# Red Fox Future, LLC v. Holbrooks

> North Carolina Business Court · March 24, 2014 · 2014 NCBC 8

URL: https://www.frixlaw.com/law-library/cases/11057741

## Case

- **Court:** North Carolina Business Court
- **Decided:** March 24, 2014
- **Citations:** 2014 NCBC 8
- **Precedential status:** Published
- **Opinion:** Opinion by Calvin E. Murphy
- **Cited by:** 1 later opinions in the Frix Law Library

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## Opinion text

Red Fox Future, LLC v. Holbrooks, 2014 NCBC 8.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF
JUSTICE
POLK COUNTY SUPERIOR COURT DIVISION
11 CVS 108

RED FOX FUTURE, LLC and
ANDREY MEDVEDEV,

Plaintiffs,

v.
ORDER AND OPINION
GENE S. HOLBROOKS, HOME
REALTY CO. & INSURANCE AGENCY,
INC., TONY JACKSON, and RED FOX
PROPERTIES, LLC,

Defendants.

Patla, Straus, Robinson, & Moore P.A. by Richard S. Daniels for Plaintiffs
Red Fox Future, LLC, and Andrey Medvedev.
Tuggle Duggins P.A. by Robert C. Cone for Defendants Gene S. Holbrooks
and Home Realty Co. & Insurance Agency, Inc.
David Lloyd Law Office by David A. Lloyd for Defendants Tony Jackson and
Red Fox Properties, LLC.
Murphy, Judge.
{1} THIS MATTER is before the Court on Defendants Gene S. Holbrooks
(“Holbrooks”) and Home Realty Co. & Insurance Agency, Inc.’s (“Home Realty”)
(collectively, “Defendants”) Motion for Summary Judgment pursuant to Rule 56 of
the North Carolina Rules of Civil Procedure (“Motion I”); Plaintiffs Red Fox Future,
LLC (“Future”) and Andrey Medvedev’s (“Medvedev”) (collectively, “Plaintiffs”)
Motion for Partial Summary Judgment pursuant to Rule 56 of the North Carolina
Rules of Civil Procedure (“Motion II”); and Defendants’ Motion to Exclude or Limit
the Testimony of John R. Markel, CPA (“Motion III”) in the above-captioned case.
Having considered the Motions, the briefs and exhibits filed in support and
opposition to the Motions, and the arguments of counsel made at a hearing held on
March 21, 2013, the Court hereby GRANTS Motion I, GRANTS in part and
DENIES in part Motion II, and GRANTS Motion III.
I.
PROCEDURAL HISTORY
{2} On April 15, 2011, Plaintiffs filed their Complaint in this action bringing
claims against Holbrooks, Home Realty, Tony Jackson (“Jackson”), and Red Fox
Properties, LLC (“Properties”) for fraud, unfair and deceptive trade practices,
conversion, rescission, accounting, and recovery of assets and penalties related to a
failed venture to purchase a country club and golf course.
{3} Subsequently, the case was designated a complex business case, and
assigned to this Court on June 3, 2011.
{4} On July 1, 2011, Defendants filed their Answer and Counterclaims
alleging causes of action against Plaintiffs for breach of contract,
conversion/trespass to chattels, fraud, unfair and deceptive trade practices, breach
of fiduciary duty, constructive fraud, unjust enrichment, accounting, and specific
performance. On August 29, 2011, Jackson and Properties filed their Amended
Answer and Counterclaims.
{5} Thereafter, on October 15, 2012, Defendants filed Motion I seeking
summary judgment on all claims asserted against them in the Complaint. That
same day, Plaintiffs filed Motion II seeking partial summary judgment on all of
Defendants’ counterclaims against Medvedev and Defendants’ counterclaims
against Future for breach of fiduciary duty, constructive fraud, unfair and deceptive
trade practices, punitive damages, and specific performance. Plaintiffs also
requested a cap on Defendants’ recovery for any award in excess of $650,000.
{6} Simultaneously with Motion I, Defendants also filed a Motion III
requesting the Court exclude the testimony of Plaintiffs’ expert witness, John R.
Markel, CPA (“Markel”).
{7} The parties briefed all three Motions, and the Court held a hearing on
March 21, 2013.
II.
FACTUAL BACKGROUND
{8} On a motion for summary judgment under Rule 56 of the North Carolina
Rules of Civil Procedure, the Court does not make findings of fact to resolve an issue
of material fact. “[S]ummary judgment presupposes that there are no triable issues
of material fact.” Hyde Ins. Agency v. Dixie Leasing, 26 N.C. App. 138, 142, 215
S.E.2d 162, 165 (1975). Therefore, the Court recites only those material facts that
the Court concludes are not disputed, and which justify entering judgment. Id.
{9} Holbrooks is the owner and president of Home Realty, a North Carolina
corporation that develops real estate. (Holbrooks Dep. 10:9–25, Apr. 10, 2012.) In
1992, Home Realty purchased Red Fox Country Club (the “Club”), which Holbrooks
managed until 2009. (Holbrooks Dep. 14:23.)
{10} In 1992, Defendants hired Jackson to work at the Club, and thereafter,
Jackson worked closely with Holbrooks. (Holbrooks Dep. 42:20–25.)
{11} During the summer of 2009, Jackson met Medvedev, a Russian
businessman looking to settle in North Carolina. (Medvedev Dep. 104:20–21, Apr.
11, 2012.) Although Medvedev had no experience with the Club, Jackson and
Medvedev agreed to pursue negotiations with Defendants to purchase the Club. To
do so, Medvedev and Jackson formed Future, a South Carolina limited liability
company. (Pls.’ Opp. Mot. I Ex. 11.)
{12} On October 15, 2009, Jackson and Medvedev signed the Operating
Agreement for Future. Pursuant to Article 5 of the Operating Agreement, in
addition to becoming the initial managers of Future, Medvedev and Jackson also
served as Chief Executive Officer and Chief Operating Officer, respectively. (Pls.’
Opp. Mot. I Ex. 11 §§ 5.1, 5.3.) The Operating Agreement also provided that each
member would make an initial capital contribution – Medvedev agreed to contribute
$1,620,000 and Jackson agreed to contribute $650,000. (Pls.’ Opp. Mot. I Ex. 11 Ex.
A.) By signing the Operating Agreement, Medvedev and Jackson also
acknowledged that they were “capable of evaluating the merits and risks of
investment in [Future] . . . [, understood] that investment in [Future] constitute[d] a
speculative investment . . . [, and] had opportunity to seek the advice of [their] own
