Tillery Envtl. v. A&D Holdings, Inc.

Tillery Envtl. LLC v. A&D Holdings, Inc., 2018 NCBC 12.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

MECKLENBURG COUNTY 17 CVS 6525

TILLERY ENVIRONMENTAL LLC,

Plaintiff/Counterclaim

Defendant,

v.

A&D HOLDINGS, INC., in its

capacity as successor-by-merger to

JBC ACQUISITION INC.,

Defendant/Counterclaim

Plaintiff/Third-Party ORDER AND OPINION ON

Plaintiff, PLAINTIFF’S AND THIRD-PARTY

DEFENDANTS’ MOTIONS TO

and ROSS ENVIRONMENTAL DISMISS

SERVICES, INC.,

Defendant,

v.

CHRIS WEIDENHAMMER; PAUL

TAVEIRA; JOHN RUGGIERO;

PAUL BUTSAVAGE; ERIC D.

MCMANUS; J. SCOTT PEARCE;

MICHAEL STONEMAN; GERALD

WALKER; WILLIAM EVANS;

TIMOTHY PARKER; THOMAS

MORTON; JOSEPH KEITH BURCH;

CHRISTOPHER RABLEY; J.W.

HALL, JR.; CAROL LOCK; MERI-

BETH HALL; MICHAEL R.

GRIFFIN; JONATHAN E. HALL;

KURT E. KESKINEN; DANIEL L.

MARTIN; and JEFF STURGEON,

Third-Party Defendants.

1. THIS MATTER is before the Court on (i) Plaintiff Tillery Environmental

LLC (“Tillery”) and Third-Party Defendants Chris Weidenhammer, Paul Taveira,

and John Ruggiero’s (collectively, the “Tillery Movants”) Motion to Dismiss Second

Amended Counterclaim and Third-Party Complaint (the “Tillery Motion”), (ii) Third-

Party Defendants Eric D. McManus, J. Scott Pearce, Michael Stoneman, Timothy

Parker, Thomas Morton, Joseph Keith Burch, Christopher Rabley, J.W. Hall, Jr.,

Carol Lock, Meri-Beth Hall, Jonathan E. Hall, and Jeff Sturgeon’s (collectively, the

“McManus Movants”) Motion to Dismiss Second Amended Counterclaim and Third-

Party Complaint (the “McManus Motion”), and (iii) Third-Party Defendants Paul

Butsavage, William Evans, Michal R. Griffin, Kurt E. Keskinen, Daniel Martin and

Gerald Walker’s (collectively, the “Butsavage Movants,” and collectively, with all

other third-party defendants, the “Third-Party Defendants”) Motion to Dismiss

Second Amended Counterclaim and Third-Party Complaint (the “Butsavage Motion,”

and collectively, with the other two motions to dismiss, the “Motions to Dismiss”) in

the above-captioned case.

2. After considering the Motions to Dismiss, the arguments of counsel for the

parties at the October 24, 2017 hearing on the Motions to Dismiss, and the briefs by

the parties in support of and in opposition to the Motions to Dismiss, the Court hereby

GRANTS in part and DENIES in part the Motions to Dismiss.1

1 On September 29, 2017, the Court ordered a stay of discovery in this case pending the

resolution of the Motions to Dismiss. Due to the anticipated delay in the preparation and

publication of a written opinion resolving these Motions in light of the Court’s fall trial

schedule, the Court advised the parties of the Court’s intended rulings on the Motions to

Dismiss by email on November 1, 2017 and lifted the stay of discovery the following day so

that the case could proceed expeditiously pending the formal resolution of the Motions. The

Court notes that its final rulings on certain claims differ from those expressed in the

November 1 email to the parties. Specifically, claims that the Court indicated it was inclined

to dismiss without prejudice are dismissed with prejudice below. As was made clear by the

Court’s email, this Order and Opinion makes effective the Court’s rulings on the Motions to

Dismiss. Therefore, the Court’s decisions herein are final and controlling.

McGuireWoods, LLP, by Jodie H. Lawson, Anita M. Foss, Carlo L.

Rodes, and Abbey M. Krysak, for Plaintiff Tillery Environmental, LLC

and Third-Party Defendants Chris Weidenhammer, Paul Taveira, John

Ruggiero, Eric D. McManus, J. Scott Pearce, Michael Stoneman,

Timothy Parker, Thomas Morton, Joseph Keith Burch, Christopher

Rabley, J.W. Hall, Jr., Carol Lock, Meri-Beth Hall, Jonathan E. Hall,

and Jeff Sturgeon.

Nexsen Pruet, PLLC, by Patrick D. Sarsfield, II and Kathleen Burchette,

and Wickens, Herzer, Panza, Cook & Batista Co., by Richard D. Panza,

Matthew W. Nakon, and Rachelle Kuznicki Zidar, for Defendants A&D

Holdings, Inc. and Ross Environmental Services, Inc.

Essex Richards, by Jonathan E. Buchan and Natalie D. Potter, for

Third-Party Defendants Paul Butsavage, William Evans, Michal R.

Griffin, Kurt E. Keskinen, Daniel Martin, and Gerald Walker.

Bledsoe, Judge.

I.

BACKGROUND

3. The Court does not make findings of fact when ruling on motions to dismiss

under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. See, e.g., Concrete

Serv. Corp. v. Inv’rs Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758 (1986).

Rather, the Court recites the relevant allegations in the pleading asserting the

challenged claims—here, Defendant A&D Holdings, Inc.’s (“A&D”) Second Amended

Counterclaim and Third-Party Complaint (the “SACC”).

A. The Parties and Agreements

4. This case centers around a Stock Purchase Agreement (the “SPA”) and an

escrow agreement (the “Escrow Agreement”), both of which facilitated a merger by

stock purchase by which JBC Acquisition, Inc. (“JBC”)—a subsidiary of Ross

Environmental Services, Inc. (“Ross”)—purchased the shares of A&D (the “Sale”) and

was then merged into A&D (the “Merger”) (for purposes of this Opinion, the Court

refers to Defendant/Counterclaim Plaintiff/Third-Party Plaintiff A&D in its capacity

as successor by merger to JBC as “Buyer” and the pre-Sale A&D entity as “Seller”).

(Second Am. Countercl. & Third-Party Compl. ¶¶ 1, 24 [hereinafter “SACC”], ECF

No. 35.) The SPA was executed and the Sale was completed on May 8, 2015, (SACC

¶ 24), and the Merger was effectuated on July 21, 2015, (SACC ¶ 1).

5. Prior to the Sale, Seller was owned and/or operated by

Plaintiff/Counterclaim Defendant Tillery and Third-Party Defendants. Tillery owned

more than eighty percent of Seller’s stock before the Sale and served as the

shareholder representative for all pre-Sale shareholders of Seller during the SPA’s

negotiation and the closing of the Sale. (SACC ¶ 2.) Third-Party Defendants were

all officers or shareholders of Seller. (SACC ¶¶ 3–23.) Several of the Third-Party

Defendants play a more prominent role in Buyer’s allegations—in particular, Chris

Weidenhammer (“Weidenhammer”), a member and manager of Tillery, an officer of

Seller, and the only Third-Party Defendant who did not own shares of Seller; Paul

Taveira (“Taveira”), an officer, manager, and shareholder of Seller; and John

Ruggiero (“Ruggiero”), also an officer, manager, and shareholder of Seller. (SACC ¶¶

3–5.) The Court sets forth in the succeeding paragraphs Buyer’s allegations in

support of its claims against these individuals and the remaining Third-Party

Defendants as well as its counterclaims against Tillery.2

2 Buyer’s SACC asserts counterclaims against Tillery and similar claims against Third-Party

Defendants. For ease of reference, the Court will refer to Buyer’s counterclaims and claims

together as Buyer’s “claims.”

6. The SPA between Buyer and Seller was executed on May 8, 2015 by Buyer,

Seller, Tillery, Taveira, Ruggiero, and the remaining Third-Party Defendants.

(SACC Ex. 1, at Joinder Signature Pages [hereinafter “SPA”], ECF Nos. 35.1, 35.2.)

The SPA stated that the shareholders of Seller would indemnify Buyer if certain

representations and warranties in the SPA were breached. (SPA § 7.2(b).) To pay

any such claims, the Escrow Agreement required Buyer to set aside approximately

$2.8 million in a separate escrow account. (SACC Ex. 2, at 1–2 [hereinafter “Escrow

Agreement”], ECF Nos. 35.3, 35.4.) Any demand for payment against this amount

was required to be received by the designated escrow agent by November 8, 2016.

(Escrow Agreement 3; see SACC Ex. 27, at 2, ECF No. 35.31.) The representations

and warranties applicable to this dispute continued until November 8, 2016 as well.

(SPA § 7.1(a).) If Buyer provided proper notice under the terms of the SPA, the

representations and warranties would survive and continue until any claim was

resolved. (SPA § 7.1(c).) Buyer alleges that it provided timely and proper notice and

timely filed its Counterclaim and Third-Party Complaint concerning several issues

that came to light after the Sale that Buyer believes significantly affected A&D’s

value.

B. Safety Rating Allegations

7. A&D and its wholly-owned subsidiaries (collectively, the “A&D Companies”)

are involved in the businesses of, among other things, transporting and managing

hazardous and non-hazardous waste, remediating contaminated water and soils, and

responding to environmental emergencies. (SACC ¶ 26); see also Tillery Envtl. LLC

v. A&D Holdings, Inc., 2017 NCBC LEXIS 68, at *2 (N.C. Super. Ct. Aug. 4, 2017).

In these industries, a company’s safety record is important. Customers and

prospective customers require certain safety measurements be met as a prerequisite

for doing business or maintaining business relationships. (SACC ¶ 28.) One such

safety measurement is a company’s Experience Modification Rate (“EMR”). (SACC ¶

27.) Another is a company’s Total Recordable Incident Rate (“TRIR”). (SACC ¶ 30.)

8. A company’s EMR is a numerical rating calculated and assigned by the

National Council on Compensation Insurance (“NCCI”). (SACC ¶ 27.) NCCI

calculates a company’s EMR by taking the company’s “workers’ compensation loss

experience and comparing it to the average loss experience of other businesses in the

same industry classification.” (SACC ¶ 27.) NCCI uses loss experiences over a three-

year period to calculate the EMR. (SACC ¶ 27.) As an example, A&D’s 2015 EMR

was calculated from loss experiences in 2011, 2012, and 2013. (SACC ¶ 27.)

9. The average loss for businesses in a particular industry is represented by

an EMR of 1.0. (SACC ¶ 27.) If a business has an EMR over 1.0, for example, 1.06,

the business has an above-average number of workers’ compensation losses. (SACC

¶ 27.) A number below 1.0, for example, 0.96, would indicate a business has a below-

average number of workers’ compensation losses, and thus, a better-than-average

safety record. (SACC ¶ 27.)

10. A company’s TRIR, on the other hand, “accounts for how many Occupational

Safety and Health Act (‘OSHA’) recordable incidents a company experiences per

number of hours worked.” (SACC ¶ 29.) The more OSHA incidents a business

experiences, the higher the business’s TRIR. (SACC ¶ 29.)

11. Buyer’s allegations regarding safety ratings focus mainly on two central

points. First, Buyer claims Seller concealed or misrepresented information about

Seller’s EMR for specific years. Second, Buyer alleges Seller concealed actual

workplace injuries that have contributed to further safety issues that Buyer must

now confront. Buyer asserts that the concealment of this information denied Buyer

its opportunity to accurately evaluate what a fair purchase price for A&D would be

or whether Buyer wished to purchase the company at all. According to Plaintiff,

Seller’s intentional failure to disclose this information caused Buyer to pay an

“artificially inflated purchase price for” A&D. (SACC ¶ 87.)

1. EMR Allegations

12. Leading up to the Sale, Buyer submitted due diligence requests to Seller.

(SACC ¶¶ 34–35.) Among these requests was one that sought Seller’s “EMR history.”

(SACC ¶ 35.) In response to this request, Buyer received information about Seller’s

EMR for the years 2007–14. (SACC ¶ 43.) Buyer alleges (i) that Seller knew prior to

the Sale that some of the EMR determinations provided were manipulated and

inaccurate but concealed that fact, and (ii) that Seller was aware that its 2015 EMR

was going to be set at 1.13 but attempted to hide that fact from Buyer. (SACC ¶¶ 33,

51, 68.)

13. In October 2014, Seller provided a presentation to Buyer that included

literature citing Seller’s “long track record of safety and environmental compliance.”

(SACC ¶ 31.) The presentation literature also stated that Seller maintained an EMR

“consistently below 1.0.” (SACC ¶ 31.) Buyer alleges that this statement was false

when made and that Seller’s past EMR figures had been manipulated to appear lower

than they were. (SACC ¶¶ 55–68.) Buyer also alleges that Tillery, Weidenhammer,

Taveira, and Ruggiero knew as much but caused Seller to make the representations,

and the later misleading due diligence disclosures, anyway. (SACC ¶ 31.)

14. In particular, Buyer asserts that the EMR information it received from

Seller for the years 2012, 2013, and 2014 was misleading. (SACC ¶¶ 57–59.) Buyer

alleges that the EMR numbers for these years had been artificially lowered by Seller’s

practice of providing misleading information to NCCI in violation of NCCI protocols.

(SACC ¶ 61.) This practice allegedly started in 2014 and worked as follows. Seller,

assisted by a hired business called AccuComp USA, would pay insurance carriers

rebates for closed claims. (SACC ¶ 66.) In exchange for these payments, the

insurance carriers would draft correspondence for Seller, stating that the costs

associated with the claims were lower than previously reported due to “errors.”

(SACC ¶ 66.) Seller would then seek an ex post facto modification to its EMR

determination from NCCI, claiming that the revision was needed because previous

errors associated with workers’ compensation claims had now been corrected. (SACC

¶ 66.) Buyer alleges that this practice—sometimes referred to as “buying down”—is

not accepted in A&D’s industry or sanctioned by NCCI as a permissible method of

managing a business’s EMR. (SACC ¶ 66.)

15. Buyer alleges that, as a result of Seller’s “buying down” its EMR for past

years, the EMR figures Buyer received for the years 2012–14 were not the rates

originally calculated for those years by NCCI. Specifically, during due diligence,

Seller reported its 2012 EMR as 0.97. (SACC ¶ 57.) In reality, in February 2012,

NCCI set Seller’s 2012 EMR at 1.0. (SACC ¶ 57.) Likewise, the 2013 EMR of 1.03

was originally set at 1.05; the 2014 EMR of 0.99 was originally set at 1.06. (SACC ¶¶

58–59.) Seller did not disclose these adjustments or its practice of “buying down” its

EMR to Buyer. (SACC ¶ 68.)

16. In addition to these past EMR misrepresentations, Buyer also alleges that

Seller improperly concealed its 2015 EMR. Several days after Buyer’s December 29,

2014 due diligence request for “EMR history,” Weidenhammer sent an email to Paul

Butsavage (“Butsavage”), an officer, manager, and shareholder of Seller, asking

Butsavage to obtain Seller’s EMR history. (SACC ¶ 36.) Butsavage did so by

contacting Ironwood Benefits Advisory Services, LLC (“Ironwood”), Seller’s insurance

broker. (SACC ¶ 37.) Ironwood responded to Butsavage’s request on January 6, 2015

by supplying Butsavage with Seller’s EMR figures from 2010 up through 2015.

(SACC Ex. 9, ECF No. 35.13.) Since December 2, 2014, Seller, Tillery,

Weidenhammer, Taveira, and Ruggiero had allegedly been aware that Seller’s 2015

EMR would be set at 1.13, effective February 24, 2015. (SACC ¶ 33; SACC Ex. 5, at

1, ECF Nos. 35.8, 35.9.) The information Butsavage received from Ironwood

confirmed this—Buyer’s 2015 EMR was 1.13. (SACC Ex. 9.)

17. Upon receipt, Butsavage sent the 2010–15 EMR figures to Taveira but told

Taveira to call him before the information was sent on to Buyer. (SACC ¶ 38.) The

two had a phone call, and minutes later Butsavage sent Taveira another email with

EMR figures for the years 2010 through 2014. (SACC ¶ 39.) The 2015 EMR

information was omitted. (SACC ¶ 39.)

