Court Opinion

ID: 4165130
Source: CourtListenerOpinion
Date Created: 2017-05-02 12:15:18.207158+00
Date Added: 2024-06-11T14:38:04.421092
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA16-969

                                  Filed: 2 May 2017

New Hanover County, No. 14 CVS 4219

WILLIAM BARRY FREEDMAN and FREEDMAN FARMS, INC., Plaintiffs,

             v.

WAYNE JAMES PAYNE and MICHAEL R. RAMOS, Defendants.

      Appeal by plaintiff from order entered 25 July 2016 by Senior Resident Judge

Robert H. Hobgood in New Hanover County Superior Court. Heard in the Court of

Appeals 21 March 2017.

      Randolph M. James, PC, by Randolph M. James, for plaintiff-appellant.

      Cranfill Sumner & Hartzog LLP, by Melody J. Jolly and Patrick M. Mincey,
      for defendant-appellee Wayne James Payne.

      Dickie, McCamey & Chilcote, PC, by Joseph L. Nelson, for defendant-appellee
      Michael R. Ramos.

      ZACHARY, Judge.

      William Barry Freedman (appellant) appeals from an order of the trial court

dismissing his claims for breach of fiduciary duty, breach of contract, constructive

fraud, and fraud brought against Wayne James Payne and Michael R. Ramos

(defendants). On appeal, appellant argues that the trial court erred by dismissing

his claims “based upon the law of the case and in pari delicto doctrines.” After careful
                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

review of appellant’s arguments in light of the record on appeal and the applicable

law, we conclude that the trial court did not err.

                                        I. Background

      On 1 December 2014, appellant and Freedman Farms filed a complaint against

defendants “in New Hanover County Superior Court following defendants'

representation of appellant in federal district court. In the complaint, appellant

alleged professional malpractice, breach of fiduciary duty, constructive fraud, breach

of contract, and fraud. Freedman Farms alleged fraud and breach of contract by a

third-party beneficiary.” Freedman v. Payne, __ N.C. App. __, __, 784 S.E.2d 644, 646

(2016) (Freedman I). On 18 December 2014, our Supreme Court granted defendants’

motion to designate the case as exceptional and assigned the case to Senior Resident

Superior Court Judge Robert H. Hobgood.

      Defendants filed separate motions to dismiss the complaint pursuant to N.C.

Gen. Stat. § 1A-1, Rule 12(b)(6) for failure to state a claim upon which relief could be

granted. On 19 March 2015, the court entered an order concluding that defendants’

motions to dismiss appellant’s claim for legal malpractice “should be allowed with

prejudice based on in pari delicto[.]” The trial court denied defendants’ motions to

dismiss the remaining claims, and certified the matter for appellate review pursuant

to N.C. Gen. Stat. § 1A-1, Rule 54(b) (2015). Plaintiff appealed the dismissal of his

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                                FREEDMAN V. PAYNE

                                  Opinion of the Court

claim of legal malpractice to this Court, which affirmed the trial court’s order in

Freedman I. The factual background of this case was summarized in Freedman I:

            Appellant and his parents manage Freedman Farms, a
            multi-county farming operation in which they . . . operate
            several hog farms. . . . [In] December 2007, Freedman
            Farms discharged approximately 332,000 gallons of
            liquefied hog waste . . . into Browder’s Branch, a water of
            the United States. . . . [A]ppellant and Freedman Farms
            were charged with intentionally violating the Clean Water
            Act. Appellant retained defendants to represent him.

            The trial began on 28 June 2011, and the prosecution put
            on evidence for five days. In appellant’s complaint, he
            alleges that prior to the resumption of trial on 6 July 2011,
            defendant Ramos told appellant that the Assistant United
            States Attorney (AUSA) had approached him with a plea
            deal. . . . [A]ppellant states [that] defendant “Ramos asked
            AUSA Williams whether the government, in exchange for
            both [appellant] and Freedman Farms pleading guilty and
            agreeing to pay $1,000,000 in restitution and a $500,000
            fine, would reduce the charges against [appellant] to a
            misdemeanor negligent violation of the Clean Water Act.”
            . . . [A]ppellant claims that he asked defendant Ramos to
            negotiate the fines and restitution to $500,000, to take
            incarceration “completely off the table,” and to make AUSA
            Williams agree that neither appellant nor Freedman
            Farms would be debarred from federal farm subsidies.

            Appellant further states in his complaint that when
            defendant Ramos returned from negotiating, he told
            appellant the following: the government was not interested
            in active time, the prosecutor agreed to “stand silent” at
            sentencing, appellant and Freedman Farms would avoid
            debarment from federal farm subsidies, and these promises
            were “part of a side-deal with [the prosecutor]–a wink-
            wink, nudge-nudge–and that [appellant] must not disclose
            this side-deal to the court,” as it “would cost [appellant] the
            chance to assure that he would not be incarcerated.”

