented at trial.

However, as we agree that Defendant was not a bailee for purposes of the conversion

charge, we need not reach the fatal variance issue.

      Under N.C.G.S. § 14-168.1,

             [e]very person entrusted with any property as bailee,
             lessee, tenant or lodger, or with any power of attorney for

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                                           Opinion of the Court

                the sale or transfer thereof, who fraudulently converts the
                same, or the proceeds thereof, to his own use, or secretes it
                with a fraudulent intent to convert it to his own use, shall
                be guilty of a Class 3 misdemeanor.

N.C.G.S. § 14-168.1 (2021) (emphasis added). “A bailment is created when a third

person accepts the sole custody of some property given from another.” Barnes v. Erie

Ins. Exch., 156 N.C. App. 270, 273, disc. rev. denied, 357 N.C. 457 (2003).

Traditionally, the object of bailment is a specific item of real property.2 See Bailment,

Black’s Law Dictionary 174 (11th Ed. 2019) (first emphasis added) (“A delivery of

personal property by one person (the bailor) to another (the bailee) who holds the

property for a certain purpose, usu[ally] under an express or implied-in-fact

contract.”); e.g. State v. Woody, 132 N.C. App. 788, 789 (1999) (a computer); Wilson v.

Burch Farms, Inc., 176 N.C. App. 629, 641 (2006) (potatoes); Martin v. Cuthbertson,

64 N.C. 328, 328 (1870) (a horse). Moreover, historically, a bailment relationship

contemplated the return of the transferred item of personal property. Sturm v. Boker,

150 U.S. 312, 329-30 (1893) (“The recognized distinction between bailment and sale

is that when the identical article is to be returned in the same or in some altered

form, the contract is one of bailment, and the title to the property is not changed. On

        2  Older North Carolina caselaw uses the term “chattel,” usually connoting specific physical
items, to refer to the object of bailment. See Cooke v. Foreman Derrickson Veneer Co., 169 N.C. 493,
494 (1915) (“At common law bailment contracts are largely implied from the character of the
transactions. From the delivery of a chattel in bailment the law implies an undertaking upon the part
of the bailee to execute the bailment purpose with due care, skill and fidelity.”); see also Chattel, Black’s
Law Dictionary 295 (11th Ed. 2019) (“Movable or transferable property; personal property; esp[ecially]
a physical object capable of manual delivery and not the subject matter of real property.”).

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                                    STATE V. STORM

                                   Opinion of the Court

the other hand, when there is no obligation to return the specific article, and the

receiver is at liberty to return another thing of value, he becomes a debtor to make

the return, and the title to the property is changed; the transaction is a sale.”)

      Though not archetypally an object of bailment, money can, under certain

circumstances, act as such. In State v. Eurell, our Supreme Court stated that “[o]ne

who receives money for safe keeping . . . is a bailee if under the agreement of the

parties he is to return the identical money received, and debtor if he is to use the

money and return its equivalent on demand.” State v. Eurell, 220 N.C. 519, 519

(1941). And, in State v. Minton, we held—without discussion—that a bailor-bailee

relationship existed where checks were provided to the defendant to, in turn, pay a

third party. State v. Minton, 223 N.C. App. 319, 322 (2012), disc. rev. denied, 366

N.C. 587 (2013). However, we have also reiterated the principle that whether a

bailment relationship has been created with respect to money depends on whether

the agreement requires the use of “exact funds” as opposed to treating the money as

fungible. Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 212 N.C.

App. 400, 405 (2011), rev’d on other grounds, 365 N.C. 520, 524 (2012) (“[W]e conclude

it is unnecessary to address the bailment argument.”); also cf. United States v.

Eurodif S. A., 555 U.S. 305, 320 (2009) (“[W]here a constituent material is untracked

and fungible, ownership is usually seen as transferred, and the transaction is less

likely to be a sale of services, as the [U.S. Supreme] Court explained years ago in

distinguishing a common law bailment from a sale[.]”).

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                                           STATE V. STORM

                                          Opinion of the Court

        The holding in Minton, especially in light of Variety Wholesalers, appears to be

an extension of—albeit a deviation from—the principle that, “where a consignment

relationship [exists] between [two parties to an agreement], the relationship [is] also

that of a bailment.”3 Wilson, 176 N.C. App. at 641, 642 (emphasis added) (marks and

citations omitted) (“A consignment is a type of bailment where the goods are

entrusted for sale. . . . A consignment exists where a[] consignor leaves his property

with a consignee who is substantially engaged in selling the goods of others, and will

work to sell the goods on behalf of the consignor. After selling the goods, the consignee

must account to the consignor with the proceeds from the sale.”). As in a consignment

relationship, the bailor in Minton entrusted the defendant with a specific check and

asked the defendant, the bailee, to use the check in a particular transaction. Minton,

223 N.C. App. at 322. In that case, the transaction was a rental payment, though the

transaction in a consignment relationship is the sale of the transferred property. Id.

