The opinion
McKee v. James, 2014 NCBC 73.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF ROBESON 09 CVS 3031
LANNESS K. McKEE and LANNESS
K. McKEE, JR.,
Plaintiffs,
v.
HUNTINGTON JAMES, JOHNNIE ORDER AND OPINION
MARSHBURN, and COCONUT
HOLDINGS, LLC,
Defendants,
v.
LANNESS K. McKEE & COMPANY,
INC.,
Nominal Defendant.
{1} THIS MATTER is before the Court upon Defendant Huntington
James’s (“James”) Motion for Summary Judgment, Defendant Coconut
Holdings, LLC’s (“Coconut Holdings”) Motion for Summary Judgment, and
James’s Motion to Exclude Plaintiffs’ Expert Witnesses’ Affidavits and
Testimony (“Motion to Exclude Expert Testimony”) (collectively, the
“Motions”).
{2} The Court, having considered the Motions, affidavits and supporting
briefs, as well as the arguments of counsel at the September 25, 2014 hearing
in this matter, hereby GRANTS James’s Motion for Summary Judgment,
GRANTS Coconut Holdings’s Motion for Summary Judgment, and, in light of
these rulings, DENIES as moot James’s Motion to Exclude Expert Testimony.
Brazil & Dunn, by K. Scott Brazil and Chad W. Dunn, and The Foster Law
Firm, P.A., by Jeffrey B. Foster, for Plaintiffs.
Poyner Spruill, LLP, by Joshua B. Durham and Jason B. James, for
Defendant Huntington James.
Bell, Davis & Pitt, P.A., by Edward B. Davis and Andrew A. Freeman, for
Defendant Coconut Holdings, LLC.
Bledsoe, Judge.
I.
BACKGROUND
{3} The facts and procedural background of this case are recited in detail
in McKee v. James, 2013 NCBC 38 (N.C. Super. Ct., July 24, 2013),
http://www.ncbusinesscourt.net/opinions/2013_NCBC_38.pdf. The pertinent
background for purposes of resolving the present Motions is set forth below.
{4} Plaintiff Lanness K. McKee (“Lanness”) formed Lanness K. McKee &
Co., Inc. (“McKee Craft” or “the Company”), a Fairmont, North Carolina-based
company, more than forty years ago “for the purpose of building top-of-the-line
boats for government and recreational use.” (Compl. ¶ 8.) Lanness’s son,
Plaintiff Lanness K. McKee, Jr. (“Key”), later joined McKee Craft and became
its President in 1989. (Lanness Dep. 66:14–68:3, Mar. 16, 2011.)
{5} For decades, McKee Craft serviced a broad client base, comprised of
businesses, government agencies, and recreational boaters, and was a well-
respected brand in the boating industry. (Compl. ¶¶ 10, 12; Marshburn Dep.
16:20–25, Sept. 15, 2010.) The Company was known for producing “unsinkable
boats” through use of a unique “pressure foam filled construction” design.
(Compl. ¶¶ 14—16.)
{6} In early 2007, James contacted McKee Craft seeking an “unsinkable”
boat for his personal use. (Compl. ¶ 19.) When McKee Craft agreed to build
his boat as requested, James remarked that he was glad he would not need to
take the “drastic step” of buying his own boat manufacturer to construct a
suitable boat. (Pls.’ Ex. 4.)
{7} McKee Craft’s financial condition had begun to deteriorate in the
years preceding James’s initial contact with the Company. Though Company
sales peaked at approximately $9.2 million in 2004, sales thereafter decreased
each year from 2005 to 2007. (Pls.’ Ex. 14.). McKee Craft was also short on
cash, a problem that caused it to fall behind on its payments to vendors, who
in turn began to withhold parts and materials critical to the Company’s
operations, thereby hindering the Company’s production and thus contributing
to a growing backlog of orders.1 (Key Dep. 79:23–25, Oct.14—15, 2013; Pls.’
Ex. 13.2). The Company’s cash flow problems ultimately forced it to halt
production of James’s boat in February 2007. (James Aff. ¶ 4.)
{8} Soon thereafter, in April 2007, James and Key began discussing the
possibility of James making a cash contribution to McKee Craft in exchange
1 Plaintiffs attribute McKee Craft’s cash flow problems to the Company’s “unprecedented sales”
prior to James’s engagement with the Company. (Compl. ¶ 20; Pls.’ Br. Opp. James Mot. S.J.,
p. 4.) This assertion is directly contradicted by Key’s deposition testimony that sales declined
in 2005, 2006 and 2007. (Key Dep. 44:1–46:6.)
2 Plaintiffs’ Exhibit 13 sets forth thirty-two (32) of McKee Craft’s “Known Problems & Issues”
as of August 2007.
for an ownership interest in the Company. (James Aff. ¶ 5.) James reviewed
McKee Craft’s financial statements, signing a Confidentiality Agreement in
the process (Pls.’ Ex. 6.), and visited the Company’s facilities, taking notes that
included: “How much would it cost to start from scratch?” (Pls.’ Ex. 3.)
{9} In an email to Key dated April 18, 2007, James outlined three
“options” for them to explore: (i) James could “simply pay McKee Craft to build
the boat that [he wanted] and then go on [his] way”; (ii) James could start his
own boating company and pay McKee Craft to build boats for his new company;
or (iii) James could “purchase a portion or all of the company’s shares or make
an ‘investment’ by personally guaranteeing the company’s debts so that the
banks would leave the company alone and give it time to pay off those
balances.” (Pls.’ Ex. 5.)
{10} On May 30, 2007, the parties executed a Temporary Share Purchase
Agreement (“TSPA”), which provided that James would make a $300,000
equity investment in McKee Craft by May 31, 2008 in exchange for an
approximate 20% stake in the Company.3 (Compl. ¶ 35; Pls.’ Ex. 9.). Rather
than delay his investment for up to a year as permitted under the TSPA, James
provided the full $300,000 contribution on the effective date of the TSPA (i.e.,
3 Prior to execution of the TSPA, all of McKee Craft’s stock was held by Plaintiffs and other
members of the McKee family. (Pls.’ Ex. 9.)
May 30, 2007),4 and McKee Craft used the funds to pay its vendors. (Key Dep.
205:16–215:4.)
{11} As contemplated in the TSPA, the parties subsequently executed a
Common Stock Purchase Agreement (“CSPA I”), a more detailed agreement
concerning James’s investment and ownership interest in McKee Craft, on
August 6, 2007.5 (Pls.’ Ex. 104) The parties were represented by counsel in
negotiating CSPA I, which included a merger clause specifying that CSPA I
represented “the entire agreement and understanding of the parties relating
to the subject matter [t]herein and merge[d] all prior discussions and
agreements between them, including the [TSPA].” (Frazier Aff. ¶ 3; Pls.’ Ex.
