Southland Nat'l Ins. Corp. v. Lindberg

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA22-1049

Filed 20 June 2023

Wake County, No. 19CVS13093

SOUTHLAND NATIONAL INSURANCE CORPORATION in Rehabilitation,

BANKERS LIFE INSURANCE COMPANY in Rehabilitation, COLORADO

BANKERS LIFE INSURANCE COMPANY, in Rehabilitation, and SOUTHLAND

NATIONAL REINSURANCE CORPORATION, in Rehabilitation, Plaintiffs,

v.

GREG E. LINDBERG, GLOBAL GROWTH HOLDINGS, INC. f/k/a ACADEMY

ASSOCIATION, INC., EDWARDS MILL ASSET MANAGEMENT, LLC, NEW

ENGLAND CAPITAL, LLC, AND PRIVATE BANKERS LIFE AND ANNUITY CO.,

LTD., Defendants.

Appeal by defendants and cross-appeal by plaintiffs from order and judgment

entered 18 May 2022 by Judge A. Graham Shirley II in Wake County Superior Court.

Heard in the Court of Appeals 26 April 2023.

Fox Rothschild by Matthew Nis Leerberg, Troy D. Shelton, Nathan W. Wilson

for petitioner-appellants, cross-appellees.

Condon Tobin Sladek Thorton PLLC by Aaron Z. Tobin for petitioner-

appellants, cross-appellees.

Williams Mullen by Wes J. Camden, Caitlin M. Poe, Lauren E. Fussell for

respondent-appellees, cross-appellants.

FLOOD, Judge.

I. Facts and Procedural Background

SOUTHLAND V. LINDBERG

Opinion of the Court

Southland National Insurance Corporation, Bankers Life Insurance Company,

Colorado Bankers Life Insurance Company, and Southland National Reinsurance

Corporation (collectively “Plaintiffs”) are insolvent insurers who were purchased by

Greg. E. Lindberg (“Lindberg”) in 2014. Lindberg, along with Global Growth

Holdings, Inc., formerly known as Academy Association, Inc.; Edwards Mill Asset

Management, LLC; New England Capital, LLC; and Private Bankers Life and

Annuity Co., Ltd. (collectively, “Defendants”), appeal from the trial court’s order that

held Defendants liable for breach of contract and fraud. Plaintiffs cross-appeal on

the narrow issue of whether the trial court erred in failing to award them

compensatory and punitive damages in addition to specific performance. The facts

that underlie the case are as follows.

The Plan

In 2014, Lindberg re-domesticated Plaintiffs to North Carolina in order to take

advantage of this State’s favorable regulations. Prior to this re-domestication, acting

as owner of Plaintiffs, Lindberg made a special agreement with former Commissioner

of Insurance, Wayne Goodwin, allowing Lindberg to invest up to forty percent of

Plaintiffs’ assets into affiliated business entities. Lindberg then invested up to forty

percent of Plaintiffs’ money into the purchase of other, non-insurance companies, also

owned by Lindberg. Simply put, Lindberg created a scheme in which he caused $1.2

billon held for Plaintiffs’ policyholders to be invested into other non-insurance

companies that he also owned or controlled.

-2-

SOUTHLAND V. LINDBERG

Opinion of the Court

In November 2016, Wayne Goodwin lost his seat as Commissioner of Insurance

to Mike Causey (the “Commissioner”), who reduced the cap on affiliated investments

from forty percent to ten percent. Lindberg struggled to untangle his affiliated

investments and, as the deadline for diversification drew near, the North Carolina

Department of Insurance (the “NCDOI”) grew concerned that there would be a

“mismatch between investments and policyholder liabilities.” In other words,

because Lindberg had invested so much of Plaintiffs’ money into affiliated companies,

the NCDOI worried that Plaintiffs might experience a shortfall on their obligation to

pay individual policyholders.

Upon realizing an impending shortfall, on 18 October 2018, the Commissioner,

Plaintiffs, and Lindberg entered into a Consent Order placing Plaintiffs under

administrative supervision. The NCDOI placed an out-of-state company, Noble

Consulting Services (“Noble”), in charge of the administrative supervision with

Noble’s CEO and owner, Mike Dinius (“Dinius”) as the main point of contact. During

the period of Administrative Supervision, Defendants agreed to deadlines by which

they were required to reduce their affiliated investments. Dinius conducted an

analysis and concluded it would be virtually impossible for those deadlines to be met.