at 320; Wilson, 176 N.C. App. at 629; see also Consignment, Black’s Law Dictionary

385 (11th Ed. 2019) (“[A] transaction in which a person delivers goods to a merchant

for the purpose of sale[.]”). While the transaction in Minton lacked the accounting

feature that otherwise conceptually tethered consignment to traditional bailment, see

        3 The notion of consignment as a specialized form of bailment appears to, in turn, be an
extension of the traditional notion that goods transformed by a bailee may still be the object of a
bailment relationship. See Powder Co. v. Burkhardt, 97 U.S. 110, 116 (1877) (“[W]here logs are
delivered to be sawed into boards, or leather to be made into shoes, rags into paper, olives into oil,
grapes into wine, wheat into flour, if the product of the identical articles delivered is to be returned to
the original owner in a new form, it is said to be a bailment, and the title never vests in the
manufacturer.”).

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                                   Opinion of the Court

Wilson, 176 N.C. App. at 642, the limited nature of the control the bailee was meant

to exercise in that case meant that the type of control exercised by the bailee generally

resembled the specific, limited purposes for which bailors entrust property to bailees

in more traditional bailment relationships.

      In the instant case, the State argues, by analogy to Minton, that Defendant

possessed Lewis’s funds pursuant to a bailment relationship.           This contention,

however, deviates too far from the fundamental bailor-bailee paradigm. Bailment,

by nature, involves a limited degree of control by the bailee over property transferred

by the bailor “for a certain purpose[.]” Bailment, Black’s Law Dictionary 174 (11th

Ed. 2019). It usually involves a return of the exact property, see Eurell, 220 N.C. at

519; Sturm, 150 U.S. at 329-30; and, where narrow exceptions to that rule exist, they

exist for arrangements in which the bailee exercises control in a specific enough

manner so as to still resemble traditional bailment. See Wilson, 176 N.C. App. at 641;

Minton, 223 N.C. App. at 322.

      Here, to consider Defendant a “bailee” would be to allow these exceptions to

swallow the rule.     For purposes of this appeal, the uncontroverted status of

Defendant’s and Lewis’s relationship was that of an investment adviser and advisee.

See N.C.G.S. § 78C-2(1) (2021) (“‘Investment adviser’ means any person who, for

compensation, engages in the business of advising others, either directly or through

publications or writings, as to the value of securities or as to the advisability of

investing in, purchasing, or selling securities, or who, for compensation and as part

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                                          STATE V. STORM

                                         Opinion of the Court

of a regular business, issues or promulgates analyses or reports concerning securities.

‘Investment adviser’ also includes financial planners and other persons who, as an

integral component of other financially related services, provide the foregoing

investment advisory services to others for compensation and as a part of a business

or who hold themselves out as providing the foregoing investment advisory services

to others for compensation.”). Defendant was neither obligated nor expected to return

the exact check given to him to Lewis. Moreover, unlike the defendant in Minton,

Defendant was not tasked with simply acting as a courier for a check; rather, he was

entrusted with a complex series of decisions concerning the investment of the funds

as a fungible asset. While we express no opinion on the ongoing correctness of our

opinion in Minton in light of its deviation from the fundamental precepts of bailment

theory,4 we decline to redouble that deviation here. Defendant was not a bailee, and

we reverse the trial court’s decision not to dismiss Defendant’s charge on that basis.

       Having so held, Defendant’s remaining argument concerning fatal variance

between the indictment and evidence presented at trial is moot. Roberts v. Madison

Cty. Realtors Ass’n, Inc., 344 N.C. 394, 398-99 (1996) (citation omitted) (“A case is

‘moot’ when a determination is sought on a matter which, when rendered, cannot

have any practical effect on the existing controversy.”).

       4  Nor could we overturn that decision ourselves if we were so inclined. In re Civil Penalty, 324
N.C. 373, 384 (1989) (“Where a panel of the Court of Appeals has decided the same issue, albeit in a
different case, a subsequent panel of the same court is bound by that precedent, unless it has been
overturned by a higher court.”).

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                                  STATE V. STORM

                                 Opinion of the Court

                                 CONCLUSION

      Defendant’s conversion of Lewis’s funds could not have properly resulted in his

conviction under N.C.G.S. § 14-168.1 because he was not a bailee. Accordingly, we

vacate the judgment. Woody, 132 N.C. App. at 792.

      VACATED.

      Judge RIGGS concurs.

      Judge ARROWOOD concurs in judgment only by separate opinion.

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 No. COA22-685 – State v. Storm

      ARROWOOD, Judge, concurring in judgment only.

      While I agree that our precedent compels the majority to hold that the trial

court erred in failing to dismiss the felony conversion of property by a bailee charge,

and their finding that defendant did not qualify as a bailee, I write separately to

express my concern that a precedent, as ancient as the concepts of bailment and

conversion itself, compels such a holding.

