Court Opinion

ID: 4246334
Source: CourtListenerOpinion
Date Created: 2018-02-20 13:12:46.323819+00
Date Added: 2024-06-11T07:48:08.192075
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA17-185

                             Filed: 20 February 2018

Wake County, No. 15-CVS-4672

ADAM BICKLEY, Plaintiff,

            v.

FREDERIC (a.k.a FRED) FORDIN and MILLENIUM                      3   AUTOMOTIVE
CONSULTANTS, LLC, and ASR PRO, LLC, Defendants.

      Appeal by Defendants and cross-appeal by Plaintiff from order and final

judgment entered 22 August 2016 by Judge G. Wayne Abernathy in Wake County

Superior Court. Heard in the Court of Appeals 24 August 2017.

      The Farrell Law Group, P.C., by Richard W. Farrell, for the Plaintiff-
      Appellee/Cross Appellant.

      Wyrick Robbins Yates & Ponton LLP, by Tobias S. Hampson and K. Edward
      Greene, for the Defendants-Appellants/Cross Appellees.

      DILLON, Judge.

      Both parties appeal from the order and final judgment of the trial court,

awarding Plaintiff $550,762.20.

                                  I. Background

      In 2003, Defendant Frederic Fordin formed Millenium 3 Automotive

Consultants, LLC (“M3 LLC”). M3 LLC’s primary asset was its ongoing development

of software called “ASR Pro,” which was intended to be marketed to the used car
                                 BICKLEY V. FORDIN

                                  Opinion of the Court

dealership industry. At all relevant times, Defendant Fordin was the majority owner

and managing member of M3 LLC.

      In 2006, Plaintiff Adam Bickley purchased a 10% interest in M3 LLC for

$50,000. Shortly thereafter, however, Plaintiff was sentenced to serve two years in

prison after pleading guilty to drug charges.

      In October 2008, Defendant Fordin approached Plaintiff, expressing his

concern that the conviction would adversely affect M3 LLC’s prospects of becoming

viable. Defendant Fordin offered to repurchase Plaintiff’s 10% interest in M3 LLC

for $50,000 in the form of a promissory note. Defendant Fordin drafted a written

repurchase agreement (the “2008 Agreement"), telling Plaintiff that “he would

bankrupt the company if [Mr. Bickley] didn’t sign [the agreement].” Mr. Bickley

signed the agreement in October 2008.

      In December 2009, Mr. Fordin formed a new company, Defendant ASR Pro,

LLC, (“ASRP LLC”) and arranged for ASRP LLC to purchase the ASR Pro software

from M3 LLC. Every member of M3 LLC was given a minority stake in ASRP LLC.

      In 2014, ASRP LLC sold the ASR Pro software to an independent company for

approximately $14 million.

      In December 2015, Plaintiff filed a complaint seeking damages from

Defendants based on Defendant Fordin’s actions in procuring Plaintiff’s signature on

the 2008 Agreement.

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                                  BICKLEY V. FORDIN

                                   Opinion of the Court

      The trial court granted Defendants’ motion for a directed verdict on Plaintiff’s

claim for unfair and deceptive trade practice (“UDTP”), but ruled that, as a matter of

law, M3 LLC had breached its contract to pay Mr. Bickley $50,000 for his 10% interest

in the company. The jury found in favor of Plaintiff on his other claims for fraud,

constructive fraud, and breach of fiduciary duty, and awarded $505,000 in damages.

The jury declined to award punitive damages.

      In its order and final judgment, the trial court awarded Plaintiff a total of

$550,762.20. The trial court denied Plaintiff’s motion for attorneys’ fees. Both parties

appealed.

                                      II. Analysis

      Defendants contend that the trial court erred in failing to grant directed

verdict in their favor on Mr. Bickley’s claims for fraud, constructive fraud, and breach

of fiduciary duty.

             The standard of review of directed verdict is whether the
             evidence, taken in the light most favorable to the non-
             moving party, is sufficient as a matter of law to be
             submitted to the jury. If there is evidence to support each
             element of the nonmoving party's cause of action, then the
             motion for directed verdict and any subsequent motion for
             [JNOV] should be denied. . . . Whether [a party is] entitled
             to a directed verdict [] is a question of law. We review
             questions of law de novo.

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                                  Opinion of the Court

Green v. Freeman, 367 N.C. 136, 140-41, 749 S.E.2d 262, 267 (2013) (internal marks

and citations omitted). Guided by our standard of review, we address each of the

parties’ arguments in turn.

                                 A. Plaintiff’s Appeal

      On appeal, Plaintiff challenges the trial court’s grant of directed verdict for the

Defendants on his UDTP claim, a claim based on Defendant Fordin’s representations

concerning M3 LLC to induce Plaintiff to sell back his 10% interest in the company.