independent legal counsel . . . .” (Pls.’ Opp. Mot. I Ex. 11 § 3.7(e) (emphasis
removed).)
{13} The parties negotiated and agreed that Future would purchase the Club
for $2,850,000, and that $650,000 of the purchase price would be financed by
Defendants as a loan to Jackson. (Compl. Ex. A § 2.) As part of the deal, the
$650,000 loan to Jackson would also serve as Jackson’s initial capital contribution
to Future. Although the loan was not secured, Jackson testified that he agreed to
procure a $650,000 life insurance policy on his own life, payable to Home Realty in
the event of his death. (Jackson Dep. 120:17–122:16, Apr. 11, 2012; Holbrooks Dep.
119:6–122:18.)
{14} On August 29, 2009, to memorialize their agreement, Defendants and
Future entered into the Purchase Agreement (the “Agreement”). (Compl. Ex. A.)
By the terms of the Agreement, Future committed to buy the Club and all
associated property. The Agreement further provided that Jackson “delivered his
Promissory Note to [Defendants] to evidence” the loan between them, and that
“[t]he Promissory Note . . . will be free of all claims by the Club or [Future].”
(Compl. Ex. A § 2.) At closing, the $650,000 loan to Jackson would be applied to the
purchase price and the remaining $2,200,000 of the purchase price would become
due. Prior to closing, however, Future agreed to make an earnest money deposit of
$50,000, which the Agreement stipulated would be refundable if the parties did not
close by October 15, 2009. If the parties did not close by that date, the Agreement
provided that Future could extend the closing date until no later than December 10,
2009, upon payment of $100,000 as an additional nonrefundable deposit and the
initial deposit of $50,000 would become nonrefundable. The Agreement further
specified that, once Future paid the required deposit, Defendants could “do
whatever [they chose]” with the money. (Compl. Ex. A § 5.) If Future opted to
extend the closing date under this provision, then it would also take possession of
the Club, receive all revenues from the Club’s operations, pay all operating
expenses of the Club, and pay Defendants 5% annually on the remaining purchase
price, less the nonrefundable deposits and the loan to Jackson.
{15} Medvedev argues that Jackson convinced him additional investors could be
recruited to contribute the remaining $580,000 needed to close on the Club which
would be combined with the $1,620,000 contributed by Medvedev and the $650,000
loan to Jackson. However, it appears that only one other investor agreed to invest
in the project. And, without sufficient investors, Future failed to close on October
15, 2009, and instead, exercised its option to extend the closing date to December
10, 2009.
{16} As contemplated in the Agreement, Future thereafter took possession of
the Club, began collecting its revenues, assumed the obligation to pay the operating
expenses, and paid an additional $100,000 deposit to Defendants. Both the original
$50,000 deposit and the new $100,000 deposit then became nonrefundable. (Compl.
Ex. A § 5.)
{17} Despite the closing extension, Future struggled to generate any new
investors or financing in time to close on the Club. As a result, Future requested an
additional extension. Defendants agreed, and the parties executed the Addendum
to the Agreement (the “Addendum”), which extended the closing date to April 1,
2010. (Compl. Ex. B.) As consideration, Future paid an additional $500,000
nonrefundable deposit to Defendants that would be credited to the balance of the
purchase price at closing. Future would also continue to occupy and operate the
Club. (Compl. Ex. B.)
{18} Despite this extension, Future again failed to close on April 1, 2010, but
continued to occupy and run the Club. On May 10, 2010, Defendants sent a letter to
Jackson, Future’s registered agent, notifying Future of the breach and of
Defendants’ intention to terminate the Agreement and to retain all the
nonrefundable deposits “as liquidated damages” (the “Termination Letter”).
(Compl. Ex. C.) Defendants also allege that Future neglected to pay all the Club’s
operating expenses while in possession.
{19} Apparently, after the deal fell apart, Defendants allowed Jackson to
continue operating the Club and began negotiating a new deal with Jackson to
purchase the Club without Plaintiffs’ involvement. (Holbrooks Dep. 52:5–25.) To
facilitate the deal, Jackson formed Properties, a new limited liability company.
(Jackson Dep. 90:8–25.) However, Defendants, Jackson, and Properties never
consummated the new deal, and Defendants ultimately listed the Club for sale at a
price of $2,200,000. (Pls.’ Supp. Mot. II Ex. N.)
{20} Plaintiffs argue that Defendants and Jackson defrauded Medvedev into
investing in the project, and defrauded Future into entering the Agreement and
Addendum and paying the nonrefundable deposits. Specifically, Plaintiffs allege
that Defendants and Jackson misrepresented that Jackson had borrowed $650,000
from Defendants to be applied to the purchase of the Club when, in fact, Defendants
never intended to loan Jackson the money. Plaintiffs argue that Defendants always
intended the purchase price to be $2,200,000, not $2,850,000, and that Defendants
and Jackson used the phantom loan to convince Plaintiffs to make investments in
the project while also giving Jackson a stake in Future.
{21} Defendants and Jackson refute these claims. And, in response,
Defendants allege that Plaintiffs: (i) breached the Agreement by not closing on April
1, 2010; (ii) improperly retained proceeds from the unauthorized sale of some 60 golf
carts and from an insurance payout after wind damage to property at the Club; (iii)
incurred unnecessary expenses by leasing computer software and golf carts; and (iv)
left certain vendors unpaid. In his deposition, Jackson testified under oath that he
handled all the deposits and oversaw the sale of the golf carts. (Jackson Dep.
127:12–128:23, 134:25–135:2, 137:10–13.)
{22} After Defendants took back possession of the Club, and the pleadings