      “A bailment is created upon the delivery of possession of goods and the

acceptance of their delivery by the bailee.” Flexlon Fabrics, Inc. v. Wicker Pick-Up &

Delivery Serv., Inc., 39 N.C. App. 443, 447, 250 S.E.2d 723, 726 (1979) (citation

omitted). Delivery requires “the bailor [to relinquish] exclusive possession, custody,

and control to the bailee . . . .” Id. (citations omitted). “[A]cceptance is established

upon a showing directly or indirectly of a voluntary acceptance of the goods under an

express or implied contract to take and redeliver them.” Id. Although historically

the law may have contemplated the return of the exact property, our case law has

recognized exceptions where a bailee is not required to return the identical item to

the bailor in all circumstances. See Wilson v. Burch Farms, Inc., 176 N.C. App. 629,

641, 627 S.E.2d 249, 259 (2006) (citations omitted) (“While the consignee may or may

not receive the specific property of the consignment back, . . . this Court has

recognized that a consignment creates a bailment between the parties.”).

      Precedent holds that when the subject of the bailment is money, a bailment

relationship is only established if the bailee is required “to return the identical money
                                   STATE V. STORM

                               ARROWOOD, J., concurring

received[.]” State v. Eurell, 220 N.C. 519, 520, 17 S.E.2d 669, 670-71 (1941) (finding

that one who is expected “to return the identical money received” is a bailee); Variety

Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 212 N.C. App. 400, 405, 712

S.E.2d 361, 365, review allowed, writ allowed, 717 S.E.2d 371 (N.C. 2011) (finding the

plaintiff could not prove a bailment relationship existed because the agreement

between the parties “was not a sufficient meeting of the minds to establish a bailment

relationship[,]” as the agreement did not show defendant was expected “to redeliver

the exact funds”) rev’d on other grounds, 365 N.C. 520, 723 S.E.2d 744 (2012). From

this language, it is unclear whether “exact funds” refers to the return of an identical

sum, or the exact money left in the bailee’s possession. Either way, I see no reason

why the rule reiterated in Eurell and Variety Wholesalers should continue to shield

defendants from liability in cases such as this, where investors have been entrusted

with large sums of money for the benefit of a third-party and intentionally and

wrongfully convert those funds prior to investing them.

      If “exact funds” refers to the return of the exact amount, I do not see why Ms.

Lewis’s expectation of the return of more money should extinguish the bailment

relationship. Ms. Lewis delivered the funds to defendant, relinquishing possession

and control, and defendant accepted the funds. Furthermore, the promissory note

between the parties showed that defendant was expected to return money to Ms.

Lewis.   That Ms. Lewis was expecting more than the initial investment, and

defendant’s title as an “investor” should be of no consequence.

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                                    STATE V. STORM

                               ARROWOOD, J., concurring

      If “exact funds” refers to the return of the exact investment Ms. Lewis initially

made, I believe that our Supreme Court has expressed movement away from this

requirement and would be receptive to the adoption of the exact sum requirement

adopted by other jurisdictions.    See Variety Wholesalers, Inc. v. Salem Logistics

Traffic Servs., LLC, 365 N.C. 520, 528-29, 723 S.E.2d 744, 750-51 (2012) (finding in

the context of conversion that defendant’s assertion that the plaintiff could not

“maintain a claim for conversion of money unless the funds in question [could] be

specifically traced and identified[,]” and were “not commingled” was outdated, as this

requirement “has been complicated as a result of the evolution of our economic

system[,]” and in response to “this reality, numerous courts around the country have

adopted rules requiring the specific identification of a sum of money, rather than

identification of particular bills or coins[,]” thus as long as the plaintiff could show

the “specific amount” that he transferred, where the funds originated, and which

account the funds were transferred to, the funds were identifiable). Indeed, the

movement away from the return of the “exact funds” in conversion cases has been

adopted by other jurisdictions. Nat’l Corp. for Hous. P’ship v. Liberty State Bank,

836 F.2d 433, 436 (8th Cir. 1988) (citations omitted) (holding the “ancient rule”

“requiring [the] return of the identical item has been liberalized in the case of

bailment of fungible goods”); Repplier v. Jacobs, 149 Pa. 167, 169, 24 A. 194, 194

(1892) (finding that “[f]or all ordinary purposes, in law as in the business of life, the

same sum of money is the same money, whether it be represented by the identical coin

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                                    STATE V. STORM

                                ARROWOOD, J., concurring

or not”) (emphasis added).

         For either situation, I see no reason why the rule requiring the return of the

exact funds should continue to shield “investment advisors” from liability in

conversion cases where they have been entrusted with large sums of money for the

benefit of a third-party and intentionally and wrongfully convert those funds prior to

investing them. Although I agree that precedent compels the findings set forth in the

majority opinion, I think precedent from 1941 should be reconsidered by our Supreme

Court.

         Thus, I concur in judgment only.

                                            4