In an effort to avoid the shortfall, in May 2019 Plaintiffs agreed to negotiate a

restructuring of the affiliated business entities’ obligations. The negotiations around

restructuring resulted in a Memorandum of Understanding (the “MOU”), the

enforceability of which is central to this case.

-3-

SOUTHLAND V. LINDBERG

Opinion of the Court

While negotiating the terms of the MOU, Defendants maintained total access

and control over the portfolios of their affiliated companies—which, by the terms of

the MOU were called Specified Affiliated Companies (“SACs”). During this time,

Plaintiffs had no equity interest, control, or visibility into the SACs or several tiers of

holding companies above them, though they could have asked for that information at

any time. Plaintiffs opted to rely on the representations and warranties provided by

Defendants. Dinius and members of Plaintiffs’ management team were aware that

some of the SACs had obligations to third parties, but trusted Defendants’

representations and warranties regarding their ability to uphold the terms of the

MOU, regardless of those obligations. When asked at trial if during the course of

negotiating the MOU, Defendants ever said “[h]ey, Mr. Dinius, look, you know, we’re

not sure everything in here is right so don’t hold us to it,” Dinius replied “[n]o, they

did not.” Dinius further stated that the representations and warranties made in the

MOU were “very important[,]” and “[s]ince Lindberg controlled all of these entities,

we were relying on him to tell us if he could effectuate this or not.”

On 27 June 2019, the parties entered into several agreements—the MOU, an

Interim Amendment to Loan Agreement (“IALA”), and a Revolving Credit Agreement

(the “Revolver”). The IALA provided debt relief to Defendants of more than $100

million by deferring interest payments for a period of six months and modifying the

underlying loans’ interest rates and maturity dates, effectively allowing Defendants

more time to repay the loans. Meanwhile, under the terms of the Revolver, Plaintiff

-4-

SOUTHLAND V. LINDBERG

Opinion of the Court

Colorado Bankers Life Insurance Company provided a $40 million revolving line of

credit to a company owned by Defendants.

The MOU

The MOU, in essence, was an agreement to adjust and restructure debts to

facilitate repayment, requiring Lindberg to relinquish control of the SACs by making

them subsidiaries of a New Holding Company (the “NHC”). The NHC would be

managed by an independent board of qualified individuals whose primary goal would

be protecting the best interests of Plaintiffs’ policyholders.

Of multiple opening recitals in the MOU, one states the parties . . .

intend that this MOU and the transactions contemplated

herein will serve to protect the best interests of the

policyholders of each of the North Carolina Insurance

Companies . . . [.] In so doing, the Parties also intend to

increase the long-term equity value of the [SACs], so long

as it is consistent with the protection of the best interest of

the Policyholders and in accordance with North Carolina

law.

After the recitals, the MOU enumerated four Articles. Article I bound the

parties to execute and deliver the Interim Loan Amendments attached to the MOU,

a document that granted debt relief to Defendants. Article II titled “Global

Restructuring” sought to restructure most of the revenue-generating businesses

within Lindberg’s portfolio of companies that owed money to Plaintiffs. Under Article

II, the NHC would use the revenue from these companies in Lindberg’s portfolio to

pay down the debts owed to Plaintiffs. Importantly, Article II also required the

-5-

SOUTHLAND V. LINDBERG

Opinion of the Court

parties to restructure the SACs “to become subsidiaries, either directly or indirectly,”

of the NHC “on or before [30 September 2019].” Article III titled “Global Loan

Amendments” allowed the NHC to make additional, future amendments to the loans

on which the SACs were the ultimate borrowers, ensuring that any new loans entered

into had protections and benefits for Lindberg. The MOU did not require that Article

II and Article III be implemented contemporaneously.

Finally, Article IV titled “Additional Terms and Conditions” contained

representations and warranties that:

a. Each of the Recitals, Schedules, and Exhibits to this

MOU are true and accurate in all respects;

...

e. The execution of the MOU and the consummation of

the transaction set forth in the MOU do not violate any law;

...

g. The execution of the MOU and the consummation of

the transactions set forth in the MOU do not result in a

breach of, constitute a default under, or result in the

acceleration of any contract to which any of them is a party

or is bound or to which any of their assets are subject[.]

h. The execution of the MOU and the consummation of

the transactions set forth in the MOU do not create in any

party the right to accelerate, terminate, modify, cancel, or

require any notice or consent under any contract to which

any of them is a party or is bound or to which any of their

assets are subject[.]