104, p. 14.)
{12} Notwithstanding James’s initial investment, McKee Craft’s cash flow
problems persisted, prompting James to extend numerous loans to McKee
Craft in an attempt to keep the Company afloat. (James Aff. ¶ 21.) The
undisputed evidence shows that James loaned the Company $78,000.00 on
June 19, 2007; $50,000.00 on August 7, 2007; $48,000.00 on August 17, 2007;
$124,000.00 on August 24, 2007; $10,000.00 on November 27, 2007; and
$50,000.00 on January 10, 2008. (James Aff. ¶ 21, p. 60, 186–90.)
4 Because of the company’s immediate need for cash, James provided $50,000 of the $300,000
to McKee Craft on May 23, 2007, prior to execution of the TSPA (James Aff. ¶ 9.), and the
remaining $250,000 on May 30, 2007, the day the TSPA was executed. (James Aff., p. 185;
Key Dep. 205:16–215:4.)
5 CSPA I had an effective date of May 30, 2007. (Frazier Aff. ¶ 4.)
{13} Having substantially increased his investment in McKee Craft,
James indicated to Key that the January 10, 2008, $50,000 loan was the “final
straw” and that if McKee Craft needed additional funds, he would need to
renegotiate his interest in the Company. (James Aff. ¶¶ 21–22, p. 60.). James
also made a note to himself around this time concerning the liquidation value
of the Company’s inventory. (Pls.’ Ex. 20.)
{14} On February 6, 2008, the parties executed a Consolidated Share
Purchase Agreement (“CSPA II”), which left James holding 88.65% of McKee
Craft’s outstanding stock. (Frazier Aff. Ex. 7, p. 3.) James paid $8,582.50 for
the newly acquired McKee Craft shares, the equivalent of $1 per share.
(Frazier Aff. Ex. 6, p. 1.) Plaintiffs allege that they agreed to this arrangement
based in part on James’s purported promises that, among other things, he
would hire advisors to help “turnaround” McKee Craft’s business and would
retain Plaintiffs as McKee Craft employees. (Compl. ¶¶ 48—57.) These
purported promises are not reflected in CSPA II, however, as James
specifically declined Key’s request to include them in the agreement. (James
Aff., p. 148–51; Key Dep. 261:20–267:23; Frazier Aff. Ex. 6.) The parties were
represented by counsel in executing CSPA II, which includes a merger clause
nearly identical to the merger clause set forth in CSPA I. (Frazier Aff. Ex. 6, p.
4.)
{15} Following execution of CSPA II, James placed Key in charge of
government sales and hired Defendant Johnnie Marshburn (“Marshburn”), a
former McKee Craft consultant, to serve as the Company’s controller. (Key
Dep. 93:22–95:2; Marshburn Dep. 13:6–23:12, 46:16–49:2.) McKee Craft’s
financial condition remained bleak, however, as the Company was not immune
to the ailing economy of 2008, the detrimental effects of which caused
numerous other boat manufacturers, i.e., companies in McKee Craft’s line of
business, to cease operations around this time. (Vickers Dep. 195:10–197:6,
Mar. 17, 2011; Wilkerson Dep. 23:12–24:25, Oct. 16, 2013; James Aff. ¶ 32.)
Key has acknowledged the damage caused to McKee Craft by the economic
recession. (James Aff., p. 153.)
{16} James formed several new entities, including Coconut Holdings and
Marine Contract Manufacturing (“MCM”), between February and April 2008.
(James Dep. 143:11–148:6.) James established and capitalized Defendant
Coconut Holdings specifically to acquire real estate in Lumberton to be used
for new McKee Craft facilities, though the plan ultimately fell through. (James
Dep. 144:8—12.) James also formed MCM in order to build boats for McKee
Craft and to serve as backup facilities in the event creditors foreclosed on
McKee Craft’s plant. (James Dep. 147:2—25.) Plaintiffs allege that James
formed these entities as part of a plan to start a new boating company –
without Plaintiffs – using McKee Craft’s historic assets.
{17} James ceased McKee Craft’s business operations sometime between
June and August 2008. (James Dep. 148:24—149:6.) James cites the
“[w]orldwide economic meltdown, high fuel prices,” and unanticipated debt
obligations as factors that contributed to this decision. (James Dep. 143:11—
144:3.) He also laid off most of McKee Craft’s employees, including Key,
explaining to them that his financial exposure had far exceeded what he had
expected based on his initial discussions with Key. (James Dep. 143:11–144:3;
James Aff., p. 121–124, 128.)
{18} Key subsequently attempted to reacquire James’s McKee Craft
shares and to repay the money that James had loaned to the Company, but he
was unable to secure adequate funding to do so. (James Aff., p. 127, 129, 131–
158) In an email to James dated February 13, 2009, Key states as follows:
I appreciate what you have done, and I stand behind my
conviction that I will get funded next week. I never wanted you
or anyone to lose any money with McKee Craft. In hindsight the
market conditions now may have caused major problems as we
are seeing now.
(James Aff., p. 153.)
{19} By May 2009, James had begun the process of winding up McKee
Craft. Through counsel, James contacted Country Boys Auction & Realty
(“Country Boys”) to schedule an auction for the sale of McKee Craft’s boat
molds and plugs, the Company’s primary and most valuable remaining assets.
(Shannon Hoff Dep. 60:22—65:21, Aug. 23, 2011.) Following an advertising
campaign, which Plaintiffs contend failed to provide adequate notice to
prospective buyers, Coconut Holdings purchased the McKee Craft boat molds
and plugs for $40,000 at an auction held July 30, 2009. (Pls.’ Ex. 68.)
{20} Coconut Holdings subsequently acquired ownership of the McKee
Craft trademarks, which had been excluded from the auction, for a purchase
price of $1,000. (Pls.’ Ex. 76 at 79:8–81:19.)
{21} Coconut Holdings continues to own the McKee Craft trademarks,
but does not use them. (Pls.’ Ex. 76 at 49:25–50:3.)
{22} Since winding up McKee Craft, James has used the historic McKee
Craft boat molds to build boats through a separate entity, MHM Marine
(“MHM”). (Pls.’ Ex. 74, p. 56:8—56:16.) It is unclear based on the submissions
of record whether MHM continues to do so.
{23} On August 27, 2009, Plaintiffs filed their original Complaint in this
action, asserting numerous claims for relief against James and Marshburn.6
Plaintiffs’ claims against James allege, in essence, that McKee Craft was a
valuable and successfully operating company before James, through
misrepresentations, broken promises, and other alleged deceitful conduct,
acquired and looted the Company, leaving Plaintiffs “broke and destitute.”
(Pls.’ Br. Opp. James Mot. S.J., p. 2.)