closed in this matter, it appears that one of the buildings on the property – the
clubhouse – burned down in a fire.
III.
LEGAL STANDARD
{23} “The purpose of summary judgment is to determine whether any issues of
material fact exist, and if not, eliminate the necessity of a full trial where only
questions of law are involved.” Strickland v. Lawrence, 176 N.C. App. 656, 661, 627
S.E.2d 301, 305 (2006) (citing Foster v. Winston-Salem Joint Venture, 303 N.C. 636,
641–42, 281 S.E.2d 36, 40 (1981)). Thus, the Court must grant summary judgment
“if the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that any party is entitled to judgment as a matter of law.” N.C. R.
Civ. P. 56(c).
{24} “The movant has the burden of establishing the absence of any triable
issues of fact.” Strickland, 176 N.C. App. at 661, 627 S.E.2d at 305. This burden
can be met in one of two ways: “(1) ‘by proving an essential element of the opposing
party’s claim does not exist, cannot be proven at trial, or would be barred by an
affirmative defense’; or (2) ‘by showing through discovery that the opposing party
cannot produce evidence to support an essential element of her claim.’” Id. (quoting
Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000)).
{25} In ruling on a summary judgment motion, the court must view the
evidence in the light most favorable to the nonmoving party. See Wilmington Star-
News v. New Hanover Reg’l Med. Ctr., 125 N.C. App. 174, 178, 480 S.E.2d 53, 55
(1997) (citation omitted).
IV.
ANALYSIS
A.
MOTION I
1.
FRAUD (FUTURE AND MEDVEDEV)
{26} To succeed on a claim for fraud, Plaintiffs must prove the following:
(1) material misrepresentation of a past or existing fact; (2) the
representation must be definite and specific; (3) made with knowledge
of its falsity or in culpable ignorance of its truth; (4) that the
misrepresentation was made with intention that it should be acted
upon; (5) that the recipient of the misrepresentation reasonably relied
upon it and acted upon it; and (6) that there resulted in damage to the
injured party.
Hudson-Cole Dev. Corp. v. Beemer, 132 N.C. App. 341, 346, 511 S.E.2d 309, 313
(1999) (quoting Rosenthal v. Perkins, 42 N.C. App. 449, 451–52, 257 S.E.2d 63, 65
(1979)).
{27} Furthermore, if the plaintiff could have discovered the truth upon inquiry,
then he must show that “he was denied the opportunity to investigate or that he
could not have learned the true facts by exercise of reasonable diligence.” Id.
(citation omitted).
{28} Here, Plaintiffs argue that Defendants misrepresented their intent to loan
Jackson $650,000 towards the purchase of the Club. Plaintiffs’ theory is that
Defendants and Jackson created this phantom loan to induce significant
investments and deposits from Plaintiffs and provide Jackson a stake in Future,
when in reality the actual purchase price for the Club was $2,200,000, not
$2,850,000.
{29} The flaw in Plaintiffs’ theory is that, even if this scheme proved to be true,
the record reveals no injury resulting from these representations. Plaintiffs do not
allege or put forward evidence that Plaintiffs would have been in anyway liable for
the $650,000 if Defendants did not loan Jackson the money, nor do they argue that
Defendants would not have closed on the deal if the loan fell through. Plaintiffs
only contention is that the alleged misrepresentations caused them to make
significant investments and deposits, which were lost when the deal did not close.
{30} However, Plaintiffs do not dispute that they negotiated and agreed to the
$2,850,000 purchase price and the accompanying terms in the Agreement. Whether
Defendants and Jackson intended the loan to be real or not is irrelevant. Indeed,
even if Defendants simply discounted the purchase price by $650,000 as a gift to
Jackson, the result would be the same – Plaintiffs would still get the benefit of
$650,000 off the purchase price of the Club. This would remain the case even if
Defendants loaned Jackson the money, but thereafter, Jackson failed to pay the
loan or Defendants never collected the debt. In that scenario, Plaintiffs still get the
benefit of the $650,000 paid towards the purchase of the Club. Any recourse on the
loan would be between Defendants and Jackson, given that the parties agreed
Plaintiffs would have no liability for the debt.
{31} The Court does not find anything in the record linking the representations
regarding the loan to Jackson to Plaintiffs’ ultimate loss. Based on the record, it
appears that the sole cause of Plaintiffs’ loss was the lack of sufficient investors to
close on the deal. Therefore, the Court concludes that no issues of material fact
remain as to whether the alleged misrepresentations caused any injury to Plaintiffs.
As such, Plaintiffs’ claim for fraud fails as a matter of law.
{32} Accordingly, the Court GRANTS Motion I as to Plaintiffs’ claims for fraud,
and DISMISSES these claims with prejudice.
2.
UNFAIR AND DECEPTIVE TRADE PRACTICES (FUTURE AND MEDVEDEV)
{33} “In order to establish a prima facie claim for unfair trade practices, a
plaintiff must show: (1) defendant committed an unfair or deceptive act or practice,
(2) the action in question was in or affecting commerce, and (3) the act proximately
caused injury to the plaintiff.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704,
711 (2001).
{34} Plaintiffs based their claim for unfair and deceptive practices on the same
facts as their fraud claim. Having concluded that there is no genuine issue of
material fact as to whether Defendants’ alleged acts proximately caused injury to
Plaintiffs, the Court similarly concludes that Plaintiffs have failed to establish an
essential element of their unfair trade practices claim. Accordingly, the Court
GRANTS Motion I as to Plaintiffs’ claims for unfair and deceptive trade practices,
and DISMISSES these claims with prejudice.
3.
RESCISSION (FUTURE)
{35} Under its claim for rescission, Future seeks to rescind the Agreement
based on unconscionability. “To find unconscionability there must be an absence of
