Child Care Inc. v. Lj Schs. (Carolina), Inc.

Child Care Inc. v. LJ Schs. (Carolina), Inc., 2026 NCBC 8.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

MECKLENBURG COUNTY 24CV008443-590

CHILD CARE INC.; EARLY

CHILDHOOD SERVICES INC.; DAY

CARE INC.; CHILD

DEVELOPMENT INC.; CHILD

LEARNING PROGRAMS INC.; SAM

NEWELL CHILD DEVELOPMENT,

LLC; SOUTH POINT CHILD

DEVELOPMENT LLC; RUBEN ORDER AND OPINION ON

LINKER CHILD DEVELOPMENT

CENTER LLC; and MONROE ROAD PLAINTIFFS’ AND DEFENDANT’S

CHILD DEVELOPMENT CENTER MOTIONS FOR SUMMARY

LLC, JUDGMENT

Plaintiffs,

v.

LJ SCHOOLS (CAROLINA), INC.,

Defendant.

1. THIS MATTER is before the Court upon Plaintiffs’ Motion for Summary

Judgment (“Plaintiffs’ Motion”) filed on 21 April 2025 and Defendant’s Motion for

Summary Judgment (“Defendant’s Motion”) filed on 18 April 2025 pursuant to Rule

56 of the North Carolina Rules of Civil Procedure (the “Rule(s)”), in the above

captioned case. 1

2. Having considered Plaintiffs’ Motion and Defendant’s Motion, the parties’

briefs and materials offered in support of and in opposition to each Motion, the

arguments of counsel at the hearing on the Motions, and other appropriate matters

1 (Pls.’ Mot. Summ. J. [hereinafter, “Pls.’ MSJ”], ECF No. 45; Def.’s Mot. Summ. J.

[hereinafter, “Def.’s MSJ”], ECF No. 40.)

of record, the Court hereby GRANTS Defendant’s Motion and DENIES

Plaintiffs’ Motion.

Shumaker, Loop & Kendrick, LLP, by Steven A. Meckler and Frederick

M. Thurman, for Plaintiffs Child Care Inc., Early Childhood Services

Inc., Day Care Inc., Child Development Inc., Child Learning Programs

Inc., Sam Newell Child Development, LLC, South Point Child

Development LLC, Ruben Linker Child Development Center LLC, and

Monroe Road Child Development Center LLC.

Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., by Evan M.

Sauda, for Defendant LJ Schools (Carolina), Inc.

Brown, Judge.

I.

FACTUAL AND PROCEDURAL BACKGROUND

3. While the Court does not make findings of fact on a motion for summary

judgment, “it is helpful to the parties and the courts for the trial judge to articulate a

summary of the material facts which he considers are not at issue and which justify

entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161-62 (2010) (citation and

quotation marks omitted). Accordingly, the following background, drawn from the

undisputed evidence submitted by the parties, is intended only to provide context for

the Court’s analysis and ruling and not to resolve issues of material facts.

4. Plaintiff Child Care Inc. and the other eight Plaintiffs are each a North

Carolina corporation or a North Carolina limited liability company. 2 Kevin Campbell

was the manager and principal of each of the Plaintiff entities before their

2 (Verified Compl. ¶ 1–9, ECF No. 3.)

dissolutions. 3 Together, Plaintiffs owned and operated nine childcare centers in

South Carolina and North Carolina. 4

5. Defendant LJ Schools (Carolina), Inc. (“LJ Schools”) is a North Carolina

corporation that owns and operates daycare facilities in the State of North Carolina. 5

6. On 24 December 2020, Plaintiffs and Defendant entered into an Asset

Purchase Agreement (together with the later Amending Agreement dated 30

September 2021, the “APA”), whereby Defendant purchased childcare facilities and

other assets from Plaintiffs. 6

7. Under the APA, the total “Purchase Price” consists of three components:

$10,750,000.00 on the closing date, $250,000.00 as a “Holdback Amount,” and a

“Contingent Payment” not to exceed $6,000,000.00. 7

8. The parties’ dispute centers on whether Plaintiffs have earned the

Contingent Payment. The APA provides that the Contingent Payment shall be

calculated using the following formula:

6 x Purchased Assets’ rolling 12-month EBITDA less $11,310,696.00. 8

3 (Verified Compl. ¶ 18; Answer and Affirmative Defense of Def. LJ Schools (CAROLINA),

Inc. [hereinafter, “Answer”] ¶¶ 1–9, ECF No. 7; Tr. Hr’g Mots. Summ. J. [hereinafter, “Tr.

Hr’g”] at 4:21, ECF No. 53.)

4 (Mem. Law Supp. Def.’s Mot. Summ. J. [hereinafter, “Mem. Supp. Def.’s MSJ”] 2, ECF. No.

41.)

5 (Verified Compl. ¶¶ 10–11.)

6 (See Verified Compl., Ex. A – Asset Purchase Agreement [hereinafter, the “APA”]; Verified

Compl., Ex. A – Amending Agreement [hereinafter, the “Amending Agreement”].)

7 (Verified Compl. ¶ 27; APA § 4.2.) Each of these terms is defined in the APA.