18. That same day, Butsavage requested Seller’s EMR information for the years

2007–09 from Ironwood. (SACC ¶ 40.) Ironwood replied with Seller’s EMR figures

for the years 2007–15. (SACC ¶ 41.) Butsavage sent this information to Taveira,

again omitting the 2015 EMR of 1.13. (SACC ¶ 42.) This information was then

provided to Buyer without mention of the 2015 EMR determination. (SACC ¶ 43.)

19. As the Sale drew closer, Butsavage, Weidenhammer, and Taveira engaged

in talks about potential ways to lower Seller’s 2015 EMR. (SACC ¶¶ 44–48.) On

January 23, 2015, Butsavage sent an email to Weidenhammer and Taveira relaying

his discussion with an Ironwood representative about Seller’s 2015 EMR. (SACC Ex.

16, ECF No. 35.20.) Butsavage wrote that whether Seller needed to take steps to

adjust its EMR immediately depended in part on how a new owner would manage the

A&D Companies—if the A&D Companies’ insurance became integrated “in a package

of companies,” the EMR could be diluted by the other companies in the group, and no

adjustment would be needed. (SACC Ex. 16.) Butsavage then asked, “Is it acceptable

for me to speak to any of their team members as [sic] ask what their intentions are

for integration of A&D into their insurance program?” (SACC Ex. 16.)

Weidenhammer replied, “Yes, but stay focused on your message and position this just

as being [sic] a proactive inquiry so that we renew our coverages next month on the

most economical basis possible.” (SACC Ex. 17, ECF No. 35.21.) Butsavage

responded and indicated that he understood and was “not pressing the panic button

about an EMR over 1.0.” (SACC Ex. 18, ECF No. 35.22.)

20. On February 24, 2015, unbeknownst to Buyer, NCCI officially set Seller’s

EMR for 2015 at 1.13. (SACC ¶ 49.) Several days after this, on March 3, 2015, Seller

produced to Buyer information responsive to still-outstanding due diligence issues.

(SACC ¶ 51.) Seller’s correspondence about this production did not reference EMR

or suggest in any way that information about Seller’s EMR was included in the

disclosures. (SACC ¶ 51.) Among the information produced was a disclosure

document from Ironwood. (SACC ¶ 51.) The 2015 EMR was displayed on page

eighteen of that thirty-six page document. (SACC ¶ 51.) Buyer alleges that this form

of “needle in the haystack disclosure” was meant to conceal the 2015 EMR

information from Buyer.

2. Undisclosed Injuries Allegations

21. In addition to alleged dishonesty and concealment involving Seller’s EMR

figures, Buyer also alleges that Seller, Tillery, Weidenhammer, Taveira, and

Ruggiero withheld information about, and concealed the occurrence of, certain

workplace injuries involving the A&D Companies. (SACC ¶ 72.)

22. Specifically, Buyer alleges that in the months leading up to the Sale, Seller

received notice of work-related injuries occurring on January 21, 2015; February 27,

2015; March 18, 2015; April 8, 2015; and April 16, 2015 (collectively, the “Undisclosed

Injuries” or the “Injuries”). (SACC ¶¶ 73–76.) Buyer alleges that each of the Injuries

ultimately contributed to an increase in A&D’s EMR or TRIR, (SACC ¶¶ 74, 78), but

none were disclosed to Buyer, (SACC ¶ 72).

23. In another accident on March 8, 2015, an independent contractor working

at one of Seller’s facilities suffered a fatal injury (the “Roofing Death” or the “Death”).

(SACC ¶ 83.) In an email to Butsavage regarding the Roofing Death, Taveira wrote

“We will have to disclose this to [Buyer].” (SACC ¶ 83.) Despite Taveira’s statement,

the Roofing Death was never disclosed, and Buyer learned of it only after the Sale.

(SACC ¶¶ 83, 85.) In 2017, the deceased’s family filed a lawsuit against one of the

A&D Companies seeking compensation for the Roofing Death. (SACC ¶ 84.)

24. In 2016, more than a year after the Sale, Buyer was informed that its 2017

EMR would be set at 1.40. (SACC ¶ 81.) Even after taking steps to lower this

number, Buyer was still left facing a 2017 EMR of 1.22. (SACC ¶ 82.) Buyer alleges

that the Undisclosed Injuries directly contributed to this increase in its EMR and a

coinciding increase in its TRIR. Buyer also alleges that as a result of its rising EMR

and TRIR numbers, “contracts that have historically generated considerable revenue

for [A&D] . . . are subject to termination.” (SACC ¶ 88.) Buyer further claims that it

will have a difficult time securing new contracts or renewing existing ones in light of

its elevated EMR and TRIR figures. (SACC ¶ 88.)

25. In sum, Buyer alleges that the Tillery Movants—Tillery, Weidenhammer,

Taveira, and Ruggiero—knowingly, intentionally, and fraudulently caused Seller to

manipulate Seller’s EMR history and conceal Seller’s 2015 EMR, the Undisclosed

Injuries, and the Roofing Death with the intended result that Buyer would pay an

artificially inflated price for A&D’s shares. (SACC ¶¶ 51, 69, 71, 86, 87.) As a

consequence, Buyer seeks indemnification from Tillery and all shareholder Third-

Party Defendants to the extent these fraudulent and misleading acts breached

representations and warranties in the SPA. (SACC ¶¶ 97–109.) Buyer also asserts

claims for fraud or, in the alternative, violations of the North Carolina Securities Act

(the “NCSA”) against the Tillery Movants based on these alleged acts. (SACC ¶¶

110–29.)

C. Additional Breach of Contract Claims

26. In addition to the above, Buyer also alleges that two invoices were

erroneously included on Seller’s accounts receivable ledger at closing. (SACC ¶¶

130–45.) The first represented work done by Seller and a subcontractor for

Honeywell. (SACC ¶ 131.) After closing, Buyer discovered Honeywell had paid the

subcontractor directly for the work, so Buyer credited the invoice amount of $10,000

back to Honeywell. (SACC ¶ 131.) The second invoice related to work done by Seller

for Alfred Benesch & Company (“Benesch”). Buyer alleges that this invoice was

originally issued because Seller “failed to properly document change orders pursuant”

to its agreement with Benesch. (SACC ¶ 140.) As a result, Benesch refused to pay

the invoice. (SACC ¶ 141.) Because both of these amounts were listed on Seller’s

accounts receivable ledger and neither was collectable, Buyer also alleges that it is

entitled to indemnification from Seller for these amounts pursuant to the SPA.

27. Buyer notified Tillery and the escrow agent on or before November 8, 2016

that it was demanding indemnification as a result of the Undisclosed Injuries, the

Roofing Death, and the uncollectable invoices for Honeywell and Benesch. (SACC

¶ 89; SACC Ex. 26, at 2, ECF No. 35.30.) The escrow agent, having received Buyer’s

demand, notified Buyer and Tillery that it would not release any portion of the

amount held in escrow until the parties provided joint consent in writing or a court

ordered the distribution of the escrowed funds. (SACC ¶ 92.)

II.

PROCEDURAL BACKGROUND

28. After the parties failed to resolve their dispute over the escrowed funds,

Tillery filed a lawsuit against Buyer and Ross. See generally Tillery Envtl. LLC, 2017

NCBC LEXIS 68 (discussing Tillery’s claims against A&D and Ross). Buyer filed its

first set of counterclaims on April 21, 2017 and subsequently amended its

counterclaims twice, most recently on July 28, 2017.

29. In response to Buyer’s SACC, the Tillery Movants filed the Tillery Motion,

the McManus Movants filed the McManus Motion, and the Butsavage Movants filed

the Butsavage Motion. The Court held a hearing on the Motions to Dismiss on

October 24, 2017, at which all parties were represented by counsel. The Motions to

Dismiss are now ripe for resolution.

III.

LEGAL STANDARD

30. In ruling on a motion to dismiss made under Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure, the Court considers whether the allegations in the

claimant’s pleading, taken as true, “are legally sufficient to satisfy the elements of at

least some legally recognized claim.” Arroyo v. Scottie’s Prof’l Window Cleaning, Inc.,

120 N.C. App. 154, 158, 461 S.E.2d 13, 16 (1995). The Court construes the allegations

in the pleading “in the light most favorable to the nonmoving party.” Christenbury

Eye Ctr., P.A. v. Medflow, Inc., 802 S.E.2d 888, 891 (N.C. 2017). Documents that are

attached to and incorporated into the pleading are considered part of the claimant’s

allegations and may be considered by the Court, and the Court may reject allegations

in the pleading that are contradicted by the attached documents. Laster v. Francis,

199 N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009). Such consideration does not

convert the motion to dismiss into a motion for summary judgment. Id.

31. The Court will not grant a motion to dismiss unless it appears certain that

the claimant is not entitled to relief. Sutton v. Duke, 277 N.C. 94, 103, 176 S.E.2d

161, 166 (1970). Put another way, dismissal under Rule 12(b)(6) is only proper (i)

when the pleading reveals, on its face, that no law supports the claimant’s claim; (ii)

when the pleading reveals an absence of fact sufficient to make the claim; or (iii) when

some fact disclosed in the pleading necessarily defeats the claimant’s claim. Oates v.

JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985). Accordingly, the Court

must determine whether the allegations within the pleading, “treated as true, are

sufficient to state a claim upon which relief may be granted under some legal theory,

whether properly labeled or not.” NNN Durham Office Portfolio 1, LLC v. Highwoods

Realty Ltd. P’Ship, 2013 NCBC LEXIS 11, at *20 (N.C. Super. Ct. Feb. 19, 2013)

(quoting Crouse v. Mineo, 189 N.C. App. 232, 237, 658 S.E.2d 33, 36 (2008)).

IV.

ANALYSIS

32. Buyer asserts claims for breach of contract and indemnification against

Tillery and all Third-Party Defendants except Weidenhammer. Buyer also asserts

claims for fraud or, in the alternative, violations of the NCSA against the Tillery

Movants. The Court begins by analyzing Buyer’s claim for fraud before turning to

Buyer’s NCSA and breach of contract claims.

A. Buyer’s Fraud Claim

33. Buyer’s claim for fraud alleges that the Tillery Movants “produced or caused

Seller Corporation to produce false and misleading due diligence information” to

Buyer during negotiations and the due diligence period and concealed or omitted

material information that they had a duty to disclose to Buyer. (SACC ¶ 111.)

34. The “essential elements of actionable fraud are well established: (1) False

representation or concealment of a material fact, (2) reasonably calculated to deceive,

(3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage

to the injured party.” Ragsdale v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500

(1974). As a general rule, a claimant’s reliance on allegedly false statements must be

reasonable, though the reasonableness of such reliance is typically a question for the

jury. Forbis v. Neal, 361 N.C. 519, 527, 649 S.E.2d 382, 387 (2007); Johnson v. Owens,

263 N.C. 754, 758, 140 S.E.2d 311, 314 (1965) (“[W]here reliance ceases to be

reasonable and becomes such negligence and inattention that it will, as a matter of

law, bar recovery for fraud is frequently very difficult to determine.”).

35. To survive a motion to dismiss made under Rule 12(b)(6), a claimant

asserting a claim for fraud must plead all material facts and circumstances

constituting fraud with particularity, N.C. R. Civ. P. 9(b); Moore v. Wachovia Bank &

Tr. Co., 30 N.C. App. 390, 391, 226 S.E.2d 833, 834–35 (1976), with the exception of

“malice, intent, knowledge, and other condition of mind of a person,” which may be

“averred generally,” N.C. R. Civ. P. 9(b); Coley v. N.C. Nat’l Bank, 41 N.C. App. 121,

125, 254 S.E.2d 217, 219 (1979). Despite this higher standard for pleading fraud,

there is no “requirement that any precise formula be followed or that any certain

language be used.” Shaw. v. Gee, 2016 NCBC LEXIS 103, at *15 (N.C. Super. Ct.

Dec. 21, 2016).

36. As indicated by the first element of a common law claim for fraud, either a

false representation or the concealment of a material fact may give rise to a claim for

fraud. In this case, Buyer has pleaded both occurred.

1. Fraudulent Concealment of the 2015 EMR

37. Buyer first alleges that Tillery, Weidenhammer, Taveira, and Ruggiero

concealed material facts from Buyer—specifically, Seller’s 2015 EMR, the

Undisclosed Injuries, and the Roofing Death—despite having a duty to disclose such

information. The basic elements of a claim for fraud based on omission are the same

as those for any other claim for fraud, as recited above. See, e.g., Hardin v. KCS Int’l,

Inc., 199 N.C. App. 687, 696, 682 S.E.2d 726, 733 (2009). In addition to these, the

claimant must also allege that the party who failed to disclose the material fact owed

the claimant a duty to disclose. Id. (citing Harton v. Harton, 81 N.C. App. 295, 297,

344 S.E.2d 117, 119 (1986)); Christenbury Eye Ctr., P.A. v. Medflow, Inc., 2015 NCBC

LEXIS 64, at *13 (N.C. Super. Ct. June 19, 2015), appeal dismissed, 783 S.E.2d 264

(N.C. Ct. App. 2016) (dismissing the appeal because N.C. Gen. Stat. § 7A-27(a)(2)

provided appellate jurisdiction to the Supreme Court of North Carolina), aff’d, 802

S.E.2d 888 (N.C. 2017) (affirming trial court’s decision).

38. Although fraudulent concealment or fraud by omission “is by its very nature,

difficult to plead with particularity,” Breeden v. Richmond Cmty. Coll., 171 F.R.D.

189, 195 (M.D.N.C. 1997), this Court has previously ruled that a litigant pleading an

omission-based fraud claim must comply with Rule 9(b) by specifically pleading:

(1) the relationship between plaintiff and defendant giving rise to the duty to

speak; (2) the event that triggered the duty to speak or the general time

period over which the relationship arose and the fraud occurred; (3) the

general content of the information that was withheld and the reason for its

materiality; (4) the identity of those under a duty who failed to make such

disclosures; (5) what the defendant gained from withholding the information;

(6) why the plaintiff's reliance on the omission was reasonable and

detrimental; and (7) the damages the fraud caused the plaintiff.

Christenbury Eye Ctr., P.A., 2015 NCBC LEXIS 64, at *13–14; Island Beyond, LLC v.

Prime Capital Grp., LLC, 2013 NCBC LEXIS 48, at *19 (N.C. Super. Ct. Oct. 30,

2013); Lawrence v. UMLIC-Five Corp., 2007 NCBC LEXIS 20, at *9–10 (N.C. Super.

Ct. June 18, 2007) (adopting pleading requirements outlined in Breeden, 171 F.R.D.

at 195).

a. Existence of a Duty to Disclose

39. When two parties are engaged in an arm’s-length transaction, two different

scenarios will create a duty to disclose. The first is when one party takes an

affirmative step to conceal a material fact from the other. Hardin, 199 N.C. App. at

696, 682 S.E.2d at 733. A concealed fact is considered material when it would have

influenced the decision or judgment of another party, if known. Godfrey v. Res-Care,

Inc., 165 N.C. App. 68, 75–76, 598 S.E.2d 396, 402 (2004). The second is when “one

party has knowledge of a latent defect in the subject matter of the negotiations about

which the other party is both ignorant and unable to discover through reasonable

diligence.” Hardin, 199 N.C. App. at 696, 682 S.E.2d at 733 (quoting Sidden v.

Mailman, 137 N.C. App. 669, 675, 529 S.E.2d 266, 270–71 (2000)). In addition to

these situations, even when no duty to disclose exists, a party who chooses to speak

has a duty to make a full and fair disclosure of facts concerning the matters on which

he chooses to speak. Ragsdale, 286 N.C. at 139, 209 S.E.2d at 501 (citing Low v.

Wheeler, 24 Cal. Rptr. 538, 543 (Ct. App. 1962) (“Even where there is no duty to make

a disclosure, when one does undertake to inform, he must speak the whole truth.”)).