Additionally, Article IV contained two important clauses: a severability clause and a

specific performance clause. The severability clause stated that “[a]ny term or

-6-

SOUTHLAND V. LINDBERG

Opinion of the Court

provision of this MOU that is invalid or unenforceable in any situation in any

jurisdiction shall not affect the validity or enforceability of the remaining terms and

provisions hereof . . . [.]” Under the specific performance clause, the parties agreed

that a nonbreaching party “shall be entitled to specific performance . . . in addition to

any other remedy to which they are entitled at law or in equity.”

On the same day the parties entered into the MOU, IALA, and Revolver,

Plaintiffs consented to being placed into Rehabilitation pursuant to N.C. Gen. Stat. §

58-30-75. During Rehabilitation, a moratorium was placed on policyholder

surrenders, and Plaintiffs’ obligation to pay policyholders was suspended. During the

period of Rehabilitation and upon execution of the MOU, Defendants had either direct

or indirect control over most of the SACs and the authority to contribute those entities

to the NHC.

The Breach

Two weeks before the deadline to perform under Article II of the MOU, George

Vandeman (“Vandeman”) acting as a chairman for Defendant Academy Association,

Inc., sent a communication to Plaintiffs stating that the restructuring plan set forth

under Article II could not be accomplished because:

i. Seller notes . . . are subject to breach and acceleration

upon reorganization;

ii. The debt reduction from the IALA and the

reorganization may result in adverse tax consequences to

Lindberg; [and]

-7-

SOUTHLAND V. LINDBERG

Opinion of the Court

iii. The reorganization will trigger certain changes in

control provisions in contracts with third-parties[.]

On 30 September 2019, Defendants failed to contribute the SACs to the NHC, thus

breaching Article II of the MOU. On 1 October 2019, Plaintiffs filed suit in Wake

County Superior Court alleging breach of the MOU and fraud. Plaintiffs requested

specific performance of the MOU, compensatory damages, and punitive damages.

The Trial Court’s Order and Judgment

After a bench trial, the trial court entered a judgment in favor of Plaintiffs,

ordering specific performance but not compensatory or punitive damages. First, the

trial court held that Article III of the MOU was unenforceable because it was an

agreement to agree, making it severable from the rest of the MOU. Upholding the

remainder of the MOU, the trial court found Defendants breached Article II by failing

to perform by the 30 September 2022 deadline, and awarded specific performance.

Next, the trial court concluded that Defendants fraudulently induced Plaintiffs

to sign the MOU by making false representations and warranties under Article IV

regarding the execution and performance of obligations. Specifically, the trial court

found that Defendants fraudulently represented that performance under the MOU

was duly authorized and

(2) [did] not violate any law; (3) would not result in a breach

of, constitute a default under, or result in the acceleration

of any contract to which any of them is a party or is bound

or to which any of their assets are subject; and (4) [did] not

create in any party the right to accelerate, terminate,

modify, cancel or require any notice or consent under any

-8-

SOUTHLAND V. LINDBERG

Opinion of the Court

contract to which any of them is a party or is bound or to

which any of their assets are subject.

The trial court further found that the fraudulent representations and warranties

made to Plaintiffs in the MOU caused Plaintiffs to enter into two other agreements—

the IALA and the Revolver—to their detriment. The trial court declined to award

any remedy for Plaintiffs’ fraud claim because they had elected the remedy of specific

performance. Instead, the trial court stated that “if an appellate Court should

determine that specific performance is not an available remedy this Court would

enter an award of punitive damages in the amount of three times compensatory

damages.”

On 26 May 2022, the trial court entered an Amended Judgment and Order to

correct clerical errors. Defendants filed a Notice of Appeal of the Amended Judgment

and Order on 13 June 2022. Plaintiffs then filed a Conditional Notice of Cross-

Appeal, seeking review of the trial court’s failure to award fraud damages. As part

of their Cross-Appeal, Plaintiffs also filed a request for Judicial Notice on 19 January

2023, which this Court denied by order.

II. Jurisdiction

An appeal lies of right directly to this Court from any final judgment of a

superior court. N.C. Gen. Stat. § 7A-27(b)(1) (2021).