{24} This action was subsequently designated a mandatory complex
business case and assigned to this Court (Murphy, J.) on October 26, 2009. The
case was reassigned to the undersigned on July 2, 2014.
6 Because Marshburn has not moved for summary judgment, the Court will not discuss
Plaintiffs’ claims against him except to the extent necessary to resolve the present Motions.
{25} Plaintiffs filed a Second Amended Complaint7 (hereinafter, the
“Complaint”) on October 13, 2010, joining Coconut Holdings as a Defendant
and McKee Craft as a Nominal Defendant to this action. The Complaint
asserts direct claims as well as derivative claims brought by Plaintiffs on
behalf of McKee Craft in their capacity as McKee Craft shareholders.
{26} The Court (Murphy, J.) has dismissed many of Plaintiffs’ claims
through Orders previously entered in this action. McKee v. James, No. 09 CVS
03031 (N.C. Super. Ct., April 14, 2010) (denying Plaintiffs’ request for
injunctive relief); McKee v. James, No. 09 CVS 03031 (N.C. Super. Ct., June
10, 2010) (granting in part and denying in part Defendant’s first motion to
dismiss); McKee v. James, 2013 NCBC 38 (N.C. Super. Ct., July 24, 2013)
(granting in part and denying in part James’s second Motion to Dismiss).
{27} Still pending before the Court are Plaintiffs’ claims against James for
breach of contract (direct), fraud (direct), breach of fiduciary duty (direct and
derivative), gross mismanagement (derivative), civil conspiracy (direct and
derivative), conversion (derivative), unfair and deceptive trade practices
(“UDTP”) (direct and derivative), unjust enrichment (derivative), and punitive
damages. Also pending are Plaintiff’s claims against Coconut Holdings,
consisting of the same claims that remain pending against James, but which
are premised upon a “piercing the corporate veil” theory of recovery.8
7 Plaintiffs had previously filed a First Amended Complaint on June 15, 2010.
8 As noted above, the Court will not address Plaintiffs’ claims against Marshburn.
{28} On January 31, 2014, both James and Coconut Holdings moved for
summary judgment with respect to Plaintiffs’ remaining claims against them
pursuant to Rule 56 of the North Carolina Rules of Civil Procedure. That same
day, James also moved pursuant to Rule 702 of the North Carolina Rules of
Evidence to exclude certain testimony proffered by four of Plaintiff’s purported
expert witnesses.
{29} The Court held a hearing on these matters on September 25, 2014.
II.
ANALYSIS
A.
James’s Motion for Summary Judgment
{30} James seeks an order granting summary judgment in his favor and
dismissing Plaintiffs’ remaining claims against him with prejudice. The
Court will examine the merits of James’s Motion for Summary Judgment
with respect to each of Plaintiff’s claims, in turn, below.
Legal Standard
{31} Summary judgment is proper “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 a judgment as a matter of law.” N.C.G.S. § 1A-1, Rule 56(c) (2014).
The party moving for summary judgment may prevail on its motion by
demonstrating (1) that an essential element of the plaintiff’s claim is
nonexistent; (2) that the plaintiff is unable to produce evidence to support an
essential element of the claim; or (3) that the plaintiff cannot surmount an
affirmative defense that bars the claim as a matter of law. Hash v. Estate of
Henley, 190 N.C. App. 645, 647, 661 S.E.2d 52, 53 (2008). The movant’s
contentions are to be “carefully scrutinized while those of the opposing party
are indulgently regarded.” DeCarlo v. Gerryco, Inc., 46 N.C. App. 15, 19, 264
S.E. 370, 373 (1980). The party opposing summary judgment may not,
however, “rest upon the mere allegations or denials of his pleading, but his
response, by affidavits or as otherwise provided in this rule, must set forth
specific facts showing that there is a genuine issue for trial.” N.C.G.S. § 1A-1,
Rule 56(e) (2014).
Breach of Contract (Direct)
{32} “The elements of a claim for breach of contract are (1) existence of a
valid contract and (2) breach of the terms of that contract.” Poor v. Hill, 138
N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000).
TSPA II
{33} Plaintiffs predicate their breach of contract claim primarily upon
James’s alleged failure to honor a number of promises that he purportedly
made in connection with TSPA II. (Compl. ¶¶ 105—07.) Specifically, Plaintiffs
contend that they relinquished their McKee Craft stock, and thus a controlling
interest in the Company, in reliance on James’s purported promises to do the
following:
[i] Provide funding for the expansion of [McKee Craft];
[ii] Pay the creditors of the Company pursuant to agreements
reached with those creditors;
[iii] Provide continuing employment of the Plaintiffs by the
Company at a salary commensurate with the skill and
knowledge level of the Plaintiffs and their years of service
building the Company;
[iv] Provide continuing health insurance benefits to the
Plaintiffs;
[v] Protect the assets of the Company and transfer the stock of
the Company back to the Plaintiffs at such time as the
Company was realizing the rewards of the new government
contracts and sales;
[vi] Continue to honor the warranty obligation of the Company
to its customers; and
[vii] Protect the Plaintiff’s [sic] personal property which was
pledged to secure debts of the Company.
(Compl. ¶ 107.) Plaintiffs allege that James breached every one of these
promises to Plaintiffs’ detriment.
{34} Where a contract is reduced to writing, “[p]arol testimony of prior or
contemporaneous negotiations inconsistent with [the] written contract, or
which tends to substitute a new or different contract for the one evidenced by
the writing, is incompetent.” West Jefferson v. Edwards, 74 N.C. App. 377,
379, 329 S.E.2d 407, 409 (1985). Our Supreme has explained the parol
evidence rule as follows:
A contract not required to be in writing may be partly written and
partly oral. However, where the parties have deliberately put
their engagements in writing in such terms as import a legal
obligation free of uncertainty, it is presumed the writing was
intended by the parties to represent all their engagements as to
the elements dealt with in the writing. Accordingly, all prior and
contemporaneous negotiations in respect to those elements are
deemed merged in the written agreement. And the rule is that, in
the absence of fraud or mistake or allegation thereof, parol
testimony of prior or contemporaneous negotiations or
conversations inconsistent with the writing, or which tend to
substitute a new and different contract from the one evidenced by
the writing, is incompetent.
Id. (quoting Neal v. Marrone, 239 N.C. 73, 77, 79 S.E. 2d 239, 242 (1953)).