40. Beginning with Buyer’s fraud allegations involving Seller’s 2015 EMR, the

Tillery Movants first argue that Buyer’s claim for fraudulent concealment should be

dismissed because Buyer has not alleged that it was denied a reasonable opportunity

to investigate this information or that Buyer could not have learned Seller’s 2015

EMR by exercising reasonable diligence. The Tillery Movants support this argument

with a quote originally from Hudson-Cole Development Corp. v. Beemer, 132 N.C.

App. 341, 511 S.E.2d 309 (1999): “when the party relying on [a] false or misleading

representation could have discovered the truth upon inquiry, the complaint must

allege that he was denied the opportunity to investigate or that he could not have

learned the true facts by exercise of reasonable diligence.” Id. at 346, 511 S.E.2d at

313. The Tillery Movants also argue that they disclosed Seller’s 2015 EMR in the

subsequent insurance disclosure documents. They finally contend that they had no

obligation to provide Buyer with Seller’s 2015 EMR because Buyer’s due diligence

requested “EMR history,” and the 2015 EMR had not been set at the time Buyer’s

request was made.

41. Addressing the Tillery Movants’ first argument, the Court notes that Buyer

is not alleging that Seller’s 2015 EMR was a false or misleading representation that

Buyer relied upon. Buyer is also not relying solely on its assertion that the 2015 EMR

was a material fact Buyer could not have discovered. Buyer has also alleged that the

Tillery Movants actively concealed this information in a manner “calculated to

prevent discovery,” (SACC ¶ 51), which itself gives rise to a duty to disclose and can

support a claim for fraudulent concealment, Hardin, 199 N.C. App. at 696, 682 S.E.2d

at 733 (stating that, between arm’s-length parties, the first scenario that will create

a duty to disclose is active concealment of a material fact and the second is a latent

defect the other party does not know of and could not have discovered through

reasonable diligence); see Shaw, 2016 NCBC LEXIS 103, at *11–16 (holding Rule

9(b)’s requirements were met when the plaintiff alleged facts showing that defendant

“took affirmative steps to conceal material facts” and had otherwise pleaded the

essential elements of a fraud defense). The Court believes Buyer has alleged

sufficient facts at the 12(b)(6) stage to plead a case of fraud by active concealment

based on the 2015 EMR.

42. More particularly, Buyer alleges that it requested EMR history information

from Seller and that Butsavage asked Ironwood to provide this information to Seller

for purposes of responding to Buyer. The information Ironwood provided included

Seller’s 2015 EMR. After an alleged phone call between Butsavage and Taveira, the

2015 EMR information was deleted from the information Seller intended to provide

to Buyer. When Butsavage later asked for a larger range of EMR information from

Ironwood, the insurance broker again provided information that included the 2015

EMR. This information was modified again prior to its submission to Buyer to omit

Seller’s 2015 EMR.

43. In subsequent conversations between Weidenhammer, Taveira, and

Butsavage about potential ways to lower the 2015 EMR, Weidenhammer cautioned

Butsavage to “stay focused” in his communications with Buyer’s team and maintain

the position that Butsavage was only making “a proactive inquiry” to renew

insurance coverages in a cost-effective manner. (SACC Ex. 17.) Butsavage confirmed

to the other two that, in talking with Buyer, he was not going to “press[] the panic

button about an EMR over 1.0.”3 (SACC Ex. 18.)

3The Tillery Movants’ argue that these emails do not demonstrate an intent to conceal

because Seller’s “actions, if successful, would have inured to Buyer’s benefit and therefore do

not support a showing of intent to defraud or resulting damages.” (Mem. Law Supp. Mot.

Dismiss Second Am. Countercl. & Third-Party Compl. Pl. & Countercl. Def. Tillery Envtl.

LLC & Third-Party Defs. Chris Weidenhammer, Paul Taveira, and John Ruggiero 11, ECF

No. 63.) The Tillery Movants fail to cite any authority, however, to support the proposition

44. Eventually, Seller’s 2015 “over 1.0” EMR was provided to Buyer. The figure

was included on page eighteen of a thirty-six page insurance document, which was

submitted to Buyer with a number of other documents responsive to still-outstanding

due diligence issues. The insurance document and the correspondence sending it did

not indicate that it contained information responsive to Buyer’s request for EMR

information. Under these circumstances, a reasonable fact finder could conclude that

Seller intentionally “hid the ball” concerning Seller’s 2015 EMR by burying that

figure in the middle of a document in a large, unrelated production without notice or

direction to Buyer. Accordingly, the Court concludes that, viewed in the light most

favorable to Buyer, these pleaded facts show intentional behavior designed to prevent

Buyer from reviewing Seller’s 2015 EMR before the Sale closed. This intentional

behavior is sufficient to support Buyer’s claim for fraud.

45. The Court further concludes Buyer has alleged sufficient facts to show that

Seller’s 2015 EMR was a material fact. Buyer’s allegations explain the importance

of a company’s EMR and overall safety record in A&D’s industry. Seller’s EMR over

a period of years was part of the information Buyer requested during due diligence,

and Buyer alleges that it paid an overinflated price for A&D, in part, because of the

information that was withheld from Buyer, including Seller’s 2015 EMR. Because,

as alleged, the 2015 EMR number would have influenced Buyer’s judgment in

that fraudulent intent cannot be present when intentional deception might result in a benefit

to the defrauded individual. The Court will not adopt a rule approving of “I might have

misled you, but it was for your own good” transactions, and whatever positive benefit the

Tillery Movants argue Buyer received from their allegedly fraudulent concealment does

nothing to alter the alleged fact that Buyer overpaid in the Sale as a result of that purported

concealment.

entering into the SPA, it is a material fact. See Godfrey, 165 N.C. App. at 75–76, 598

S.E.2d at 402 (“A fact is material ‘if the fact untruly asserted or wrongfully

suppressed, if it had been known to the party, would have influenced [its] judgment

or decision in making the contract at all.’” (quoting White Sewing Mach. Co. v.

Bullock, 161 N.C. 1, 7, 76 S.E. 634, 636 (1912))).

46. Addressing the Tillery Movants’ final argument—that Seller’s 2015 EMR

was not requested by Buyer because it was not a historical EMR figure at that point

in time—the Court notes that Buyer pleads that Seller’s insurance broker included

the 2015 EMR every time Seller requested its own EMR history. Buyer also pleads

that Seller was responsible for the omission of this information in its disclosures to

Buyer. The Court concludes that the Tillery Movants’ semantic argument relying

upon the terms of Buyer’s specific request and Seller’s interpretation of that request

is not susceptible to resolution as a matter of law at this stage of the case, and thus

that argument cannot be a basis for granting the Tillery Motion. Buyer has

sufficiently alleged that a material fact was actively concealed and thus has

successfully pleaded facts giving rise to a duty to disclose.

b. Rule 9(b)’s Requirements

47. Although the Court has concluded that Buyer’s SACC contains factual

allegations that, if true, would give rise to a duty to disclose Seller’s 2015 EMR, the

Court’s analysis is not complete. The Court must now examine whether Buyer’s

pleaded facts concerning the concealment of Seller’s 2015 EMR meet the particularity

requirements of Rule 9(b) as to each Tillery Movant.

48. Rule 9(b) requires a claimant alleging fraudulent concealment to identify

the person or persons who allegedly participated in the concealment. Oberlin Capital,

L.P. v. Slavin, 2000 NCBC LEXIS 8, at *15–16 (N.C. Super. Ct. Apr. 28, 2000), aff’d,

147 N.C. App. 52, 554 S.E.2d 840 (2001). The claimant must plead specific facts that

“give rise to an inference of knowledge, intent, or reckless disregard” as to the

concealment. Id. at *16 (quoting Andrews v. Fitzgerald, 823 F. Supp. 356, 374

(M.D.N.C. 1993)). “Conclusory allegations that a defendant acted in conspiracy with

others are insufficiently specific to meet the requirements of Rule 9(b).” Id.; see also

Oberlin Capital, L.P., 147 N.C. App. at 57, 554 S.E.2d at 845 (holding that the

plaintiff “failed to allege sufficient facts of individual participation in any

wrongdoing” by three corporate directors).

49. In this case, Buyer claims that each of the Tillery Movants—Tillery,

Weidenhammer, Taveira, and Ruggiero—concealed Seller’s 2015 EMR from Buyer,

but the SACC provides facts showing only Weidenhammer’s and Taveira’s specific,

active involvement in the alleged cover-up. Whether Buyer has satisfied Rule 9(b)’s

requirements against Tillery and Ruggiero requires further analysis.

50. As for Tillery, the Court concludes Buyer has pleaded facts sufficient to state

a claim for fraudulent concealment against the company. Although the SACC does

not expressly allege Tillery itself directed any person to conceal Seller’s 2015 EMR

number, a broader reading of the allegations allows this basis for fraud to go forward

against the LLC because of its agency relationship with Weidenhammer.

51. A principal is generally “responsible to third parties for injuries resulting

from the fraud of his agent committed during the existence of the agency and within

the scope of the agent’s actual or apparent authority from the principal,” even when

the principal does not know of or authorize the fraudulent conduct. Norburn v.

Mackie, 262 N.C. 16, 23, 136 S.E.2d 279, 284–85 (1964). Actual authority exists when

a principal consents to an agent acting on his behalf. Munn v. Haymount Rehab. &

Nursing Ctr., Inc., 208 N.C. App. 632, 638, 704 S.E.2d 290, 295 (2010). Apparent

authority, in contrast, “is that authority which the principal has held the agent out

as possessing or which he has permitted the agent to represent that he possesses.”

Green v. Freeman, 233 N.C. App. 109, 114, 756 S.E.2d 368, 374 (2014) (quoting Pet,

Inc. v. Univ. of N.C., 72 N.C. App. 128, 135, 323 S.E.2d 745, 750 (1984)).

52. Here, Buyer alleges that Tillery served “in the capacity of Shareholder

Representative for all [pre-Sale] shareholders of A&D” for purposes of negotiating the

SPA and closing the Sale. (SACC ¶ 2.) Buyer also alleges that Weidenhammer was

a member and manager of Tillery and that Weidenhammer’s alleged actions were

performed “in his capacity as an officer of [Tillery].” (SACC ¶ 3.) Those actions

included the concealment of Seller’s 2015 EMR.4

53. Taken as true and viewed in the light most favorable to Buyer, this

combination of facts allows for the conclusions that Tillery was engaged in efforts to

sell its shares in A&D to Buyer and that Weidenhammer—a member and manager

of Tillery—was acting to further Tillery’s goals when he participated in a scheme to

4 Weidenhammer also appears to have signed the SPA on behalf of Tillery. (SPA, at Joinder

Signature Pages.)

conceal information harmful to Tillery’s position in that transaction. A finder of fact

could reasonably conclude that Weidenhammer’s actions, as pleaded, were

undertaken with actual or apparent authority. Thus, Buyer may base its claim for

fraudulent concealment against Tillery on the concealment of Seller’s 2015 EMR as

well.

54. In contrast, Buyer has not alleged sufficient facts to state a claim for

fraudulent concealment against Ruggiero based on the concealment of Seller’s 2015

EMR. The extent of Buyer’s allegations against Ruggiero in this context are that

Ruggiero “concealed material information [he] had a duty to disclose[.]” (SACC ¶

111.) No further details are provided. No alleged facts show Ruggiero was a party to

the discussions between Weidenhammer, Taveira, and Butsavage about Seller’s 2015

EMR or the conduct that resulted from those discussions. Buyer alleges that

Ruggiero was an officer, manager, and shareholder of Seller and pleads facts showing

Ruggiero’s involvement in making representations contained in the SPA, but the

SACC contains no facts tying Ruggiero to the EMR disclosure process, including the

alleged concealment of Seller’s 2015 EMR.

55. This Court has previously declined to hold that Rule 9(b) was satisfied in

similar situations. See, e.g., Worley v. Moore, 2017 NCBC LEXIS 15, at *73–74 (N.C.

Super. Ct. Feb. 28, 2017) (holding that Rule 9(b) was not satisfied when plaintiffs

alleged that an individual defendant was a member of a group but pleaded particular

facts showing only that other members of the group were involved in making

misrepresentations); Oberlin Capital, L.P., 2000 NCBC LEXIS 8, at *16 (concluding

that no claim for fraudulent concealment was stated against corporate directors when

plaintiff merely alleged “in a conclusory manner that the directors ‘concealed, failed

to disclose and otherwise hid’” material facts). Buyer’s claim against Ruggiero based

on fraudulent concealment of the 2015 EMR should therefore be dismissed.

56. In summary, the Court concludes that Buyer’s claim for fraudulent

concealment against Tillery, Weidenhammer, and Taveira based on the alleged

concealment of Seller’s 2015 EMR satisfies Rules 12(b)(6) and 9(b). Buyer has alleged

affirmative acts to conceal information harmful to Seller’s interests in the Sale, the

content of the information withheld, the individuals who participated in concealing

the information, and the damage caused to Buyer and the benefit bestowed on Seller

by the concealment. The reasonableness of Buyer’s reliance is a question typically

left to the jury and cannot be determined as a matter of law on the facts as pleaded

here. Forbis, 361 N.C. at 527, 649 S.E.2d at 387; Johnson, 263 N.C. at 758, 140 S.E.2d

at 314. Buyer’s fraudulent concealment claim against Ruggiero based on Seller’s

2015 EMR, however, must be dismissed. Given that Buyer has now asserted its

counterclaims three separate times, the claim will be dismissed with prejudice.5

5 “The decision to dismiss an action with or without prejudice is in the discretion of the trial

court and will not be disturbed on appeal absent an abuse of discretion.” First Fed. Bank v.

Aldridge, 230 N.C. App. 187, 191, 749 S.E.2d 289, 292 (2013). In the context of a 12(b)(6)

motion, “the party whose claim is being dismissed has the burden to convince the court that

the party deserves a second chance[.]” Id. at 192, 749 S.E.2d at 293 (quoting Johnson v.

Bollinger, 86 N.C. App. 1, 9, 356 S.E.2d 378, 383 (1987)). Here, the Court is not persuaded

that Buyer should be entitled to a fourth chance to plead its counterclaim against Ruggiero.

2. Fraudulent Concealment of the Undisclosed Injuries and Roofing

Death

57. Turning to Buyer’s fraudulent concealment allegations involving the

Undisclosed Injuries and the Roofing Death, Buyer alleges that the Tillery Movants

intentionally failed to disclose material information about the Injuries and Death

despite having a duty to do so. Responding to these allegations, the Tillery Movants

argue that Buyer has failed to state a claim because they had no duty to disclose this

information, because Buyer’s allegations are conclusory and ambiguous, and because

Buyer has not alleged any specific damages resulting from the nondisclosure of the

Undisclosed Injuries or Roofing Death. After reviewing Buyer’s pleading, the Court

disagrees with the Tillery Movants at this stage of the litigation.

58. As with Seller’s 2015 EMR, the Tillery Movants first attack Buyer’s claim

by asserting that they had no duty to disclose the Undisclosed Injuries or Roofing

Death. The Tillery Movants characterize their failure to inform Buyer of these

incidents as “merely Seller not volunteering information that was not requested and

which it did not have an independent duty to disclose.” (Mem. Law Supp. Mot.

Dismiss Second Am. Countercl. & Third-Party Compl. Pl. & Countercl. Def. Tillery

Envtl. LLC & Third-Party Defs. Chris Weidenhammer, Paul Taveira, and John

Ruggiero 15 [hereinafter “Tillery Movants’ Support Brief”], ECF No. 63.) Buyer

counters this argument by asserting that the Tillery Movants incurred an obligation

to disclose the Undisclosed Injuries and Roofing Death when they caused Seller to

make certain representations contained in sections 4.4(m) and 4.4(n) of the SPA.

