Brown v. Artisan 2510, Inc.

NO. COA13-868

NORTH CAROLINA COURT OF APPEALS

Filed: 18 March 2014

CHRISTOPHER BROWN, D.D.S.,

Plaintiff,

v. Mecklenburg County

No. 11 CVS 18370

ARTISAN 2510, INC., ARTISAN 2510,

INCORPORATED, ANTHM DESIGN CO.,

INC., ANTHONY MURPHY, and MICHAEL

FERRONE,

Defendants.

Appeal by Michael Ferrone from order filed 9 March 2012 by

Judge W. Robert Bell, order filed 4 February 2013 by Judge H.

William Constangy, and order filed 16 April 2013 by Judge

Richard D. Boner, each in Mecklenburg County Superior Court.

Heard in the Court of Appeals 10 December 2014.

JAMES, McELROY & DIEHL, P.A., by Preston O. Odom, III, Fred

B. Monroe, and John R. Brickley, for plaintiff.

HIGGINS BENJAMIN PLLC, by Gilbert J. Andia, Jr., for

defendant Michael Ferrone.

ELMORE, Judge.

Michael Ferrone (Ferrone), the sole appellant-defendant in

the instant action, appeals the trial court’s denial of his

motion to dismiss pursuant to Rule 12(b)(2) for lack of personal

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jurisdiction and the entry of the order granting summary

judgment against him on Dr. Chris Brown’s (Dr. Brown) claims of

breach of contract and violations of the North Carolina

Securities Act under Chapter 78A. He also appeals the trial

court’s award of attorney’s fees and costs of $37,981.31. After

careful consideration, we affirm in part, reverse and remand in

part, and vacate in part.

I. Factual Background

The evidence in the record shows that Ferrone and Anthony

Murphy (Murphy) formed, managed, and operated Artisan 2510, Inc.

(Artisan 2510), an apparel company. Murphy was the Chief

Executive Officer whose role was to direct the design/artistic

side of the apparel company, while Ferrone was the President and

Chief Financial Officer whose role was to handle the promotion

of the company. Each were 50 percent owners. There is some

dispute as to whether Artisan 2510 was first formed (perhaps

incorrectly) as a Nevada corporation, and later licensed to do

business in New Jersey.1 Murphy is a New Jersey resident and

Ferrone is a resident of Massachusetts.

1

Ferrone believed that Artisan was originally created as a

Nevada corporation but he was later provided documentation that

Artisan was licensed to do business in New Jersey.

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In early June 2010, Ferrone contacted Dr. Brown, a resident

of North Carolina, to solicit a $100,000 investment in Artisan

2510. Dr. Brown and Ferrone had known each other for

approximately 8 years and had previously engaged in business

dealings together. Ferrone and Murphy represented to Dr. Brown

that Artisan 2510 was a growing clothing company, and

specifically offered to sell him a ten percent shareholder

interest, which amounted to 222,000 shares of stock in Artisan

2510. In addition, Dr. Brown alleges that they offered to pay

him 15 percent interest per year on his investment.

In negotiating the deal, Ferrone communicated with Dr.

Brown via phone, text, and email. On or about 10 June 2010, Dr.

Brown received a PowerPoint presentation, which included

photographs of clothing and information about the company. In

an email dated 23 June 2010, Ferrone informed Dr. Brown that his

investment would be used to defray product development and

production expenses and secure showroom space. At no time

during the negotiations did Ferrone or Murphy maintain a

physical presence in North Carolina.

Based on Murphy and Ferrone’s representations, Dr. Brown

agreed to invest $100,000 in Artisan 2510. Ferrone had a

Purchase Agreement drafted and emailed to Dr. Brown on or about

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22 June 2012. Dr. Brown sent two separate $50,000 checks made

payable to Artisan 2510, Inc. The first check was sent 27 June

2010, and the second was sent on or about 13 July 2010. Dr.

Brown understood that the stock certificates would be issued and

sent to him upon receipt of each check.