8 (Verified Compl. ¶ 28; APA § 4.2(c); Amending Agreement.)

9. The APA required Defendant to prepare quarterly statements of Purchased

Assets’ rolling 12-month EBITDA during an earn out period (the “Earn Out Period”),

using the following formula:

Total Revenue less Non-Recurring Revenue less Center Level Personal

[sic] Costs less Operating Costs less Fixed Costs less Dues and Taxes less

Overheard [sic] Costs plus (Non-Recurring Revenue × 12%). 9

10. Under the APA, “Non-Recurring Revenue” and several other variables are

defined, and Defendant has sole discretion to determine the specific variables in the

above formulas:

For greater certainty, the specific variables associated with each of the

above formula (including the application of the term EBITDA) in the

equation shall be determined by [Defendant] in its sole discretion.

Without limiting the above in any way, the parties agree to the following

principles.

...

Non-Recurring Revenue in the above equation in Section 4.2.c.iii shall

include all grants, payments for non attending [sic] children, or

government stimulus funds received by [Defendant] that are free of

mandated expense obligations by the grantor or administrator of such

funds during the Earn Out Period. 10

(emphasis added).

The APA does not, however, define “mandated expense obligations.”

9(Verified Compl. ¶ 29; APA § 4.2(c); Amending Agreement.) The “Earn Out Period” is

defined in the APA § 4.2(c)(iii) and later amended by the Amending Agreement to be the

period “commencing on March 31, 2022 and continuing to March 31, 2023.”

10 (APA § 4.2(c)(iii).)During the negotiations leading up to the execution of the APA, the

parties discussed at arms-length the definition of Non-Recurring Revenue, the calculation of

Contingent Payment, and the treatment of government stimulus grants free of mandated

expense obligations. See Mem. Supp. Def.’s MSJ 6–8. Ultimately, they agreed on the above

formulas and inserted a merger clause into the APA. See Mem. Supp. Def.’s MSJ 8; APA §

14.6.

11. The APA also imposes on Defendant a duty to “use reasonable commercial

efforts and operate in good faith so as to maximize EBITDA of the [b]usiness during

the Earn Out Period.” 11

12. During the Earn Out Period, Defendant received Early Childhood

Stabilization Grants from the State of North Carolina and similar grants from the

State of South Carolina (collectively the “Grant Funds”). 12 These Grant Funds were

provided by the American Rescue Plan Act of 2021 (“ARPA”), Pub. L. No. 117-2, 135

Stat. 4 (2021), enacted by Congress in 2021 in response to the ongoing COVID-19

pandemic. 13 The North Carolina Division of Child Development and Early Education,

the agency responsible for distributing the ARPA Grant Funds, separated the Grant

Funds into two categories: the Compensation Support Grants and the Fixed Costs

and Families Grants. 14 Plaintiffs’ entitlement to the Contingent Payment depended

heavily on whether the Grant Funds were categorized as Non-Recurring Revenue,

because Non-Recurring Revenue was deducted from Total Revenue under the

EBITDA formula.

11 (APA § 9.7.)

12 (See Verified Compl. ¶¶ 42–43; Mem. Supp. Def.’s MSJ 8–11, 16–20.)

13 (Br. Supp. Pls.’ Mot. Summ. J. [hereinafter, “Br. Supp. Pls.’ MSJ”] 6–7, ECF No. 46.)

14 (See Ex. 23, p. 2, ECF 43.7:

“Each approved program receives a fixed costs and families

grant . . . . Programs may choose to also receive additional funding, compensation

supports grants . . . . The two components . . . .”.)

13. No later than August 2022, the parties began to disagree on Defendant’s

categorization of the Grant Funds under the EBITDA formula. 15 The parties’

disagreement stems from their different views on whether the Grant Funds are free

of mandated expense obligations by the grantor or the administrator of such funds

and thus deemed Non-Recurring Revenue when calculating EBITDA and the

Contingent Payment. 16

14. Plaintiffs contend that the Grant Funds are not free of mandated expense

obligations and should be included as recurring revenue for the Contingent Payment

calculation. 17 Defendant agrees with Plaintiffs that the Compensation Support

Grants are not free of mandated expense obligations, but claims that the Fixed Costs

and Families Grants are free of mandated expense obligations and thus Non-

Recurring Revenue. 18

15. On 7 July 2023, Plaintiffs notified Defendant of their election to have the

Contingent Payment calculated and paid to Plaintiffs. 19 The results of the calculation

from the two parties were drastically different: Plaintiffs calculated the Contingent

15 (See Mem. Supp. Def.’s MSJ 12; see also Ex. 29, ECF No. 43.13, Ex. 30, ECF No. 43.14.)

16 (Verified Compl. ¶ 42.) It is apparent from the formulas that the greater the Non-Recurring

Revenue is, the smaller the outcome of Purchased Assets’ rolling 12-month EBITDA, and

thus the Contingent Payment, will be.

17 (See Verified Compl. ¶¶ 42–63.)

18 (See Mem. Supp. Def.’s MSJ 8–12; see also Ex. 29, ECF No. 43.13, Ex. 30, ECF No. 43.14.)