{35} A merger clause reinforces the parol evidence rule by “creat[ing] a
rebuttable presumption that the writing represents the final agreement
between the parties.” Zinn v. Walker, 87 N.C. App. 325, 333, 361 S.E.2d 314,
318 (1987)). “Generally, in order to effectively rebut the presumption, the
claimant must establish the existence of fraud, bad faith, unconscionability,
negligent omission or mistake in fact.” Id. North Carolina courts have also
declined to enforce merger clauses where doing so “would frustrate and distort
the parties’ true intentions and understanding regarding the contract[.]” Id.
at 333, 361 S.E.2d at 318—19 (citing Loving Co. v. Latham, 20 N.C. App. 318,
201 S.E.2d 516 (1974), wherein the court held that “to permit the standardized
language in the printed forms, . . . to nullify the clearly understood and
expressed intent of the contracting parties would lead to a patently unjust and
absurd result” (ellipsis in original)).
{36} Here, the alleged breaches are based on oral representations made by
James prior to CSPA II, the parties’ written agreement which encompasses the
subject matter of James’s purported promises but which is devoid of any
reference to such promises. CSPA II also includes a merger clause specifying
that CSPA II represents the parties’ entire agreement concerning the
transaction in question, namely, James’s purchase of a controlling interest in
McKee Craft. Any promises made by James or Plaintiffs prior to CSPA II have
thus been superseded by CSPA II, and are therefore irrelevant, absent a
showing of fraud or other grounds to rebut the presumption that CSPA II
represented the parties’ final agreement.
{37} Plaintiffs insist that they never would have relinquished their McKee
Craft shares at a price of $1 per share absent James’s purported promises, that
they were defrauded into doing so, and that failure to construe James’s
promises as part of CSPA II “would frustrate and distort the parties’ true
intentions and understanding regarding [their agreement.]” See Zinn, 87 N.C.
App. at 333, 361 S.E.2d at 318—19.
{38} The undisputed evidence before the Court reveals neither evidence of
fraud in connection with CSPA II nor evidence that Plaintiffs’ intentions
concerning CSPA II would be “frustrated” if James’s purported promises are
excluded from CSPA II. To the contrary, the undisputed evidence indicates
that Plaintiffs understood what they were giving up in executing CSPA II and
also understood that James’s promises were not part of that agreement.
Specifically, Plaintiffs, who were represented by counsel in the transaction,
acknowledged that they were not “capable and willing to provide or secure
sufficient equity or debt financing to solve the Corporation’s severe financial
need” and that McKee Craft’s “common stock [was] worth only a nominal
amount.” (Frazier Aff. Ex. 7, pg. 1.) The evidence also reveals that Key, on the
advice of counsel, sought inclusion of James’s purported promises in CSPA II,
but James specifically refused. (James Aff., p. 148–51; Key Dep. 261:20–
267:23.)
{39} Zinn v. Walker, 87 N.C App. 325, 361 S.E.2d 314 (1987), the case cited
by Plaintiffs in support of their contention on this issue, is easily distinguished
from the present case. Zinn involved three contemporaneously executed
contracts, the third of which set forth boilerplate language containing a merger
clause. Id. at 333, 361 S.E.2d at 318. The court determined that because the
parties intended the three contracts to be construed as a single agreement,
neither the parol evidence rule nor the merger clause in the third contract
precluded evidence concerning the earlier contracts. Id. at 332—33, 361 S.E.2d
at 318—19. Here, in contrast, the parties knew that James’s earlier promises
were not integrated into CSPA II – and therefore could not have intended for
them to be part of the agreement – because Key requested their inclusion and
James specifically rejected them. Although there is no need to inquire further,
the Court additionally notes that, unlike the boilerplate provisions of the
contract in Zinn, the contract here, CSPA II, consisted of provisions carefully
negotiated by counsel on both sides of the transaction. See Huttenstine v.
Mast, 537 F. Supp. 2d 795, 803—04 (E.D.N.C. 2008) (distinguishing a contract
that had been “extensively negotiated between counsel of the parties” from the
“preprinted boilerplate provisions” at issue in Zinn in concluding that the court
was “compelled to give effect to the [contract’s] merger clause” under the
circumstances). Accordingly, the Court finds no basis to circumvent the
parties’ bargained-for merger clause in the instant case and concludes that
CSPA II supersedes any purported promises made by James prior to that
agreement.
McKee Craft’s Cash Flow Plan
{40} The Court also finds no merit in Plaintiffs’ contention that James
breached a promise to contribute $1.35 million to McKee Craft in connection
with a cash flow plan drafted by a Company consultant in February 2008. The
undisputed evidence shows that the cash flow plan was not part of any contract
between the parties and does not reflect whether James’s personal funds were
to serve as the source of the contribution. (Pls.’ Ex. 103.) James in fact
procured a $1.4 million line of credit for McKee Craft in March 2008, after Key
had struggled for some time to obtain a loan on the Company’s behalf. (Pls.’
Ex. 49.) Moreover, Key could not recall in his deposition testimony any amount
that James had failed to pay McKee Craft (Key Dep. 205:16–215:4.), and
Jennifer Shumpert, McKee Craft’s in-house accountant, testified only that the
“cash flow plan . . . showed approximately $1.5 million cash injection” and that
she “believe[d] Hunt James was going to invest $1.5 million once he obtained
a majority interest.” (Shumpert Aff. ¶ 4.) There is no evidence, in other words,
that James breached any promise made in connection with the $1.35 million
contribution contemplated by the cash flow plan.
Confidentiality Agreement
{41} Plaintiffs further contend that James breached the Confidentiality
Agreement that he signed in April 2007, when he was considering his initial
investment in McKee Craft, because “from the very beginning” he intended to
use the information he gathered on McKee Craft to form his own boat
manufacturing company. (Pls.’ Br. Opp. James Mot. S.J., p. 33.) Plaintiffs
specifically cite only the Confidentiality Agreement itself in support of this
contention, and the Court, having reviewed the record, finds no evidence to
suggest that James actually used any of the information acquired in his initial
investigation of McKee Craft in violation of the Confidentiality Agreement.
Accordingly, this contention is without merit.
TSPA and CSPA I
{42} Plaintiffs contend that James also breached the TSPA and CSPA I.
Citing neither specific evidence of James’s alleged breaches of these
agreements nor authority to support their position, Plaintiffs sweepingly aver
that these agreements “presumed and included in their intent that James
would (a) give his best efforts to McKee Craft and not some competing
enterprise; (b) invest heavily in the company to cause its turnaround; [and] (c)
provide the company with his expertise and [that of] others.” (Pls.’ Br. Opp.