Despite Dr. Brown’s payment, Artisan 2510 failed and

refused to deliver the stock share certificates. Throughout the

remainder of 2010, Dr. Brown contacted Ferrone on numerous

occasions to request the stock certificates—to no avail. Upon

Dr. Brown’s information, he alleges that Ferrone and Murphy

never applied his investment towards Artisan, but instead used

the money to fund Anthm and/or Artisan 2, separate clothing and

design companies, and to cover their personal expenses.

Dr. Brown demanded the return of his investment, and he and

Ferrone began negotiating the terms of a payback settlement (the

settlement agreement). Dr. Brown points to two emails dated 14

April 2011 as evidence of the terms of a mutually agreed upon

settlement agreement. In the first email, Ferrone offered a

total payback sum of $150,000, and stated that as “a gesture of

good faith” Dr. Brown would receive $5,000 towards the

settlement on or before 28 April 2011. In a second email sent

approximately 30 minutes later, Ferrone included a definitive

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repayment schedule, which was to commence on 25 May 2011. Dr.

Brown received the “good faith” payment of $5,000, but no

additional payments were made pursuant to the settlement

agreement.

Dr. Brown filed a complaint against Artisan 2510, Inc.

Artisan 2510, Incorporated, Anthm Design Co., Inc., Anthony

Murphy, and Michael Ferrone for 1) breach of contract,

specifically the settlement agreement; 2) unjust enrichment; 3)

fraud; 4) facilitation of fraud/conspiracy; 5) unfair and

deceptive trade practices; 6) conversion; 7) violations of

Chapter 78A; 8) piercing the corporate veil; and 9) punitive

damages. He alleged that Ferrone and Murphy were the owners,

agents, and alter egos of Artisan, Artisan 2, and Anthm and that

the three corporate entities are indistinguishable. As such,

Ferrone and Murphy are jointly and severally liable for each

cause of action.

The trial court granted Dr. Brown’s motion for entry of

default pursuant to Rule 55 against Artisan 2510, Inc. Artisan

2510, Incorporated, Anthm Design Co., Inc., and Anthony Murphy.

Thereafter, the trial court granted Dr. Brown’s motion for

Summary Judgment against Ferrone on the claims of breach of

contract and violations of Chapter 78A. Ferrone now appeals.

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II. Personal Jurisdiction

Ferrone argues that the trial court erred in finding that

it could exercise in personam jurisdiction over him. We

disagree.

We review a trial court’s order determining personal

jurisdiction to see “whether the findings of fact by the trial

court are supported by competent evidence in the record; if so,

this Court must affirm the order of the trial court.”

Replacements, Ltd. v. MidweSterling, 133 N.C. App. 139, 140-41,

515 S.E.2d 46, 48 (1999). However, under Rule 52(a)(2) “the

trial court is not required to make specific findings of fact

unless requested by a party. When the record contains no

findings of fact, [i]t is presumed . . . that the court on

proper evidence found facts to support its judgment.” Banc of

Am. Secs. LLC v. Evergreen Int'l Aviation, Inc., 169 N.C. App.

690, 694, 611 S.E.2d 179, 183 (2005) (citations and quotations

omitted) (alteration in original).

In the case sub judice, the record does not show that

either party requested the trial court to make specific findings

of fact. We presume that the trial judge made factual findings

sufficient to support his ruling based on the affidavits of the

parties, the pleadings, authorities presented, and arguments of

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counsel. However, we do not have a copy of the transcript as

part of the record on appeal. Accordingly, we review this issue

for sufficiency of the evidence based on the record before us.

Cameron-Brown Co. v. Daves, 83 N.C. App. 281, 285, 350 S.E.2d

111, 114 (1986).

“A two-step test is utilized to resolve a question of in

personam jurisdiction over a non-resident defendant: (1) Does a

basis for jurisdiction exist under the North Carolina ‘long-arm’

statute, [] and (2) If so, will the exercise of this

jurisdiction over the defendant comport with constitutional

standards of due process?” Id. at 283, 350 S.E.2d at 113.