19 (Ex. 32, ECF No. 43.16.)

Payment to be the full $6,000,000.00, while Defendant calculated the Contingent

Payment to be zero. 20

16. The parties could not resolve the dispute among themselves. 21

Consequently, pursuant to Section 4.2(c)(vii) of the APA, 22 Plaintiffs and Defendant

each appointed qualified accountants to determine the disputed aspects of the

Contingent Payment. 23 The accountants were unable to agree on the amount of the

Contingent Payment. 24

17. On 20 February 2024, Plaintiffs filed their Verified Complaint, asserting

three claims. 25 First, Plaintiffs allege that Defendant breached the APA by (a) failing

to pay the Contingent Payment in the amount of $6,000,000.00, (b) failing to properly

categorize revenue, costs, and expenses for the purpose of calculating the Contingent

Payment, and (c) failing to act in good faith to maximize EBITDA during and related

to the Earn Out Period. 26 Second, Plaintiffs allege that Defendant breached the duty

20 (Verified Compl. ¶ 36; Mem. Supp. Def.’s MSJ 12–13.)

21 (Verified Compl. ¶ 38.)

22 (APA § 4.2(c)(vii):“If the [parties] disagree on any aspect of the Contingent Payment

including the Quarterly EBITDA Statement . . . and the parties are unable to resolve such

dispute within 20 days, then each of [sic] Party shall appoint a qualified Chartered

Accountant, both of whom shall work together in good faith to finally determine the disputed

aspects of the Contingent Payment. The Parties agree to be bound by the determination of

the Chartered Accountant in this regard.”.)

23 (Verified Compl. ¶ 39.)

24 (Verified Compl. ¶ 41.)

25 (Verified Compl.)

26 (Verified Compl. ¶¶ 67–80.)

of good faith and fair dealing imposed by § 9.7 of the APA by failing to act in good

faith to maximize EBITDA and the Contingent Payment to be received by Plaintiffs. 27

Third, Plaintiffs seek a declaration that (a) the Grant Funds are not free from

mandated expense obligations by the grantor or administrator of such funds during

the Earn Out Period, and (b) the Grant Funds are to be included as recurring revenue

for purposes of the EBITDA calculation, the Contingent Payment, and other relevant

calculations. 28

18. Defendant filed its Answer and Affirmative Defenses on 22 March 2024,

denying liability for the causes of action asserted by Plaintiffs. 29

19. Defendant filed its Motion for Summary Judgment on 18 April 2025, seeking

summary judgment as to all of Plaintiffs’ claims. 30 Plaintiffs filed their Motion for

Summary Judgment on 21 April 2025, seeking summary judgment in their favor on

all claims. 31 After full briefing, the Court held a hearing on Plaintiffs’ Motion and

Defendant’s Motion on 30 July 2025 (the “Hearing”), at which all parties were

represented by counsel. The Motions are now ripe for resolution.

27 (Verified Compl. ¶¶ 81–85.)

28 (Verified Compl. ¶¶ 86–95.)

29 (Answer.)

30 (Def.’s MSJ.)

31 (Pls.’ MSJ.)

II.

LEGAL STANDARD

20. Under Rule 56(c), “[s]ummary judgment is appropriate ‘if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that

any party is entitled to a judgment as a matter of law.’” Da Silva v. WakeMed, 375

N.C. 1, 10 (2020) (quoting N.C. R. Civ. P. 56(c)). “A genuine issue of material fact is

one that can be maintained by substantial evidence.” Curlee v. Johnson, 377 N.C. 97,

101 (2021) (cleaned up). “Substantial evidence is such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion and means more

than a scintilla or a permissible inference[.]” DeWitt v. Eveready Battery Co., 355

N.C. 672, 681 (2002) (cleaned up). “An issue is material if, as alleged, facts ‘would

constitute a legal defense, or would affect the result of the action or if its resolution

would prevent the party against whom it is resolved from prevailing in the action.’”

Bartley v. City of High Point, 381 N.C. 287, 292 (2022) (quoting Koontz v. City of

Winston-Salem, 280 N.C. 513, 518 (1972)). “When considering a motion for summary

judgment, the trial judge must view the presented evidence in a light most favorable

to the nonmoving party.” Belmont Ass’n v. Farwig, 381 N.C. 306, 310 (2022) (quoting

Dalton v. Camp, 353 N.C. 647, 651 (2001)).

21. “The party seeking summary judgment bears the initial burden of

demonstrating the absence of a genuine issue of material fact.” Liberty Mut. Ins. Co.

v. Pennington, 356 N.C. 571, 579 (2002). The movant may meet this burden either

(1) “by proving an essential element of the opposing party’s claim does not exist,

cannot be proven at trial, or would be barred by an affirmative defense,” or (2) “by

showing through discovery that the opposing party cannot produce evidence to

support an essential element of [its] claim[.]” Dobson v. Harris, 352 N.C. 77, 83 (2000)

(cleaned up). If the movant meets its burden, “the burden shifts to the nonmoving

party to produce a forecast of evidence demonstrating that the nonmoving party will

be able to make out at least a prima facie case at trial[.]” Cummings v. Carroll, 379

N.C. 347, 358 (2021) (cleaned up); see also N.C. R. Civ. P. 56(e) (“[A]n adverse party

may not rest upon the mere allegations or denials of his pleading, but his response,

by affidavits or as otherwise provided in this rule, must set forth specific facts

showing that there is a genuine issue for trial.”).