meaningful choice on [the] part of one of the parties together with contract terms
which are unreasonably favorable to the other.” Martin v. Sheffer, 102 N.C. App.
802, 805, 403 S.E.2d 555, 557 (1991). In other words, the party seeking to rescind
an unconscionable contract must show both procedural and substantive
unconscionability.
Procedural unconscionability involves ‘bargaining naughtiness’ in the
formation of the contract, i.e., fraud, coercion, undue influence,
misrepresentation, inadequate disclosure. Substantive
unconscionability . . . involves the harsh, oppressive, and one-sided
terms of a contract, i.e., inequality of the bargain. The inequality of the
bargain, however, must be so manifest as to shock the judgment of a
person of common sense, and . . . the terms . . . so oppressive that no
reasonable person would make them on the one hand, and no honest and
fair person would accept them on the other.
Raper v. Oliver House, LLC, 180 N.C. App. 414, 420, 637 S.E.2d 551, 555 (2006).
{36} To support its claim of procedural unconscionability, Future appears to
allege fraudulent inducement, drawing on the same facts underlying the claim for
fraud. The Court, however, dismissed Plaintiffs’ claim for fraud given the lack of
evidence linking the alleged misrepresentation to any injury suffered by Plaintiffs.
Furthermore, the Court finds no other evidence in the record demonstrating that
Future was in some way denied a meaningful choice in executing the Agreement.
Nonetheless, even if Future could rely on the alleged misrepresentation to support
procedural unconscionability, there is no evidence of a shocking inequality in the
terms of the Agreement or the Addendum to support substantive unconscionability.
{37} This was a bargained-for exchange with benefits and risks on both sides.
Once the parties struggled to find investors, Future was free to withdraw from the
Agreement and get the initial deposit back. However, Future chose to proceed and
extend the closing date, not once but twice. And, in return, Future got possession of
the Club and the benefit of the revenues produced by the Club’s operation until
Defendants ultimately terminated the deal. Simply because the deal ended badly
for Future does not give the Court grounds to rescind the contract. “People should
be entitled to contract on their own terms without the indulgence of paternalism by
courts in the alleviation of one side or another from the effects of a bad bargain.”
Blaylock Grading Co., LLP v. Smith, 189 N.C. App. 508, 511, 658 S.E.2d 680, 682
(2008). Without any evidence to support unconscionability, the Court concludes
that no issues of fact remain on Future’s claim for rescission.
{38} Accordingly, the Court GRANTS Motion I as to Future’s claim for
rescission, and DISMISSES this claim with prejudice.
4.
RECOVERY OF PENALTY (FUTURE)
{39} Under this claim, Future seeks to recover the nonrefundable deposits paid
to Defendants pursuant to the Agreement and the Addendum. Specifically, Future
argues that the deposits constitute unenforceable penalties under a liquidated
damages analysis.
Liquidated damages are a sum which a party to a contract agrees to pay
or a deposit which he agrees to forfeit, if he breaks some promise, and
which, having been arrived at by a good-faith effort to estimate in
advance the actual damage which would probably ensue from the
breach, are legally recoverable or retainable . . . if the breach occurs. A
penalty is a sum which a party similarly agrees to pay or forfeit . . . but
which is fixed, not as a pre-estimate of probable actual damages, but as
a punishment, the threat of which is designed to prevent the breach, or
as security . . . to insure that the person injured shall collect his actual
damages.
Knutton v. Cofield, 273 N.C. 355, 361, 160 S.E.2d 29, 34 (1968) (quotation omitted
and alteration original). While a liquidated damages provision may be enforceable,
courts will not impose a penalty. Id.
{40} In this case, neither the Agreement nor the Addendum indicate that the
nonrefundable deposits were in any way intended to be liquidated damages. The
Agreement provides that the deposits became nonrefundable upon Future’s exercise
of its option to extend the closing, and that Defendants could freely do whatever
they chose with the money after that point, regardless of Future’s performance.
(Compl. Ex. A § 5.) Furthermore, the parties agreed in the Addendum that the
$500,000 nonrefundable deposit constituted consideration for the additional
extension, not an estimated amount of damage that Future would forfeit if it failed
to close. (Compl. Ex. B.) Nothing in the Agreement or the Addendum conditions
Defendants’ retention of the deposits on Future’s breach nor restricts Defendants’
ability to pursue other damages. A thorough review of the Agreement and the
Addendum reveals that the nonrefundable deposits “did not serve as liquidated
damages because it was not set out in the contract[s] as the amount agreed upon
which would serve as liquidated damages.” Chris v. Epstein, 113 N.C. App. 751,
757, 440 S.E.2d 581, 585 (1994). Therefore, the Court need not engage in an
analysis of whether the liquidated damages are unenforceable penalties because the
contracts do not contain a provision for liquidated damages.1 As a result, Future’s
claim for recovery of penalty fails as a matter of law.
{41} Accordingly, the Court hereby GRANTS Motion I as to Future’s claim for
recovery of penalty, and DISMISSES the claim with prejudice.
B.
MOTION II
1.
CAP ON RECOVERY
{42} In Motion II, Plaintiffs request summary judgment on all of Defendants’
claims to the extent that Defendants seek recovery in excess of $650,000.
Specifically, Plaintiffs argue that the nonrefundable deposits totaling $650,000 are
the maximum amount that Defendants can recover because the deposits constituted
either liquidated damages or unenforceable penalties under the Agreement and the
Addendum. However, the Court has already determined that the provisions in the
Agreement and the Addendum for nonrefundable deposits did not represent