James Mot. S.J., p. 33.) It is undisputed, however, that the TSPA did not
include these “presumed” terms; that CSPA I superseded the TSPA; that CSPA
I did not include these terms; and that CSPA I included a merger clause
specifying that CSPA I represented “the entire agreement and understanding
of the parties relating to the subject matter [t]herein and merge[d] all prior
discussions and agreements between them, including the [TSPA].” (Frazier
Aff. ¶ 3; Pls.’ Ex. 104, p. 14.) Plaintiffs’ contention that the proffered terms
should be implied into these agreements is thus without merit.9
{43} The Court notes the allegations in Plaintiffs’’ Complaint that James
breached the TSPA when he “delayed in delivering part of the [$300,000]
capital he had promised in exchange for the [McKee Craft] shares.” (Compl. ¶
37.) These allegations are contradicted by the record evidence, which reveals
that James provided the full $300,000 contribution by May 30, 2007, one day
prior to the May 31, 2007 deadline imposed by the TSPA. Key in fact conceded
the timeliness of this contribution in his deposition testimony and, as noted
above, was unable to identify any payment that James had delayed or withheld
from the Company. (Key Dep. 205:16–215:4.) Indeed, Key was unable to
reconcile his testimony with the allegations set forth in paragraphs 37 through
40 of the Complaint, which assert that James delayed the $300,000
contribution; that “[i]n the meantime, accounts payable began to stack up,
resulting in crippling interest and penalties owed to creditors”; that “James
purposely slowed the investment of capital to create a perilous financial
condition for the company”; and that “[a]s a result of [James’s] failure to
provide the promised capital, [McKee Craft] would need to seek bankruptcy re-
9 The Court also declines, to the extent it is argued, to read these terms into CSPA II for the
same reasons.
organization or another source of capital.” (Compl. ¶¶ 37—40.) The Court
accordingly finds no evidentiary support for Plaintiffs’ contentions concerning
James’s alleged breaches of the parties’ shareholder agreements.
Additional Promises
{44} Plaintiffs vaguely allude to other contracts “supported by the
consideration” that James also purportedly breached. (Pls. Br. Opp. James
Mot. S.J., p. 33.) Plaintiffs have failed to identify such contracts, however,
much less evidence that would create an issue of material fact concerning
whether they were breached. See Charlotte Motor Speedway, LLC v. Cnty. of
Cabarrus, 748 S.E.2d 171, 175 (N.C. Ct. App. 2013), review allowed, 753 S.E.2d
664 (N.C. 2014) (providing that “claims for breach of contract . . . necessarily
hinge on the threshold issue of whether a valid contract actually existed
between [the parties]”).
{45} Accordingly, in light of the foregoing, the Court GRANTS James’s
Motion for Summary Judgment with respect to Plaintiffs’ breach of contract
claim and DISMISSES this claim with prejudice.
Fraud (direct)
{46} A plaintiff must establish the following elements in order to prevail
on a fraud claim:
(1) that the defendant made a representation of a material past
or present fact; (2) that the representation was false; (3) that it
was made by the defendant with knowledge that it was false or
made recklessly without regard to its truth; (4) that the defendant
intended that the plaintiff rely on the representation; (5) that the
plaintiff did reasonably rely on it; and (6) injury.
Braun v. Glade Valley Sch., Inc., 77 N.C. App. 83, 87, 334 S.E.2d 404, 407
(1985) (citing Johnson v. Phoenix Mutual Life Ins. Co., 300 N.C. 247, 266 S.E.
2d 610 (1980)). Whereas “a mere promissory representation will not support
an action for fraud[,] . . . a promissory misrepresentation may constitute actual
fraud if the misrepresentation is made with intent to deceive and with no
intent to comply with the stated promise or representation.” Id. (citations
omitted).
{47} Plaintiffs predicate their fraud claim in part upon James’s purported
promises discussed above in connection with Plaintiffs’ breach of contract
claim. Having dismissed Plaintiffs’ breach of contract claim, supra, Plaintiffs’
fraud claim likewise fails to the extent that it relies on those same purported
promises. To the extent Plaintiff contends that James induced them to
relinquish their McKee Craft shares through representations that did not rise
to the level of promises, the Court finds that Plaintiffs are unable to show that
their reliance on such representations was reasonable under the
circumstances.10 Indeed, James and Plaintiffs engaged in numerous
discussions, wherein James made many representations to Plaintiffs, and Key,
likewise, made many representations to James, concerning, for instance,
McKee Craft’s potential for growth when he and James began discussing
10 Plaintiffs contend that reliance is not a necessary element of fraud when the underlying
allegations concern the defendant’s failure to disclose information (Pls.’ Br. Opp. James Mot.
S.J., p. 35–36.) This contention is irrelevant for purposes of the present analysis, however, as
the Court (Murphy, J.) has previously dismissed Plaintiffs’ fraudulent concealment claim.
McKee, 2013 NCBC 38, at ¶¶ 50–57.
James’s investment in the Company. The precise contours of the parties’
arrangement, however, were carefully negotiated, reduced to writing, and
clearly defined in the parties’ three shareholder agreements – the TSPA, CSPA
I, and CSPA II. Though Plaintiffs may have been induced into these
agreements by their desire to save McKee Craft, there is no indication that
they were defrauded into entering them. As discussed above, Plaintiffs were
represented by counsel and were cognizant of the fact that the parties’
negotiated, written agreement, CSPA II, neglected to formalize some of the
assurances that they had requested. (Frazier Aff. Ex. 7 at 1.) The Court
concludes, therefore, that any reliance by Plaintiffs on James’s pre-CSPA II
representations concerning the subject matter of that agreement, the breadth
of which encompasses the alleged misrepresentations of which Plaintiffs now
complain, was unreasonable as a matter of law. See, e.g., Johnson v. Owens,
263 N.C. 754, 758, 140 S.E.2d 311, 314 (1965) (“When the circumstances are
such that a plaintiff seeking relief from alleged fraud must have known the
truth, the doctrine of reasonable reliance will prevent him from recovering for
a misrepresentation which, if in point of fact made, did not deceive him.”);
Broussard v. Meineke Disc. Muffler Shops, 155 F.3d 331, 341 (4th Cir. 1998)
(“[I]f a plaintiff had an alternative source for the information that is alleged to
have been concealed from or misrepresented to him, his ignorance or reliance
on any misinformation is not reasonable.”).
{48} Plaintiffs additionally support their fraud claim with allegations that
James intentionally misrepresented himself as an experienced, sophisticated
investor, who sought to use his resources and experience to restore McKee
Craft to profitability, when in fact James intended all along to take control of
the Company, plunder its value and assets, and then use those assets to start
a new boat manufacturing company, leaving Plaintiffs in his wake. Plaintiffs
have put forth no evidence, however, to support this theory. To the contrary,
and to the extent that these representations are not subsumed within the
subject matter of CSPA II, the undisputed evidence shows that James invested
substantial time and resources in McKee Craft, an established but faltering
company, in the midst of an economic recession. The evidence indicating that
James marketed himself as willing and able to turnaround McKee Craft’s
business, but then failed to do so, at most reflects puffery, not actionable fraud,
and as such provides no grounds for Plaintiffs’ requested relief. Plymouth
Cnty. Ret. Ass’n v. Primo Water Corp., 966 F. Supp. 2d 525, 544 (M.D.N.C.