22. “For affirmative summary judgment on a party’s own claim, the burden is

heightened.” Futures Grp. v. Brosnan, 2023 NCBC LEXIS 7, at *4 (N.C. Super. Ct.

Jan. 19, 2023). The movant “must show that there are no genuine issues of fact, that

there are no gaps in his proof, that no inferences inconsistent with his recovery arise

from the evidence, and that there is no standard that must be applied to the facts by

the jury.” Parks Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 721 (1985); accord Kidd

v. Early, 289 N.C. 343, 370 (1976). Consequently, “rarely is it proper to enter

summary judgment in favor of the party having the burden of proof.” Blackwell v.

Massey, 69 N.C. App. 240, 243 (1984).

III.

ANALYSIS

23. As an initial matter, the only issue before the Court is the amount of a

“Contingent Payment” Plaintiffs are entitled to under the APA, which is wholly

dependent upon the interpretation of the term “mandated expense obligations” in the

APA. 32 Defendant contends that certain grants it received during COVID, namely

the Fixed Costs and Families Grants, are free of mandated expense obligations and

thus are Non-Recurring Revenue; therefore, they would be excluded from revenue

and the calculation of the Contingent Payment, based on Defendant’s interpretation

of the term “mandated expense obligations.” Plaintiffs argue that the Fixed Costs

and Families Grants clearly carry “mandated expense obligations” and therefore

should be deemed recurring revenue under the APA.

24. The parties agree that there are no genuine issues of material facts or

factual disputes in this case. 33 The only material dispute involves the meaning and

interpretation of a single term in the APA.

Defendant’s Motion

25. Defendant moves for summary judgment on Plaintiffs’ breach of contract

claim, claim of breach of duty of good faith and fair dealing, and claim for declaratory

relief. 34

32 (Br. Supp. Pls.’ MSJ 1–2.)

33 (See generally Tr. Hr’g 6–9, 19–20, 34:19–25, 45–47; see also Br. Supp. Pls.’ MSJ 3.)

34 (Mem. Supp. Def.’s MSJ.)

A. Breach of Contract

26. The elements of a claim for breach of contract are (1) existence of a valid

contract and (2) breach of the terms of the contract. Davis v. Woods, 286 N.C. App.

547, 561 (2022) (citation omitted).

27. On Plaintiffs’ breach of contract claim, Defendant argues that: (1) Defendant

properly exercised its contractually vested discretion in categorizing items in the

EBITDA formula, including the Grant Funds; (2) the contract negotiations and due

diligence establish an intent to categorize the Fixed Costs and Families Grants as

Non-Recurring Revenue; and (3) Defendant operated the business with commercially

reasonable efforts and in good faith. 35

28. Plaintiffs contend that (1) Defendant’s interpretation of the APA is self-

serving and not a proper exercise of its contractually vested discretion, and (2)

Defendant’s reliance on the parties’ negotiations of the APA is improper. 36

Are the terms of the APA clear and unambiguous?

29. The APA is a contract. The enforceability of contracts is governed by the

general principles of contract law. Chappell v. Roth, 353 N.C. 690, 692 (2001).

30. “Interpreting a contract requires the court to examine the language of the

contract itself for indications of the parties’ intent at the moment of execution.”

United Therapeutics Corp. v. Liquidia Techs., Inc., 2024 NCBC LEXIS 47, at *28

(N.C. Super. Ct. July 31, 2024) (citing Lane v. Scarborough, 284 N.C. 407, 409–10

35 (Mem. Supp. Def.’s MSJ 15–26.)

36 (Br. Resp. Def.’s Mot. Summ. J. [hereinafter, “Br. Resp. Def.’s MSJ”], ECF. No. 47.)

(1973)). “If the plain language of a contract is clear, the intention of the parties is

inferred from the words of the contract.” Walton v. City of Raleigh, 342 N.C. 879, 881

(1996). “A contract that is plain and unambiguous on its face will be interpreted by

the court as a matter of law.” Lane v. Scarborough, at 410. Whether the contract is,

in fact, ambiguous is a question for the court to determine. Lynn v. Lynn, 202 N.C

App. 423, 432 (2010).

31. The APA clearly grants to Defendant sole discretion in determining the

variables in the EBITDA formula and, without limiting Defendant’s discretion,

defines Non-Recurring Revenue to include grants free of mandated expense

obligations. No competing reasonable interpretations have been advanced by either

party. Neither party argues in its briefs that the terms of the APA are ambiguous

with regards to the Contingent Payment formula, its calculation, the items included

in the formula, or the definitions of the items. The parties’ dispute is not over whether

the APA grants Defendant the discretion described above, or over whether Non-

Recurring Revenue should be free of mandated expense obligations. Instead, the

parties’ dispute involves whether Defendant’s determination that the Fixed Costs and

Families Grants are free of mandated expense obligations is a proper exercise of its

discretion. Indeed, the parties expressly agreed during the Hearing that the APA

was clear and unambiguous. 37 The Court agrees and concludes that the APA is clear

and unambiguous.