1 This remains the case despite Defendants use of the term “liquidated damages” in the Termination

Letter. In construing a contract, the Court looks to the four corners of the agreement to determine
the intent of the parties at the moment of execution. Lane v. Scarborough, 284 N.C. 407, 409–10,
200 S.E.2d 622, 624 (1973). Therefore, the Court is not swayed by the language in the Termination
Letter, which was not part of either the Agreement or the Addendum and was sent months after
execution.
liquidated damages. As such, Plaintiffs’ argument for a cap on damages fails for the
same reasons. Therefore, the Court hereby DENIES Motion II as to Plaintiffs
request for a cap on Defendants’ recoverable damages.
2.
BREACH OF FIDUCIARY DUTY AND CONSTRUCTIVE FRAUD AGAINST FUTURE
{43} Plaintiffs argue that they are entitled to summary judgment on
Defendants’ claims against Future for breach of fiduciary duty and constructive
fraud because no fiduciary duty exists between Future and Defendants. The
existence of a fiduciary relationship is an essential element of both a claim for
breach of fiduciary duty and a claim for constructive fraud. See Dalton v. Camp,
353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001); Terry v. Terry, 302 N.C. 77, 83, 273
S.E.2d 674, 677 (1981).
Such a relationship has been broadly defined by [the North Carolina
Supreme Court] as one in which ‘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
. . ., [and] it extends to any possible case in which a fiduciary relationship
exists in fact, and in which there is confidence reposed on one side, and
resulting domination and influence on the other.’
Dalton, 353 N.C. at 651–52, 548 S.E.2d at 707–08 (quoting Abbitt v. Gregory, 201
N.C. 577, 598, 160 S.E. 896, 906 (1931)) (quotation omitted and alteration original).
{44} “Although our courts have broadly defined fiduciary relationships, no such
relationship arises absent the existence of dominion and control by one party over
another.” Kaplan v. O.K. Techs., LLC, 196 N.C. App. 469, 474, 675 S.E.2d 133, 137
(2009). Thus, special circumstances must exist such that “one party figuratively
holds all the cards . . . .” Id. at 475, 675 S.E.2d at 138 (quoting Broussard v.
Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 348 (4th Cir. 1998)). However,
“[g]enerally, the existence of such a relationship is determined by specific facts and
circumstances, and is thus a question of fact for the jury.” Stamm v. Salomon, 144
N.C. App. 672, 680, 551 S.E.2d 152, 158 (2001).
{45} Defendants argue that Future owed them a fiduciary duty by virtue of
Future’s possession of the Club. Indeed, it appears from the record that the
Agreement entitled Future to possession of the Club and control of its operations
upon the exercise of Future’s option to extend the closing deadline, and that Future
in fact operated the Club from October 2009 until May 2010. Arguably, this put
Future in a position of domination and control because there was no guarantee that
the deal would close. In that situation, the Club would be returned to Defendants
in whatever condition Future left it. Thus, Defendants argue that they were at
Future’s mercy after entrusting Future with the operation of the Club.
{46} On the other hand, as Future points out, this was the deal reached
between the parties, and “a fiduciary relationship will not exist between parties in
equal bargaining positions dealing at arm’s length, even though they are mutually
interdependent businesses.” Strickland v. Lawrence, 176 N.C. App. 656, 662, 627
S.E.2d 301, 306 (2006). However, unlike the case in Strickland, it does not appear
that Defendants maintained an active role in the day-to-day management of the
Club during Future’s time at the helm. As such, the Court concludes that there are
material questions of fact left to be resolved regarding the existence of a fiduciary
relationship between Defendants and Future, and therefore, Defendants’ claims for
breach of fiduciary duty and constructive fraud against Future should survive at
this stage.
{47} Accordingly, the Court hereby DENIES Motion II as to Defendants’ claims
for breach of fiduciary duty and constructive fraud against Future.
3.
UNFAIR AND DECEPTIVE PRACTICES AND PUNITIVE DAMAGES AGAINST
FUTURE
{48} Plaintiffs’ sole basis for summary judgment on Defendants’ claims for
unfair and deceptive practices and punitive damages against Future rests on their
theory that these claims should fall with the breach of fiduciary duty and
constructive fraud claims.
{49} Although Defendants partially base their unfair and deceptive practices
and punitive damages claims on the underlying breach of fiduciary duty and
constructive fraud, Defendants also rely on their claims for conversion, trespass to
chattels, and fraud. Because Plaintiffs have not moved for summary judgment on
the underlying claims for conversion, trespass to chattels, and fraud against Future,
these claims survive and can support the claims for unfair and deceptive practices
and punitive damages. Bhatti v. Buckland, 328 N.C. 240, 243, 400 S.E.2d 440, 442
(1991) (“Proof of fraud would necessarily constitute a violation of the prohibition
against unfair and deceptive acts . . . .”); N.C. GEN. STAT. § 1D-15 (2013) (“Punitive
damages may be awarded . . . if the claimant proves that the defendant is liable for
compensatory damages and that one of the following aggravating factors was
present . . . : (1) Fraud. (2) Malice. (3) Willful or wanton conduct.”).
{50} Furthermore, the Court concluded that some evidence exists to withstand
summary judgment on Defendants’ breach of fiduciary duty and constructive fraud
claims against Future. Therefore, the Court similarly concludes that Future is not
entitled to summary judgment on the unfair and deceptive practices and punitive
damages claims to the extent they are based on the underlying claims of breach of
fiduciary duty and constructive fraud.
{51} Accordingly, the Court hereby DENIES Motion II as to Defendants’ claims
against Future for unfair and deceptive practices and punitive damages.
4.
SPECIFIC PERFORMANCE AGAINST FUTURE
{52} Regarding specific performance, the North Carolina Supreme Court has
stated:
The remedy of specific performance is available to compel a party to do
precisely what he ought to have done without being coerced by the court.
The party claiming the right to specific performance must show the
existence of a valid contract, its terms, and either full performance on
his part or that he is ready, willing and able to perform.
Munchak Corp. v. Caldwell, 301 N.C. 689, 694, 273 S.E.2d 281, 285 (1981) (internal
quotation and citations omitted). Although specific performance is an extraordinary
equitable remedy, “[w]here land is the subject matter of the parties’ agreement, the
vendor, like the purchaser, may seek specific performance without showing the
inadequacy of a legal remedy.” Deans v. Layton, 89 N.C. App. 358, 371, 366 S.E.2d
560, 568 (1988).
{53} Future argues that Defendants cannot seek specific performance of the
Agreement and the Addendum because Defendants are not able to fully perform.
Specifically, because the clubhouse burned down in a fire, Future argues that
Defendants cannot uphold their end of the bargain under the Agreement, and
therefore, Future should not be forced to perform either.
{54} “When the vendor’s . . . estate is different from that which he agreed to
convey, . . . it is plain that the contract cannot be specifically performed, according
to its exact terms, at the suit of either party.” Sutton v. Davis, 143 N.C. 474, 480,
55 S.E. 844, 845 (1906). Nonetheless, a court in equity may still compel a
conveyance, with pecuniary compensation to the purchaser for the deficiency, as
long as the defects do not materially change the nature of the entire agreement.
Taylor v. Bailey, 49 N.C. App. 216, 220, 271 S.E.2d 296, 299 (1980) (quotation and
citation omitted); see also Nugent v. Beckham, 37 N.C. App. 557, 561, 246 S.E.2d
541, 545 (1978). This doctrine may apply with equal force in cases where the defect
arises after the time of contract, such as when a fire destroys a building on the
property. See Sutton, 143 N.C. at 483–85, 55 S.E. at 846–47.
{55} In Sutton, the North Carolina Supreme Court recited the general principle
that, “when property is destroyed by fire, the loss will fall on him who is the owner
at the time.” Id. at 483, 55 S.E. at 846. And, where there is an absolute and
binding contract for the sale of real estate, the purchaser will be considered the
equitable owner of the property. Id. Thus, “if the premises are consumed by fire
subsequently to the sale, . . . the loss will fall on the purchaser, who can neither
make the deterioration a ground for refusing to accept a conveyance nor rely on it as
a defense to an action brought for the purchase-money.” Id. at 484, 55 S.E. at 847.
Although the contract in Sutton had not been completed, the court still found that
the circumstances warranted applying the principle to grant specific performance
where the purchaser had taken possession of the property and enjoyed the benefits
of ownership.
{56} Here, there is no evidence indicating that Defendants are incapable of
performing their obligations under the Agreement and the Addendum with the
exception of the destroyed clubhouse. Further, Defendants concede that any
insurance proceeds received after the fire could be accounted for as an offset to the
purchase price. Even though the contract has not been completed, the particular
facts in this case, like in Sutton, leave the door open for the Court to grant specific
performance to Defendants in its discretion. Therefore, the Court will not foreclose
this avenue of recovery for Defendants’ claim at this stage.
{57} Accordingly, the Court hereby DENIES Motion II as to Defendants’
request for specific performance from Future.
5.
CLAIMS AGAINST MEDVEDEV
{58} Plaintiffs argue that summary judgment is appropriate on all of
Defendants’ counterclaims against Medvedev because Medvedev did not actively
participate in the alleged acts and cannot be held personally liable for Future’s
wrongs.
{59} As the name implies, one of the defining characteristics of a limited
liability company is limited liability for its members from harm caused by the
company. See S.C. CODE ANN. § 33-44-303 (2013).2 Thus, merely participating as a
member or manager of a limited liability company will not suffice to hold the
member personally liable for harm caused by the company. 16 Jade St., LLC v. R.
Design Constr. Co., LLC, 398 S.C. 338, 346, 728 S.E.2d 448, 452 (2012); see also
Spaulding v. Honeywell Int’l, Inc., 184 N.C. App. 317, 322, 646 S.E.2d 645, 649
(2007). Nonetheless, a member of a limited liability company remains individually
liable for his or her own torts, even though committed while acting on behalf of the
company. See 16 Jade St., LLC, 398 S.C. at 349, 728 S.E.2d at 454; see also White
v. Collins Bldg., Inc., 209 N.C. App. 48, 51, 704 S.E.2d 307, 310 (2011). “In addition,
a member of a limited liability company, like shareholders and directors of