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                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

             Accordingly, . . . appellant pleaded guilty to negligently
             violating the Clean Water Act. On 6 July 2011, the district
             court approved [the] plea agreement[]. Contrary to the
             terms of the alleged side-deal, in appellant’s plea
             agreement, “the government expressly reserve[d] the right
             to make a sentence recommendation . . . and made no
             representations as to the effects of the guilty plea on
             debarment from Federal farm subsidies.”

             On 13 February 2012, . . . [a]ppellant was sentenced to six
             months in prison and six months of house arrest[.] . . .
             Appellant obtained a new attorney[.] . . . The district court
             held a resentencing hearing on 1 October 2013 in which it
             vacated appellant’s previous conviction. Pursuant to a new
             plea agreement, appellant again pleaded guilty to
             negligently violating the Clean Water Act. The district
             court imposed a sentence of “five years of probation . . . and
             ten months going forward of home detention[.]” . . .
             Appellant was also required to pay the remaining
             restitution that Freedman Farms owed[.] . . .

Freedman I, __ N.C. App. at __, 784 S.E.2d at 646-47. Our opinion in Freedman I,

which is discussed in greater detail below, held that certain allegations in appellant’s

complaint established that appellant had participated in the wrongdoing of which he

accused defendants, and affirmed the trial court’s dismissal of appellant’s legal

malpractice claim on the basis that appellant and defendants were in pari delicto.

      The Freedman I opinion was filed in April, 2016. Thereafter, defendants filed

separate motions asking the trial court to strike certain allegations of appellant’s

complaint or to enter judgment on the pleadings pursuant to N.C. Gen. Stat. § 1A-1,

Rule 12(c) (2015), and to dismiss appellant’s remaining claims for breach of contract,

breach of fiduciary duty, constructive fraud, and fraud. Following a hearing

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                                   Opinion of the Court

conducted on 17 June 2016, the trial court entered an order on 25 July 2016 that

granted defendants’ motions for judgment on the pleadings and dismissed appellant’s

remaining claims. Appellant noted a timely appeal to this Court.

                                   II. Standard of Review

      This Court will “review de novo the grant of a motion to dismiss under Rule

12(b)(6) and for judgment on the pleadings under Rule 12(c).” CommScope Credit

Union v. Butler & Burke, __ N.C. __, __, 790 S.E.2d 657, 659 (2016) (citations omitted).

“On a motion for judgment on the pleadings, [a]ll well pleaded factual allegations in

the nonmoving party’s pleadings are taken as true and all contravening assertions in

the movant’s pleadings are taken as false.” Id. (internal quotation omitted). In ruling

on a party’s motion for judgment on the pleadings, “[t]he trial court is required to

view the facts and permissible inferences in the light most favorable to the nonmoving

party.” Ragsdale v. Kennedy, 286 N.C. 130, 137, 209 S.E.2d 494, 499 (1974) (citation

omitted). “A Rule 12(c) movant must show that the complaint . . . fails to allege facts

sufficient to state a cause of action or admits facts which constitute a complete legal

bar to a cause of action.” CommScope, __ N.C. at __, 790 S.E.2d at 659 (internal

quotation omitted).

                                       III. Discussion

      The trial court dismissed appellant’s claims against defendants on the grounds

that appellant was in pari delicto with defendants and that the law of the case, as

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                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

established by this Court’s opinion in Freedman I, required dismissal of appellant’s

claims. On appeal, appellant argues that the trial court erred by ruling that the

doctrine of in pari delicto was applicable to his claims for breach of contract, breach

of fiduciary duty, constructive fraud, and fraud. Appellant also contends that the

holding of Freedman I does not constitute the law of the case with regard to these

claims. We have considered, but ultimately reject, these arguments.

                                A. Doctrine of In Pari Delicto

      The courts of this State “have long recognized the in pari delicto doctrine,

which prevents the courts from redistributing losses among wrongdoers.” Whiteheart

v. Waller, 199 N.C. App. 281, 285, 681 S.E.2d 419, 422 (2009), disc. review denied,

363 N.C. 813, 693 S.E.2d 353 (2010). As explained in Freedman I:

             The common law defense by which the defendants seek to
             shield themselves from liability in the present case arises
             from the maxim in pari delicto potior est conditio
             possidentis [defendentis] meaning in a case of equal or
             mutual fault . . . the condition of the party in possession [or
             defending] is the better one. The doctrine, well recognized
             in this State, prevents the courts from redistributing losses
             among wrongdoers. The law generally forbids redress to
             one for an injury done him by another, if he himself first be
             in the wrong about the same matter whereof he complains.
             No one is permitted to profit by his own fraud, or to take
             advantage of his own wrong, or to found a claim on his own
             iniquity, or to acquire any rights by his own crime.