37 (See Tr. Hr’g. 19–20, 34:19–25, 43:6–8, 45–47.)

32. When a contract is clear and unambiguous, absent allegations of fraud or

mistake, its terms may not be contradicted by parol or extrinsic evidence, and it is

presumed that all prior negotiations are merged into the written instrument. Root v.

Allstate Ins. Co., 272 N.C. 580, 587 (1968). Parol evidence may only be used to explain

or supplement the contract “if it appear[s] that the entire agreement was not reduced

to writing, or if the writing itself leaves it doubtful or uncertain as to what the

agreement was.” Id. at 590.

33. The conclusion that the APA is clear and unambiguous is further supported

by the APA itself and by the parties. Section 14.6 of the APA, “Entire Agreement,”

states that the APA constitutes the entire agreement between the parties. 38 The

parties have confirmed that the APA is the result of arms-length negotiations, and

the language of the APA represents the parties’ intent. 39 No fraud or mistake has

been alleged or found. Therefore, no extrinsic evidence will be considered by the

Court for purposes of interpreting the APA.

34. Accordingly, the Court will interpret the APA as a matter of law. The APA

is clear that “the specific variable associated with” the Contingent Payment formula,

including Non-Recurring Revenue, “shall be determined by [Defendant] in its sole

discretion.” 40

38 (APA § 14.6.) “North Carolina recognizes the validity of merger clauses and has

consistently upheld them.” Zinn v. Walker, 87 N.C. App. 325, 333 (1987).

39 (See generally Tr. Hr’g.)

40 (APA § 4.2(c)(iii).)

Is Section 4.2(c)(iii) of the APA valid?

35. Despite the fact that Plaintiffs agreed to Section 4.2(c)(iii) of the APA after

arms-length negotiation with Defendant, Plaintiffs argue that Section 4.2(c)(iii),

which grants sole discretion to Defendant in determining the specific variables in the

EBITDA formula, renders the APA illusory, because the section “reserves to

[Defendant] the sole discretion to interpret the contract.” 41

36. A contract is illusory when the promisor reserves an “unlimited right to

determine the nature or extent of his performance.” Canteen v. Charlotte Metro

Credit Union, 386 N.C. 18, 26–27 (2024) (citing State v. Philip Morris USA Inc., 363

N.C. 623, 641–42 (2009)). However, a contract is not illusory if a limitation on the

promisor’s unlimited right is supplied by law. Id. at 27 (“An otherwise illusory

contract may be remedied because a limitation on a promisor’s freedom of choice ‘may

be supplied by law.’”) (cleaned up).

37. In Canteen, a “Notice of Amendments” provision was included in the

contract at issue, which stated that “[e]xcept as prohibited by applicable law,

[defendant] may change the terms of this Agreement.” Id. at 20. The Canteen Court

determined that the phrase “except as prohibited by applicable law” in the contract

implicates the implied covenant of good faith and fair dealing, which remedies any

purported issues of illusoriness in the contract. Id. at 27.

38. In Mezzanotte v. Freeland, 20 N.C. App. 11, 17 (1973), the Court of Appeals

similarly concluded that “[a] promise conditioned upon an event within the promisor’s

41 (Br. Resp. Def.’s MSJ 3–4.)

control is not illusory if the promisor also ‘impliedly promises to make reasonable

effort to bring the event about or to use good faith and honest judgment in

determining whether or not it has in fact occurred.’” In Mezzanotte, the agreement

was contingent upon the plaintiffs obtaining “satisfactory” financing from a bank. Id.

The term satisfactory financing was not defined in the agreement, and it was up to

the plaintiffs to interpret its meaning. See id. at 16–17. The Mezzanotte Court

determined that the agreement implied, and both parties understood, that “plaintiffs

would make an honest good faith effort to acquire financing satisfactory to

themselves” from the bank. Id. at 17. The Mezzanotte Court therefore concluded that

the agreement was not illusory. Id.; see also Philip Morris USA Inc., 363 N.C. at 641–

42 (determining that the provision at issue did not render any promise illusory

because “no party ha[d] an unlimited right to determine whether, or to what extent,

to perform any obligation . . .”).

39. Plaintiffs argue that the APA does not contain the limiting language found

in Canteen, and that consequently, the APA is illusory. 42 The Court finds Plaintiffs’

argument unavailing.

40. An express reference to the implied covenant of good faith and fair dealing

is not a prerequisite for it to apply. “In addition to its express terms, in every contract

there is an implied covenant of good faith and fair dealing that neither party will do

anything which injures the right of the other to receive the benefits of the agreement.”

Governor’s Club Inc. v. Governors Club Ltd. P’ship, 152 N.C. App. 240, 251 (2002)

42 (Br. Resp. Def.’s MSJ 4.)

(cleaned up); see also Banyan GW, LLC v. Wayne Preparatory Acad. Charter Sch.,

Inc., 2019 N.C. App. LEXIS 112, at *17–21 (N.C. Ct. App. Feb. 5, 2019) (determining

that a contract was not illusory because the “sole and absolute discretion” to interpret

the agreement was limited by the implied covenant of good faith and fair dealing).

