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Sara Lee Corp. v. Carter

May 19, 1998


Appeal by defendant from judgment filed 12 December 1996 and order dated 27 November 1996 by Judge Judson D. DeRamus, Jr., and order entered 30 July 1996 by Judge William H. Freeman, and order filed 7 June 1996 by Judge R.G. Walker, Jr., in Forsyth County Superior Court. Heard in the Court of Appeals 24 February 1998.

The opinion of the court was delivered by: Greene, Judge.

Stephen Dowell Carter (Defendant) appeals from the judgment and orders of the trial court awarding damages to Sara Lee Corporation (Sara Lee) for breach of fiduciary duty, fraud, and unfair and deceptive trade practices.

Defendant testified that he first started servicing computers for Sara Lee on behalf of ComputerLand, where he was an employee through (approximately) the end of 1988. In January of 1989, Defendant was hired by Eugene Cain (Cain), a supervisor at Sara Lee, to service computers for Sara Lee in his individual capacity. Defendant stated that Cain and he "talked about me becoming an employee of Sara Lee and forming a partnership," C Square Computer Consulting (C Square), to perform computer servicing for Sara Lee. Cain and Defendant were to split any C Square profits evenly. Defendant testified that his employment with Sara Lee was conditioned by Cain on the formation of C Square. Defendant further testified that part of his job at Sara Lee was to order replacement parts when employees contacted him and reported computer failures. Defendant stated that he often obtained these replacements from his own stock of parts. Defendant also testified that he entered into an agreement with Craig Garwood (Garwood) to supply parts to Sara Lee through a company called PC Technologies and split the profits evenly. In addition, Defendant testified that he individually owned a company called Computer Care, through which he supplied Sara Lee with computer parts and services, and that he and his brother formed a business called Micro Computer Services, which also did work for Sara Lee.

Defendant also alleged that, on 8 July 1992, during his employment with Sara Lee, he suffered a work-related accidental injury. Defendant has drawn workers' compensation benefits since that time. As of the date that this appeal was orally argued, the North Carolina Industrial Commission had not issued a ruling resolving the issues surrounding payment of workers' compensation benefits to Defendant.

Cain testified that he and Defendant formed C Square in November of 1988, while Defendant was still an employee of ComputerLand, to service Sara Lee's existing and new computer hardware. Cain testified that C Square had no employees. Defendant set the prices charged by C Square for parts, and Defendant and Cain together determined service charges. Cain was aware that Defendant continued to perform work for Sara Lee through C Square after beginning his employment with Sara Lee. In early 1990, Cain was transferred to Puerto Rico, and he and Defendant agreed to end their C Square partnership. Cain understood that C Square would cease doing business with Sara Lee at that time. Cain testified that, due to Defendant's threats, he was concerned that Defendant would report his involvement in the partnership to Sara Lee management, thereby endangering Cain's imminent transfer. Cain stated that he never obtained permission to deal on Sara Lee's behalf with any company in which either he or Defendant had an interest.

Harold Garrison (Garrison), Cain's supervisor, testified that he was not informed by either Defendant or Cain about their business partnership, C Square, or that Sara Lee was doing business with any entity in which either Defendant or Cain had an interest. About six months into Defendant's employment, Garrison became Defendant's immediate supervisor and Defendant reported directly to Garrison rather than to Cain. Garrison stated that he relied on Defendant to "select [computer] parts for the most reasonable price that was available," and that Defendant had "complete authority to buy computer parts on behalf of Sara Lee from whomever he chose." Garrison testified that Defendant never made him aware of any financial interest he had in the entities from which he purchased computer parts and services on Sara Lee's behalf.

Garwood testified that approximately one year after Defendant left ComputerLand and began working for Sara Lee, Defendant approached him about forming PC Technologies "so that we could sell parts to Sara Lee." PC Technologies had no office or employees. Defendant set the price to be charged to Sara Lee for parts and services. Defendant and Garwood split all profits generated by this arrangement equally.

During 1991, Sara Lee began a "Time and Attendance Project" (the Project) to automate the collection of payroll data. In connection with the Project, Defendant suggested that Sara Lee hire PC Technologies to install the necessary computer coaxial cabling in Sara Lee plants. Defendant represented to his superiors that PC Technologies had experience installing coaxial cables. Defendant did not indicate that he was receiving any financial payment from PC Technologies. Sara Lee paid PC Technologies roughly $80,000.00 to install the cabling for the Project.

Donald Wendt (Wendt), Defendant's neighbor from approximately 1986 until 1994, testified that Defendant approached him and offered him the job of installing cable in the Sara Lee plants for $500.00 per plant. Wendt had no previous experience installing cable. Wendt understood that he was working for Defendant, and had no knowledge of PC Technologies. Wendt installed cable in various Sara Lee plants with Defendant's brother. Defendant paid Wendt a total of approximately $9,000.00 for installing cable in seventeen or eighteen Sara Lee plants. Wendt testified that he and Defendant's brother completed each cabling job.

Defendant's brother testified that he was hired by Defendant to work with Wendt to install cable at Sara Lee plants for $1,000.00 per plant. Defendant's brother ultimately received a total of approximately $20,000.00 for his cabling work. Defendant's brother testified that he reported to Defendant, and had no knowledge of a company called PC Technologies.

The evidence revealed that as Sara Lee employees became suspicious of PC Technologies due to difficulties in contacting the company, Defendant continually reassured his superiors that he was in contact with PC Technologies and would take care of any problems. When Sara Lee employees suggested that PC Technologies be replaced on the Project, Defendant told them he was concerned that Sara Lee would be breaching its contract with PC Technologies. No contract with PC Technologies was on record, however, with Sara Lee. At no time did Defendant reveal that he had a financial interest in PC Technologies.

Sara Lee discharged Defendant on 25 September 1992 as a result of its investigation into his transactions. The evidence revealed that during his employment, Sara Lee paid Defendant $170,812.79 in compensation and benefits (excluding workers' compensation benefits). In addition, the total amount paid by Sara Lee to C Square was $46,720.10. The total amount paid by Sara Lee to Micro Computer Services was $36,191.65. The total amount paid by Sara Lee to PC Technologies, including payment for work on the Project, was $373,294.94. Sara Lee paid Computer Care $39,224.85. All of these payments were made during Defendant's employment with Sara Lee.

The trial court found "[Defendant's] testimony to be not worthy of belief on almost every relevant issue." The trial court further found as fact the following: Defendant's "supervisors trusted [Defendant] implicitly with the ordering and the purchasing of computer parts and trusted him to obtain those parts at the lowest possible prices"; Defendant, while employed by Sara Lee, performed work and supplied parts to Sara Lee under various company names, including C Square, PC Technologies, Micro Computer Services, and Computer Care; Defendant did not disclose his interests in any of these companies to his superiors at Sara Lee; and Defendant knew that Cain was in breach of his fiduciary duty to Sara Lee by his involvement in C Square "and knew that he was assisting and participating with [Cain] in that breach." The trial court further found that the "egregious breach" involving the transactions between Sara Lee and Defendant's companies affected commerce, and thereby constituted unfair and deceptive trade practices.

The trial court concluded that Defendant owed Sara Lee a fiduciary duty "with respect to his role in recommending the purchase of and actually ordering and purchasing computer parts, accessories and related services, including cabling services," that "[d]uring and throughout the period that [Defendant] was actively employed at Sara Lee, he was engaged continuously in this fraud and breach of fiduciary duty," and that Sara Lee reasonably relied on Defendant to purchase computer parts and services. Finally, the trial court concluded that "the workers' compensation benefits . . . were obtained by ...

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