We conclude that the trial court did not err. Specifically, as explained below, the

repurchase of an interest in a closely held company from a shareholder does not fall

within the scope of the UDTP Act.

      The UDTP Act provides, in relevant part, that “[u]nfair methods of competition

in or affecting commerce, and unfair or deceptive acts or practices in or affecting

commerce, are declared unlawful.” N.C. Gen. Stat. § 75-1.1 (2015). Our Supreme

Court has observed that the history of the Act indicates that the General Assembly

was targeting “unfair and deceptive interactions between market participants.” White

v. Thompson, 364 N.C. 47, 52, 691 S.E.2d 676, 679 (2010) (emphasis added). For

instance, our Supreme Court has explained:

            Essentially, the General Assembly indicated through its
            original statement of purpose that the Act was designed to
            achieve fairness in dealings between individual market
            participants. To accomplish this goal, the General
            Assembly explained that the Act would regulate two types
            of interactions in the business setting: (1) interactions

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                                  Opinion of the Court

             between businesses, and (2) interactions between businesses
             and consumers.

Id. (emphasis added); see also Bhatti v. Buckland, 328 N.C. 240, 245-46, 400 S.E.2d
440, 443-44 (1991).

      Therefore, as our Supreme Court has observed, “the General Assembly did not

intend for the Act’s protections to extend to a business’s internal operations.” White,
364 N.C. at 53, 691 S.E.2d at 680 (emphasis added). “[T]he Act is not focused on the

internal conduct of individuals within a single market participant, that is, within a

single business.” Id.

             As a result, any unfair or deceptive conduct contained
             solely within a single business is not covered by the Act. As
             the foregoing indicates, [our Supreme] Court has
             previously determined that the General Assembly did not
             intend for the Act to intrude into the internal operations of
             a single market participant.

Id.

      Here, as in Thompson, the bad acts as alleged “did not occur in . . . dealings

with [other market participants].” Id. Rather, the transaction which forms the basis

of Plaintiff’s claim under the Act is more appropriately classified as internal conduct

between two owners of a single business, M3 LLC. As such, being a transaction

confined to M3 LLC, and not involving any other market participant, we hold that

the transaction whereby Plaintiff agreed to sell back his 10% interest falls outside

the scope of the UDTP Act.

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                                 BICKLEY V. FORDIN

                                  Opinion of the Court

      As an alternative reason for our holding, we believe that this transaction is

analogous to a securities transaction, which our Supreme Court has repeatedly

explained does not fall within the scope of the UDTP Act. See HAJMM Co. v. House

of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991). Specifically,

our Supreme Court reasoned as follows:

             Issuance and redemption of securities are not in this sense
             business activities. . . . Subsequent transfer of securities
             merely works a change in ownership of the security itself.
             Again, this is not a business activity of the issuing
             enterprise. Similarly, retirement of the security by the
             issuing enterprise simply removes the security from the
             capital structure. Like issuance and transfer of the
             security, retirement is not a business activity which the
             issuing enterprise was organized to conduct.

             Securities transactions are related to the creation,
             transfer, or retirement of capital. Unlike regular purchase
             and sale of goods, or whatever else the enterprise was
             organized to do, they are not “business activities” as that
             term is used in the [UDTP] Act. They are not, therefore,
             “in or affecting commerce,” even under a reasonably broad
             interpretation of the legislative intent underlying these
             terms.

Id.

      In the present case, it is unclear whether Plaintiff’s 10% interest in M3 LLC

was technically a “security.” See N.C. Gen. Stat. § 25-8-103(c) (2015) (stating that an

interest in a limited liability company is not a security unless certain other criteria

are met). Notwithstanding, we believe that the reasoning by our Supreme Court in

the quote above supports our conclusion that the transaction whereby Plaintiff agreed

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                                   BICKLEY V. FORDIN

                                    Opinion of the Court

to sell back his 10% interest in M3 LLC does not fall within the scope of the UDTP

Act.

       Accordingly, we conclude that the trial court properly granted directed verdict

for Defendants on Plaintiff’s UDTP claim.

                              B. Defendants’ Cross-Appeal

       Defendants contend that the trial court erred in failing to grant Defendants’

motions for directed verdict on Plaintiff’s fraud claim, constructive fraud claim, and

claim for breach of fiduciary duty. These three issues were ultimately submitted to

the jury and formed the basis of the jury’s verdict.