2 Future was incorporated as a limited liability company under the laws of South Carolina.Thus,
the Court will look to the Uniform Limited Liability Company Act, as enacted in South Carolina.
corporations, may be held individually liable for the company’s obligations through
the doctrine of piercing the corporate veil.” Estate of Hurst v. Moorehead I, LLC,
748 S.E.2d 568, 573 (2013); see also Drury Dev. Corp. v. Foundation Ins. Co., 380
S.C. 97, 668 S.E.2d 798 (2008). 3 4
{60} “It is well recognized that courts will disregard the corporate form or
‘pierce the corporate veil,’ and extend liability for corporate obligations beyond the
confines of a corporation’s separate entity, whenever necessary to prevent fraud or
to achieve equity.” Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E.2d 326, 330 (1985);
see also Drury Dev. Corp., 380 S.C. at 101, 668 S.E.2d at 800. To apply this
doctrine, courts in both North Carolina and South Carolina require allegations and
proof of various similar elements. See Glenn, 313 N.C. at 454–55, 329 S.E.2d at
330–31; Sturkie v. Sifly, 280 S.C. 453, 457–59, 313 S.E.2d 316, 318 (Ct. App. 1984).
{61} Courts in North Carolina employ the “instrumentality rule” to pierce the
corporate veil:
The instrumentality rule allows for the corporate form to be disregarded
if the corporation is so operated that it is a mere instrumentality or alter
ego of the sole or dominant shareholder and a shield for his activities in
violation of the declared public policy or statute of the State.
Estate of Hurst, 748 S.E.2d at 573–74 (internal quotations and alterations omitted).
{62} To prevail under this theory, a party must allege and prove three
elements:

3 Because Defendants would have the Court pierce the veil of a South Carolina limited liability

company, the Court must consider choice of law implications. North Carolina courts have not
resolved which state’s law applies to determine whether to pierce the veil of an out-of-state company.
Strategic Outsourcing, Inc. v. Stacks, 176 N.C. App. 247, 252–53, 625 S.E.2d 800, 804 (2006). At
least one federal court applying North Carolina law concluded that, if faced with the issue, the North
Carolina Supreme Court “would adopt the internal affairs doctrine and apply the law of the state of
incorporation.” Dassault Falcon Jet Corp. v. Oberflex, Inc., 909 F.Supp. 345, 349 (M.D.N.C. 1995).
However, the issue remains unsettled. Because the Court would reach the same conclusion under
the law of either North Carolina or South Carolina, the Court need not reach a determination on the
choice of law issue at this stage.
4 The Court notes that South Carolina has not expressly applied the doctrine of piercing the