Ferrone concedes that a basis for jurisdiction exists under

North Carolina’s “long-arm” statute, and, therefore, we need not

address the first step of the test.

“To satisfy the due process prong of the personal

jurisdiction analysis, there must be sufficient ‘minimum

contacts’ between the nonresident defendant and our state such

that the maintenance of the suit does not offend ‘traditional

notions of fair play and substantial justice.’” Skinner v.

Preferred Credit, 361 N.C. 114, 122, 638 S.E.2d 203, 210 (2006)

(citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.

Ct. 154, 158, 90 L. Ed. 95, 102 (1945) (quoting Milliken v.

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Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343, 85 L. Ed. 278, 283

(1940)). The United States Supreme Court has recognized two

bases for finding sufficient minimum contacts: (1) general

jurisdiction and (2) specific jurisdiction. Evergreen, 169 N.C.

App. at 696, 611 S.E.2d at 184. General jurisdiction may be

maintained “even if the cause of action is unrelated to

defendant’s activities in the forum as long as there are

sufficient ‘continuous and systematic’ contacts between

defendant and the forum state.” Id. (quotation omitted).

“Specific jurisdiction exists when the controversy arises out of

the defendant’s contacts with the forum state[,]” making the

cause of the action the basis for the exercise of in personam

jurisdiction. Id. (quotation omitted).

In determining whether minimum contacts exist, the

following factors are to be considered in relation to the

circumstances of the case: “(1) quantity of the contacts, (2)

nature and quality of the contacts, (3) the source and

connection of the cause of action to the contacts, (4) the

interest of the forum state, and (5) convenience to the

parties.” New Bern Pool & Supply Co. v. Graubart, 94 N.C. App.

619, 624, 381 S.E.2d 156, 159 (1989), aff'd, 326 N.C. 480, 390

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S.E.2d 137 (1990) (quotation omitted). All factors are to be

considered.

“A contractual relationship between a North Carolina

resident and an out-of-state party alone does not automatically

establish the necessary minimum contacts with this State;”

however, a single contract “may establish the necessary minimum

contacts where it is shown that the contract was voluntarily

entered into and has a ‘substantial connection’ with this

State.” Evergreen, 169 N.C. App. at 696, 611 S.E.2d at 184

(citation and quotation omitted). The parties’ prior

negotiations and actual course of dealing, along with the terms

of the contract, are relevant factors in a ‘minimum contacts’

analysis. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 85

L. Ed. 528 (1985). Further, “[w]hich party initiates the

contact is taken to be a critical factor in assessing whether a

nonresident defendant has made ‘purposeful availment’ [of the

privilege of conducting activities within the forum State].”

Evergreen, 169 N.C. App. at 698, 611 S.E.2d at 185 (citation and

quotation omitted) (alteration in original). “[W]here a

defendant is an officer and principal shareholder of a

corporation, . . . we consider his corporate actions in

determining personal jurisdiction[.]” Saft Am., Inc. v.

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Plainview Batteries, Inc., 189 N.C. App. 579, 598, 659 S.E.2d

39, 51 (2008), rev'd in part, 363 N.C. 5, 673 S.E.2d 864 (2009).

A. Quantity, Nature, and Quality of the Contacts & Due Process

In the present case, Dr. Brown offered the following

evidence to support a finding of specific jurisdiction. In his

affidavit, Dr. Brown alleged that Ferrone “systematically and

repeatedly” contacted him in North Carolina via email and

telephone to convince him to invest in Artisan 2510. At that

time, Dr. Brown and Ferrone had been acquaintances for

approximately 8 years, had previously invested together, and had

sat on the same board of directors.