59. As previously stated, even in an arm’s-length transaction when no duty to

disclose would typically exist, a seller who does speak on a matter must make a full

and fair disclosure of that matter. Freese v. Smith, 110 N.C. App. 28, 35, 428 S.E.2d

841, 846 (1993); Ragsdale, 286 N.C. at 139, 209 S.E.2d at 501 (“When [the seller]

undertook to describe the business as a ‘gold mine’ and a ‘going concern’ he incurred

a concomitant duty to make a full disclosure of any extenuating financial

circumstances which counteracted his positive assertions concerning the condition of

the corporation.”). Thus, even if no duty to disclose the Undisclosed Injuries or the

Roofing Death was created due to active concealment or a latent defect, such an

obligation would have arisen in any event if sections 4.4(m) and 4.4(n) of the SPA

made “positive assertions” that would have been “counteracted” by facts about the

Undisclosed Injuries or Roofing Death.

60. Section 4.4(m) of the SPA stated: “Since the Most Recent Fiscal Month

End . . . to the Company’s Knowledge, there has not been any Proceeding commenced

against an A&D Company nor threatened in writing or anticipated relating to an

A&D Company[.]” (SPA § 4.4(m).) The “Most Recent Fiscal Month End” was

designated as February 28, 2015. (SPA § 4.3(a).)

61. The SPA specifically defined the term “Company’s Knowledge” as:

[T]he actual knowledge of Paul Taveira, John Ruggiero and Daniel Martin,

after reasonable inquiry by such individuals, or such other individuals as may

be specifically identified with regard to a given representation or warranty as

set forth herein. For purposes of this definition, “reasonable inquiry” (a) shall

take into account the scope of the individual’s duties and includes reasonable

inquiry of the Employee(s) who are primarily responsible for, or would

reasonably be expected to have actual knowledge of, the subject matter of the

representation and warranty or other matter involved and (b) shall not

require that any individual make any inquiry of Persons who are not

Employees or check any records not within the possession of an A&D

Company.

(SPA 3.) The SPA also defined “Proceeding” to mean “any proceeding, charge,

complaint, claim, demand, notice, action, suit, litigation, hearing, audit,

investigation, arbitration, or mediation (in each case, whether civil, criminal,

administrative, investigative or informal) commenced, conducted, heard or pending

by or before any Governmental Body, arbitrator or mediator.” (SPA 9.)

62. Reading these provisions together, the SPA represented to Buyer that, after

a reasonable inquiry, neither Taveira nor Ruggiero had knowledge of events

occurring since February 28, 2015 that would cause either of them to anticipate a

“Proceeding”—i.e., a charge, claim, demand, lawsuit, investigation, arbitration, or

mediation—against any of the A&D Companies. Buyer argues that the existence of

the Undisclosed Injuries and Roofing Death meant this statement was either

misleading or untrue. The Court concludes that a reasonable finder of fact could

agree with Buyer on the facts pleaded.

63. Buyer’s SACC identifies five different dates on which the five specific

Undisclosed Injuries allegedly took place. Three of these—a shoulder injury suffered

on March 18, 2015, a knee injury suffered on April 8, 2015, and a back injury suffered

on April 16, 2015—occurred in the time period between February 28, 2015 and the

closing of the Sale. In addition to these incidents, the roofing contractor who was

injured on March 8, 2015 at Seller’s Georgia facility died on March 13, 2015. Thus,

three of the Undisclosed Injuries and the Roofing Death occurred after “the Most

Recent Fiscal Month End,” as that date was defined by the SPA. Buyer alleges that

these incidents were known to Seller and provides facts to support this assertion. For

example, Seller’s workers’ compensation carrier established reserve amounts of

$247,848 and $444,051 for the two claims resulting from the April 8 and April 16

Undisclosed Injuries. (SACC ¶ 73.) Additionally, three days after the Roofing Death,

Taveira wrote an email to Butsavage stating “We will have to disclose this to [Buyer].”

(SACC ¶ 83.) According to Buyer’s allegations, however, no disclosure was ever made.

64. Viewed in the light most favorable to Buyer, the above-described facts could

cause a fact finder to reasonably conclude that Ruggiero and Taveira, after a

reasonable inquiry, would have anticipated a “Proceeding” of some kind being

brought against one of the A&D Companies—indeed, in the case of the Roofing Death,

a wrongful death claim was eventually filed against A&D’s Georgia subsidiary.6

Consequently, as pleaded, a fact finder could also reasonably conclude that the

representation contained in section 4.4(m)—that no Proceedings against the A&D

Companies were anticipated—was contradicted by Taveira’s and Ruggiero’s alleged

knowledge of the Undisclosed Injuries and Roofing Death and the facts surrounding

those incidents. Thus, section 4.4(m) would not have told Buyer the whole truth, and

6 The Tillery Movants argue that it is “untenable for Buyer to claim that a Proceeding would

be anticipated” as a result of the Roofing Death because “the incident was not reported to

Seller’s workers’ compensation insurance[,] . . . was not OSHA recordable,” and did not

involve an employee of Seller, and because of these factors it did not impact Seller’s EMR or

TRIR. (Mem. Further Supp. Mot. Dismiss Second Am. Countercl. & Third-Party Compl. Pl.

and Countercl. Def. Tillery Envtl. LLC & Third-Party Defs. Chris Weidenhammer, Paul

Taveira, and John Ruggiero 9, ECF No. 88.) Section 4.4(m), however, makes no reference to

EMR or TRIR and is not limited to Proceedings originating from employees of the A&D

Companies.

an obligation would have been created to speak fully on these matters. See Ragsdale,

286 N.C. at 139, 209 S.E.2d at 501.

65. Buyer also argues that section 4.4(n) of the SPA required a full and fair

disclosure that should have revealed the Undisclosed Injuries. Section 4.4(n)

provided: “Since [February 28, 2015] . . . to the Company’s Knowledge, with respect

to any A&D Company, there has not been any Material Adverse Effect[.]” (SPA §

4.4(n).) The SPA defined Material Adverse Effect as “any event, condition, effect,

change, or development of a set of circumstances or facts that . . . has a material

adverse effect on the business, assets or proprieties of the A&D Companies, taken as

a whole, after taking into effect any insurance recoveries[.]” (SPA 7.) Buyer asserts

that section 4.4(n) required the Tillery Movants to disclose the Undisclosed Injuries

because Buyer’s ignorance of these incidents caused Buyer to overvalue the A&D

Companies and did not allow Buyer to fully evaluate the desirability of purchasing

A&D.

66. The Tillery Movants make several arguments asserting that section 4.4(n)

did not require the disclosure of the Undisclosed Injuries, but the Court finds each

without merit. For example, the Tillery Movants argue Buyer has failed to plead that

a Material Adverse Effect occurred because it did not allege that the Undisclosed

Injuries were not covered by insurance. They also argue that Buyer has alleged no

facts showing that an actual adverse effect has occurred, such as the termination of

one of A&D’s contracts. These, and the rest of the Tillery Movants’ contentions,

ignore the actual thrust of Buyer’s argument—that A&D’s future business prospects

were far less certain than Buyer was led to believe they were, and as a result, Buyer

paid an inflated price for A&D’s shares.

67. Buyer’s allegations, if true, would permit a finder of fact to reasonably

conclude that a Material Adverse Effect had indeed occurred between February 28,

2015 and the date the Sale closed, despite Seller’s representations in the SPA to the

contrary. In A&D’s industry, future business, profitability, and value are tied to

maintaining certain safety ratings. (See SACC ¶ 28.) Events that cause safety

ratings to rise to unacceptable levels would make A&D less valuable and an

acquisition of A&D’s shares less desirable. (See SACC ¶ 28.) In other words, such

events could reasonably be found to have “a material adverse effect on the

business . . . of the A&D Companies.” (SPA 7.) The pleaded facts suggest that Seller

was well aware of this dynamic. In a March 18, 2015 email from Taveira to company

management personnel, Taveira wrote:

The reason we are in the dilemma we are in with [customer Georgia Pacific]

is, [sic] because the NC safety record is horrendous. Our EMR, TRIR, OHSA

[sic] citations and [Georgia Pacific] low grades post-work evaluations are a

direct result of our safety record in NC. At this rate, it won’t matter how many

hours we work because we will not have business.

(SACC ¶ 53 (emphasis added).)

68. At the motion to dismiss stage, taking the facts in the light most favorable

to Buyer, the Court concludes that Buyer’s SACC provides facts that show that the

representation made in section 4.4(n) was false and contradicted by the fact that the

Undisclosed Injuries would soon contribute to a significant, unfavorable increase in

A&D’s safety ratings and thus place significant business at risk. Therefore, Buyer

has successfully alleged section 4.4(n) created a duty to make a full and fair disclosure

of facts about the Undisclosed Injuries. See Ragsdale, 286 N.C. at 139, 209 S.E.2d at

501 (summary judgment inappropriate when corporate president had knowledge of

the fact the corporation had lost money, but represented it as a “gold mine” and a

“going concern”); Phelps-Dickson Builders, L.L.C. v. Amerimann Partners, 172 N.C.

App. 427, 437–38, 617 S.E.2d 664, 671 (2005) (reversing summary judgment for

defendant on fraud claim following Ragsdale when defendant made misleading

statements about the current demand for builders in certain subdivisions).

69. The Tillery Movants attempt to short-circuit this analysis, and avoid

liability arising from the representations made in Article IV of the SPA, by arguing

that Article IV expressly provides that its representations are made by “the

Company,” i.e., pre-Sale A&D, i.e., Seller. As a result, the Tillery Movants argue,

they cannot be liable for any fraud originating from these representations. This

contention requires the Court to examine whether the Tillery Movants, even if aware

that the representations in sections 4.4(m) and 4.4(n) did not constitute a full and fair

disclosure of the matters those sections discussed, are nonetheless insulated from

liability because the SPA specified the representations in sections 4.4(m) and 4.4(n)

were made by “the Company” as opposed to the selling shareholders. The Court

concludes that the answer to this question must be no.

70. To the Court’s knowledge, no North Carolina court has had occasion to

examine the issue of a corporate officer’s liability for fraud when the allegedly

fraudulent statements are made within a contract and attributed solely to the

corporation by that same contract. Thus, there is no North Carolina case on all fours

with the one now before the Court. Seeking guidance, the Court considers the

principles of law underlying the American corporate form, North Carolina law

governing the tort liability of corporate officers, and two Delaware Chancery Court

opinions on this issue.7

71. It is well settled in the United States that “a corporation is an artificial

being, invisible, intangible, and existing only in contemplation of law.” Trs. of

Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 636 (1819). It is likewise

axiomatic that a corporation, having no body, voice, or other means of interacting

with the corporeal world, must rely on agents of the less-theoretical sort to transact

its business—typically directors, officers, and employees. Braswell v. United States,

487 U.S. 99, 110 (1988); see Burlington Indus., Inc. v. Foil, 284 N.C. 740, 758, 202

S.E.2d 591, 603 (1974).

72. When addressing questions of liability that inevitably arise from this agency

relationship, North Carolina courts have long recognized the following general rule:

a corporation’s agent “is not liable for the torts of the corporation ‘merely by virtue of

his office’” but is personally liable “‘for torts in which he actively participates,’ even

though [those torts are] ‘committed when acting officially.’” Taft v. Brinley’s Grading

Servs., 225 N.C. App. 502, 520, 738 S.E.2d 741, 752 (2013) (quoting Wolfe v.

Wilmington Shipyard, Inc., 135 N.C. App. 661, 670, 522 S.E.2d 306, 312–13 (1999));

7 While the decisions of the Delaware Chancery Court have no binding authority on this

Court, this Court has frequently found the Chancery Court to be a “persuasive authority on

various issues of business and corporate law.” McMillan v. Unique Places, LLC, 2015 NCBC

LEXIS 49, at *8 (N.C. Super. Ct. May 7, 2015).

see also Palomino Mills, Inc. v. Davidson Mills Corp., 230 N.C. 286, 292, 52 S.E.2d

915, 919 (1949) (“[I]t is thoroughly well settled that a man is personally liable for all

torts committed by him, consisting in misfeasance, as fraud, conversion, acts done

negligently, etc., notwithstanding he may have acted as the agent or under directions

of another . . . this is true to the full extent as to torts committed by officers or agents

of a corporation in the management of its affairs . . . the fact that the circumstances

are such as to render the corporation liable is altogether immaterial . . . .” (quoting

Minnis v. Sharpe, 198 N.C. 364, 367, 151 S.E. 735, 737 (1930))). The Court must now

determine if this general rule applies equally in this case, where an agreement

between the parties identified the corporation as the sole source of the allegedly

fraudulent representations.

73. The Delaware Chancery Court has previously addressed this issue. In

ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), the

Chancery Court concluded that a seller could be liable for a sold company’s

contractual representations in certain situations:

[T]he public policy of this State will not permit the Seller to insulate itself

from the possibility that the sale would be rescinded if the Buyer can show

either: 1) that the Seller knew that the Company's contractual

representations and warranties were false; or 2) that the Seller itself lied to

the Buyer about a contractual representation and warranty. This will require

the Buyer to prove that the Seller acted with an illicit state of mind, in the

sense that the Seller knew that the representation was false and either

communicated it to the Buyer directly itself or knew that the Company had.

Id. at 1064.

74. The Chancery Court examined this issue again in Prairie Capital III, L.P.

v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. 2015). Like in the case before this

Court now, the dispute in Prairie Capital III, L.P. arose following a stock purchase

agreement when the purchaser delayed the dispersal of escrow funds and brought

counterclaims against the sellers for fraudulent representations in the stock purchase

agreement. Id. at 43. Several of the sellers responded by contending that “they [could

not] be accountable for any of the representations because they were made only by

the Company.” Id. at 59.

75. The Chancery Court in Prairie Capital III, L.P. declined to adopt the sellers’

reasoning, explaining that a corporation has “no mind with which to think, no will

with which to determine and no voice with which to speak,” and this means a

corporation can only “act through human agents.” Id. at 59–60 (quoting N. Assurance

Co. v. Rachlin Clothes Shop, 125 A. 184, 188 (Del. 1924)). These agents, the court

continued, cannot escape personal liability for the corporation’s fraudulent actions

when they have actively participated in the fraud. Id. at 60 (citing Bay Ctr.

Apartments Owner, LLC v. Emery Bay PKI, LLC, No. 3658-VCS, 2009 Del. Ch. LEXIS

54, at *44 (Del. Ch. Apr. 20, 2009)). In keeping with the holding of ABRY Partners V,

L.P., the court concluded that these principles meant the sellers could indeed be liable

“for fraudulent contractual representations made by the Company because the

[purchaser] sufficiently allege[d] that [the sellers] knew that the representations [in

the stock purchase agreement] were false.” Id. at 61. The purchaser also sufficiently

alleged that the sellers actively participated in making the false representations by

pleading facts showing that the sellers, among other things, “monitored and directed

the Company’s day to day business activities,” were involved in the approval of “all

documents and reports before anything was sent to [the purchaser],” and

“communicated directly with [the purchaser] on a regular basis throughout the sales

process, both during formal presentations and informal dinner meetings.” Id. The

Chancery Court concluded that these alleged facts were sufficient to support the

purchaser’s claim for fraud. See id. at 61–62.

76. The Court finds that these Delaware opinions offer not only a persuasive

argument for the correct decision in this case, but also a satisfactory blueprint for

deciding this issue based on recognized North Carolina law. There appears to be no

precedent in North Carolina supporting the enforcement of a contractual provision

exculpating an individual from intentional wrongdoing. See Ada Liss Grp. v. Sara

Lee Corp., No. 06CV610, 2010 U.S. Dist. LEXIS 59691, at *27 (M.D.N.C. Apr. 28,

2010) (“There is absolutely no case law in North Carolina, on either the state or

federal level, supporting the enforcement of exculpatory clauses for intentional

wrongdoing.”) As one federal district court in North Carolina has noted, this is likely

because “the issue is . . . obviously contrary to sound law and policy[.]” Id. at *28

(citing Restatement (Second) of Contracts § 195 (Am. Law Inst. 1981)). But if the

Court were to agree with the Tillery Movants’ argument here, its decision would

effectively exculpate them from any liability for Seller’s alleged misrepresentations

in the SPA, even if they played a part in making those misrepresentations. The only

entity that could be liable for the misrepresentations under this line of reasoning

would be A&D, the entity now owned by Buyer. Such an outcome would be

inconsistent with North Carolina law.