III. Argument

-9-

SOUTHLAND V. LINDBERG

Opinion of the Court

On appeal, Defendants argue that Article III was an essential part of the MOU

and without it, the entire agreement was rendered unenforceable. Further, if the

MOU was entirely unenforceable, then the trial court erred when it found fraudulent

inducement. For the reasons set forth below, we disagree.

A. Standard of Review

“The standard of review on appeal from a judgment entered after a non-jury

trial is ‘whether there is competent evidence to support the trial court’s findings of

fact and whether the findings support the conclusions of law and ensuing judgment.’”

Cartin v. Harrison, 151 N.C. App. 697, 699, 567 S.E.2d 174, 176 (quoting Sessler v.

Marsh, 144 N.C. App. 623, 628, 551 S.E.2d 160, 163 (2001)), disc. rev. denied, 356

N.C. 434, 572 S.E.2d 428 (2002).

B. Severance of Article III

Plaintiffs and Defendants agree the trial court correctly concluded Article III

was an unenforceable agreement to agree. Defendants, however, contend Article III

was essential to the MOU’s main purpose, and severing it rendered the entire MOU

unenforceable. After a thorough review, we conclude the trial court did not err when

it enforced the remainder of the MOU after severing Article III.

1. Main Purpose

Defendants argue Article III was a main purpose and an essential feature of

the MOU upon which other provisions depended. We disagree.

- 10 -

SOUTHLAND V. LINDBERG

Opinion of the Court

To determine whether an unenforceable provision is a “main purpose” or

“essential feature,” the Court must look at whether other provisions of the contract

are dependent on the unenforceable one. See Robinson, Bradshaw, & Hinson, P.A. v.

Smith, 129 N.C. App. 305, 314, 498 S.E.2d 841, 848 (1998) (holding that despite one

section of a contingency-fee contract being invalid, the remainder of the contract is

still enforceable because it is severable and not the main purpose or essential feature

of the agreement). Put another way, severance of an unenforceable provision is

appropriate when the other provisions “are in no way dependent upon the

enforcement of the illegal provisions for their validity.” Am. Nat’l Elec. Corp. v

Poythress Commer. Contractors, Inc., 167 N.C. App. 97, 101, 604 S.E.2d 315, 317

(2004) (citations omitted).

To argue that a contract’s main purpose may not be severed, Defendants cite

to Green v. Black, a case in which the parties entered into a written agreement where

the defendant was to repay the plaintiff for a personal loan. Green v. Black, 270 N.C.

App. 258, 840 S.E.2d 900 (2020). The agreement included a provision stating that,

should the defendant default, a new agreement would be drafted that would include

a “mutually agreed upon payment schedule for the remaining amount due.” Green,

270 N.C. App. at 260, 840 S.E.2d at 902. This Court held that the provision was void

for uncertainty and was therefore unenforceable, but upheld the remainder of the

agreement. Id. at 265, 840 S.E.2d at 905–06. This Court further concluded that the

parties’ intended main purpose was to “memorialize an agreement to exchange money

- 11 -

SOUTHLAND V. LINDBERG

Opinion of the Court

for a promise to pay the money back with interest on a certain date[,]” and because

of that, a sentence regarding what would happen in the event of default was

severable. Id. at 264, 840 S.E.2d at 905.

Unlike the parties in Green, the parties in this case expressly memorialized

the MOU’s main purpose, leaving nothing for this Court to demystify. At the time of

signing, the parties agreed that the MOU’s main purpose was “to protect the best

interests of the policyholders[,]” and “in so doing, the parties also intend to increase

the long-term equity value of the [SACs], so long as it is consistent with the protection

of the best interests of the Policyholders[.]” (emphasis added).

Defendants attempt to convince this Court that the MOU’s main purpose was

not only to rehabilitate Plaintiffs’ companies, but to ensure Lindberg would continue

to benefit from the overall transaction. This argument ignores another of Defendants’

motivations: to make money using capital provided by hardworking, North Carolina

policyholders.

2. Severability

Defendants further argue that because Article III was the main purpose of the

MOU, severing it rendered the remainder of the MOU unenforceable. We disagree.