Additionally, Ferrone sent an offer via email on 21 June

2010, wherein he promised to provide Dr. Brown with 220,000

shares of stock in Artisan 2510 in exchange for a $100,000

investment. Ferrone then emailed Artisan’s business plan and a

PowerPoint presentation regarding the financials of the company

to Dr. Brown. Once Dr. Brown decided to invest, Ferrone had a

Purchase Agreement drafted and sent electronically to Dr. Brown.

Dr. Brown signed and returned the Purchase Agreement to Ferrone

and subsequently mailed two $50,000 checks from North Carolina.

Ferrone’s affidavit also describes systematic and repeated

contact with Dr. Brown in North Carolina: “On March 11, 2011, I

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sent an email to [p]laintiff with a proposed Promissory Note for

$150,000;” “I emailed a revised copy of the Purchase Agreement

to [pl]aintiff;” “[a] series of emails are attached []

demonstrating a string of communication” with plaintiff; “[a]s I

mentioned in our chat last night, we are in the process of

accounting and figuring how to return your funds and profit.”

Additionally, the record contains evidence that Dr. Brown

and Ferrone negotiated a settlement agreement, and Dr. Brown

received the first $5,000 repayment in North Carolina per its

terms. Importantly, the record also shows that Ferrone

initiated contact with Dr. Brown, which, again, is considered a

critical factor in assessing ‘purposeful availment.’ See

Evergreen, supra. Upon review, we conclude that the

relationship between Ferrone and the forum was such that he

should reasonably have anticipated being haled into court. The

contact between Ferrone and Dr. Brown had substantial

connections to North Carolina, and, therefore, Dr. Brown

purposefully availed himself of the protection and benefit of

our laws.

B. The Interest of the Forum State & the Convenience to the

Parties

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When the trial court “concludes that a defendant has

purposefully established minimum contacts within the forum

State, the court must also consider those contacts in light of

other factors to determine whether the assertion of personal

jurisdiction would comport with fair play and substantial

justice.” Evergreen, 169 N.C. App. at 699, 611 S.E.2d at 186

(quotation and ciation omitted). In doing so, we consider “(1)

the interest of North Carolina and (2) the convenience of the

forum to the parties.” Id.

In regards to North Carolina's interest, Ferrone argues

that it is New Jersey, not North Carolina, that is the

appropriate forum for litigation as the Purchase Agreement

contained a choice-of-law provision favoring New Jersey law.

However, we have held that “[w]hile choice of law clauses are

not determinative of personal jurisdiction, they express the

intention of the parties and are a factor in determining whether

minimum contacts exist and due process was met. This factor

does not, therefore, favor one party over the other.” Id. at

700, 611 S.E.2d at 186. (quotation and citation omitted)

(alteration in original). Here, the record reflects that

neither Ferrone nor Murphy signed the Purchase Agreement, and we

give little weight to its terms. More importantly, Dr. Brown

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has sued to enforce the parties’ settlement agreement, not the

original investment contract.

With respect to the convenience to the parties, North

Carolina is certainly the more convenient forum for Dr. Brown,

and this State has a “manifest interest in providing its

residents with a convenient forum for redressing injuries

inflicted by out-of-state actors.” Baker v. Lanier Marine

Liquidators, Inc., 187 N.C. App. 711, 716, 654 S.E.2d 41, 45

(2007) (citation and quotation omitted). As Ferrone has failed

to convince us otherwise, we hold that North Carolina is a

convenient forum to determine the rights of the parties.

III. Standard of Review

“Our standard of review of an appeal from summary judgment

is de novo; such judgment is appropriate only when the record

shows 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.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,

576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649

S.E.2d 382, 385 (2007)). “The burden on the moving party to

show that no genuine issues of fact exist may be met by proving

that an essential element of the opposing party’s claim is

nonexistent or by showing through discovery that the opposing

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party cannot produce enough evidence to support an essential

element of his claim.” Miller v. Rose, 138 N.C. App. 582, 585-

86, 532 S.E.2d 228, 231 (2000) (citation and quotation omitted).