77. The SPA may have expressly provided that the representations in sections

4.4(m) and 4.4(n) were made by Seller, but Seller, a corporate entity, had no voice of

its own to speak with and no hand of its own to write with. It was totally dependent

on its officers and other agents to negotiate the terms of the SPA and make the

representations contained in the SPA. If false or misleading statements were made,

they were necessarily made by one or more of Seller’s agents. If facts pertinent to

representations made by Seller were withheld, they were necessarily withheld by one

or more of Seller’s agents. The law in North Carolina mandating liability for Seller’s

torts is clear: a corporate agent who actively participates in a corporate tort is

personally liable for that tort. See, e.g., Wilson v. McLeod Oil Co., 327 N.C. 491, 518,

398 S.E.2d 586, 600 (1990); Lillian Knitting Mills Co. v. Earle, 233 N.C. 74, 76, 62

S.E.2d 492, 493 (1950) (“[C]orporate directors and officers are personally liable for

making fraudulent misrepresentations of fact as to the financial condition of the

corporation to persons who deal with the corporation and suffer loss by reason of their

reliance on such misrepresentations.”); Minnis, 198 N.C. at 367, 151 S.E. at 737; Taft,

225 N.C. App. at 520, 738 S.E.2d at 752; White v. Collins Bldg., Inc., 209 N.C. App.

48, 56, 704 S.E.2d 307, 312 (2011) (holding that the president of a corporation could

be personally liable for negligence without piercing the corporate veil); Esteel Co. v.

Goodman, 82 N.C. App. 692, 698, 348 S.E.2d 153, 157 (1986) (holding the evidence at

trial supported finding a corporation’s president liable for conversion when he

participated in selling leased property on which an option to purchase had not been

exercised); Wolfe, 135 N.C. App. at 670, 522 S.E.2d at 313.

78. The Court thus concludes that if the Tillery Movants actively participated

in making the representations in sections 4.4(m) and 4.4(n) of the SPA with

knowledge that a full and fair disclosure of the matters addressed by those sections

had not been provided to Buyer, the SPA’s language will not insulate the Tillery

Movants from a claim for fraud based on those sections.

79. At this stage of the case, Buyer’s pleaded facts would permit a fact finder to

reasonably conclude that the Tillery Movants were aware the representations in

sections 4.4(m) and 4.4(n) were misleading when made to Buyer but participated in

making those representations anyway. Buyer alleges that Tillery, Weidenhammer,

Taveira, and Ruggiero all knew of the Undisclosed Injuries and Roofing Death before

closing, and Buyer’s pleaded facts also show that each of the Tillery Movants played

an important role in the negotiation and implementation of the SPA. Weidenhammer

signed the SPA as Seller’s president, was involved in the due diligence disclosures

with Buyer, and served as a manager of Tillery. Tillery served as the shareholders’

representative for the SPA and Sale, employed Weidenhammer as its agent, and

owned a majority of Seller’s shares. Taveira and Ruggiero were both officers of Seller,

and Seller’s representations in sections 4.4(m) and 4.4(n) were made by reference to

Taveira’s and Ruggiero’s knowledge after a reasonable inquiry.

80. Furthermore, based on Buyer’s allegations, a reasonable fact finder could

conclude that by causing Seller to sign the SPA, by actively participating in the

production of due diligence information to Buyer, by allowing Seller to define its

knowledge by their knowledge, by selling their own shares to consummate the

transaction, and by allegedly doing so while knowing their actions would cause Seller

to make representations to Buyer that left out material information, the Tillery

Movants actively participated in making the misrepresentations in the SPA. Because

Seller made the representations in sections 4.4(m) and 4.4(n), it “incurred a

concomitant duty to make a full disclosure of any extenuating . . . circumstances

which counteracted [those] positive assertions” and is thus potentially liable to Buyer

for fraud. Ragsdale, 286 N.C. at 139, 209 S.E.2d at 501. Consequently, under Buyer’s

pleaded facts, the Tillery Movants are liable as well.

81. Finally, the Tillery Movants also argue Buyer’s allegations involving the

Undisclosed Injuries and Roofing Death are conclusory and ambiguous and thus fail

to state a claim. The Court does not agree.

82. Buyer has sufficiently pleaded a claim for fraud based on the Undisclosed

Injuries and Roofing Death at this stage of the case. First, as indicated above, Buyer

has pleaded facts giving rise to a duty to make a full and fair disclosure.

83. Second, Buyer has met the other requirements for alleging a claim for

fraudulent concealment at this stage of the case. Buyer alleges the general content

of the information that should have been disclosed, the identity of the individuals

who knew the information and failed to disclose it, what those individuals gained

from withholding the information, and that Buyer was damaged as a result of the

concealment when Buyer paid more for A&D than the corporation was truly worth.

Even if Buyer’s allegations concerning knowledge and intent are general, such

allegations meet the requirements of Rule 9(b). N.C. R. Civ. P. 9(b). The

reasonableness of Buyer’s conduct is a question the Court cannot decide now as a

matter of law. See Forbis, 361 N.C. at 527, 649 S.E.2d at 387; Johnson, 263 N.C. at

758, 140 S.E.2d at 314. Consequently, Buyer’s claim for fraud against the Tillery

Movants premised on the concealment of the Undisclosed Injuries and Roofing Death

should survive the Tillery Motion.

3. Affirmative Misrepresentations

84. The second prong of Buyer’s fraud claim rests on alleged affirmative

misrepresentations made to Buyer—the “false and misleading due diligence

information” concerning Seller’s 2012, 2013, and 2014 EMR numbers. (SACC ¶ 111.)

Buyer asserts that the Tillery Movants produced or caused Seller to produce this

information to Buyer, that Buyer could not have known the information was false

through due diligence, and that as a direct result of receiving fraudulent information

Buyer ended up paying too much for Seller’s shares.

85. The Tillery Movants respond to Buyer’s claims based on Seller’s 2012–14

EMR information by making two main arguments. First, they argue that Buyer has

failed to plead that its reliance on Seller’s EMR numbers was reasonable. Second,

the Tillery Movants assert that Buyer has not established that Seller’s practice of

“buying down” its EMR each year was improper, and thus Buyer has failed to state a

claim as a matter of law. The Court disagrees with both of these assertions but agrees

that Buyer has failed to plead facts that give rise to an inference of knowledge, intent,

or reckless disregard on the part of Ruggiero with regard to Seller’s 2012–14 EMR

disclosures.

86. The Tillery Movants’ first argument asserts Buyer has failed to establish

that its reliance on the 2012–14 EMR figures was reasonable because the EMR data

provided to Buyer showed two years in which Seller’s EMR rose above 1.0. As a

result, the Tillery Movants argue that Buyer should have been put on notice that

further due diligence on Seller’s EMR was required. Because Buyer could have

discovered the truth about Seller’s EMR numbers upon inquiry, they continue, the

law requires Buyer to plead that it was denied the opportunity to investigate or that

it could not have learned the true facts by exercising reasonable diligence—something

the Tillery Movants claim Buyer did not do. The Court does not find this argument

persuasive.

87. It is true that to succeed on a claim for fraud by affirmative representation

a claimant’s “reliance on alleged false representations must [have been] reasonable.”

Cobb v. Pa. Life Ins. Co., 215 N.C. App. 268, 277, 715 S.E.2d 541, 549 (2011). It is

also true that reliance on false representations “is not reasonable where the plaintiff

could have discovered the truth of the matter through reasonable diligence, but failed

to investigate.” Id.; WNC Holdings, LLC v. All. Bank & Tr. Co., 2012 NCBC LEXIS

53, at *36 (N.C. Super. Ct. Oct. 2, 2012). But courts faced with arguments similar to

those propounded here, e.g., “Buyer Caused its Own Harm by Not Conducting

Additional Due Diligence,” (Tillery Movants’ Support Brief 13), must also remember

the unambiguous rule expressed by the Supreme Court of North Carolina: “the

maxim caveat emptor does not apply in cases of fraud,” Johnson, 263 N.C. at 758,

140 S.E.2d at 314 (quoting Brooks v. Ervin Constr. Co., 253 N.C. 214, 217, 116 S.E.2d

454, 457 (1960)).

88. The doctrine of reasonable reliance enforces the notion that “[a] plaintiff

who, aware, has made a bad bargain should not be allowed to disown it,” but when

courts are presented with a close case, “a [party] who has intentionally made a false

representation about something material . . . should not be permitted to say in effect,

‘You ought not to have trusted me. If you had not been so gullible, ignorant, or

negligent, I could not have deceived you.’” Id. Because the facts are of the utmost

importance in these cases, “[c]ourts should be very loath to deny an actually

defrauded [claimant] relief on” the grounds that his or her reliance was unreasonable.

Id. Thus, unless “the facts [as alleged] are so clear that they support only one

conclusion,” the reasonableness of a party’s reliance is a question of fact. Forbis, 361

N.C. at 527, 649 S.E.2d at 387.

89. The Court does not believe the reasonableness of Buyer’s reliance can be

determined at this stage of the case. The Court cannot conclude here that Buyer

should have known to conduct due diligence into the accuracy of Seller’s previous

EMR numbers simply because the altered numbers rose above 1.0 in two years before

the SPA was executed. The Court will not guess why Buyer chose to go forward with

the SPA after seeing this information. Perhaps Buyer decided two abnormally high

years were not cause for alarm; perhaps it had other motivations. But even assuming

that after viewing Seller’s disclosed EMR figures Buyer should have been aware that

Seller’s “consistently below 1.0” language was puffery, it does not follow that Buyer

should have also suspected that Seller’s EMR figures themselves were inaccurate and

manipulated.

90. The Court is also skeptical of the Tillery Movants’ argument that Buyer

could have discovered the truth of these matters via further inquiry. No agent of

Seller provided Buyer with facts about Seller’s practice of “buying down” Seller’s EMR

in previous years when Buyer asked for information about Seller’s EMR history. The

Court will not punish Buyer for failing to ask Seller if the EMR figures Seller provided

were calculated accurately and without manipulation. See Johnson, 263 N.C. at 758,

140 S.E.2d at 314 (“The law does not require a prudent man to deal with everyone as

a rascal and demand covenants to guard against the falsehood of every representation

which may be made as to facts which constitute material inducements to a contract;

that there must be a reliance on the integrity of man or else trade and commerce

could not prosper.” (quoting Cowart v. Honeycutt, 257 N.C. 136, 143, 125 S.E.2d 382,

387 (1962))); Freese, 110 N.C. App. at 35, 428 S.E.2d at 846 (“[I]f a seller does speak

then he must make a full and fair disclosure of the matters he discloses.”).

91. What is more, in contradiction to the Tillery Movants’ assertions, Buyer has

in fact pleaded that “Buyer could not have known of the falsity of the misleading

statements through the exercise of diligence as the relevant information was in the

exclusive control of Seller Corporation” and the Tillery Movants. (SACC ¶ 112.)

Buyer’s pleaded facts also demonstrate that Seller’s allegedly improper actions

resulted in NCCI, the national group that calculated and set businesses’ EMRs,

changing Seller’s EMR figures for 2012–14. A fact finder could thus reasonably

conclude that Seller’s practice of altering its EMR figures after the fact would have

been difficult to discover. The Court therefore finds that Buyer has sufficiently

pleaded its reasonable reliance on the 2012–14 EMR figures to satisfy the

requirements of Rule 12(b)(6). See Forbis, 361 N.C. at 527, 649 S.E.2d at 387; Phelps-

Dickson Builders, L.L.C., 172 N.C. App. at 439, 617 S.E.2d at 671 (holding the

plaintiff’s fraud claims were “not barred on the grounds that plaintiff had some lesser

opportunity to investigate the various representations made by [defendant], who

possessed superior knowledge on such matters” when those representations “could

not be readily or easily verified”); Flanders/Precisionaire Corp. v. Bank of N.Y.

Mellon Tr. Co., 2015 NCBC LEXIS 36, at *36 (N.C. Super. Ct. Apr. 7, 2015) (holding

that a plaintiff had sufficiently pleaded reasonable reliance when its complaint stated

that it “was not privy to the information which would have allowed it to understand

the nature of [a contract]” and the plaintiff's responsibilities under the contract and

that plaintiff would not have entered the transaction had it known the true facts).

92. The Tillery Movants’ second argument—that Buyer has not sufficiently

established the impropriety of Seller’s “buying down” its EMR and has pleaded only

conclusory facts on this point—also embraces questions of fact that the Court cannot

now determine. The question posed by the Tillery Motion is whether Buyer’s

allegations about Seller’s 2012–14 EMR disclosures support a claim for fraud,

assuming for now that the allegations are true and taking into account the particular

pleading requirements of Rule 9(b). The Court concludes that they do.

93. While it is true that the particularity requirements of Rule 9(b) cannot be

satisfied by using “conclusory language or asserting fraud through mere quotes from

the statute,” the Supreme Court of North Carolina has stated that a claimant

pleading actual fraud meets Rule 9(b)’s pleading standard “by alleging [the] time,

place and content of the fraudulent representation, identity of the person making the

representation and what was obtained as a result of the fraudulent acts or

representations.” Terry v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678 (1981). Rule

9(b) requires a claimant to plead with greater particularity to protect defendants from

“unjustified injury to . . . reputation” and provide them with particular facts “in order

to meet the charges” of fraud brought against them. Id. Buyer’s pleaded facts provide

the Tillery Movants with such information and are sufficient under this standard.

94. Buyer has alleged when and how the 2012–14 EMR numbers were produced

by Seller. Buyer has also alleged the identities of individuals responsible for

producing the numbers and the result of the allegedly fraudulent acts—Buyer’s

overpayment. Buyer’s assertion that Seller’s practice of “buying down” EMR

numbers was “neither accepted as an industry practice, nor sanctioned by NCCI as a

permissible method of managing EMR,” (SACC ¶ 66), is another fact Buyer pleads to

support its claim for fraud—a fact that may weigh on whether the 2012–14 EMR

figures were false or misleading, whether the Tillery Movants possessed an intent to

deceive, or whether Buyer’s reliance was reasonable. Whether Buyer’s claims are

supported by sufficient factual evidence is a question that must be left to a later stage

of the case. Compare Christenbury Eye Ctr., P.A., 802 S.E.2d at 891 (stating that

courts treat allegations within pleadings as true when determining whether to grant

a Rule 12(b)(6) motion to dismiss), with Ussery v. Branch Banking & Tr. Co., 368 N.C.

325, 334, 777 S.E.2d 272, 278 (2015) (noting that a movant is entitled to summary

judgment “where a claim or defense is utterly baseless in fact”). For now, Buyer’s

pleaded facts allow its claim for fraud based on the 2012–14 EMR figures to survive

the Tillery Motion.

95. Finally, for the reasons discussed above in relation to the concealment of

Seller’s 2015 EMR, the Court concludes that Buyer has sufficiently pleaded a claim

against Tillery, Weidenhammer, and Taveira for fraud premised on Seller’s 2012–14

EMR figures but has failed to plead specific facts that “provide a ‘tie-in’” between

Ruggiero and the allegedly misleading information given to Buyer for the years 2012–

14. Oberlin Capital, L.P., 2000 NCBC LEXIS 8, at *16; see also Worley, 2017 NCBC

LEXIS 15, at *73–74. No pleaded facts show Ruggiero was involved in any manner

in manipulating Seller’s EMR information or in producing the EMR disclosures to

Buyer. Thus, Buyer’s fraud claim against Ruggiero cannot be premised upon the

2012–14 EMR information provided to Buyer.

96. In conclusion, Buyer’s fraud claim based on Seller’s allegedly misleading

2012–14 EMR numbers is sufficiently pleaded against Tillery, Weidenhammer, and

Taveira but not Ruggiero. Given that Buyer has now asserted its counterclaims three

separate times, Buyer’s claim for fraud based on the 2012–14 EMR figures is

dismissed against Ruggiero with prejudice.