2013) (“[S]tatements that consist of nothing more than indefinite statements
of corporate optimism, also known as ‘puffery,’ are immaterial as a matter of
law.” (Citation and quotation marks omitted)); Hillson Partners Ltd. P’ship v.
Adage, Inc., 42 F.3d 204, 211 (4th Cir. 1994) (affirming dismissal of fraud claim
because statements in question consisted of “puffing statements” upon which
“[n]o reasonable investor would rely”); Howard v. Haddad, 962 F.2d 328, 331
(4th Cir. 1992) (affirming dismissal of fraud claim because the alleged
misrepresentations constituted “puffery” and not material statements of fact).
{49} Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ fraud claim and DISMISSES this claim
with prejudice.
Breach of Fiduciary Duty (direct and derivative)
{50} Plaintiffs contend that James, as McKee’s Craft majority shareholder,
breached duties owed to them, as minority shareholders, and also breached
duties owed to the Company itself.
{51} “A claim for breach of fiduciary duty requires the existence of a
fiduciary relationship.” White v. Consol. Planning, Inc., 166 N.C. App. 283,
293, 603 S.E.2d 147, 155 (2004) “[I]n North Carolina majority shareholders
owe a fiduciary duty and obligation of good faith to minority shareholders as
well as to the corporation.” Loy v. Lorm Corp., 52 N.C. App. 428, 432, 278
S.E.2d 897, 901 (1981). Our Supreme Court has explained as follows:
The devolution of unlimited power imposes on holders of the
majority of the stock a correlative duty, the duty of a fiduciary or
agent, to the holders of the minority of the stock, who can act only
through them -- the duty to exercise good faith, care, and diligence
to make the property of the corporation produce the largest
possible amount, to protect the interests of the holders of the
minority of the stock, and to secure and pay over to them their
just proportion of the income and of the proceeds of the corporate
property. The controlling majority of the stockholders of a
corporation, while not trustees in a technical sense, have a real
duty to protect the interests of the minority in the management
of the corporation, especially where they undertake to run the
corporation without giving the minority a voice therein. This is so
because the holders of a majority of the stock have a community
of interest with the minority holders in the same property and
because the latter can act and contract in relation to the corporate
property only through the former. It is the fact of control of the
common property held and exercised, and not the particular
means by which or manner in which the control is exercised, that
creates the fiduciary obligation on the part of the majority
stockholders in a corporation for the minority holders. Actual
fraud or mismanagement, therefore, is not essential to the
application of the rule.
Gaines v. Long Mfg. Co., 234 N.C. 340, 344—45, 67 S.E.2d 350, 353 (1951).
{52} “[M]inority shareholders in a closely held corporation who allege
wrongful conduct and corruption against the majority shareholders in the
corporation may bring an individual action against those shareholders, in
addition to maintaining a derivative action on behalf of the corporation.”
Norman v. Nash Johnson & Sons’ Farms, Inc., 140 N.C. App. 390, 405, 537
S.E.2d 248, 259 (2000).
Competing Entities & Country Boys Auction
{53} Plaintiffs contend that James breached fiduciary duties to McKee
Craft by forming competing entities, which, in essence, diverted James’s
attention and resources away from McKee Craft. Plaintiffs primarily take
issue with Coconut Holdings, describing it as an “alter ego” of James’s that
“was formed in order to continue the improper conduct and specifically to
purchase, for a small percentage of their true value, the molds and plugs of
[McKee Craft].” (Compl. ¶ 121.)
{54} James explained in his deposition testimony that he formed Coconut
Holdings with the specific objective of using the entity to acquire new facilities
for McKee Craft in Lumberton. James further testified that he formed another
entity, MCM, essentially as a prophylactic measure, to provide alternate
facilities in the event that creditors moved to foreclose on McKee Craft’s plant,
as the Company was heavily encumbered with debt. There is no evidence, only
allegations, to suggest that James’s formation of these other entities harmed
McKee Craft. Similarly, there is no evidence to suggest that James used the
McKee Craft assets in operating any business other than that of McKee Craft
until November 2009, after McKee Craft had ceased operations and sold its
assets in liquidation.
{55} With respect to Coconut Holdings’s purchase of the McKee Craft
assets at the July 30, 2009 auction, Plaintiffs assert that James, through
counsel Shannon Hoff, intentionally provided inadequate notice of the auction
in order to suppress advertising, minimize bidders, and essentially ensure that
James, through Coconut Holdings, would be able to purchase the assets well
below market price.
{56} The undisputed evidence reveals that Ms. Hoff contacted Country
Boys in May 2009 to set up an auction at which the McKee Craft boat molds
and plugs would be sold in furtherance of James’s plan to wind up the
Company, and that although Country Boys advised that it needed forty-five
(45) days to advertise the auction, Ms. Hoff did not give the final go ahead to
begin advertising until approximately one week before the auction.
Nevertheless, advertisements placed online, including on Auction Zip, “the
largest directory of live auction listings in the United States,” in addition to
advertisements placed in eight North Carolina newspapers, garnered
“approximately 80 to 100 phone calls from potential bidders inquiring about
the boat molds and plugs.” (Mike Gurkins Aff. ¶¶ 3–7.) Indeed, the
undisputed evidence reveals that approximately twenty people attended the
auction and that, among these twenty people, at least four submitted bids for
the molds and plugs. (Gurkins Aff. ¶¶ 7–8; Marshburn Dep. 129:7–130:20).
{57} Plaintiffs complain that the $40,000 paid by Coconut Holdings for the
McKee Craft assets represented only “a small percentage of their true value[.]”
(Compl. ¶ 121.) Even ignoring the fact that Coconut Holdings’s bid prevailed
over the bids of several others at the auction, however, there is no indication,
based upon the undisputed evidence before the Court, that $40,000 was an
unexpectedly low bid under the circumstances. Plaintiffs offer Key’s deposition
testimony that the McKee Craft boat molds were assigned a liquidation value
of $250,000 in September 2006, but this valuation fails to take into account the
obvious and crushing impact of the 2008 recession on the boating industry.
(Key Dep., 163:4—164:13.).
{58} Plaintiffs’ only evidence concerning the value of the assets in question
at the time of the July 30, 2009 auction consists of an affidavit from William
Holseberg, in which Mr. Holseberg, who has been in the boating business for
more than twenty-five (25) years, represents that he would have paid
“substantially more” than $40,000 for the molds had he been aware of the
auction. (Pls.’ Ex. 92, p. 2.) This attempt by Plaintiffs to create a genuine issue
of material fact must fail, however, as simply tendering an affidavit from one
individual who claims that he would have paid “substantially more” for the
assets does nothing to show that Coconut Holdings’s $40,000 bid was below
(liquidation) market value, much less that the bid – which, again, prevailed
over several other bidders at an auction attended by twenty people – was so
unreasonably low that James breached a duty to the Company in conducting
the sale. Accordingly, the Court finds that Plaintiffs have failed to produce the
requisite forecast of evidence to support this contention.