“It is the general law of contracts that the purport of a written instrument is

to be gathered from its four corners . . . .” Ussery v. Branch Banking and Trust Co.,

368 N.C. 325, 336, 777 S.E.2d 272, 280 (2015) (quoting Carolina Power & Light Co.

v. Bowman, 229 N.C. 682, 693–94, 51 S.E.2d 191, 199 (1949) (Stacy, C.J. ,

- 12 -

SOUTHLAND V. LINDBERG

Opinion of the Court

Dissenting)). “‘A contract is entire, and not severable, when, by its terms, nature and

purpose it contemplates and intends that each and all of its parts, material

provisions, and the consideration are common each to the other, and

interdependent.’” Mebane Lumber Co. v. Avery & Bullock Builders, Inc., 270 N.C.

337, 341, 154 S.E.2d 665, 668 (1967) (quoting Wooten v. Walters, 110 N.C. 251, 254,

14 S.E. 734, 735 (1892)). On the other hand, this Court has held that a contract may

be severable when it has two or more parts that are “not necessarily dependent on

each other, nor is it intended by the parties that they shall be.” Kornegay v. Aspen

Asset Group, LLC, 204 N.C. App. 213, 226, 693 S.E.2d 723, 734 (2010) (quoting

Mebane Lumber Co., 270 N.C. at 342, 154 S.E.2d at 668). A court may sever an

unenforceable provision and enforce the balance of the contract only when the other

provisions “are in no way dependent upon the enforcement of the illegal provisions

for their validity.” Am. Nat’l Elec. Corp., 167 N.C. App. at 101, 604 S.E.2d at 317.

While not determinative, the decision to include a severability clause in an agreement

may provide general guidance when determining the parties’ intent. See Sheffield v.

Consolidated Foods Corp., 302 N.C. 403, 421-22, 276 S.E.2d 422, 434-35 (1981) (“[A]

severability is relevant to a decision only when the validity of a particular provision

of the Act is at issue.”); see also 15 Williston on Contracts § 45:6 (4th ed) (“The parties'

intent to enter into a divisible contract may be expressed in the contract directly,

through a so-called ‘severability clause[.]’”).

- 13 -

SOUTHLAND V. LINDBERG

Opinion of the Court

Defendants argue “[t]he rest of the MOU depended on [Article III,]” and

“Article III was the key to maximizing the value of the SACs to pay back Plaintiffs

investments.” To support this argument, Defendants make several points. First, as

evidence of the entangled purpose of Articles II and III, Defendants point to the fact

that performance under the two articles was due on the same day, stating that the

articles were dependent on each other “because of the nature of insurance

rehabilitation.” Next, Defendants claim that, standing alone, Article II left Lindberg

vulnerable because it allowed the NHC and Plaintiffs to bind themselves (and

ultimately Lindberg) to potentially risky financing agreements. Further, without

Article III, the SACs would no longer enjoy the protection of a right to cure within

thirty days after notice of default. Finally, Article III provided Lindberg a “success

fee” of 1.5% of all the debt that was paid down—a significant benefit which, without

Article III, Lindberg would no longer be entitled to.

Defendants’ evidence of Article III’s intrinsic entanglement with the remainder

of the MOU is attenuated at best. As the trial court noted in its Amended Judgment

and Order, “the other Articles of the MOU can and have been implemented and

enforced notwithstanding the failure of the Parties to complete [Article III].” A review

of the Record leads us to the same conclusion: Article II and Article III were not

necessarily dependent on each other, nor did the parties intend they be. See

Kornegay, 204 N.C. App. at 213, 693 S.E.2d at 723 (holding a contract was divisible

because there were two distinct promises, each of which could be performed without

- 14 -

SOUTHLAND V. LINDBERG

Opinion of the Court

the other). Importantly, as of the publishing of this opinion, Defendants and Lindberg

have enjoyed the benefit of millions of dollars of debt relief provided by Plaintiffs, yet

continue to claim the MOU is unenforceable.

Further, despite each Article under the MOU having the common purpose of

rehabilitating Plaintiffs, performance of the parties under each Article was separate

and distinct. Under Article I, Plaintiffs promised to grant debt relief to Defendants;

under Article II Defendants promised to reorganize the SACs under the NHC; finally,

under Article III, both parties would amend loan agreements from Plaintiffs to some

of the SACs in the future. We further note that the amendments and restructuring

outlined in Article III were to take place after the SACs were transferred to the NHC.