41. Similar to Canteen, here, Defendant’s discretionary power to determine the

specific variables associated with the EBITDA formula carries with it the duty to

exercise that power in good faith and fairly. Therefore, the Court concludes that

Section 4.2(c)(iii) of the APA, which grants sole discretion to Defendant in

determining the variables in the EBITDA formula, is not invalid as illusory.

Was Defendant’s exercise of discretion proper?

42. As stated above, the parties’ disagreement mainly concerns the undefined

term “mandated expense obligations” and its interpretation and application. The

APA is clear and unambiguous. As a matter of law, the Court interprets the APA to

vest Defendant with sole discretion to determine the variables in the EBITDA

formula, including Non-Recurring Revenue and the meaning of the term “mandated

expense obligations.” The inquiry therefore turns to whether Defendant properly

exercised that discretion in interpreting the term “mandated expense obligations.”

43. Defendant reads “mandated expense obligations” to mean obligations to

have officially required expense. 43 Defendant interprets the term by referencing the

definitions from Merriam-Webster’s Dictionary. 44 Its focus is on “mandated expense.”

43 (See Mem. Supp. Def.’s MSJ 15–18.)

44 (Mem. Supp. Def.’s MSJ 17–18.) Merriam-Webster’s Dictionary defines “mandated” as

“officially required,” “expense” as “a financial burden or outlay,” “obligate” as “to bind legally

Therefore, Defendant maintains that “mandated expense obligations” require

additional expense. 45 Defendant claims that it properly exercised its discretion by

excluding the Compensation Support Grant from Non-Recurring Revenue, as it

obligates Defendant to pay bonuses and raises to teachers—an additional expense on

top of existing wages—and by categorizing and including the Fixed Costs and

Families Grants as Non-Recurring Revenue, as they do not create additional

expenses and can be applied to existing or previously incurred expenses. 46

44. Defendant also refers to Plaintiffs’ previous treatment and categorization of

COVID-19-related funds to support its position. 47 Defendant points out that BDO,

an accounting firm hired by Plaintiffs as advisor during the due diligence period,

issued a Quality of Earnings report that states: “The Company was awarded and

recognized grant revenue from the state of North Carolina due to COVID-19. As

or morally” or “to commit (something, such as funds) to meet an obligation,” and “obligation”

as “something (such as a formal contract, a promise, or the demands of conscience or custom)

that obligates one to a course of action” or “a commitment (as by government) to pay a

particular sum of money.” Mandated, MERRIAM-WEBSTER, https://www.merriam-

webster.com/dictionary/mandated (last visited Jan. 8, 2026); Expense, MERRIAM-WEBSTER,

https://www.merriam-webster.com/dictionary/expense (last visited Jan. 8, 2026); Obligate,

MERRIAM-WEBSTER, https://www.merriam-webster.com/dictionary/obligate (last visited Jan.

8, 2026); Obligation, MERRIAM-WEBSTER, https://www.merriam-

webster.com/dictionary/obligation (last visited Jan. 8, 2026).

45 (Mem. Supp. Def.’s MSJ 18.)

46 (Mem. Supp. Def.’s MSJ 15–18.)

47 (Mem. Supp. Def.’s MSJ 3–4.)

these grants were nonrecurring in nature, Management proposed an adjustment to

remove these revenues.” 48

45. Defendant contends that its interpretation and categorization were in good

faith and should be afforded the discretion granted by the APA. 49

46. Plaintiffs disagree with Defendant’s interpretation of “mandated expense

obligations” and deem Defendant’s interpretation “self-serving.” 50 Plaintiffs agree

that “mandated” means “required,” 51 but fail to proffer an alternative interpretation

of the term “mandated expense obligations.” 52 Instead, Plaintiffs contend that

Defendant’s distinction between the Compensation Support Grant and the Fixed

Costs and Families Grants is “fallacious.” 53 Plaintiffs point out that the ARPA, the

law that governs the Grant Funds, requires the funds to be used in a listed category

of both continuing expenses and additional expenses. 54 See ARPA § 2202(e). The

North Carolina Division of Child Development and Early Education provides that the

Fixed Costs and Families Grants “must fit into one of [eight] categories of approved

use.” 55

48 (Ex. 26, ECF. No. 43.10.)

49 (Mem. Supp. Def.’s MSJ 17.)

50 (Br. Resp. Def.’s MSJ 3–6.)

51 (Br. Resp. Def.’s MSJ 2.)

52 (See generally Br. Resp. Def.’s MSJ; see also Br. Supp. Pls.’ MSJ 6–15.)

53 (Br. Resp. Def.’s MSJ 4.)

54 (Br. Resp. Def.’s MSJ 4–6; Br. Supp. Pls.’ MSJ 6–7.)

55 (Br. Supp. Pls.’ MSJ 6–9; Ex. 23, p. 4, ECF No. 43.7.)