       In considering these claims, we are only concerned with whether, when

considered in the light most favorable to Plaintiff, there was enough evidence of each

element to warrant submission of the claim to the jury. See Green, 367 N.C. at 140-

41, 749 S.E.2d at 267. We must accept Plaintiff’s evidence as true, and resolve all

contradictions, conflicts, and inconsistencies in the evidence in his favor. Daughtry

v. Turnage, 295 N.C. 543, 544, 246 S.E.2d 788, 789 (1978). Evidence offered by a

defendant, when favorable to the plaintiff, is to be considered as well. Godwin v.

Johnson Cotton Co., 238 N.C. 627, 629, 78 S.E.2d 772, 773 (1953). And “[w]here the

question of granting a directed verdict is a close one, the better practice is for the trial

judge to reserve his decision on the motion and allow the case to be submitted to the

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                                   Opinion of the Court

jury.” Manganello v. Permastone, Inc., 291 N.C. 666, 669-70, 231 S.E.2d 678, 680

(1977).

      For the reasons stated below, we hold that the trial court properly denied

Defendants’ directed verdict motion as to these claims.

                                       1. Fraud

      In regard to Plaintiff’s fraud claim, Defendants contend that Plaintiff failed to

offer any evidence that Defendant Fordin (1) made a false representation, (2) had any

intent to deceive, or (3) that Plaintiff was harmed by Defendant Fordin’s

representation.

      At trial, Plaintiff testified that when Defendant Fordin approached him with

the request that he sell his 10% interest in M3 LLC, Defendant Fordin stated that

the value of his shares was “zero dollars” and that Defendant Fordin “would bankrupt

the company” if Plaintiff refused to sell. Defendant Fordin contradicted this version

of events, testifying that he had no intention of bankrupting the company; rather, he

was concerned that the government would seize M3 LLC’s assets and he had a

potential investor who refused to buy in to M3 LLC unless Plaintiff was no longer

part of the organization, due to Plaintiff’s criminal drug conviction.

      Considered in the light most favorable to Plaintiff, this evidence suggests that

Defendant Fordin threatened to bankrupt M3 LLC, although he had no intention of

actually doing so, in order to force Plaintiff to relinquish his interest in the company.

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                                 BICKLEY V. FORDIN

                                 Opinion of the Court

      Defendants also contend that there is no evidence that Plaintiff was harmed

by Defendant Fordin’s representations because Mr. Fordin presented evidence that if

Plaintiff had remained a shareholder of M3 LLC, the prospective investor would not

have invested in the company and the software would not have ultimately been sold

for $14 million – rather, Defendants contend that “Mr. Fordin would simply have

been forced to dissolve the company and pay existing creditors.” However, this is

contradicted by Defendant Fordin’s testimony that he had no intent to “bankrupt” M3

LLC, Defendants’ own evidence that Plaintiff had left the company more than

eighteen (18) months before the potential investor bought into M3 LLC, and that

Defendant Fordin never disclosed that Plaintiff had been an investor in the company,

even in his official report to a CPA in 2010 while preparing tax returns. It was the

jury’s responsibility to weigh the credibility of all of the testimony and evidence

presented at trial. See Manganello, 291 N.C. at 669-70, 231 S.E.2d at 680. Thus, we

conclude that the trial court properly denied Defendant’s motion for directed verdict

on the issue of fraud.

                2. Constructive Fraud and Breach of Fiduciary Duty

      “Constructive fraud differs from actual fraud in that it is based on a

confidential relationship rather than a specific misrepresentation.” Barger v. McCoy

Hillard & Parks, 346 N.C. 650, 666, 488 S.E.2d 215, 224 (1997) (internal marks

omitted). In order to maintain a claim for constructive fraud, a plaintiff must show

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                                   Opinion of the Court

that “[he] and defendants were in a relation of trust and confidence . . . [which] led

up to and surrounded the consummation of the transaction in which defendant[s]

[are] alleged to have taken advantage of [their] position of trust to the hurt of [the]

plaintiff.” Id. (internal marks omitted).

      “In North Carolina, it is well established that a controlling shareholder owes a

fiduciary duty to minority shareholders.” Freese v. Smith, 110 N.C. App. 28, 37, 428
S.E.2d 841, 847 (1993) (citing Gaines v. Long Mfg. Co., 234 N.C. 340, 67 S.E.2d 350

(1951)).

             Where a transferee of property stands in a confidential or
             fiduciary relationship to the transferor, it is the duty of the
             transferee to exercise the utmost good faith in the
             transaction and to disclose to the transferor all material
             facts relating thereto and his failure to do so constitutes
             fraud. Such a relationship exists in all cases where there
             has been a special confidence reposed in one who in equity
             and good conscience is bound to act in good faith and with
             due regard to the interests of the one reposing confidence.
             Intent to deceive is not an essential element of such
             constructive fraud.