These facts tend to show that each article required independent performance during

different times and could involve independent breach. Further, while it may be true

that without Article III Lindberg would be left in a financially vulnerable situation,

protecting Lindberg was not the primary purpose of the MOU. Rather, the primary

purpose was to protect Plaintiffs’ policyholders, as concluded above. Finally, taking

into consideration all “four corners” of the MOU and the promises contained therein,

this Court gleans the parties intended the MOU to be divisible given the inclusion of

a severability clause. See Ussery, 368 N.C. at 336, 777 S.E.2d at 280. For those

reasons, we conclude the trial court did not err when it enforced the remainder of the

MOU after severing Article III. See Kornegay 204 N.C. App. at 213, 693 S.E.2d at

723.

- 15 -

SOUTHLAND V. LINDBERG

Opinion of the Court

C. Fraudulent Inducement

Next, Defendants appeal from the trial court’s finding of fraudulent

inducement, arguing that Plaintiffs’ reliance on the representations and warranties

under Article IV was per se unreasonable because they are sophisticated entities and

failed to conduct any due diligence prior to entering into the MOU. We disagree.

To prevail on their claim that the trial court erred when it found Defendants

liable for fraudulent inducement, Defendants must show that none of the evidence

relied on by the trial court in reaching its conclusion was competent. Sisk v.

Transylvania Cmty. Hosp. Inc., 364 N.C. 172, 179, 695 S.E.2d 429, 434 (2010). To

determine the competency of the trial court’s evidence supporting its conclusion that

Defendants fraudulently induced Plaintiffs, we begin by analyzing whether all the

elements of fraud are met. We then examine whether Plaintiffs’ reliance on

Defendants’ representations was reasonable.

1. Fraud

Defendants assert the trial court erred in finding they fraudulently induced

Plaintiffs to enter into the MOU, IALA and Revolver. The elements of fraud are: “(1)

false representation or concealment of a past or existing 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.” Whisnant v. Carolina Farm Credit, 204

N.C. App. 84, 94, 693 S.E.2d 149, 156–57 (2010) (citation omitted) (cleaned up).

- 16 -

SOUTHLAND V. LINDBERG

Opinion of the Court

Here, there is no disputing that Plaintiffs were deceived by Defendants, and

they suffered economic injury as a result. Therefore, this Court turns its attention to

the remaining three elements to determine whether Defendants’ conduct amounted

to fraud.

With respect to the first three elements, the Record tends to show that

Defendants made representations and warranties that were calculated to deceive

Plaintiffs regarding their obligations to third parties and ability to perform under the

terms of the MOU. Specifically, under Article IV, Defendants represented that

[t]he execution of the MOU and the consummation of the

transactions set forth in the MOU do not create in any

party the right to accelerate, terminate, modify, cancel, or

require any notice or consent under any contract to which

any of them is a party or is bound or to which any of their

assets are subject[.]

Two weeks before performance was due, however, Vandeman, acting as a chairman

for Defendant Academy Association, Inc., sent an email to Plaintiffs stating that the

restructuring plan set forth under Article II could not be accomplished because:

i. Seller notes . . . are subject to breach and acceleration

upon reorganization;

ii. The debt reduction from the IALA and the

reorganization may result in adverse tax consequences to

Lindberg; [and]

iii. The reorganization will trigger certain changes in

control provisions in contracts with third-parties[.]

- 17 -

SOUTHLAND V. LINDBERG

Opinion of the Court

Put plainly, Defendants made representations about their ability to perform under

the MOU, then just two weeks before performance was due, cited those exact

representations as the reason why they could not perform. Relying on these

representations, Plaintiffs entered into the MOU, IALA, and Revolver, which

provided Defendants debt relief of more than $100 million and a $40 million revolving

line of credit. The facts in the Record show Defendants were in the best position to

understand whether they could perform under the MOU’s terms because Lindberg

controlled the SACs. Further, because Lindberg understood the intricacies of the

SACs’ business structures, he knew performance under the MOU was impossible, yet

made representations that induced Plaintiffs to enter into the contract. For those

reasons, we hold the trial court did not err in finding Defendants’ actions satisfied

the elements of fraud. See Whisnant, 204 N.C. App. at 94, 693 S.E.2d at 156–57.

2. Reasonable Reliance

Next, we consider whether Plaintiffs’ reliance on Defendant’s fraudulent

representations was reasonable. To prevail on a fraud claim, a plaintiff must prove

they actually relied on misrepresentations and that their reliance was reasonable.

Cobb v. Pa. Life Ins. Co., 215 N.C. App. 268, 277, 715 S.E.2d 541, 549 (2011).