47. Essentially, Plaintiffs argue that these spending requirements constitute

mandated expense obligations, and since the ARPA makes no distinction between the

types of grants, neither the Compensation Support Grant nor the Fixed Costs and

Families Grants are free of mandated expense obligations.

48. Defendant asserts that the eight categories are non-exhaustive because

childcare providers who receive the Fixed Costs and Families Grants from the North

Carolina Division of Child Development and Early Education are allowed to select

“Other” and to describe how the funds were utilized, in addition to the eight

categories. 56

49. Again, the parties’ disagreement is rooted in their different interpretations

of “mandated expense obligations.”

The eight categories are:

(1) Rent (including rent under a lease agreement) or payment on any mortgage obligation,

utilities, facility maintenance or improvements, or insurance;

(2) Personal protective equipment, cleaning and sanitization supplies and services, or

training and professional development related to health and safety practices;

(3) Purchases of or updates to equipment and supplies to respond to the COVID-19 public

health emergency;

(4) Goods and services necessary to maintain or resume child care services;

(5) Mental health supports for children and employees;

(6) Tuition assistance for families;

(7) Past Expenses: reimbursement of debt or expenditures incurred after January 31, 2020,

for the cost of a good or service that falls in the categories above to respond to the COVID-19

public health emergency; and

(8) Personnel costs, including payroll and salaries or similar compensation for an employee

(including any sole proprietor or independent contractor), employee benefits, costs for

employee recruitment and retention as well as ongoing professional development or training,

premium or hazard pay, staff bonuses, and employee transportation costs to or from work.

56 (See Mem. Supp. Def.’s MSJ 18–19; Ex. 23, ECF No. 43.7; Ex. 24, p. 11, ECF No. 43.8.)

50. As discussed above, Defendant’s discretion is limited by the implied

covenant of good faith and fair dealing. To breach the implied covenant of good faith

and fair dealing, Defendant must have acted in a manner, “which injured the right of

the other to receive the benefits of the agreement, thus depriving the other of the

fruits of the bargain.” Conleys Creek Ltd. P’ship v. Smoky Mt. Country Club Prop.

Owners Ass’n, 255 N.C. App. 236, 253 (2017) (cleaned up). “Evasion of the spirit of

the bargain, lack of diligence and slacking off, willful rendering of imperfect

performance, abuse of a power to specify terms, and interference with or failure to

cooperate in the other party’s performance” may constitute breach of the implied

covenant. Intersal, Inc. v. Wilson, 2023 NCBC LEXIS 29, at *67 (N.C. Super. Ct. Feb.

23, 2023) (quoting Restatement 2d of Contracts § 205 cmt. d (1981)). There is no

credible evidence presented to the Court that Defendant has engaged in any such

conduct.

51. Defendant followed the practice approved by North Carolina courts when

interpreting undefined terms in a contract, using dictionaries. See Morris Communs.

Corp. v. City of Bessemer, 365 N.C. 152, 158 (2011) (“To ascertain the ordinary

meaning of undefined and ambiguous terms, courts may appropriately consult

dictionaries.”) (citations omitted); see also James H. Q. Davis Trust v. JHD Props.,

2022 NCBC LEXIS 153, at *11–12 (N.C. Super. Ct. Dec. 9, 2022) (using Black’s Law

Dictionary’s definition to interpret undefined term “practicable”); Encompass Servs.,

PLLC v. Maser Consulting P.A., 2021 NCBC LEXIS 59, at *43 (N.C. Super. Ct. June

28, 2021) (using online dictionaries’ definitions to interpret undefined term “server”).

Defendant has presented a textually based interpretation of “mandated expense

obligations” taken from the definitions of the words “mandated,” “expense,” and

“obligations” from the online version of the Merriam-Webster Dictionary—obligations

to have officially required expense.

52. Apart from characterizing Defendant’s interpretation as “self-serving” and

attacking Defendant’s distinction between the Compensation Support Grant and the

Fixed Costs and Families Grants as “fallacious,” Plaintiffs’ only argument against

Defendant’s interpretation of “mandated expense obligations” is that the ARPA

makes no distinction between the two types of grants and both should be treated as

having mandate expense obligations. 57

53. After Defendant has carried its initial burden on its motion, the question is

not whether Defendant’s interpretation of “mandated expense obligations” was the

only permissible interpretation, but whether Plaintiffs have produced evidence from

which a reasonable factfinder could conclude that Defendant exercised its

contractually vested discretion in bad faith.

54. The Court concludes that Plaintiffs have not met that burden. The APA

granted Defendant discretion to determine the variables included in the EBITDA

formula, including the interpretation of undefined terms. Defendant advanced a

textually based interpretation derived from the dictionary meanings of the term

“mandated expense obligations” and the structure of the Grant Funds at issue.

57 (See Br. Resp. Def.’s MSJ 4–6.)

55. Plaintiffs’ evidence demonstrates a disagreement over contract

interpretation and the financial consequences of Defendant’s decisions. However,

under North Carolina law, disagreement with a discretionary decision does not

establish bad faith. See Lovell v. Nationwide Mut. Ins. Co., 108 N.C. App. 416, 421

(1993) (“[B]ad faith means ‘not based on honest disagreement or innocent mistake.’”