IV. Discussion

We next address whether the trial court erred in finding

that Mr. Ferrone was personally liable to Dr. Brown for breach

of contract. Dr. Brown alleges: “There are two independent

bases under which this Court can affirm Mr. Ferrone’s personal

liability under the aforementioned agreement: piercing the

corporate veil and Mr. Ferrone’s personal guaranty.”

A. Personal Liability and Piercing the Corporate Veil

In Dr. Brown’s 5 October 2011 complaint, the eighth claim

for relief is “Piercing the Corporate Veil/Alter Ego.” However,

in a document entitled “Voluntary Dismissal Without Prejudice,”

filed 12 April 2013, Dr. Brown stated that he “hereby dismissed,

without prejudice, the claims against Defendant Michael Ferrone

for which Plaintiff was not granted summary judgment.

Specifically, Plaintiff hereby dismisses . . . piercing the

corporate veil/alter ego[.]” Accordingly, we decline to address

Dr. Brown’s argument as to piercing the corporate veil/alter ego

on appeal.

B. Guaranty Contract

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The only remaining theory that Dr. Brown offers to hold

Ferrone personally liable for the breach of the settlement

agreement is due to a guaranty contract.

Generally, a promise to answer for another’s debt falls

within the statute of frauds and must be in writing to be

enforceable. N.C. Gen. Stat. § 22-1 (2013) mandates that “[n]o

action shall be brought . . . to charge any defendant upon a

special promise to answer the debt . . . of another person,

unless the agreement upon which such action shall be brought, or

some memorandum or note thereof, shall be in writing, and signed

by the party charged therewith[.]” In addition, a promise to

personally repay the debt of another must be supported by

sufficient consideration. “A guaranty contract is supported by

sufficient consideration if it is based on a benefit passing to

the guarantor or a detriment to the guarantee. When the

guaranty, as in this case, involves a preexisting debt, it must

be supported by some new consideration other than the original

debt.” Carolina E., Inc. v. Benson Agri Supply, Inc., 66 N.C.

App. 180, 182, 310 S.E.2d 393, 395 (1984) (citations omitted).

However, there exists an exception to the general rule.

Under the “main purpose rule” a promise to pay the debt of

another falls outside the statute of frauds “if it is concluded

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that the promisor has the requisite personal, immediate, and

pecuniary interest in the transaction in which a third party is

the primary obligor[.]” Terrell v. Kaplan, 170 N.C. App. 667,

670, 613 S.E.2d 526, 528 (2005) (quotation and citation

omitted). In such cases, “the promise is said to be original

rather than collateral and therefore need not be in writing to

be binding.” Id.; see also, e.g., Stuart Studio, Inc. v. Nat'l

School of Heavy Equip., Inc., 25 N.C. App. 544, 546, 214 S.E.2d

192, 193 (1975) (Where “the main purpose and object of the

promisor is not to answer for another, but to subserve some

pecuniary or business purpose of his own, . . . his promise is

not within the statute [of frauds][.]” (quotation omitted).).

In the case sub judice, Dr. Brown contends that the main

purpose rule is applicable to these facts. Specifically, Dr.

Brown argues that Ferrone had the requisite personal, immediate,

and pecuniary interest in the transaction: “Ferrone certainly

had a personal interest in Dr. Brown investing in Artisan 2510

as an officer and/or shareholder, and because he had similarly

invested in the business.” However, after carefully reviewing

the record, we find a genuine issue of material fact exists as

to (1) whether an oral guaranty was given, and (2) whether an

application of the main purpose rule is warranted on the facts

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of this case. Accordingly, we find summary judgment was

improperly granted on Dr. Brown’s claim for breach of the

settlement agreement.

C. Violation of Chapter 78A

Ferrone argues that the trial court erred in granting Dr.

Brown’s motion for summary judgment on his claim for violations

of the North Carolina Securities Act under Chapter 78A. We

agree.