B. Buyer’s Alternative Claim Under the North Carolina Securities Act

97. In the alternative, Buyer brings a claim against the Tillery Movants for

violations of the NCSA. The NCSA regulates transactions involving “securities,”

which are defined as:

any note; stock; treasury stock; bond; debenture; evidence of indebtedness;

certificate of interest or participation in any profit-sharing agreement . . .

investment contract . . . or, in general, any interest or instrument commonly

known as a “security[.]”

N.C. Gen. Stat. § 78A-2(11). “The NCSA recognizes three different categories of

[potentially liable] persons and approaches liability against these different persons

from different perspectives and with different allocations of the burden of proof.”

NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *28. These

approaches to liability include primary liability against certain persons under section

78A-56(a), secondary liability for persons described in section 78A-56(c)(1), or

secondary liability for those not included under section 78A-56(c)(1). Id. at *29. As

a general rule, the NCSA does not impose a duty to disclose on parties. Id. at *62–

63. Buyer asserts that it has properly stated a claim under the NCSA for primary

liability against Tillery, Taveira, and Ruggiero and for secondary liability against

Weidenhammer, Taveira, and Ruggiero.8

8 Buyer’s SACC generally asserts that Tillery, Weidenhammer, Taveira, and Ruggiero

“violated the North Carolina Securities Act” and buttresses this assertion with various

alleged facts. (SACC ¶¶ 117–29.) The pleading does not explain what particular provision

of the NCSA gives rise to the Tillery Movants’ liability. It appears to the Court from

representations and arguments made in Buyer’s brief that Buyer claims Tillery, Taveira, and

Ruggiero are subject to primary liability under the NCSA and Weidenhammer, Taveira, and

Ruggiero are subject to secondary liability. The Court thus addresses Buyer’s claims as they

are framed in Buyer’s brief, and to the extent the allegations in the SACC can be read more

broadly, the Court concludes that Buyer—after now asserting its counterclaims for the third

1. Primary Liability Under the NCSA

98. Sections 78A-56(a)(1) and 78A-56(a)(2) provide two grounds for holding

persons primarily liable under the NCSA. A person who offers or sells a security and

violates either of these sections “is liable to the person purchasing the security from

him, who may sue either at law or in equity to recover” certain remedies. N.C. Gen.

Stat. § 78A-56(a). Here, Buyer has properly pleaded a claim for primary liability

against Tillery, Taveira, and Ruggiero under either subsection.

99. Section 78A-56(a)(1) imposes liability on persons who offer or sell “a security

in violation of [sections] 78A-8(1) [or] 78A-8(3)[.]” N.C. Gen. Stat. § 78A-56(a)(1). In

effect, this liability is “similar to common law fraud.” Piazza v. Kirkbride, 785 S.E.2d

695, 709 (N.C. Ct. App.), petition for disc. review granted, 794 S.E.2d 316 (N.C. 2016).

As a result, a claimant seeking to hold a person liable under subsection (a)(1) must

include in their pleading allegations and facts sufficient to state a claim for common

law fraud. Id. Because the claim is based in fraud, it must comply with Rule 9(b).

NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *35. Stated

differently, to successfully state a claim under subsection (a)(1):

a plaintiff must plead with particularity that (1) defendant is a seller or

offeror of a security who either (a) “employ[ed] any device, scheme, or artifice

to defraud,” or (b) “engage[d] in any act, practice, or course of business which

time—has abandoned any NCSA claim against any other defendant or any alternative NCSA

claims against these defendants. The Court dismisses such other claims with prejudice. See

Thompson Installations, Inc. v. Stock Bldg. Supply, LLC, 2012 NCBC LEXIS 12, at *15 (N.C.

Super. Ct. Feb. 21, 2012) (deeming a cause of action abandoned when the plaintiff asserted

general liability under a chapter of the North Carolina General Statutes but “failed to plead

or otherwise raise” liability under a specific section of the chapter); see also Blythe v. Bell,

2013 NCBC LEXIS 7, at *32 (N.C. Super. Ct. Feb. 4, 2013) (dismissing or limiting contract

claims by the plaintiff as a result of his choice not to pursue certain claims).

operates or would operate as a fraud or deceit upon any person”; (2) defendant

acted with scienter; and (3) plaintiff justifiably relied.

Id. at *35–36.

100. In the instant case, Buyer has properly pleaded a claim for fraud against

three parties that sold Buyer securities—Tillery, Taveira, and Ruggiero—by way of

the previously discussed allegations involving concealed facts and affirmative

misrepresentations. As a result, Buyer has stated a claim for civil liability under

section 78A-56(a)(1) against these three parties.

101. As an alternative route to primary liability under the NCSA, section 78A-

56(a)(2) imposes liability on an offeror or seller of a security who makes a false or

misleading statement about a material fact or makes a statement about a material

fact that was false or misleading under the circumstances because of an omission.

N.C. Gen. Stat. § 78A-56(a)(2); NNN Durham Office Portfolio 1, LLC, 2013 NCBC

LEXIS 11, at *37–39. A successful claim under this subsection requires allegation

and proof (i) that a false or misleading statement was made, (ii) that the statement

was material, and (iii) that the statement “was made by one who offered or sold a

security.” NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *39.

Unlike a claim for common law fraud or liability under subsection (a)(1), subsection

(a)(2) does not require proof of scienter or justifiable reliance. Id. at *37; see N.C.

Gen. Stat. § 78A-56(a)(2). A claim under this subsection may be grounded on fraud

or negligence, and when it is based on negligence, “[t]he heightened pleading

standards of Rule 9(b) do not apply[.] NNN Durham Office Portfolio 1, LLC, 2013

NCBC LEXIS 11, at *38. The logical inverse of this statement is that the standards

of Rule 9(b) will apply to a subsection (a)(2) claim based on fraud. This point is largely

extraneous here, however, because the Court has determined that Buyer’s allegations

are sufficiently specific.

102. Like with its claim for primary liability under subsection (a)(1), Buyer’s

previously discussed allegations of fraud also serve to state a claim for primary

liability under subsection (a)(2). Buyer’s allegations about Seller’s 2012–14 EMR

figures show one set of false or misleading material statements made to Buyer. The

alleged misrepresentations made in the SPA are an example of another. Thus, Buyer

has sufficiently stated a claim under section 78A-56(a)(2) against Tillery, Taveira,

and Ruggiero to withstand a motion to dismiss.

2. Secondary Liability Under the NCSA

103. In addition to allowing civil suits against those liable under section 78A-

56(a), the NCSA also provides for what has been termed “secondary liability” under

section 78A-56(c). Atkinson v. Lackey, 2015 NCBC LEXIS 21, at *17 (N.C. Super. Ct.

Feb. 27, 2015); NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *39–

40. To bring a successful claim for secondary liability, a claimant must first plead a

primary violation of the NCSA. Atkinson, 2015 NCBC LEXIS 21, at *17 (“If Plaintiffs

can prove that an offeror or seller has primary liability . . . secondary liability will lie

for [the individuals listed in section 78A-56(c)(1).]”); NNN Durham Office Portfolio 1,

LLC, 2013 NCBC LEXIS 11, at *41–42 (“To bring a claim for [secondary] liability

under § 56(c)(1) or (2), a plaintiff must first plead a primary violation under § 56(a),

(b), or (b1) . . . .”).

104. Secondary liability under the NCSA allows a claimant to recover from a

broadly defined group of persons besides the primarily liable offeror or seller, and

section 78A-56(c) enumerates those who may be secondarily liable as follows:

(1) Every person who directly or indirectly controls a person liable under

subsection (a), (b), or (b1) of this section, every partner, officer, or director of

the person, every person occupying a similar status or performing similar

functions, and every dealer or salesman who materially aids in the sale is also

liable jointly and severally with and to the same extent as the person, unless

able to sustain the burden of proof that the person did not know, and in the

exercise of reasonable care could not have known, of the existence of the facts

by reason of which the liability is alleged to exist.

(2) Unless liable under subdivision (1) of this subsection, every employee of a

person liable under subsection (a), (b), or (b1) of this section who materially

aids in the transaction giving rise to the liability and every other person who

materially aids in the transaction giving rise to the liability is also liable

jointly and severally with and to the same extent as the person if the

employee or other person actually knew of the existence of the facts by reason

of which the liability is alleged to exist.

N.C. Gen. Stat. 78A-56(c). When determining whether a pleading sufficiently alleges

that a person materially aided a transaction for the purposes of a motion to dismiss,

this Court has previously required “allegations of conduct which rises to the level of

having contributed substantial assistance to the act or conduct leading to primary

liability under the NCSA.” NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS

11, at *49.

105. Although both subsections of 78A-56(c) extend liability to a potentially broad

group of persons, the allegations required to plead a claim under each are slightly

different. A claimant states a claim under subsection (c)(1) by (i) stating a claim for

primary liability and (ii) pleading facts that show the defendant fits within the

category of persons listed in subsection (c)(1). Id. In contrast, a claimant stating a

claim under subsection (c)(2) must (i) state a claim for primary liability, (ii) plead

facts showing the defendant fits within the category of persons listed in subsection

(c)(2), and (iii) plead that the defendant “actually knew of the existence of the facts

by reason of which the liability is alleged to exist.” Id. (quoting N.C. Gen. Stat. § 78A-

56(c)(2)).

106. The Tillery Motion presents two separate questions for the Court. The first

is whether Buyer has properly pleaded a claim against Weidenhammer for secondary

liability under the NCSA. The second is whether Buyer has also done so against

Taveira and Ruggiero. The first question is easy to answer; the second is more

difficult.

107. Buyer has clearly stated a claim for secondary liability against

Weidenhammer under either subsection of 78A-56(c). First, the Court has already

concluded that Buyer has stated a claim for primary liability against Tillery. Second,

Buyer has alleged that Weidenhammer was a “member/manager of Tillery,” and that

he carried out his complained-of conduct “in his capacity as an officer of Tillery.”

(SACC ¶ 3.) Buyer has alleged specific ways in which Weidenhammer contributed to

the sale of Tillery’s shares of Seller, e.g., concealing information from Buyer and

signing the SPA on behalf of Seller as its president. (SACC ¶¶ 45, 71; SPA at Joinder

Signature Pages.) These alleged facts are sufficient to show that Weidenhammer was

a “person who directly or indirectly control[led] [Tillery]” as a “partner, officer, or

director of [Tillery],” or a “person occupying a similar status or performing similar

functions,” who materially aided in the sale under subsection (c)(1). N.C. Gen. Stat.

§ 78A-56(c)(1). These alleged facts also show that Weidenhammer was an “employee

of [Tillery] who materially aid[ed] in the transaction” under subsection (c)(2). N.C.

Gen. Stat. § 78A-56(c)(2). Finally, Buyer has pleaded Weidenhammer had actual

knowledge of the facts by reason of which liability is alleged to exist. (See e.g., SACC

¶¶ 33, 45–46, 111, 114.) Buyer has thus stated a claim against Weidenhammer under

subsection (c)(1) and subsection (c)(2).

108. Whether Buyer has properly pleaded a claim for secondary liability against

Taveira and Ruggiero requires more analysis. North Carolina law (and analogous

federal case law) requires a claim for secondary liability under the NCSA to be

preceded by a claim for primary liability. NNN Durham Office Portfolio 1, LLC, 2013

NCBC LEXIS 11, at *41; see Venturtech II, L.P. v. Deloitte Haskins & Sells, 790 F.

Supp. 576, 589 (E.D.N.C. 1992) (noting that aiding and abetting a violation of similar

federal securities law requires “a primary violation by another person”); see also Hunt

v. Miller, 908 F.2d 1210, 1213 n.5 (4th Cir. 1990) (comparing the NCSA and federal

securities law and noting that section 78A-56(c) “has been interpreted by reference to

federal law”). The relationship that must be shown between the primarily liable

party and the secondarily liable party differs depending on whether the claim is

brought under subsection (c)(1) or subsection (c)(2). See N.C. Gen. Stat. § 78A-56(c).

The Court will analyze Buyer’s claim under each.

109. Section 78A-56(c)(1) attaches liability to two groups of individuals the Court

need consider here. First, persons who directly or indirectly control a primarily liable

person, or “control persons,” and second, partners, officers, and directors of a

primarily liable person, or persons of similar status and function. N.C. Gen. Stat. §

78A-56(c)(1). As noted above, to bring a claim against a person under this provision,

the claimant must first state a claim against the primarily liable person. Id. (defining

secondarily liable individuals by their relationship to the “person liable under

subsection (a), (b), or (b1)”). And while identifying partners, officers, directors, or

persons of similar status and function can be straightforward, the statute does not

provide a manner for determining “who directly or indirectly controls” a primarily

liable person.

110. This Court has previously looked to “analogous federal control person

liability statutes, such as 15 U.S.C. § 77o, when interpreting [section 78A-56(c)].”

NNN Durham Office Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *41 (citing Hunt, 908

F.2d at 1213 n.5). “Federal courts often invoke a two-part test to determine control

person liability” under these federal control person liability statutes: first, the alleged

control person must have “exercised general control over the operations of the

wrongdoer, and second, the control person must have had the power or ability—even

if not exercised—to control the specific transaction or activity that is alleged to give

rise to liability.” Atkinson, 2015 NCBC LEXIS 21, at *30 (quoting Donohoe v. Consol.

Operating & Prod. Corp., 30 F.3d 907, 911–12 (7th Cir. 1994)); see also Waterford Inv.

Servs., Inc. v. Bosco, 682 F.3d 348, 354 (4th Cir. 2012) (stating that, when analyzing

control, the court is concerned with “the power or potential power to influence and

control the activities of a person”); In re Microstrategy, Inc. Sec. Litig., 115 F. Supp.

2d 620, 661 (E.D. Va. 2000) (“A plaintiff satisfies the control requirement under this

definition by pleading facts showing that the controlling defendant ‘had the power to

control the general affairs of the entity primarily liable at the time the entity violated

the securities laws . . . [and] had the requisite power to directly or indirectly control

or influence the specific corporate policy which resulted in the primary liability.’”

(quoting Brown v. Enstar Grp., Inc., 84 F.3d 393, 396 (11th Cir. 1996))).

111. Examining Buyer’s claim using this two-part test, the Court concludes that

Buyer has not sufficiently stated a claim against Taveira or Ruggiero under section

78A-56(c)(1). First, with respect to these two third-party defendants, Buyer has failed

to meet the first requirement for secondary liability under 78A-56(c)(1)—a claim for

primary liability. Buyer’s Third Claim for Relief in the SACC states, “At the time of

the purchase and at all relevant times preceding it, Taveira and Ruggiero were

shareholders and officers of Seller Corporation, exerted direct and/or indirect control

over Seller Corporation, and had knowledge of the Injuries and the EMR

Improprieties.” (SACC ¶ 120.) Buyer also alleges that Taveira and Ruggiero were

officers of Seller. (SACC ¶¶ 4–5.) But even if these facts are true, Buyer overlooks a

significant problem with this control person argument—it has not brought a claim

against Seller, the controlled person. Without a claim for primary liability against

Seller, Buyer cannot hold the individuals who are alleged to have controlled Seller

secondarily liable under subsection (c)(1).

112. Perhaps reacting to this problem, Buyer argues in its brief:

“[Weidenhammer, Taveira, and Ruggiero] were all officers of Seller Corporation, and

were either shareholders or managed [Tillery]. They each exerted direct and/or

indirect control over these entities, and had knowledge of the Undisclosed Injuries

and EMR Improprieties.” (Mem. Opp’n Countercl. Def. Tillery & Third-Party Defs.

Weidenhammer, Taveira and Ruggiero’s Mot. Dismiss Second Am. Countercl. &

Third-Party Compl. 26, ECF No. 83.) Buyer thus appears to make a vague argument

that Taveira and Ruggiero also controlled Tillery in some manner, directly or

indirectly, and thus still controlled a primarily liable person.