Link v. Link, 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971) (internal marks and

citations omitted).

      Here, Plaintiff presented evidence that Defendant Fordin owned a controlling

interest in M3 LLC and essentially ran the business. See id. at 193, 179 S.E.2d at

704 (discussing the responsibility of a president or manager of a corporation to

disclose information of its value when stock is being transferred). Plaintiff also

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                                   Opinion of the Court

presented evidence that Defendant Fordin controlled the finances of the company,

failed to keep detailed records of M3 LLC’s finances, and failed to disclose any specific

details of M3 LLC’s financial situation at the time he requested that Plaintiff sell

back his shares in M3 LLC. While Defendant Fordin certainly was not required to

disclose that the stock had any value if it in fact did not, Plaintiff presented evidence

from which a jury could infer that M3 LLC’s value was greater than zero; specifically,

that in 2008, M3 LLC’s profits had increased drastically despite the fact that

Defendant Fordin had increased his personal salary draw from $60,000 to $180,000.

      Defendants have maintained that there is no evidence that M3 LLC had any

value at the time of the 2008 Agreement; however, this conflict in the evidence is

again for the jury to resolve. See id. Accordingly, it was not error for the trial court

to deny Defendants’ motion for directed verdict on the issues of constructive fraud

and breach of fiduciary duty.

                                       C. Verdict

      Defendants challenge the amount of the jury’s verdict, alleging that it is an

invalid “compromise verdict” because the jury did not consider the evidence and the

instructions from the trial court in arriving at the dollar amount of damages. We

disagree.

      “A compromise verdict is one in which the jury answers the issues without

regard to the pleadings, evidence, contentions of the parties or instructions of the

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                                   Opinion of the Court

court.” City of Burlington v. Staley, 77 N.C. App. 175, 178, 334 S.E.2d 446, 450 (1985).

Defendants request a new trial arguing no evidence supports the jury’s calculation of

damages of $505,000 because this figure is the numerical average between what the

Plaintiff sought and Defendant offered. Mr. Fordin conceded he owed approximately

$70,000 on his contract with Plaintiff. Plaintiff’s forensic accountant testified, that if

Plaintiff remained with the company, Plaintiff would have likely received close to

$940,000. Defendants contend the jury simply split the difference between those two

numbers instead of awarding a sum based upon the evidence. The $505,000 verdict

equals the average of $70,000 and $940,000.

      Under North Carolina law, the dollar amount of the verdict alone is insufficient

to establish an unlawful compromise verdict. Piedmont Triad Reg’l Water Auth. v.

Lamb, 150 N.C. App. 594, 598, 564 S.E.2d 71, 74 (2002). Because a juror cannot give

testimony to impeach a verdict, establishing a quotient verdict is difficult to prove.

See N.C. R. Evid. 606(b). Furthermore, the presumption of regularity attaches to

judicial acts, including verdicts. Without other evidence to rebut this presumption,

this Court presumes the jury followed its instructions.          See generally State v.

Elkerson, 304 N.C. 658, 664, 285 S.E.2d 784, 789 (1982).

      Defendant cites one case where the Supreme Court found an improper verdict

based on a series of multiple verdicts each representing 30% of the damage amount

requested. Daniel v. Belhaven, 189 N.C. 181, 126 S.E. 421 (1925). The jury in this

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                                   Opinion of the Court

case “adopted a general rule to give each plaintiff thirty per cent. [sic] of the amount

each claimed in his complaint.” Id. at 182, 126 S.E. at 422. This was evidenced by a

note in the verdict sheet’s margin where a juror wrote, “The jury agrees that each

man shall be paid 30 per cent. of his claim.” Id. at 182, 126 S.E.2d at 421. Here, the

North Carolina Supreme Court found the jurors were not “governed by the proper

exercise of judgment under the fixed rules of law,” since the verdict was “arbitrary”

and was not a valid consideration “in light of the evidence.” Id. at 182, 126 S.E.2d at

422.