Because Dr. Brown alleges that Ferrone and Murphy were the

owners, agents, and alter egos of Artisan, he brought this claim

against Ferrone under the theory of joint and several liability.

As such, we look to Ferrone’s primary liability under N.C. Gen.

Stat. § 78A. From the face of the order, we presume that the

trial court found that Ferrone violated N.C. Gen. Stat. § 78A-

56(a)(2), which imposes civil liability upon any person who:

Offers or sells a security by means of any

untrue statement of a material fact or any

omission to state a material fact necessary

in order to make the statements made, in

light of the circumstances under which they

were made, not misleading (the purchaser not

knowing of the untruth or omission), and who

does not sustain the burden of proof that he

did not know, and in the exercise of

reasonable care could not have known of the

untruth or omission[.]

N.C. Gen. Stat. § 78A-56 (a)(2) (2013).

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We further note that any person who directly or indirectly

controls a person liable under N.C. Gen. Stat. § 78A-56(a) “is

also liable jointly and severally . . . 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.” N.C. Gen. Stat. § 78A-56(c)(1) (2013).

A statement is material if “there is a substantial

likelihood that a reasonable [purchaser] would consider it

important in deciding [whether or not to purchase]. State v.

Williams, 98 N.C. App. 274, 280, 390 S.E.2d 746, 749 (1990), or

if a reasonable purchaser “would have viewed the total mix of

information made available to be significantly altered by

disclosure of the fact.” Dunn v. Borta, 369 F.3d 421, 427 (4th

Cir. 2004)). A question of materiality is generally fact based

and for the jury to decide. Tharrington v. Sturdivant Life Ins.

Co., 115 N.C. App. 123, 127, 443 S.E.2d 797, 800 (1994).

In the present case, Dr. Brown alleged in his complaint

that “[d]efendants represented that they would pay [Dr. Brown]

15% interest per year on his investment.” Ferrone denied this

allegation in his answer. Additionally, Dr. Brown alleged that

“[b]ased on [d]efendants’ representations, [Dr. Brown] agreed to

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invest $100,000 in Artisan[.]” Ferrone also denied this

allegation in his answer. Dr. Brown further alleged in his

complaint that “[d]efendants also represented that [Dr. Brown’s]

investment was sound because the clothing product line doubles

the company’s net profit each clothing season, and that there

are eight seasons per year.” Ferrone denied this allegation in

his answer. The record indicates that there remains a genuine

issue of material fact as to whether Ferrone made any misleading

statements to Dr. Brown in violation of N.C. Gen. Stat § 78A-

56(a)(2). This issue involves a genuine issue of material fact

and is for a jury to decide. See id. As such, we cannot sustain

the trial court’s decision to grant summary judgment on this

issue.

Finally, we recognize that Judge Richard D. Boner granted

Dr. Brown’s motion for attorney’s fees and costs pursuant to

N.C. Gen. Stat. § 78A-56(a) based on Judge H. William

Constangy’s order. However, as we determined that the trial

court erred in granting summary judgment against Ferrone for

violating Chapter 78A, we vacate the order which grants Dr.

Brown’s motion for attorney’s fees and costs.

V. Conclusion

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In sum, the trial court did not err in denying Ferrone’s

pre-answer motion to dismiss for lack of personal jurisdiction.

The exercise of in personam jurisdiction over Ferrone does not

violate his due process rights. However, the trial court erred

in granting summary judgment on Dr. Brown’s claims for breach of

contract and violations of Chapter 78A. The issue of whether

Ferrone is personally liable for the breach of the settlement

agreement is best placed before a jury. Further, the record is

insufficient to support the trial court’s determination that

Ferrone is liable for violations of Chapter 78A. Accordingly,

the trial court’s order granting Dr. Brown’s motion for

attorney’s fees and costs is vacated. We reverse and remand to

the trial court for further action consistent with this opinion.

Affirmed in part; reversed and remanded in part; vacated in

part.

Judges McGEE and HUNTER, Robert, C., concur.

Report per Rule 30(e).