Rowan County Board of Education v. United States Gypsum Co.

Judge GREENE

concurring in , part and dissenting in part.

I concur with the majority that there was no error in either the compensatory damages award or the trial court’s denial of Gypsum’s motions for directed verdict and judgment notwithstanding the verdict with regard to Rowan’s fraud claim as to South Rowan High School [South Rowan]. However, I disagree with the majority’s holdings that “the trial court did not err in denying Gypsum’s motions for directed verdict and judgment notwithstanding the verdict as to fraud” regarding Granite Quarry Elementary School [Granite Quarry] and East Rowan High School [East Rowan], and that “[b]ecause the jury’s finding of fraud as to any of the schools at issue was sufficient to support punitive damages, . . . the trial court did not err in denying Gypsum’s motions as to punitive damages.”

The majority implicitly recognizes that the “reasonable reliance” element of a fraud claim need not be proven by direct evidence; circumstantial evidence is sufficient. W. R. Grace & Co. v. Strickland, 188 N.C. 369, 373-74 , 124 S.E. 856, 858 (1924); 37 Am. Jur. 2d Fraud and Deceit §§ 448, 479 (1968). “A basic requirement of circumstantial evidence is reasonable inference from established facts.” Lane v. Bryan, 246 N.C. 108, 112 , 97 S.E.2d 411, 413 (1957); 37 Am. Jur. 2d Fraud and Deceit § 472. While older case law held that an inference could not be based upon another inference, “[t]here is no logical reason why an inference which naturally arises from a fact proven by circumstantial evidence may not be made.” State v. Childress, 321 N.C. 226, 232 , 362 S.E.2d 263, 267 (1987).

“The purpose of a motion for directed verdict is to test the legal sufficiency of the evidence for submission to the jury and to support a verdict for the non-moving party.” McFetters v. McFetters, 98 N.C. App. 187, 191 , 390 S.E.2d 348, 350 , disc. rev. denied, 327 N.C. 140 , 394 S.E.2d 177 (1990). “[I]f the non-movant presents such relevant evidence as a reasonable mind might accept as adequate to support the elements of the non-movant’s claim or defense [i.e., substantial evidence], the trial court must deny a motion for a directed verdict.” Hines v. Arnold, 103 N.C. App. 31, 34 , 404 S.E.2d 179, 181-82 (1991). Rowan’s circumstantial *310 evidence, viewed in the light most favorable to it, is substantial evidence that Rowan reasonably relied on Gypsum’s alleged fraudulent misrepresentations or concealment with regard to South Rowan. Rowan’s evidence shows that (1) Gypsum’s “promotional literature was the major way in which it communicated with architects,” (2) this literature contained the alleged fraudulent misrepresentations or concealment, (3) this literature was routinely included in Sweet’s Catalog [Sweet’s], (4) Howard Bangle [Bangle], the architect for South Rowan, ordered Gypsum’s products for South Rowan, (5) Bangle testified that at the time he was the architect for South Rowan, he relied on Sweet’s when specifying products for a job, (6) Bangle was Rowan’s agent, and (7) Bangle testified that he would not have allowed Gypsum’s products to be used had he known of their alleged defects.

Rowan, however, did not produce substantial evidence of reasonable reliance with regard to Granite Quarry or East Rowan. Bangle was not Rowan’s agent for these schools, and the architects for them did not testify at trial. Rowan’s evidence shows that (1) Gypsum’s “promotional literature was the major way in which it communicated with architects,” (2) this literature contained the alleged fraudulent misrepresentations or concealment, (3) the architects of Granite Quarry and East Rowan allowed Gypsum’s products on these jobs, (4) Bangle “testified that all architects he knew used Sweet’s,” and (5) Bangle testified that he would not have allowed these products to be used had he known of their alleged defects. From this circumstantial evidence, Rowan argues that it has shown reasonable reliance by its architects on the alleged fraudulent misrepresentations or concealment with regard to Granite Quarry and East Rowan. I disagree.

With regard to South Rowan, the permissible inference of reasonable reliance by Rowan on Gypsum’s alleged fraudulent misrepresentations or concealment in Sweet’s is based upon the direct evidence that Bangle, as Rowan’s agent, relied on Sweet’s in specifying products for jobs, Sweet’s routinely contained Gypsum’s literature, Bangle ordered Gypsum’s products, and Bangle would not have ordered them had he known of their alleged defects. However, the inference of reasonable reliance on Gypsum’s literature in Sweet’s by the architects on the Granite Quarry and East Rowan jobs is based upon an inference not supported by Rowan’s evidence, i.e., that those architects, like Bangle, used Sweet’s in specifying products for jobs. Rowan’s evidence does not show that its Granite *311 Quarry and East Rowan architects relied on Sweet’s as Bangle did. To the contrary, Rowan’s evidence shows only that all of the architects that Bangle knew used Sweet’s. The evidence does not show that Bangle knew the architects on the Granite Quarry and East Rowan jobs. Accordingly, an inference of reasonable reliance cannot be drawn from Rowan’s evidence with regard to Granite Quarry and East Rowan because such an inference would be imper-missibly based upon another inference not supported by circumstantial evidence but only upon pure speculation. Because Rowan did not produce substantial circumstantial evidence of reasonable reliance with regard to Granite Quarry and East Rowan, Gypsum’s motions for directed verdict and judgment notwithstanding the verdict as to fraud should have been allowed with regard to those schools.

Furthermore, even though Rowan produced substantial evidence of fraud with regard to South Rowan, the jury award of punitive damages was not based solely upon that claim, but was instead based on a finding of fraud with regard to all three schools. The verdict form submitted to the jury and the jury’s answers read in pertinent part:

5. Did the defendant defraud the plaintiff with respect to:

A. Granite Quarry Elementary School Yes.

B. South Rowan High School Yes.

C. East Rowan High School Yes.

7. If the fifth issue or any part thereof is answered “yes,” what amount of damages, if any, is plaintiff entitled to recover of the defendant?

ANSWER: $1,000,000.00.

While punitive damages would have been proper on a jury determination that Gypsum had defrauded Rowan with respect to South Rowan, the award for $1,000,000 in punitive damages was based on three separate acts of fraud, two of which should not have been submitted to the jury. Because there is a “substantial likelihood” that some portion of the punitive damages award went to punish Gypsum for the alleged Granite Quarry and East Rowan frauds, which claims should have been dismissed, Gypsum is entitled to a new trial on the issue of punitive damages as they *312 relate to Gypsum’s fraud claim with regard to South Rowan. Cf. Shaver v. N.C. Monroe Constr. Co., 63 N.C. App. 605, 616-17 , 306 S.E.2d 519, 526-27 (1983), disc. rev. denied, 310 N.C. 154 , 311 S.E.2d 294 (1984) (substantial likelihood that compensatory and punitive damages issues so intertwined in minds of jurors thus requiring new trial on damages).