“Reliance is not reasonable if a plaintiff fails to make any independent investigation

. . . [.]” State Props., LLC v. Ray, 155 N.C. App. 65, 73, 574 S.E.2d 180, 186 (2002).

Reliance will not be considered unreasonable, however, “if the plaintiff can show that

‘it was induced to forego additional investigation by defendant’s misrepresentations.’”

- 18 -

SOUTHLAND V. LINDBERG

Opinion of the Court

Hudgins v. Wagoner, 204 N.C. App. 480, 491, S.E.2d 436, 445 (2010) (citations

omitted). Additionally, if a defendant’s representations “could not be readily or easily

verified,” a plaintiff’s reliance is more likely to be regarded as reasonable. Phelps-

Dickson Builders L.L.C. v. Amerimann Partners, 172 N.C. App. 427, 439, 617 S.E.2d

664, 671 (2005). The reasonableness of a party’s reliance is an issue of fact for the

fact finder. Marcus Bros. Textiles v. Price Waterhouse, LLP, 350 N.C. 214, 224, 513

S.E.2d 320, 327 (1999). “Findings of fact made by the trial judge are conclusive on

appeal if supported by competent evidence, even if . . . there is evidence to the

contrary.” Sisk, 364 N.C. at 179, 695 S.E.2d at 434 (quoting Tillman v. Com. Credit

Loans, Inc., 362 N.C. 93, 100–01, 655 S.E.2d 362, 369 (2008)). Competent evidence

is evidence that a “reasonable mind might accept as adequate to support the finding.”

City of Asheville v. Aly, 233 N.C. App. 620, 625, 757 S.E.2d 494, 499 (2014) (citing In

re Adams, 240 N.C. App. 318, 320-21, 693 S.E.2d 705, 708 (2010)).

Defendants claim that Plaintiffs’ reliance was per se unreasonable because

Plaintiffs are sophisticated business entities entering into a multi-billion-dollar deal,

yet chose to forego conducting any due diligence prior to signing the MOU. Plaintiffs

concede they failed to conduct due diligence; however, for the reasons discussed

below, we hold their reliance was reasonable under the circumstances.

Defendants cite to several cases involving the sale of real property in which a

plaintiff failed to conduct due diligence prior to entering into a contract. There is,

however, one important difference between the cases cited and the facts of our current

- 19 -

SOUTHLAND V. LINDBERG

Opinion of the Court

case: this was not a purchase. The MOU was a temporary agreement to help

Plaintiffs out of Rehabilitation and, eventually, back into the ownership and control

of Lindberg. The MOU functioned as a stop gap to avoid impending financial ruin,

and as such, functioned very differently than would an MOU for a real property

transaction. Here, the only thing being bought under the MOU was time.

Further, while it is true Plaintiffs had unfettered access to Defendants’

accountings, the facts show that Lindberg was in the best position to understand the

complex scaffolding of each SAC’s business structure. Collectively, these complex

structures involved: multiple tiers of operating and holding companies; loans that

had been syndicated and repackaged, then transferred several times; underlying loan

agreements and sellers’ notes; equity equivalence agreements; and third-party

financing agreements. Plaintiffs lacked the time and expertise to determine whether

the representations and warranties were accurate, and ascertaining that information

would have involved a complex legal analysis. The veracity of Defendants’

representations could not have been “readily or easily verified,” and moreover,

Plaintiffs had no reason to believe Lindberg would make false statements,

considering he stood to benefit from the MOU’s success as well. See Phelps-Dickson

Builders L.L.C., 172 N.C. App. at 439, 617 S.E.2d at 671.

Here, because the MOU did not govern a sale, we do not hold Plaintiffs to the

same heightened standard as the sophisticated business entities in the case law to

which Defendant cites. Further, Plaintiffs’ reliance on Defendants’ representations

- 20 -

SOUTHLAND V. LINDBERG

Opinion of the Court

was reasonable because discovery of Defendants’ fraud would not have been readily

or easily verified, and Defendant was in the best position to know whether the MOU,

as written, could be effectuated. See id. at 439, 617 S.E.2d at 671. For those reasons,

we hold the trial court relied on competent evidence to reach its conclusion and affirm

the fraud judgment against Defendants.

D. Damages

On cross-appeal, Plaintiffs argue that the trial court erred when it failed to

award damages for Defendants’ fraud. Conversely, Defendants argue the trial court

correctly concluded Plaintiffs were not entitled to compensatory or punitive damages

for fraud, reasoning that it would amount to “double recovery,” running afoul of the

election of remedies doctrine.