113. Whether this was Buyer’s intent or not, such an argument is unconvincing.

Buyer may argue this in its brief, but a motion to dismiss tests the sufficiency of

Buyer’s pleaded facts. Feltman v. City of Wilson, 238 N.C. App. 246, 251, 767 S.E.2d

615, 619 (2014) (“The only purpose of a Rule 12(b)(6) motion is to test the legal

sufficiency of the pleading against which it is directed.” (quoting Warren v. New

Hanover Cty. Bd. of Educ., 104 N.C. App. 522, 525, 410 S.E.2d 232, 234 (1991))). The

SACC contains no allegation that Taveira or Ruggiero exerted any kind of control

over Tillery and contains no pleaded facts showing Taveira or Ruggiero exercised

general control over the operations of Tillery or had the power or ability to control

Tillery in negotiating and executing the SPA. The SACC also contains no allegations

that Taveira or Ruggiero fell into any other category of person listed in 78A-56(c)(1).

For these reasons, Buyer fails to state a claim against Taveira and Ruggiero for

secondary liability under section 78A-56(c)(1).

114. The group of people potentially liable under 78A-56(c)(2) is broader than

those liable under subsection (c)(1). This route to secondary liability renders two

groups of people liable to a claimant: (i) every employee of the primarily liable entity

or person who materially aids in the transaction, and (ii) “every other person who

materially aids in the transaction giving rise to the liability,” so long as the person

from either group “actually knew of the existence of the facts by reason of which the

liability is alleged to exist.” N.C. Gen. Stat. § 78-56(c)(2). As the language suggests,

subsection (c)(2) extends secondary liability to persons beyond those individuals who

have a defined relationship with the primarily liable person. NNN Durham Office

Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *55 (concluding that certain defendants

could be liable under 78A-56(c)(2) even though they were not control persons,

directors, partners, officers, or employees of the primarily liable person because the

plaintiff pleaded facts sufficient to show that the defendants were “other person[s]

who materially aid[ed] in the transaction”). Here, this broad category operates to

save Buyer’s claim.

115. The SACC contains no pleaded facts showing Taveira or Ruggiero to be

employees of Tillery—the only potentially primarily liable party besides Taveira or

Ruggiero themselves. Thus, Buyer’s claim for secondary liability against each relies

on Taveira or Ruggiero, respectively, qualifying as any “other person who materially

aid[ed] in the transaction” Tillery was involved in and who actually knew about the

facts giving rise to liability. N.C. Gen. Stat. § 78A-56(c)(2). Whether either Taveira

or Ruggiero actually was such a person will be a question of fact, NNN Durham Office

Portfolio 1, LLC, 2013 NCBC LEXIS 11, at *56 (noting the “fact-intensive” nature of

these elements), and Buyer’s pleaded facts at this point, taken in the light most

favorable to Buyer, are adequate to state a claim against both.

116. The SACC and attached documents contain pleaded facts showing that

Taveira was involved in the due diligence process between Seller and Buyer. A

number of the representations made in the SPA were also framed as being true to the

“Company’s Knowledge,” which was defined by reference to the knowledge of Taveira

and Ruggiero. In addition, Buyer has alleged that Taveira and Ruggiero knew that

false or misleading statements were being made in the offering or selling of securities

in which Tillery was engaged. The Court thus concludes that Buyer has made

sufficient allegations concerning Taveira’s and Ruggiero’s secondary liability under

section 78A-56(c)(2) to survive a Rule 12(b)(6) motion to dismiss.

C. Breach of Contract and Indemnification Against Tillery and Third-Party

Defendants

117. Buyer also asserts claims for breach of contract and indemnification against

all parties except Weidenhammer. These claims are premised on alleged breaches of

representations and warranties in Article IV of the SPA. Buyer believes the lack of

disclosure concerning the Roofing Death and Undisclosed Injuries and Buyer’s

inability to collect on the Honeywell and Benesch invoices resulted in breaches of

these representations and warranties.9

9 The SACC asserts three claims for relief for breach of contract and indemnification: one

against Tillery and all shareholder Third-Party Defendants based on breaches of sections 4.3,

4.4, 4.8, 4.11, 4.13, and 4.21 of the SPA; and two against Tillery based on breaches of sections

4.3 and 4.8. (SACC ¶¶ 97–109, 130–45.) Based on the SACC and Buyer’s arguments in its

brief and at the October 24 hearing, the Court concludes that the facts and arguments

underlying these claims overlap completely. Therefore, notwithstanding Buyer’s decision to

draw a distinction between these claims in the SACC, the Court will, where applicable,

discuss the facts and arguments underlying Buyer’s three claims for breach of contract and

indemnification together.

118. “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.” Supplee v. Miller-Motte Bus.

Coll., Inc., 239 N.C. App. 208, 216, 768 S.E.2d 582, 590 (2015). In this case, the SACC

sufficiently alleges, and the parties do not dispute, that a valid contract existed.

Instead, the parties disagree over whether the contract was breached and whether

Buyer’s pleading sufficiently states a cause of action against certain Third-Party

Defendants.

119. The SPA, attached to Buyer’s pleading and incorporated therein, states that

it was executed on May 8, 2015. Section 7.2 of the agreement, entitled

“Indemnification by the Shareholders,” provided that the shareholders of Seller

would indemnify Buyer in certain circumstances, including if certain representations

and warranties were breached or were inaccurate:

After the Closing, subject to the terms and conditions of this Article

VII, each Shareholder severally (and not jointly), pro rata based upon each

Shareholder’s Allocation Percentage, shall indemnify and hold harmless the

Buyer . . . for all Losses incurred or suffered, directly or indirectly, relating to

or arising from . . . any breach or inaccuracy of any representation or

warranty made by the Company in Article IV . . . .

(SPA § 7.2(b).) Section 7.4 of the SPA placed certain maximum and minimum limits

on this indemnification obligation. Notably, a breach of the representations and

warranties made in Article IV had a maximum indemnification limit of $2.6 million

and required a minimum aggregate loss of $260,000. (SPA § 7.4(a).) A claim based

on fraud had no minimum, but the maximum amount recoverable for a fraud claim

was limited to the purchase price. (SPA § 7.4(a).) The $2.8 million set aside by the

Escrow Agreement was meant to provide for claims based on breaches of the

representations and warranties.

120. The shareholders’ obligation to indemnify Buyer did not continue

indefinitely. Instead, section 7.1 of the SPA provided that the indemnification

obligation, and the underlying representations and warranties, survived until 5:00

PM on the Escrow Agreement termination date—November 8, 2016. (SPA § 7.1(a);

see SACC Ex. 27, at 2.) If Buyer provided proper notice of a claim by that date, the

representation and warranty to which the claim related, and the indemnity obligation

linked to that representation and warranty, would survive until the claim was

resolved. (SPA § 7.1(c).) To recover against the amount in escrow, Buyer also needed

to provide proper notice to the escrow agent and Tillery that Buyer intended to make

a claim against those funds. The Escrow Agreement required this notice to be a

“written demand to Escrow Agent and to [Tillery] setting forth in reasonable detail

the basis of such Claim and the amount sought to be paid from the Escrow Fund.”

(Escrow Agreement 2.)

121. In light of these foundational terms of the SPA and Escrow Agreement, the

Court must determine whether Buyer has sufficiently alleged a breach of the SPA

entitling Buyer to indemnification under the terms described above. On this point,

Tillery and Third-Party Defendants, except for Weidenhammer (collectively,

“Movants”), make the following procedural and substantive arguments: (i) Buyer’s

allegations against the McManus Movants and Butsavage Movants do not satisfy

Rule 8, (ii) Buyer has not pleaded facts showing the McManus Movants or the

Butsavage Movants have a duty to indemnify Buyer, (iii) Buyer has failed to plead

facts showing the warranties and representations in the SPA were breached or were

misleading, and (iv) Buyer’s claims are barred by the terms of the SPA and Escrow

Agreement. The Court addresses each argument in turn.

1. Buyer’s Pleaded Facts Satisfy Rule 8

122. The McManus Movants and the Butsavage Movants argue Buyer has failed

to state a claim against them for breach of contract because Buyer has failed to satisfy

Rule 8(a)’s notice pleading requirement. For the reasons discussed below, the Court

disagrees.

123. Unlike a claim for fraud, a pleading alleging breach of contract need only

meet the requirements of Rule 8(a) of the North Carolina Rules of Civil Procedure.

See Haynie v. Cobb, 207 N.C. App. 143, 148, 698 S.E.2d 194, 198 (2010) (“The general

standard for civil pleadings in North Carolina is notice pleading.” (quoting Murdock

v. Chatham Cty., 198 N.C. App. 309, 316, 679 S.E.2d 850, 855 (2009))). Under Rule

8(a)(1), a pleading asserting a claim must contain “[a] short and plain statement of

the claim sufficiently particular to give the court and the parties notice of the

transactions, occurrences, or series of transactions or occurrences, intended to be

proved showing that the pleader is entitled to relief[.]” N.C. R. Civ. P. 8(a)(1). Under

this “notice pleading” standard, “a statement of claim is adequate if it gives sufficient

notice of the claim asserted to enable the adverse party to answer and prepare for

trial, to allow for the application of the doctrine of res judicata, and to show the type

of case brought.” Wake Cty. v. Hotels.com, L.P., 235 N.C. App. 633, 646, 762 S.E.2d

477, 486 (2014) (quoting Sutton, 277 N.C. at 102, 176 S.E.2d at 165).

124. A trial court may dismiss a pleading that violates Rule 8(a)(1) via Rule 41(b).

Plasman v. Decca Furniture (USA), Inc., No. COA17-151, slip op. at 17 (N.C. Ct. App.

Feb. 6, 2018). Dismissal is appropriate if the trial court first determines “the

appropriateness of lesser sanctions” for failing to comply with Rule 8. Id. at 8 (quoting

Wilder v. Wilder, 146 N.C. App. 574, 577, 553 S.E.2d 425, 427 (2001)). When the trial

court engages in such an analysis, “its resulting order will be reversed on appeal only

for an abuse of discretion.” Id. at 8–9. In this case, however, the Court concludes

that Buyer’s claim is adequately stated.

125. Buyer’s pleaded facts here, taken as true, establish the following. Each of

the McManus Movants and Butsavage Movants was a shareholder of Seller. Each

signed the SPA as a shareholder of Seller. The SPA provided that under certain

circumstances, e.g., the breach or inaccuracy of the warranties and representations

in Article IV of the SPA, the shareholders agreed to indemnify Buyer. Buyer alleges

that these circumstances have now occurred and that the shareholders are thus

obligated to indemnify Buyer. The SACC expressly (i) includes the McManus

Movants and the Butsavage Movants in the designated group identified as “Third-

Party Defendants,” (SACC 2), (ii) sets out the representations and warranties in the

SPA Buyer believes were breached or were inaccurate, (SACC ¶ 102), (iii) states why

Buyer believes the representations and warranties were breached, (SACC ¶ 102), and

(iv) alleges that “Tillery . . . and Third-Party Defendants” have refused to indemnify

Buyer, breaching the SPA, (SACC ¶¶ 107–09).

126. These pleaded facts give the McManus Movants and Butsavage Movants

sufficient notice of the transaction that produced Buyer’s claim and the nature and

basis of the claim, allow for trial preparation, allow for the application of res judicata,

and show the type of case brought. Thus, Buyer’s claim for breach of contract and

indemnification against the McManus Movants and the Butsavage Movants meets

the requirements of Rule 8(a), and their respective motions to dismiss this claim

should be denied.

2. The Shareholders’ Obligation to Indemnify

127. The McManus Movants and Butsavage Movants also contend that Buyer’s

claim against them for breach of contract and indemnification should be dismissed

because Buyer has not pleaded that either group breached the SPA or failed to comply

with a duty under the SPA. The pleaded facts in the SACC say otherwise.

128. As stated above, the SACC contains pleaded facts that establish that the

McManus Movants and Butsavage Movants were parties to the SPA and agreed to

indemnify Buyer for the breach of certain representations and warranties contained

therein. Buyer has also alleged that breaches occurred that entitle Buyer to

indemnification and that, despite Buyer’s notice, Tillery and the shareholders of

Seller have refused to indemnify Buyer or release the escrowed funds to Buyer. While

the Court will discuss the sufficiency of Buyer’s allegations that specific sections of

the SPA were breached below, if any representation or warranty was breached, Buyer

has pleaded sufficient facts to establish that the shareholders of Seller had an

obligation to indemnify Buyer. A wrongful refusal to do so would be a breach of the

SPA. Thus, Buyer has sufficiently alleged a breach of contract and indemnification

claim against the shareholders of Seller to the extent the Court concludes Buyer has

sufficiently pleaded that a relevant representation and warranty in the SPA was

breached or was inaccurate.

3. Breach of Article IV’s Representations and Warranties

129. Movants’ most fact-intensive argument challenges Buyer’s breach of

contract and indemnification claims by contending that Buyer has failed to plead that

any representations and warranties made in the SPA were breached or were

misleading.

130. Buyer argues that it is entitled to indemnification because the alleged

concealment of the Roofing Death and Undisclosed Injuries “constitutes a breach of

the Representations and Warranties included in, but not limited to Sections 4.3, 4.4,

4.8, 4.11, 4.13, and 4.21 of the SPA.” (SACC ¶ 102.) Movants counter by asserting

that none of the enumerated sections required the Roofing Death or the Undisclosed

Injuries to be disclosed. Buyer also asserts that the uncollectible Honeywell and

Benesch invoices resulted in breaches of sections 4.3 and 4.8 of the SPA. The Court

evaluates each section in turn.

a. Breach of Article IV: Section 4.3

131. Section 4.3 included two sets of representations. First, section 4.3(a) stated

that the financial statements attached to the SPA were “prepared in accordance with

GAAP . . . and present[ed] fairly in all material respects the financial condition of the

A&D Companies collectively[.]” (SPA § 4.3(a).) Second, section 4.3(b) represented

and warranted that “[n]o A&D Company ha[d] any Liabilities of a nature required to

be or customarily reflected in a balance sheet (or the notes thereto) prepared in

accordance with GAAP that [were] not reflected or reserved against in the Financial

Statements,” except, notably, liabilities incurred after February 28, 2015. (SPA §

4.3(b).) The SPA defined “Liability” as “any liability, residual, loss, obligation, claim

or commitment of any kind or nature, whether known or unknown, asserted or

unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated,

or due or to become due.” (SPA 7.)

132. Buyer asserts that section 4.3 was breached because the Undisclosed

Injuries and Roofing Death were “Liabilities” that should have been reflected in

Seller’s financial statements. Buyer also argues that section 4.3 was breached by

Seller’s inclusion of the Honeywell and Benesch invoices in Seller’s accounts

receivable. Movants respond that section 4.3 was not breached because Seller only

received notice of one of the Undisclosed Injuries before February 28, 2015. They also

argue that the Injuries were immaterial, and thus did not need to be included in the

financial statements for the statements to “present fairly in all material respects the

financial condition of the A&D Companies,” (SPA § 4.3.), because it appears that the

Undisclosed Injuries were covered by workers’ compensation insurance and Buyer

has not alleged that knowledge of the Injuries would have significantly impacted

Buyer’s decisions. The Court does not find Movants’ arguments persuasive at this

stage of the case.

133. Buyer’s pleaded facts show that two of the Undisclosed Injuries occurred

before February 28, 2015, and Seller is alleged to have been aware of one of the

Injuries prior to that date. As noted above, Buyer has also pleaded several ways

information about the Undisclosed Injuries would have been important to Buyer. The

importance of this information was not limited solely to the issue of whether Buyer

or an insurance company would have to pay the injured employee. Instead, it would

have provided Buyer context about Seller’s safety ratings and the likelihood they

would deteriorate in the future—information directly relevant to the overall value of

the A&D Companies. Movants also fail to provide a convincing argument to rebut

Buyer’s allegations about the Honeywell and Benesch invoices.

134. All in all, although the SACC is scant on details about the required contents

of the financial statements, it does not reveal an absence of fact necessary to plead

Buyer’s claims, nor does it disclose a fact that necessarily defeats Buyer’s claims. For

these reasons, the Court is not prepared to conclude that Buyer has failed to state a

claim as to the breach of section 4.3. Buyer has alleged the provision of the SPA that

Buyer believes was breached and why Buyer believes this provision was breached.

Buyer’s allegations will provide Movants the opportunity to answer and prepare their

case, allow for the application of res judicata, and show the type of case Buyer brings.