Freedman I, __ N.C. App. at __, 784 S.E.2d at 648 (internal quotations omitted).

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                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

      Freedman I upheld the trial court’s dismissal of appellant’s claim for legal

malpractice based upon the doctrine of in pari delicto. Appellant’s complaint alleged

that defendants approached appellant about a plea agreement under the terms of

which appellant would pay a substantial fine and would plead guilty to a

misdemeanor offense, avoid imprisonment, and preserve access to certain federal

programs. Appellant also alleged that defendants informed him that this was a secret

“side deal” that could not be revealed to the federal judge presiding over the trial,

that appellant agreed to conceal the alleged “side deal” from the judge, and that

appellant lied under oath about the basis for his agreement to plead guilty. Freedman

I held that certain allegations in appellant’s complaint, which the Court accepted as

true for purposes of a N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) motion, established

appellant’s wrongdoing and, based upon the doctrine of in pari delicto, barred

appellant from seeking recovery for legal malpractice.

                                       B. Law of the Case

      The “law of the case” doctrine is well-established in the jurisprudence of our

State. “[C]ertain points have been decided by the prior [decision] of this Court and

are thus the ‘law of the case.’ ” In re IBM Credit Corp., 222 N.C. App. 418, 421-22,

731 S.E.2d 444, 446 (2012). The Supreme Court of North Carolina has described the

law of the case doctrine as follows:

             [A]s a general rule when an appellate court passes on a
             question and remands the cause for further proceedings,

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                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

             the questions there settled become the law of the case, both
             in subsequent proceedings in the trial court and on
             subsequent appeal, provided the same facts and the same
             questions which were determined in the previous appeal
             are involved in the second appeal.

             However, the doctrine of the law of the case contemplates
             only such points as are actually presented and necessarily
             involved in determining the case. The doctrine does not
             apply to what is said by the reviewing court, or by the
             writing justice, on points arising outside of the case and not
             embodied in the determination made by the Court. Such
             expressions are obiter dicta and ordinarily do not become
             precedents in the sense of settling the law of the case.

Hayes v. Wilmington, 243 N.C. 525, 536, 91 S.E.2d 673, 681-82 (1956). This Court

may not revisit issues that have become the law of a case:

             [O]nce a panel of the Court of Appeals has decided a
             question in a given case that decision becomes the law of
             the case and governs other panels which may thereafter
             consider the case. . . . [A] succeeding panel of that court has
             no power to review the decision of another panel on the
             same question in the same case.

N.C.N.B. v. Virginia Carolina Builders, 307 N.C. 563, 567, 299 S.E.2d 629, 631-32

(1983). However, “the law of the case applies only to issues that were decided in the

former proceeding, whether explicitly or by necessary implication[.]” Goldston v.

State, 199 N.C. App. 618, 624, 683 S.E.2d 237, 242 (2009).

                                     C. Discussion

      We next apply the principles discussed above to the facts of this case. In

Freedman I, appellant appealed from the trial court’s dismissal of his claim for legal

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                                 FREEDMAN V. PAYNE

                                   Opinion of the Court

malpractice on the basis of the doctrine of in pari delicto. On appeal, appellant argued

that the trial court erred “because . . . appellant’s complaint does not establish as a

matter of law his intentional wrongdoing.” Freedman I, __ N.C. App. at __, 784 S.E.2d

at 647. This Court disagreed and held as follows:

             Here, treating the allegations in appellant’s complaint as
             true as we must at this stage, defendants are at fault for
             striking a “side-deal” with the prosecutor regarding prison
             time and federal farm subsidies, and for instructing
             appellant that he must not disclose the side-deal to the
             court. Appellant is at fault for lying under oath in federal
             court by affirming that he was not pleading guilty based on
             promises not contained in the plea agreement. . . . Although
             appellant claims that his complaint does not establish his
             intentional wrongdoing, we agree with defendants that
             appellant’s complaint shows otherwise. Appellant’s
             complaint reveals the following [allegations]:

                    34. Ramos returned and told [appellant] that AUSA
                    Williams said the government was not interested in
                    active time and that AUSA Williams had agreed to
                    “stand silent” at sentencing and would not argue for
                    an active sentence.

                                               ...

                    36. Ramos also told [appellant] that . . . AUSA
                    Williams told him that the government did not want
                    to pursue debarment [from federal farm subsidies].

                                               ...