corporate veil to limited liability companies. Although this adoption of corporate law seems likely,
see 16 Jade St., LLC, 398 S.C. at 348, 728 S.E.2d at 453 (reciting the courts’ preference for applying
corporate law principles to limited liability companies), the resolution of this issue would not change
the outcome of this Motion.
(1) Control, not mere majority or complete stock control, but complete
domination, . . . so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to commit fraud
or wrong, to perpetrate the violation of a statutory or other positive legal
duty, or a dishonest and unjust act in contravention of plaintiff's legal
rights; and
(3) The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
Glenn, 313 N.C. at 454–55, 329 S.E.2d at 330 (quoting B-W Acceptance Corp. v.
Spencer, 268 N.C. 1, 9, 149 S.E.2d 570, 576 (1966)).
{63} In considering whether to pierce the corporate veil, courts have looked to
several factors including inadequate capitalization, non-compliance with corporate
formalities, complete domination and control of the corporation so that it has no
independent identity, and excessive fragmentation of a single enterprise into
separate corporations. See Glenn, 313 N.C. at 455, 329 S.E.2d at 330–31.
{64} In South Carolina, courts use a two-pronged test to determine whether the
corporate entity should be disregarded.
The first part of the test, an eight-factor analysis, looks to observance of
the corporate formalities by the dominant shareholders. The second
part requires that there be an element of injustice or fundamental
unfairness if the acts of the corporation be not regarded as the acts of
the individuals.
Sturkie, 280 S.C. at 457–58, 313 S.E.2d at 318.
{65} Although Defendants appear to argue in their brief opposing Motion II
that the Court should pierce Future’s veil to hold Medvedev personally liable, no
such theory appears anywhere in the Answer and Counterclaims. Indeed,
Defendants failed to bring forth any allegations related to the elements of piercing
the corporate veil or the factors courts consider under either state’s law. As a
result, it does not appear that Medvedev had an adequate opportunity to respond to
these new allegations through the pleadings or discovery. If Defendants learned
additional facts through discovery that supported piercing the corporate veil, they
could have moved to amend their pleading to add this theory of individual liability.
Courts liberally allow motions to amend for this very reason. However, Defendants
never filed such a motion in this case. “[P]iercing the corporate veil is a drastic
remedy and should be invoked only in an extreme case where necessary to serve the
ends of justice.” Best Cartage, Inc. v. Stonewall Packaging, LLC, 727 S.E.2d 291,
300 (2012) (internal quotations and citation omitted); see also Drury Dev. Corp., 380
S.C. at 101, 668 S.E.2d at 800. In light of the facts presented and the dearth of
allegations to support piercing the corporate veil, the Court will not permit
Defendants’ claims against Medvedev to survive under this doctrine.5
{66} Even though the doctrine of piercing the corporate veil may not apply,
Medvedev could be held liable for any torts he committed personally. See White,
209 N.C. App. at 51–53, 704 S.E.2d at 310–11 (reciting established law that a party
is personally liable for torts in which he actively participated even though he was
acting on behalf of the company). As such, each counterclaim must be addressed in
turn.
{67} First, as to the breach of contract and specific performance claims, it is not
evident from the pleadings whether Defendants intended to assert these claims
against Medvedev individually. However, the parties do not dispute that Medvedev
was not a party to either the Agreement or the Addendum. Thus, Medvedev cannot
be held individually liable for any breach thereof.6
{68} Defendants’ second counterclaim alleges conversion, trespass to chattels,
fraud, and unfair and deceptive practices based on the retention of proceeds from
the sale of certain golf carts and the insurance payout from wind damage. However,
as Jackson testified in his deposition, Jackson handled the sale of the golf carts and
dealt with all the deposits from the insurance payout. (Jackson Dep. 127:12–
128:23, 134:25–135:2, 137:10–13, Apr. 11, 2012.) Indeed, Jackson testified that

5 Defendants argue that Medvedev should be estopped from raising the veil of limited liability as a

defense to the counterclaims against him because Medvedev alleged individual claims against
Defendants in the Complaint. However, these claims arguably alleged individual harm to Medvedev
rather than solely derivative harm through Future. Although the Court dismissed Medvedev’s
individual claims above, the Court does not conclude that Medvedev cast down the veil of limited
liability simply by asserting claims against Defendants for damage incurred both to Future and to
Medvedev individually.
6 The Court also notes that Defendants brought a counterclaim for accounting against Future. This

relief is sought solely from Future rather than Medvedev individually, and thus, is not relevant here.
Medvedev only “reluctantly went along with [the sale of the golf carts].” (Jackson
Dep. 128:16.) Nothing in the record refutes this division of responsibilities between
Jackson and Medvedev in Future’s operation, or indicates active participation by
Medvedev in the alleged wrongdoing.
{69} Similarly, as to the counterclaim for unjust enrichment, Defendants
merely lump Medvedev in with Future as having committed the wrongful acts, but
again fail to argue how and to what extent Medvedev personally participated in the
specific acts. Although the record arguably reveals knowledge of the alleged acts,
Medvedev’s passive awareness of Jackson and Future’s actions hardly constitutes
active participation. See Oberlin Capital, LP v. Slavin, 147 N.C. App. 52, 57, 554
S.E.2d 840, 845 (2001) (dismissing claims against directors where the complaint
alleged generally that the directors were fully informed about the wrongdoing and
participated in concealing it but did not allege active participation). Additionally,
Defendants cannot rely simply on Medvedev’s role as Future’s Chief Executive
Officer to support active participation. See 16 Jade St., LLC, 398 S.C. at 345–48,
728 S.E.2d at 452–53 (concluding that the manager of a South Carolina limited
liability company, like an officer of a corporation, cannot be held personally liable
solely based on his role as a manager); see also Spaulding, 184 N.C. App. at 322,
646 S.E.2d at 649 (stating that mere participation as a member, manager, director,
or executive is insufficient to hold a member independently liable). In the absence
of any evidence demonstrating Medvedev’s active role in the allegedly tortious acts,
the Court concludes that no issues of material fact remain as to Medvedev’s
personal liability for these counterclaims.7

