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Greerwalker, LLP v. Jackson

United States District Court, W.D. North Carolina, Charlotte Division

March 14, 2017



          Graham C. Mullen United States District Judge.

         This matter is before the Court upon the Plaintiff's Motion for Summary Judgment. The Defendants have responded and Plaintiff has filed a Reply. This matter is now ripe for disposition.


         Plaintiff GreerWalker, LLP (“GreerWalker”) entered into an engagement letter (“Engagement Letter”) with Freedom Pharmaceuticals, Inc. (“Freedom”) on March 6, 2013. (Doc. No. 1 at ¶ 11). Pursuant to the Engagement Letter, Freedom retained GreerWalker to compile Freedom's financial statements in connection with the sale of Freedom's stock to a third party, Fagron Holding USA, LLC (“Fagron”). Id. The Engagement Letter contained an arbitration clause with regard to any dispute between Plaintiff and Freedom relating to the engagement, the agreement, or a breach. The individual shareholders of Freedom, Jacob Jackson, Kasey Jackson, Deril Lees, Robin Lees, Deril Lees, Jr., Derek Sanders, and Alyssa Sanders (“Defendants”) were not signatories to the Engagement Letter. (Doc. No. 1 at ¶ 13). In addition to GreerWalker, Freedom engaged the services of Polsinelli, P.C., a law firm, and Butcher Joseph Hayes, LLC (“BJH”), an investment banking firm, to effectuate the sale of Freedom to Fagron.

         GreerWalker performed the compilation services for Freedom, and the company and Defendants' stock were sold to Fagron on April 17, 2013. (Id. at ¶¶ 11-14). On December 15, 2014, the Oklahoma Tax Commission assessed Defendants with taxes and penalties on the grounds that Defendants were not entitled to capital gains treatment and deductions for the sale proceeds because the closing of the sale occurred before the third anniversary of Freedom's incorporation. (Id. at ¶ 15).

         Defendants filed two separate Demands for Arbitration with the American Arbitration Association (“AAA”) alleging that GreerWalker breached the standard of care in providing tax analysis and advice to Defendants. Even though they were not signatories to the Engagement Letter, they contend that it was modified and expanded to include the Defendants as Plaintiff's clients.

         GreerWalker filed the present Complaint with this Court (Doc. No. 1), along with a Motion for Preliminary Injunction to Enjoin Arbitration. After a hearing, the Court granted the preliminary injunction. In its Order, the Court rejected Defendants' argument that GreerWalker should be equitably estopped from challenging arbitration, as well as Defendants' argument that Greeralker waived judicial determination of arbitrability. GreerWalker now moves for summary judgment on its request for Declaratory Judgment that there was no written arbitration agreement between GreerWalker and the Defendants, and seeks to permanently enjoin arbitration.


         Summary judgment is appropriate when the moving party submits evidence showing “that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a). Thus, summary judgment must be entered “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party . . ..” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate and trial is unnecessary if either “the facts are undisputed, or if disputed, the dispute is of no consequence to the dispositive question.” Mitchell v. Data Gen. Corp., 12 F.3d 1310, 1315-16 (4th Cir. 1993).

         Defendants cannot rest on allegations or denials to oppose summary judgment, but instead “must provide specific facts and evidence, particularly when that party has the burden of proof of an issue, ” establishing that there is an issue of material fact in dispute. Jadali v. Alamance Regional Medical Center, 399 F.Supp.2d 675, 681 (M.D. N.C. 2005), aff'd 167 Fed.Appx. 961 (4th Cir. 2006). The summary judgment inquiry thus scrutinizes an opposing party's case to determine whether the party has “offered proof, in the form of admissible evidence, that could carry the burden of proof” at trial. Mitchell, 12 F.3d at 1316.

         Under the Federal Arbitration Act, 9 U.S.C. §1, et. seq., the question of “[w]hether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation.” Adkins v. Labor Ready, Inc., 303 F.3d 496, 501 (4th Cir. 2002) (citation omitted). Because the issue presented here concerns whether GreerWalker agreed to modify the Engagement Letter through GreerWalker's alleged conduct in this state, North Carolina law governs resolution of whether a new contract was formed by modification of the Engagement Letter. ACS Partners, LLC v. Americon Grp., Inc., No. 3:09cv464, 2010 WL 883663, *5 (W.D. N.C. March 5, 2010) (contracting parties are presumed to adopt the law of the place of performance as the law of the contract) (citing Cocke v. Duke University, 131 S.E.2d 909, 913 ( N.C. 1963)).

         Under North Carolina law, Defendants bear the burden of proving a modification of the Engagement Letter by clear and convincing evidence. Lambe-Young, Inc. v. Cook, 320 S.E.2d 699, 702 ( N.C. App. 1984). Contract modifications must contain the same elements necessary for the formation of a contract to be enforceable. Altman v. Munns, 345 S.E.2d 419, 422 ( N.C. App. 1986); Geiger v. Central Caroline Surgical Eye Assoc., P.A., No. COA14-169, 2014 WL 4977657, *7 ( N.C. Ct. App. Oct. 7, 2014) (unpublished). The elements necessary for the formation of a contract under North Carolina law are “an offer and acceptance.” Yeager v. Dobbins, 114 S.E.2d 820, 823 ( N.C. 1960). The offer and acceptance must involve a “meeting of the minds” on identical terms. Wooten v. S.R. Biggs Drug Co., 85 S.E. 140, 142 ( N.C. 1915). Moreover, “[m]utual consent is as much a requisite in effecting a contractual modification as it is in the initial creation of a contract.” Yamaha Int'l Corat v. Parks, 325 S.E.2d 55, 58 ( N.C. App. 1985).

         “With regard to the first element of mutual assent, a modification must reflect ‘an agreement between the parties that the terms of the contract should be altered.'” Geiger, 2014 WL 4977657, at *7 (quoting G. Adrian Stanley & Assocs. v. Risk & Ins. Brokerage Corp., 473 S.E.2d 345, 348 ( N.C. App. 1996)). “Mutual assent may be shown by an affirmative statement agreeing to modification or by ‘conduct which naturally and justly leads the other party to believe the provisions of the contract have been modified or waived.'” Id. (quoting Son-Shine Grading, Inc. v. ADC Constr. Co., 315 S.E.2d 346, 349 ( N.C. App. 1984)). The formation of a contract cannot be based “‘upon the impressions or understandings of one alone of the parties to it. It is not what either thinks, but what both agree.'” Arndt v. First Union Nat. Bank, 613 S.E.2d 274, 278 ( N.C. App. 2005) (citation omitted). Likewise, “modification of an existing contract cannot arise from an ambiguous course of dealing between the parties from which diverse inferences might reasonably be drawn as to whether the contract remained in its original form or was changed.” Ford Motor Credit Co. v. Jordan, 168 S.E.2d 229, 233 ( N.C. 1969) (internal citation omitted).

         Accordingly, to establish a modification of the Engagement Letter, Defendants must present evidence that Freedom made a firm and definite offer to modify the Engagement Letter to have GreerWalker provide wholly new services (individual tax advice and analysis) to wholly different parties (Freedom's shareholders). Defendants must further offer admissible evidence sufficient to prove that GreerWalker accepted the offer to modify ...

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