Bank of America Line of Credit
{59} Plaintiffs contend that James breached duties owed to McKee Craft
and Plaintiffs when he obtained a $1.4 million loan from Bank of America on
behalf of the Company, instead of personally contributing the $1.35 million
contemplated in the Company’s February 2008 cash flow plan. (Pls.’ Br. Opp.
James Mot. S.J., p. 29.) The undisputed evidence reveals, however, that James
and Key discussed the $1.4 million loan and Key did not object; that Key had
previously tried to obtain loans on behalf of the Company without success; and
that the cash flow plan neither required that the contemplated $1.35 million
contribution derive from James’s personal funds nor became part of any
contract between the parties. Accordingly, Plaintiffs’ contention is without
evidentiary support.
James’s Right of First Refusal
{60} Plaintiffs next contend that James breached a fiduciary duty to the
Company by “[u]sing [his] right of first refusal to block other deals so [that he
could] raid the corporate assets . . . .” (Pls. Br. Opp. James Mot. S.J., p. 30.)
Plaintiffs, however, have failed to produce evidence of any deals that James
purportedly blocked using his right of first refusal. Accordingly, this
contention is without merit, irrespective of whether conduct of the nature
alleged would constitute a breach of fiduciary duty.
Government Sales
{61} Plaintiffs next contend that James breached a fiduciary duty to the
Company by “cancel[ing] lucrative orders for boats for no apparent reason.”
(Pls. Br. Opp. James Mot. S.J., p. 30.) There is no evidence, however, that
James ever cancelled any sales order. To the contrary, Rowland Turner, who
worked with Key on McKee Craft’s government contracts, stated in his
deposition testimony that “[t]here were no government orders cancelled”
during his employment with the Company. (Turner Dep. 53:11—53:18, Oct.
17, 2013.)
Plaintiffs’ Employment with McKee Craft
{62} Plaintiffs contend that James breached a fiduciary duty to them when
he terminated their employment with McKee Craft.
{63} Minority shareholders may have a reasonable expectation of
continued employment with the company. Clark v. B.H. Holland Co., Inc., 852
F. Supp. 1268, 1274, n. 2 (E.D.N.C. 1994) (citing Meiselman v. Meiselman, 309
N.C. 279, 290, 307 S.E.2d 551, 558 (1983)). The question of whether such
expectation is reasonable constitutes a question of fact not appropriately
resolved on a motion for summary judgment “unless ‘it is perfectly clear that
no issue of fact is involved and inquiry into the facts is not desirable to clarify
the application of the law.’” Clark, 852 F. Supp. at 1274 (quoting Pierce v. Ford
Motor Co., 190 F.2d 910, 915 (4th Cir. 1951)).
{64} Here, it is “perfectly clear” that Plaintiffs did not have a reasonable
expectation of continued employment with McKee Craft. James explicitly
declined to provide such an assurance in CSPA II, which governed the parties’
arrangement following James’s acquisition of a majority interest in McKee
Craft. This contention accordingly fails for reasons detailed above in
connection with Plaintiffs’ breach of contract claim.
{65} The Court has reviewed Plaintiffs’ remaining contentions in support
of their breach of fiduciary claim and finds them to be without evidentiary
support. Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ breach of fiduciary duty claims and
DISMISSES these claims with prejudice.
Gross Mismanagement (derivative)
{66} Plaintiffs cite no evidence to support their gross mismanagement
claim specifically and instead rely on the same allegations discussed above in
connection with their breach of fiduciary duty claims. The Court found no
merit in these contentions, supra, and finds no merit in them here as well.
{67} Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ gross mismanagement claim and
DISMISSES this claim with prejudice.
Conversion (derivative)
{68} “Conversion is defined as ‘an unauthorized assumption and exercise
of the right of ownership over goods or personal chattels belonging to another,
to the alteration of their condition or the exclusion of an owner’s
rights.’” Gallimore v. Sink, 27 N.C. App. 65, 67, 218 S.E.2d 181,183 (1975)
(citations omitted) (emphasis added).
{69} Plaintiffs’ predicate their conversion claim upon allegations that
James sold McKee Craft’s assets “below market price, and corporate assets
went missing[.]” (Pls.’ Br. Opp. James Mot. S.J., p. 38.) The Court has
addressed and rejected Plaintiffs’ contention concerning the propriety of the
July 30, 2009 auction at which the McKee Craft assets were sold, supra, and
Plaintiffs fail to identify any evidence to support their assertion that James
converted McKee Craft assets that “went missing.”
{70} Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ conversion claim and DISMISSES this
claim with prejudice.
Unjust Enrichment (derivative)
{71} “Under North Carolina law, a plaintiff demonstrates unjust
enrichment by showing that ‘it conferred a benefit on another party, that the
other party consciously accepted the benefit, and that the benefit was not
conferred gratuitously or by an interference in the affairs of the other party.’”
WJ Global LLC v. Farrell, 941 F. Supp. 2d 688, 693 (E.D.N.C. 2013) (citation
omitted).
{72} The Court finds, upon thorough review, that Plaintiffs’ evidence fails
to disclose any benefit conferred on James by McKee Craft that would support
a claim for unjust enrichment.
{73} Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ unjust enrichment claim and DISMISSES
this claim with prejudice.
Civil Conspiracy (Direct and Derivative)
{74} Plaintiffs allege that James, Marshburn, and Coconut Holdings
“formed a conspiracy to shut down McKee Craft and raid the assets.” (Pls.’ Br.
Opp. James Mot. S.J., p. 40.); Compl. ¶¶ 161–66.) James contends that
summary judgment is appropriate because “Plaintiffs are wholly unable to
point to any actual agreement between James and Marshburn.” (James Br.
Supp. Mot. S.J., p. 31.)
A threshold requirement in any cause of action for damages
caused by acts committed pursuant to a conspiracy must be the
showing that a conspiracy in fact existed. The existence of a
conspiracy requires proof of an agreement between two or more
persons. Although civil liability for conspiracy may be established
by circumstantial evidence, the evidence of the agreement must
be sufficient to create more than a suspicion or conjecture in order
to justify submission to a jury.
Henderson v. LeBauer, 101 N.C. App. 255, 261, 399 S.E.2d 142, 145
(1991) (citations omitted).