(citations omitted)). Plaintiffs have not presented credible evidence that shows

Defendant exercised its discretion arbitrarily, dishonestly, or for the purpose of

evading letter or the spirit of the APA.

56. Therefore, the Court concludes that there is not a genuine issue of material

fact as to whether Defendant abused its discretion or breached the implied covenant

of good faith and fair dealing by its interpretation of “mandated expense obligations.”

57. The Court concludes that Defendant is entitled to summary judgment on

Plaintiffs’ breach of contract claim.

B. Claim for Breach of Duty of Good Faith and Fair Dealing and Claim

for Declaratory Judgment

58. Plaintiffs further claim that Defendant breached the duty of good faith and

fair dealing imposed by § 9.7 of the APA by failing to act in good faith to maximize

EBITDA and the Contingent Payment to be received by Plaintiffs. 58

59. Plaintiffs also seek a declaration that (a) the Grant Funds are not free from

mandated expense obligations by the grantor or administrator of such funds during

the Earn Out Period, and that (b) the Grant Funds are to be included as recurring

58 (Verified Compl. ¶ 84.)

revenue for purposes of the EBITDA calculation, the Contingent Payment and other

relevant calculations. 59

60. To the extent that Plaintiffs argue that Defendant breached its duty of good

faith by failing to use commercially reasonable efforts to operate the acquired

childcare centers, Plaintiffs have conceded during depositions that Defendant used

reasonable commercial efforts and operated the centers in good faith. 60

61. Plaintiffs’ claim of breach of duty of good faith and fair dealing in connection

with Defendant’s interpretation of “mandated expense obligations” and

categorization of the Fixed Costs and Families Grants as Non-Recurring Revenue is

premised upon the same facts, evidence, and arguments underlying the breach of

contract claim as discussed above.

62. Under North Carolina law, “where a party’s claim for breach of the implied

covenant of good faith and fair dealing is based on the same acts as its claim for

breach of contract, we treat the former as part and parcel of the latter.” Cordaro v.

Harrington Bank, FSB, 260 N.C. App. 26, 38–39 (2018). “North Carolina state court

decisions considering good faith and fair dealing claims that are ‘part and parcel’ of

breach of contract claims . . . have concluded that the two claims merely stand or fall

together[.]” Southeast Anesthesiology Consultants, PLLC v. Rose, 2019 NCBC LEXIS

52, at *23 (N.C. Super. Ct. Aug. 20, 2019). Since Plaintiffs’ claim for breach of duty

of good faith and fair dealing is based on the same alleged facts as its claim for breach

59 (Verified Compl. ¶¶ 94–95.)

60 (See Ex. 5- Kevin R. Campbell Dep. Tr., at 153:4–11, 151:18–20, ECF No. 41.5.)

of contract, the Court grants Defendant’s Motion as to this claim to the same extent

as Plaintiffs’ breach of contract claim. Because Plaintiffs have failed to raise a

genuine issue of material fact as to their breach of contract claim, Plaintiffs’ claim of

breach of duty of good faith and fair dealing likewise fails as a matter of law.

63. Courts have the statutory discretion to “refuse to render or enter a

declaratory judgment or decree where such judgment or decree, if rendered or

entered, would not terminate the uncertainty or controversy giving rise to the

proceeding,” N.C.G.S. § 1-257, especially “when the request for declaratory relief is

duplicative of a substantive cause of action that the court will already address.”

Meridian Renewable Energy LLC v. Birch Creek Dev., LLC, 2025 NCBC LEXIS 172,

at *8–9 (N.C. Super. Ct. Dec. 29, 2025) (dismissing request for declaratory relief that

were largely duplicative of the breach of contract, quasi contract, and tort claims); see

also Oak Grove Techs., LLC v. Seventh Dimension, LLC, 2025 NCBC LEXIS 111, at

*29–30 (N.C. Super. Ct. Aug. 22, 2025) (dismissing, in part, declaratory judgment

request that was duplicative of a breach of contract cause of action that was also

dismissed).

64. Since Plaintiffs’ claim for declaratory judgment is premised upon the same

facts, evidence, and arguments underlying the breach of contract claim, Plaintiffs’

claim for declaratory judgment also fails as a matter of law.

65. Accordingly, Defendant is also entitled to summary judgment on Plaintiffs’

claim of breach of duty of good faith and fair dealing and claim for declaratory relief.

Plaintiffs’ Motion

66. Given that Plaintiffs’ Motion for Summary Judgment is based on the same

claims, arguments, and evidentiary record, 61 the Court denies Plaintiffs’ Motion in

its entirety.

67. The Court’s denial of Plaintiffs’ Motion is further supported by the fact that

the burden is heightened for an affirmative motion for summary judgment on the

party’s own claims, and Plaintiffs have failed to meet their burden.

IV.

CONCLUSION

68. WHEREFORE, the Court hereby GRANTS Defendant’s Motion and

DENIES Plaintiffs’ Motion.

SO ORDERED, this the 6th day of February 2026.

/s/ A. Todd Brown

A. Todd Brown

Special Superior Court Judge

for Complex Business Cases

61 (See Br. Supp. Pls.’ MSJ.)