       Defendants also cite Shaver v. Monroe Construction Co., 63 N.C. App. 605, 306
S.E.2d 519 (1983). In that case, a former employee sued his former employer for the

employer’s alleged misrepresentation that the company pension plan was still in

effect, which induced the employee to stay with the company and forgo salary

increases and bonuses. Id. at 606, 306 S.E.2d at 521. The trial court instructed the

jury on two different measures of damages. Id. at 615, 306 S.E.2d at 526. The trial

court also instructed the jury to choose only one of those measures of damages, but

not both or a combination of both. Id. at 615, 306 S.E.2d at 526. The first measure

was the “difference in the value of plaintiff’s services during the time that he worked

under the fraudulent inducement and the price he was actually paid for his services

because of the deceit.” Id. at 615, 306 S.E.2d at 526. The second measure of damages

was the benefit of the bargain. Id. at 615, 306 S.E.2d at 526. The benefit of the

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                                      BICKLEY V. FORDIN

                                       Opinion of the Court

bargain damages equaled “the difference between the amount that would have been

distributed to plaintiff had continuous contributions been made to the plan and the

amount which was actually distributed to him.” Id. at 615, 306 S.E.2d at 526. This

Court determined the trial court erroneously submitted the first measure of damages

to the jury. Id. at 615, 306 S.E.2d at 526. This Court reasoned:

               What plaintiff lost as a result of the misrepresentations
               was the amount of the contributions which supposedly
               were being made. To allow plaintiff to recover the
               difference between the value of his services and his salary
               at the Company would be to allow him a windfall and
               would be contrary to the underlying principles of
               compensatory damages.

Id. at 615-16, 306 S.E.2d at 526.

      In the current action, neither party, nor the trial court, gave the jury any

specific instructions regarding damages. Rather the trial court gave the jury general

instructions on damages:1

                      As you know, we are - - we are trying a case in which
               the Plaintiff seeks to recover money damages resulting
               from the diversion of the Plaintiff’s equity interest in M3
               today.

                ....

                      Seven: What amount is the Plaintiff entitled to
               recover from the Defendant as damages? If you answered
               issue two yes, answer issue seven. If you answered issue
               three yes and four no, answer issue seven. If you answered
               issue five yes and answered six no, answer issue seven.

      1   The damages issue was issue #7.

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                    Opinion of the Court

Otherwise, stop and inform the Bailiff.

....

      I will discuss these issues one at a time and explain
the law which you should consider as you deliberate upon
your verdict.

....

      Six, that the Plaintiff suffered damages proximately
caused by the Defendant’s false representations or
concealment. Proximate cause is a cause that’s a natural
and continuous sequence producing the person’s damage
and is a cause that any reasonable and prudent person
couldn’t have seen, would probably produce such damage
or some similar injurious results. There may be more than
one proximate cause of damage, therefore the Plaintiff
need not prove that the Defendants’ false representation or
concealment was the sole proximate cause of the Plaintiff’s
damages. The Plaintiff must prove, by the greater weight
of the evidence, only that the Defendants’ false
representation or concealment was a proximate cause.

....

       The next issue is the damage issue. It reads as
follows: What amount is the Plaintiff entitled to recover
from the Defendant as damages, exclusive of the contract
damages? If you answer issue two yes, answer - - answer
issue seven. Issue seven is the damage issue. If you
answer issue three yes and four no, answer issue seven. If
you answer issue five yes and issue six no, answer the
issue seven. Otherwise, stop and inform the Bailiff.

....

      Now, members of the jury, you’ve heard the evidence
and the argument of counsel. If your recollection of the
evidence differs from that of the attorneys, you are, as I

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                                   Opinion of the Court

             told you, to be guided exclusively by your recollection. It
             is your duty to recall the evidence (inaudible) your
             attention or not.

                    You should consider all the evidence, the arguments,
             contingents, and positions urged by the attorneys and any
             other contingents that arises from the evidence.

Our review of the record indicates the jury received no special instruction from the

trial court on how to measure damages. Rather, the jury was to weigh the evidence

and compensate Plaintiff accordingly. The better practice would have been for the

parties to ask for a special instruction regarding the benefit of the bargain or

restitution damages. This way, the jury would have a better understanding of the

remedies available to Plaintiff.

      Furthermore, this Court has held “whether plaintiff’s [damages] 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.” Dafford v. JP Steakhouse LLC, 210 N.C. App. 678, 687, 709 S.E.2d
402, 409 (2011). The jury found Defendants liable for fraud, fraud in the inducement,

constructive fraud, and breach of fiduciary duty. Defendants show the jury’s verdict

represents the average of two sums presented to the jury during trial. However, the

jury’s single sum alone, without more, under our case law, is insufficient for

Defendants to demonstrate that the award of $505,000 to Plaintiff by the jury was an

improper exercise of jury discretion and contrary to law.

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                                   Opinion of the Court

                                    III. Conclusion

      We find no error in the rulings of the trial court on the parties’ respective

motions for directed verdict. In addition, we find no error in the form or amount of

the jury’s verdict. Accordingly, we conclude that the parties had a fair trial, free from

prejudicial error.

      NO ERROR.

      Judges HUNTER, JR., and ARROWOOD concur.

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