                    38. Ramos then warned [appellant] that these
                    promises from AUSA Williams were part of a side-
                    deal with Williams–a wink-wink, nudge-nudge–and
                    that [appellant] must not disclose this side-deal to
                    the court, because this would upset Judge Flanagan

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                   FREEDMAN V. PAYNE

                     Opinion of the Court

      and would cost [appellant] the chance to assure that
      he would not be incarcerated.

                                   ...

      41. . . . [F]aced with the opportunity to avoid
      incarceration and debarment, . . . [appellant] agreed
      to plead guilty, on the terms as described by Ramos.

                                   ...

      43. Ramos and Payne lied to [appellant] and Ms.
      Pearl about having an undisclosable side-deal, as a
      result of which [appellant] pled guilty, Ms. Pearl
      pled guilty on behalf of Freedman Farm[s], and both
      [appellant] and Freedman Farms became liable for
      $1,500,000 in fines and restitution.

      44. The actual and only plea deal with AUSA
      Williams was precisely what appeared in the Plea
      Agreement itself that the government expressly
      reserve[d] the right to make a sentence
      recommendation and made no representations as to
      the effects of the guilty plea on debarment from
      Federal farm subsidies. . . .

                             ...

Appellant lied under oath in order to benefit from an
alleged side-deal in which he thought he could pay
$1,500,000 to avoid going to prison. When the deal
unraveled and appellant was bound by the express terms
of his plea agreement, appellant attempted to redistribute
the loss, which the courts of this State will not do. . . .
Because appellant is in the wrong about the same matter
he complains of, the law forbids redress. . . . Although the
underlying criminal prosecution of appellant may have
been complex, appellant was able to ascertain the illegality
of his actions during the sentencing hearing. . . . “The
allegations of the complaint are discreditable to both

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                                   Opinion of the Court

              parties. They blacken the character of the plaintiff as well
              as soil the reputation of the defendant. As between them,
              the law refuses to lend a helping hand. The policy of the
              civil courts is not to paddle in muddy water, but to remit
              the parties, when in pari delicto, to their own folly. So, in
              the instant case, the plaintiff must fail in his suit.”

Id. at __, 784 S.E.2d at 648-49 (quoting Bean v. Detective Co., 206 N.C. 125, 126, 173

S.E. 5, 6 (1934)). Thus, Freedman I held as a matter of law that certain allegations

in appellant’s complaint established that he was in pari delicto with defendants. This

holding became the law of the case, which we are without authority to revisit. As a

result, it is definitively established that those allegations of appellant’s complaint

that were discussed in Freedman I show appellant to be in pari delicto with

defendants.

      Appellant argues that the holding of Freedman I applies only to the dismissal

of his claim for legal malpractice and does not constitute the law of the case in his

appeal from the dismissal of his other claims. It is true that this Court in Freedman

I did not discuss appellant’s claims for breach of contract, breach of fiduciary duty,

constructive fraud, or fraud, as those claims were not before this Court. However,

Freedman I held that appellant was barred from recovering damages for legal

malpractice because specific allegations in appellant’s complaint showed him to be in

pari delicto with defendants. The holding of Freedman I did not depend upon analysis

of appellant’s allegations regarding legal malpractice. Instead, Freedman I held,

without discussion of whether appellant had stated a valid claim against defendants

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                                 FREEDMAN V. PAYNE

                                  Opinion of the Court

for legal malpractice, that appellant was barred from recovery because, as a matter

of law, specific allegations in appellant’s complaint established his wrongdoing and

therefore implicated the doctrine of in pari delicto. The same allegations that were

at issue in Freedman I are also incorporated into each of appellant’s other claims.

Under Freedman I, these allegations establish both appellant’s wrongdoing and also

the legal holding that appellant is in pari delicto with defendants. This conclusion,

which we may not revisit, is independent of the specific allegations regarding the

remaining claims.

      Appellant also argues that the allegations of his complaint do not support the

application of the doctrine of in pari delicto to the claims whose dismissal he has

appealed. Appellant directs our attention to the fact that these claims are supported

by factual allegations that are specific to each claim. In addition, appellant contends

that his culpability was less than that of defendants, making application of the

doctrine of in pari delicto improper. Appellant fails to acknowledge, however, that

Freedman I held that appellant was in pari delicto with defendants based upon

specific allegations which are part of each of the claims that were dismissed. We

conclude that the trial court did not err by ruling that the holding of Freedman I,

which became the law of the case, required dismissal of appellant’s remaining claims.

                                       V. Conclusion

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                                FREEDMAN V. PAYNE

                                  Opinion of the Court

      For the reasons discussed above, we conclude that the trial court did not err by

granting defendants’ motions for judgment on the pleadings or by dismissing

appellant’s claims and that its order should be

      AFFIRMED.

      Judges BRYANT and INMAN concur.

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