7 Regarding the unjust enrichment claim, the Court also notes that the alleged benefits were

conferred on Future not Medvedev. Defendants allege that Plaintiffs unjustly received the Club’s
revenue, the proceeds from the sale of golf carts, the proceeds from the insurance payout, and the
benefit of goods and services provided by vendors that went unpaid. However, it does not appear in
the record that any of these benefits flowed directly to Medvedev, rather all the various proceeds and
revenue were deposited in Future’s accounts. Thus, even if Medvedev had actively participated in
the wrongdoing, Defendants’ unjust enrichment claim would likely still fail. See Booe v. Shadrick,
322 N.C. 567, 570, 369 S.E.2d 554, 556 (1988) (“In order to establish a claim for unjust enrichment, a
party must have conferred a benefit on the other party.”)
{70} Regarding the third counterclaim, Defendants allege breach of fiduciary
duty, constructive fraud, and unfair and deceptive acts against both Future and
Medvedev. As discussed above, claims for breach of fiduciary duty and constructive
fraud hinge on the existence of a fiduciary duty. See Dalton v. Camp, 353 N.C. 647,
651, 548 S.E.2d 704, 707 (2001). Here, it appears Defendants argue that Medvedev
owed them a fiduciary duty based on his position as a member-manager of Future
during the period of time that Defendants entrusted Future with the operation of
the Club.
{71} However, generally, the duties and liabilities of managers and officers “run
directly to the [company] and indirectly to its shareholders; they do not run to third
parties . . . .” Kaplan v. O.K. Techs., LLC, 196 N.C. App. 469, 476, 675 S.E.2d 133,
139 (2009) (quoting Oberlin Capital, LP, 147 N.C. App. at 57, 554 S.E.2d at 845).
Furthermore, the record fails to reveal any sort of confidence reposed personally in
Medvedev outside of his position with Future. Given their personal history,
Defendants dealt mostly with Jackson over the course of their relationship with
Future. And, the only evidence of Medvedev’s dominance over Defendants is his
role as the Chief Executive Officer of Future, which confines his duties to Future
rather than Defendants as third parties. Without more, the Court will not impose a
fiduciary duty on Medvedev individually to hold him personally liable for breach of
fiduciary duty, constructive fraud, or the related unfair and deceptive acts claim,
and thus, these claims fail as a matter of law.
{72} Wherefore, the Court concludes that no genuine issues of material fact
remain as to the counterclaims brought individually against Medvedev.
Accordingly, the Court hereby GRANTS Motion II as to these claims, and
DISMISSES all claims against Medvedev with prejudice.
C.
MOTION III
{73} Pursuant to Rule 702 of the North Carolina Rules of Evidence, “a witness
qualified as an expert . . . may testify . . . in the form of an opinion, or otherwise, if
all of the following apply:”
(1) The testimony is based upon sufficient facts or data.
(2) The testimony is the product of reliable principles and methods.
(3) The witness has applied the principles and methods reliably to the
facts of the case.
N.C. R. Evid. 702.
{74} The North Carolina Supreme Court outlined “a three-step inquiry for
evaluating the admissibility of expert testimony: (1) Is the expert’s proffered
method of proof sufficiently reliable as an area for expert testimony? (2) Is the
witness testifying at trial qualified as an expert in that area of testimony? (3) Is the
expert’s testimony relevant?” Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 458,
597 S.E.2d 674, 686 (2004) (citation omitted). Therefore, under the first inquiry, the
Court must assess the reliability of the expert’s proffered methodology to determine
admissibility.
{75} Here, however, neither Plaintiffs nor their proffered expert, Markel, put
forward any clear methodology that Markel utilized in reaching his opinions.
Plaintiffs argue that, because Markel was not asked to make any definitive
calculations as to damages, no such methodology is required to assess the reliability
of his testimony. The Court disagrees. To allow Markel to testify as an expert, the
Court must have some objective methodology to examine for reliability. Otherwise,
the parties would be free to elicit subjective views of the case from witnesses
cloaked as experts.
{76} Furthermore, as to the opinions proffered by Markel, some methodology
appears inherent in his conclusions. Specifically, Markel first opines that, because
he could not find any uncertainties, the parties could have reasonably estimated
damages resulting from breach at the time they entered into the contract. However,
Markel never fully identifies in his opinion or in his deposition how he reached this
determination. Upon direct questioning, Markel stated that he relied on a unique,
personal checklist, but never offers that checklist for review or clarifies what is on
the list. (Markel Dep. 51:17–53:22, Aug. 17, 2012.)
{77} Markel’s methodology becomes even murkier on the remaining opinions.
As to those opinions, Markel asserts that the reasonable damages estimate would
have been much lower than $150,000, and that the deposits were clearly
disproportionate to that amount, suggesting they were intended as a disincentive to
breach or to insure that damages were covered. However, in his deposition, Markel
admitted that he did not perform any calculation to reach the $150,000 amount.
(Markel Dep. 148:16–24, Aug. 17, 2012.) Indeed, Markel continually stated that he
relied solely on his experience to reach these conclusions, and could not refer to any
specific methodology or practice other than background material.
{78} Given Markel’s responses, it appears that he relied more on a subjective
review of the case rather than any objective methodology. And if such an objective
methodology was employed, Markel failed to identify that methodology for the
Court and opposing counsel to review. Without any method of proof, the Court is
left to speculate about Markel’s reliability as an expert witness, which this Court is
not inclined to do. Therefore, the Court concludes that Markel’s expert testimony is
not admissible.
{79} Accordingly, the Court hereby GRANTS Motion III.
V.
CONCLUSION
{80} Based on the above, the Court hereby GRANTS Motion I, GRANTS in part
and DENIES in part Motion II, and GRANTS Motion III. Wherefore, the Court
DISMISSES with prejudice Future’s claims against Defendants for fraud, unfair
and deceptive practices, rescission, and recovery of penalty; Medvedev’s claims
against Defendants for fraud and unfair and deceptive acts; and all of Defendants’
counterclaims against Medvedev.
SO ORDERED, this the 24th day of March, 2014.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11057741. Public record. Not legal advice.