Whether Buyer can proffer evidence showing that the pre-February 28 Undisclosed

Injuries should have been reflected on Seller’s financial statements will be addressed

at a later stage of the case. See Ussery, 368 N.C. at 334, 777 S.E.2d at 278 (movant

is entitled to summary judgment “where a claim or defense is utterly baseless in

fact.”)

b. Breach of Article IV: Section 4.4(b)

135. Section 4.4(b) of the SPA represented to Buyer that “[s]ince [February 28,

2015] . . . no A&D Company ha[d] experienced any damage, destruction, or loss (not

covered by insurance) to its assets in the aggregate in excess of $25,000.” (SPA

§ 4.4(b).) Buyer contends that this representation and warranty was breached

because the Undisclosed Injuries have rendered many of Buyer’s contracts with

customers vulnerable to termination. The Court disagrees with this assertion.

Buyer’s pleading does not contain allegations indicating that the A&D Companies’

assets sustained a loss, damage, or destruction in excess of $25,000 that was not

covered by insurance. Buyer has thus failed to allege, after multiple chances to bring

its counterclaims, that section 4.4(b) was breached. The Court will therefore dismiss

Buyer’s claim for breach of contract and indemnification as to section 4.4(b) with

prejudice.

c. Breach of Article IV: Sections 4.4(m) and 4.4(n)

136. As for sections 4.4(m) and 4.4(n), the Court concludes, for the reasons

explained above in connection with Buyer’s other claims for relief, that Buyer has

pleaded sufficient facts such that a reasonable finder of fact could conclude that the

representations and warranties in sections 4.4(m) and 4.4(n) were inaccurate in light

of the Undisclosed Injuries and Roofing Death. The Court does not find Movants’

arguments to the contrary convincing at this stage of the case. Thus, the Motions to

Dismiss are denied as to Buyer’s claim for breach of contract and indemnification to

the extent Buyer’s claim is based on sections 4.4(m) and 4.4(n).

d. Breach of Article IV: Section 4.8

137. Section 4.8 of the SPA represented and warranted to Buyer that the

accounts receivable reflected on Seller’s “Closing Date Balance Sheet” were “bona fide

obligations in favor of the A&D companies” and were not, in the aggregate, “subject

to any pending or threatened defense, counterclaim, right of offset, returns,

allowances or credits, except for early payment discounts in the ordinary course of

business or except to the extent reserved against on the Closing Date Balance Sheet

or which would not have a Material Adverse Effect.” (SPA § 4.8.) Buyer asserts that

Movants must indemnify it for a breach of section 4.8 because Seller’s failure to

disclose the Undisclosed Injuries and Roofing Death constituted a breach of this

section. Buyer also argues that section 4.8 was breached due to Buyer’s inability to

collect on the Honeywell and Benesch invoices.

138. The Court does not agree with Buyer that Seller’s alleged concealment and

nondisclosure of the Undisclosed Injuries and the Roofing Death constitute a breach

of section 4.8. Even viewing the facts in the light most favorable to Buyer, the SACC

does not contain any alleged facts linking the Undisclosed Injuries or the Roofing

Death to the subject matter of section 4.8—Seller’s accounts receivable reflected on

the Closing Date Balance Sheet. Buyer thus cannot base its claims for a breach of

section 4.8 on the Undisclosed Injuries or the Roofing Death.

139. In contrast, Buyer’s allegations regarding the Honeywell and Benesch

invoices do provide facts sufficient to state a claim for breach of section 4.8. Section

4.8 warranted that these invoices, included in Seller’s accounts receivable reporting,

represented bona fide obligations to the A&D Companies that were not subject to

“any pending or threatened defense, counterclaim, right of offset, returns, allowances

or credits[.]” (SPA § 4.8.) Buyer has alleged that the Honeywell invoice was subject

to a credit and that the Benesch invoice was only issued as a result of Seller’s failure

to properly document change orders. These allegations, if true, would result in a

breach of section 4.8. Thus, the Court concludes Buyer has properly stated a claim

for breach of contract and indemnification as to section 4.8 to this extent.

e. Breach of Article IV: Sections 4.11, 4.13, and 4.21

140. Buyer also contends that Movants are obligated to indemnify Buyer for

breaches of the representations and warranties made in sections 4.11, 4.13, and 4.21

of the SPA. Movants argue that Buyer did not provide timely notice under the SPA

that Buyer was seeking indemnification for these sections and thus deny the

existence of any such obligation. The Court need not address the adequacy of Buyer’s

demand, however, because regardless of whether that demand was sufficient to allow

the representations and warranties in sections 4.11, 4.13, and 4.21 to survive, Buyer

has not pleaded sufficient facts to show the representations or warranties in these

sections were breached.

141. In pertinent part, section 4.11 represented to Buyer that “to the Company’s

Knowledge, no event ha[d] occurred that with notice or lapse of time would constitute

a breach or default, or permit termination, cancellation, modification, or acceleration,

under any Material Contract.” (SPA § 4.11(b).) Buyer argues this representation and

warranty was breached in two ways, but both arguments suffer from the same

problem: Buyer has failed to plead all of the facts needed to claim section 4.11 was

breached.

142. First, Buyer asserts in the SACC that Seller’s failure to disclose the

Undisclosed Injuries and the Roofing Death constituted a breach of section 4.11.

Buyer argues this is the case because the Undisclosed Injuries have resulted in rising

safety ratings that have in turn rendered certain contracts with A&D customers—

including Material Contracts, as that term is defined by the SPA—subject to

termination.

143. The problem with Buyer’s first argument is that it mistakes what “event”

allegedly triggered the possible termination of A&D’s contracts. Buyer’s pleaded facts

state that A&D’s customers condition their contracts on A&D maintaining certain

EMR and TRIR figures. Thus, while workplace injuries would have contributed to

deteriorating safety rates, the “event’ that would have rendered Buyer’s newly

acquired contracts subject to termination would have been the setting of higher safety

rates, not the occurrence of a particular injury. The fact that Buyer’s contracts

eventually became subject to termination and are currently vulnerable does not show

that section 4.11 was ever breached—Buyer has not alleged that at the time of the

SPA’s execution on May 8, 2015 Seller had any knowledge (as that term was defined)

of an event that rendered A&D’s contracts subject to termination at that point in

time. For example, A&D’s EMR was 1.13 just before the SPA was executed, but Buyer

has not alleged that the 2015 EMR would have permitted customers to terminate

their contracts. Buyer relies only on allegations of its current predicament, which

Seller would not have had knowledge of in 2015. Thus, Buyer’s pleaded facts do not

show section 4.11 was breached.

144. Second, within its brief, Buyer also argues that Seller’s inaccurate reporting

of the Honeywell and Benesch invoices breached section 4.11. This argument fails

too. Section 4.11’s representations related to Material Contracts, a term defined in

the SPA. (SPA § 4.11(a).) Buyer’s SACC contains no facts to suggest that the

Honeywell or Benesch invoices were Material Contracts. Thus, Buyer has failed to

plead sufficient facts to state a claim for breach of section 4.11 under both of its

arguments.

145. Section 4.13, titled “Litigation,” represented and warranted to Buyer that

there was “no Proceeding currently pending or, to the Company’s Knowledge,

threatened in writing against any A&D Company affecting (a) an A&D Company that

would have a Material Adverse Effect, or (b) the Transaction.” (SPA § 4.13.) In its

brief, Buyer argues that the Roofing Death constituted threatened litigation. At the

hearing, Buyer also argued that the Undisclosed Injuries constituted threatened or

pending litigation that would have breached section 4.13.

146. Buyer’s first assertion is squarely contradicted by Buyer’s demand for

indemnification to Seller, which indicated that as of November 4, 2016 “no claim ha[d]

been asserted or alleged” as a result of the Roofing Death. (SACC Ex. 26, at 2.) Buyer

has also failed to plead any facts that show “Proceedings,” as defined by the SPA,

were pending or had been threatened in writing against any A&D Company as a

result of the Undisclosed Injuries. Thus, Buyer fails to allege sufficient facts to state

a claim for breach of contract and indemnification based on section 4.13.

147. Section 4.21 concerned the A&D Companies’ customer relationships and

represented and warranted that Seller had not received information indicating

customers may be terminating or altering their relationships with the A&D

Companies:

Since January 1, 2015 there has not been any actual or, to the Company’s

Knowledge, threatened in writing, termination or cancellation of, or any

material adverse modification in the business relationship of the Business

with any [of Seller’s top twenty customers and top twenty suppliers]. To the

Company’s Knowledge, there are no material outstanding disputes with any

customer or supplier [listed in the schedule of top customers and suppliers].

To the Knowledge of the Company, no such customer or supplier has provided

notice to the A&D Companies that it will materially change its relationship

with the Business, or the terms thereof, as a result of the Transactions.

(SPA § 4.21.)

148. As with sections 4.11 and 4.13, Buyer has failed to plead all of the necessary

facts to establish that section 4.21 was breached. The SACC contains allegations that

Buyer’s contracts are now subject to termination, but there are no allegations of

actual terminations or terminations threatened in writing. Buyer has also failed to

allege that Seller or any of the parties to this lawsuit knew of a “material outstanding

dispute” with a customer or supplier at the time of closing.10 Finally, Buyer has not

10 While the SACC includes reference to Seller being in a “dilemma” with “customer Georgia

Pacific” and receiving low “post-work evaluations” from Georgia Pacific, (SACC ¶ 53), Buyer

has pleaded no facts indicating an actual dispute between Seller and Georgia Pacific. Buyer

has also not pleaded that Georgia Pacific was a customer to which section 4.21 applied, i.e.,

alleged that any customer or supplier of the A&D Companies materially changed its

relationship with the A&D Companies as a result of the SPA, the Escrow Agreement,

or any of the transactions undertaken to carry out the two agreements. Thus, as with

sections 4.11 and 4.13, Buyer fails to allege sufficient facts to state a claim for breach

of contract and indemnification based on section 4.21.

4. The Terms of the SPA and Escrow Agreement do not Bar Buyer’s

Claims

149. In addition to arguing that Buyer has failed to plead the foundational facts

necessary for breach of contract, Movants also argue that the terms of the SPA and

the Escrow Agreement bar Buyer from bringing its claims. First, Movants assert that

Buyer provided insufficient notice to bring its claims under the terms of the Escrow

Agreement. Second, Movants argue that Buyer’s claims do not exceed the minimum

indemnification amount required by the SPA. These arguments present fact-based

contentions, however, that must be resolved at a later stage of these proceedings.

150. Beginning with the notice requirement Movants reference, Movants argue

that Buyer’s demand did not comply with the Escrow Agreement’s notice

requirements because the demand did not give a total sum of money Buyer claimed

it was owed. Therefore, Movants assert, they have no obligation to indemnify Buyer.

151. The Escrow Agreement’s language, however, does not favor Movants as a

matter of law. The Escrow Agreement required a written demand “setting forth in

reasonable detail the basis of such Claim and the amount sought to be paid from the

a top twenty customer. Thus, this one-time reference to a “dilemma” with a customer does

not support Buyer’s claim that section 4.21 was breached.

Escrow Fund.” (Escrow Agreement 2.) This language does not clearly indicate

whether “reasonable detail” modifies “the basis of such Claim” alone or both

requirements, i.e., “the basis of such Claim and the amount sought.”

152. When interpreting a contract, a court seeks to understand the parties’ intent

by looking to the language used. State v. Philip Morris USA Inc., 363 N.C. 623, 631,

685 S.E.2d 85, 90 (2009). Contracts that are plain and unambiguous may be

interpreted by the Court as a matter of law. 42 E., LLC v. D.R. Horton, Inc., 218 N.C.

App. 503, 513, 722 S.E.2d 1, 8 (2012). When the effect of a provision of a contract is

uncertain, however, or capable of multiple reasonable interpretations, that provision

will be considered ambiguous. Variety Wholesalers, Inc. v. Salem Logistics Traffic

Servs., LLC, 365 N.C. 520, 525, 723 S.E.2d 744, 748 (2012). The interpretation of

ambiguous contract terms is a question of fact left for the jury. Id.

153. The Escrow Agreement’s requirement for a written demand is capable of

multiple reasonable interpretations. Its effect is thus a question of fact. Viewing this

question of fact in the light most favorable to Buyer, the Court concludes Buyer has

pleaded facts showing the Escrow Agreement’s notice requirement was fulfilled.

Buyer’s demand explained the factual basis for Buyer’s claims—e.g., the Undisclosed

Injuries, the Roofing Death, and the uncollectable invoices—and made various

statements as to the amount Buyer sought. Writing about several grounds for its

claim, Buyer listed definite monetary sums it believed it was owed. For other factual

bases for its claims, Buyer alleged that the damage was impossible to quantify but

that it exceeded the $260,000 minimum set by the SPA for indemnification claims.

Buyer further demanded that the “Escrow Fund not be reduced in any way” because

the “total indemnifiable claims” would exceed any minimum amount set by the SPA.

(SACC Ex. 26, at 2, 4.) Taken together at this stage of the case, the Court believes

these facts provided Tillery and the escrow agent with reasonable detail as to the

amount Buyer sought. Thus, the Court declines to adopt Movants’ interpretation of

the Escrow Agreement’s notice provision and will not dismiss Buyer’s claim on this

ground at this stage. See IWTMM, Inc. v. Forest Hills Rest Home, 156 N.C. App. 556,

563, 577 S.E.2d 175, 179 (2003) (“How to properly interpret [a contract open to two

interpretations], however, is a factual issue not appropriate for consideration under

a 12(b)(6) challenge.”)

154. Last, turning to Movants’ argument on the minimum amount of losses

Buyer must have suffered to be entitled to indemnification, the Court notes only that

the minimum amount set by the SPA is $260,000, and Buyer’s surviving claims in

this lawsuit demand a total amount in excess of $260,000. (SACC ¶ 109.) Thus, this

provision does not prevent Buyer from stating a claim for breach of contract and

indemnification.

V.

CONCLUSION

155. WHEREFORE, for the foregoing reasons, the Court hereby ORDERS as

follows:

a. As to Buyer’s claim for fraud asserted against the Tillery Movants:

i. The Tillery Motion is DENIED as to Tillery, Weidenhammer,

Ruggiero, and Taveira to the extent Buyer’s claim is based on the

Undisclosed Injuries or Roofing Death.

ii. The Tillery Motion is DENIED as to Tillery, Weidenhammer, and

Taveira to the extent Buyer’s claim is based on a failure to

disclose the 2015 EMR number.

iii. The Tillery Motion is DENIED as to Tillery, Weidenhammer, and

Taveira to the extent Buyer’s claim is based on the other allegedly

misleading EMR numbers produced to Buyer during due

diligence.

iv. The Tillery Motion is GRANTED and Buyer’s claim against

Ruggiero is dismissed with prejudice to the extent the claim is

based on a failure to disclose Seller’s 2015 EMR.

v. The Tillery Motion is GRANTED and Buyer’s claim against

Ruggiero is dismissed with prejudice to the extent the claim is

based on the other allegedly misleading EMR numbers produced

to Buyer during due diligence.

b. The Court DENIES the Tillery Motion with regard to Buyer’s claim

against the Tillery Movants for violations of the North Carolina

Securities Act.

c. As to Buyer’s claims for breach of contract and indemnification

against Movants:

i. The Motions to Dismiss are DENIED to the extent Buyer’s claims

are based on sections 4.3, 4.4(m), or 4.4(n) of the SPA.

ii. The Motions to Dismiss are DENIED to the extent Buyer’s claims

are based on a breach of section 4.8 due to the unpaid Honeywell

and Benesch invoices. To the extent Buyer’s claims are otherwise

based on section 4.8, the Motions to Dismiss are GRANTED and

Buyer’s claims are dismissed with prejudice.

iii. The Motions to Dismiss are GRANTED and Buyer’s claims are

dismissed with prejudice to the extent they are based on sections

4.4(b), 4.11, 4.13, and 4.21 of the SPA.

SO ORDERED, this the 9th day of February, 2018.

/s/ Louis A. Bledsoe, III

Louis A. Bledsoe, III

Special Superior Court Judge

for Complex Business Cases