{75} Plaintiffs offer in-house accountant Shumpert’s affidavit, in which
Ms. Shumpert states that “Marshburn told me . . . that he was hired to shut
down McKee Craft.” (Shumpert Aff. ¶ 8.). Ms. Shumpert clarified in her
deposition, however, that Marshburn’s statement reflected in her affidavit was
based upon his suspicion alone and not on any statement or particular pattern
of behavior by James (Shumpert Dep. 44:17–45:20, Oct. 16, 2013.)
{76} Plaintiffs allege that James and Marshburn made a concerted effort
to exclude Key from certain aspects of McKee Craft’s operations, concerning,
for example, the hiring of Company employees, (Pls.’ Ex. 50), and access to the
Company’s accounting software. (Lewis Dep. 37:15–25, Oct. 16, 2013.)
Mashburn testified in his deposition, however, that he and James never
discussed excluding Key from Company information or management decisions.
(Marshburn Dep. 50:8–18.)
{77} The Court finds Plaintiffs’ evidence insufficient to create more than a
suspicion or conjecture that there existed the requisite agreement between
James and Marshburn to demonstrate the existence of a civil conspiracy and
support submission of this claim to a jury. Accordingly, the Court GRANTS
James’s Motion for Summary Judgment with respect to Plaintiffs’ civil
conspiracy claim and DISMISSES this claim with prejudice.
Unfair and Deceptive Trade Practices (Direct and Derivative)
{78} North Carolina’s Unfair and Deceptive Trade Practices Act (“the Act”)
targets “unfair or deceptive acts or practices in or affecting commerce[.]”
N.C.G.S. § 75-1.1(a) (2014). Although the Act broadly defines “commerce” to
include “all business activities, however denominated,” N.C.G.S § 75-1.1(b)
(2014), our Courts have held that the Act “is not intended to apply to all wrongs
in a business setting.” HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C.
578, 593, 403 S.E.2d 483, 492 (1991).
{79} To establish the “commerce” requirement, the defendant’s conduct
“must affect commerce in a commercial setting, . . . not in a private relationship
type setting such as corporate governance issues, . . . securities transactions, .
. . or disputes arising from employment[.]” In re Brokers, Inc., 396 B.R. 146,
161 (Bankr. M.D.N.C. 2008) (citations omitted). “Matters of internal corporate
management . . . do not affect commerce as defined by Chapter 75 and our
Supreme Court.” Wilson v. Blue Ridge Elec. Membership Corp., 157 N.C. App.
355, 358, 578 S.E.2d 692, 694; see also White v. Thompson, 364 N.C. 47, 52,
691 S.E.2d 676, 679 (2010) (explaining that the Act applies to “(1) interactions
between businesses, and (2) interactions between businesses and consumers”).
{80} At an earlier stage of these proceedings, this Court (Murphy, J.)
observed the following with respect to Plaintiffs’ UDTP claims:
Although many of Plaintiffs’ allegations in the Complaint relate
to the internal dispute between the shareholders and the sale of
stock in McKee Craft, Plaintiffs also allege other actions as the
basis of their claims, including that James improperly (1)
informed government purchasers that their orders would not be
filled, (2) directed staff to stop honoring warranty claims of the
corporation, (3) sold or gave away boats already manufactured for
other entities, and (4) auctioned the molds and plugs used to build
boats to Coconut Holdings “for less than reasonable or fair market
value.” (V. 2nd Am. Compl. ¶¶ 64–65, 72, 151.) These allegations
fall outside of the internal dispute and stock sale, and involve
interactions with other commercial businesses. Therefore,
accepting the allegations as true, the Court concludes that James’
alleged acts were “in or affecting commerce.” Furthermore,
because these acts partially form the basis for Plaintiffs’
underlying tort claims and, thus, may offend established public
policy, see Marshall v. Miller, 302 N.C. 539, 548, 276 S.E.2d 397,
403 (1981), the Court concludes that Plaintiffs have sufficiently
pled a claim for unfair and deceptive trade practices.
McKee, 2013 NCBC 38 at ¶ 71.
{81} Reviewing now the evidence brought forward to support Plaintiffs’
allegations, the Court finds that the undisputed evidence of record does not
reveal a dispute between McKee Craft and another business or consumers at
large, but rather a dispute between Plaintiffs and James as co-owners of
McKee Craft. Plaintiffs’ evidence, in other words, fails to support the
allegations that permitted Plaintiffs to maintain their UDTP claim at the
motion to dismiss stage of these proceedings. Additionally, the Court’s
dismissal of Plaintiffs’ claims, supra, has extinguished the “underlying tort
claims” that this Court (Murphy, J.) previously determined were supportive of
Plaintiffs’ UDTP claim.
{82} Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ UDTP claim and DISMISSES this claim
with prejudice.
Punitive Damages
{83} The Court has dismissed all of Plaintiffs’ claims for which
compensatory damages are recoverable, supra. Absent a viable claim for
compensatory damages, there can be no basis for a punitive damages award.
Springs v. City of Charlotte, 730 S.E.2d 803, 805 (N.C. Ct. App. 2012) (“To
justify an award of punitive damages, the claimant must prove that the
defendant is liable for compensatory damages . . . .’”); N.C.G.S. § 1D-15 (2014)
(providing that “[p]unitive damages may be awarded only if the claimant
proves that the defendant is liable for compensatory damages . . .” (emphasis
added)). Accordingly, the Court GRANTS James’s Motion for Summary
Judgment with respect to Plaintiffs’ punitive damages claim and DISMISSES
this claim with prejudice.
B.
Coconut Holdings’s Motion for Summary Judgment
{84} Coconut Holdings has also moved for summary judgment with respect
to all of Plaintiffs’ claims against it. Plaintiffs’ claims against Coconut
Holdings derive from, and are thus contingent upon, Plaintiffs’ claims against
James, in that they seek to hold Coconut Holdings liable for James’s conduct
under a piercing the corporate veil theory. Because the Court has dismissed
Plaintiffs’ claims against James, however, there remains no basis for recovery
against Coconut Holdings. Accordingly, the Court GRANTS Coconut
Holdings’s Motion for Summary Judgment, and DISMISSES Plaintiffs’ claims
against Coconut Holdings with prejudice.
C.
James’s Motion to Exclude Expert Testimony
{85} The Court concludes, in light of its dismissal of Plaintiffs’ claims
against both James and Coconut Holdings, supra, that there is no need to
inquire into the merits of James’s Motion to Exclude Expert Testimony.
Having reviewed the contested testimony, however, the Court notes that
admission of such testimony would not alter the conclusions reached above.
III.
CONCLUSION
{86} For the foregoing reasons, the Court hereby GRANTS James’s
Motion for Summary Judgment, GRANTS Coconut Holdings’s Motion for
Summary Judgment, and DENIES as moot James’s Motion to Exclude
Expert Testimony.
SO ORDERED, this the 31st day of December, 2014.