After a review of the Record, we agree with Plaintiffs.

1. Standard of Review

“Since this case was tried before a judge sitting without a jury, this Court is

bound by the trial court’s findings which are supported by competent evidence, even

if evidence exists to sustain contrary findings. [R]eview of the trial court’s conclusions

of law is de novo.” Hickory Orthopaedic Ctr., P.A. v. Nicks, 179 N.C. App. 281, 286,

633 S.E.2d 831, 834 (2006) (quotation omitted).

2. Election of Remedies Doctrine

“The fact finder . . . has broad discretion in awarding damages to ensure that

the plaintiff is made whole and the wrongdoer does not profit from its conduct.”

- 21 -

SOUTHLAND V. LINDBERG

Opinion of the Court

TradeWinds Airlines, Inc. v. C-S Aviation Servs., 222 N.C. App. 834, 850, 733 S.E.2d

162, 174 (2012). The “doctrine of election of remedies is not to prevent recourse to

any remedy, but to prevent double redress for a single wrong.” Smith v. Oil Corp.,

239 N.C. 360, 368, 79 S.E.2d 880, 885 (1954).

Our Supreme Court’s precedent demonstrates that remedies for both breach of

contract and fraud may coexist. In Parker v. White, our Supreme Court held that a

party who has been fraudulently induced to enter into a contract may either

repudiate the contract or “affirm the contract, keeping whatever property or

advantage he has derived under it, and may recover in an action for deceit the

damages caused by the fraud.” 235 N.C. 680, 688, 71 S.E.2d 122, 128 (1952).

Affirming the contract ends the defrauded party’s right to rescind the contract, but

does not excuse breach of that agreement. See Hutchins v. Davis, 230 N.C. 67, 73, 52

S.E.2d 210, 214 (1949) (holding that affirming a contract does not prevent the

defrauded party from recovering by filing a new action or counterclaim for damages

sustained as a result of fraud).

Here, the doctrine of election of remedies does not bar Plaintiffs from

recovering for both specific performance and for monetary damages because each

remedy relates to a separate and distinct wrongdoing by Defendants. Defendants

breached the MOU on 1 October 2019 when they failed to reorganize the SACs.

Defendants’ fraudulent conduct, however, occurred on 27 June 2019 when the MOU,

IALA, and Revolver were executed.

- 22 -

SOUTHLAND V. LINDBERG

Opinion of the Court

It is true that Plaintiffs made one election of remedy relating to their breach

of contract claim—specific performance. Plaintiffs’ election of specific performance,

however, does not preclude them from recovering monetary damages for fraud. These

harms are not mutually exclusive and neither are their remedies.

3. Conditional Judgment

A conditional judgment is “one whose force depends upon the performance or

nonperformance of certain acts[.]” Hagedorn v. Hagedorn, 210 N.C. 164, 165, 185

S.E. 768, 769 (1936). Put another way, if an order is not self-executing, it is

“therefore, conditional and void.” Cassidy v. Cheek, 308 N.C. 670, 674, 303 S.E.2d

792, 795 (1983).

Here, in its judgment, the trial court found Defendants liable for fraud and

stated that “if an appellate Court should determine that specific performance is not

an available remedy this Court would enter an award of punitive damages in the

amount of three times compensatory damages.” The conditional assessment of

compensatory damages in the event this Court determined specific performance is

not available makes the trial court’s judgment “not self-executing.” See id. at 674,

303 S.E.2d at 795. For that reason, we vacate the trial court’s judgment only as it

pertains to remedies available to Plaintiffs for Defendants’ fraud, and we remand for

further proceedings consistent with this opinion.

IV. Conclusion

- 23 -

SOUTHLAND V. LINDBERG

Opinion of the Court

We hold the trial court’s conclusions of law were supported by findings of fact

based on competent evidence. See Cartin, 151 N.C. App. at 699, 567 S.E.2d at 176.

For those reasons, this Court affirms the trial court’s conclusions that the MOU was

enforceable after severing Article III, and that Defendants are liable for fraud. This

Court further vacates and remands the trial court’s order and judgment only as it

relates to remedies available to Plaintiffs for Defendants’ fraud.

AFFIRMED IN PART; VACATED AND REMANDED IN PART.

Judges ZACHARY and WOOD concur.

- 24 -