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BDM Investments v. Lenhil, Inc.

Court of Appeals of North Carolina

March 19, 2019


          Orders entered 18 January 2012, 20 March 2014, 21 July 2014, 16 November 2017

          Heard in the Court of Appeals 14 November 2018.

          Appeal by Plaintiff-Appellant from Orders entered 18 January 2012, 20 March 2014, 21 July 2014, and 16 November 2017 by Judge James L. Gale, Chief Special Superior Court Judge for Complex Business Cases, in Superior Court, Brunswick County No. 11 CVS 449.

          King Law Firm, by Kenneth W. King, Jr., plaintiff-appellant.

          The Law Offices of Oliver & Cheek, LLC, by George M. Oliver & Ciara L. Rogers, for Edwin L. Burnett, III, Daniel Hilla, Lenhil, Inc., Lennon Hills, L.L.C., and Viable Corp., defendants-appellees.

          Cranfill Sumner & Hartzog, LLP, by Carl Newman and Richard T. Boyette, for Gary Lawrence, defendant-appellee.

          Ennis, Baynard, Morton, Medlin & Brown, P.A., by Maynard M. Brown and B. Danforth Morton, for Martin J. Evans and Homeplace Realty Associates, Inc., defendants-appelslees.

          HUNTER, JR., ROBERT N., JUDGE.

         Plaintiff-Appellant appeals from Orders entered 18 January 2012, 20 March 2014, 21 July 2014, and 16 November 2017 in which Judge James L. Gale, Chief Special Superior Court Judge for Complex Business Cases, in Superior Court, Brunswick County, granted Defendants' motions to dismiss and motions for summary judgment and dismissed the case. We affirm.

         I. Factual Background and Procedural History

         A. Factual Background

         The Record shows the following facts. Plaintiff-Appellant BDM Investments Inc. ("Plaintiff" or "BDM") is a general partnership, engaged exclusively in purchasing and holding real estate. Plaintiff's managing partner, Kenneth W. King, Jr. ("King"), and its two other partners, Leah L. King and Richard A. Mu, are licensed attorneys.[1] Plaintiffs purchased undeveloped land on 1 March 2007 and subsequently lost their investment and projected profits.

         Since the early 1990s, Glenn Hollingsworth ("Hollingsworth") served as King's personal and business financial agent and advisor, preparing King's tax returns and "occupy[ing] a position of close personal trust" with King. In 2001, Hollingsworth also began providing personal and business financial advice to Leah King.

         In or around 2004, Hollingsworth informed King he had sold his accounting business and acquired a provisional real estate license. Hollingsworth's provisional real estate license required supervision by Martin J. Evans/Homeplace Realty Associates, Inc. ("Evans/Homplace").[2] At the same time, Hollingsworth intended to continue serving certain clients by including them in favorable investment opportunities. Based on their relationship of trust and confidence, King "believed that [Hollingsworth] would be acting in King's best interests in all respects related to matters of a personal and business financial nature."

         In 2006, Hollingsworth contacted King regarding an "'unbelievable opportunity'" to invest in land in the Lennon Hills subdivision in Brunswick County. Defendants Lenhil, Inc. and Lennon Hills L.L.C. developed and sold the Lennon Hills Lots. Hollingsworth told King that plaintiffs could buy ten undeveloped lots in the subdivision for $850, 000 with a ten percent down payment. After plaintiffs held the lots for one year, during which time the developer would pay the interest on the loan for the land, they could then sell the lots back to the developer for a profit. Hollingsworth further represented that it was such a favorable investment, he had purchased lots in the subdivision. Hollingsworth "offered to take all necessary actions to complete BDM's investment."

         Based on Hollingsworth's representations about the "particularly choice lots[, ]" plaintiffs decided to purchase ten lots from the developer (the "Lennon Hills transaction"). On 5 December 2006, Plaintiff BDM signed a contract to purchase the lots for $850, 000 and deposited $30, 000 earnest money with closing attorney, Gary Lawrence ("Lawrence"), who was serving as an "impartial 'escrow agent' for the parties" to the transaction. At the time BDM signed the contract, the Lennon Hills plat map had not yet been recorded with the Brunswick County Register of Deeds.

         During the Lennon Hill transaction, Hollingsworth assisted plaintiffs with securing financing, first through Cooperative Bank, and when that failed, through Wachovia Bank and Trust Company, Inc. Hollingsworth was also working with Defendant Edwin L. Burnett, III ("Burnett") and Defendant Daniel Hilla III ("Hilla"), shareholders of Lenhil Inc. and Lennon Hills, L.L.C. Hollingsworth had been preparing Burnett's tax returns, among other services, for over 20 years. Additionally, Hollingsworth was a W-2 employee of Viable Corp. ("Viable"), a North Carolina corporation of which Burnett is the sole shareholder. Viable paid Hollingsworth approximately $3000 per month for his services. According to Plaintiff, Burnett, a licensed real estate agent, "appointed himself BDM's agent in the transaction and arranged for his half of the commission [$42, 500] to be paid through Viable" to Hollingsworth Further, Burnett "as BDM's agent arranged for [Lawrence] to represent BDM."

         Lawrence drafted the restrictive covenants for Lennon Hills and the custom Homesite Purchase Agreement for signing. Plaintiffs did not know about Lawrence's prior work for Lennon Hills, but claimed Burnett, "BDM's agent in the transaction, was aware of this relationship."

         The contract for the Lennon Hills transaction, which was attached to each of plaintiffs' complaints: listed the closing date for plaintiffs' purchase as 6 February 2007; listed Lawrence as the escrow agent for the transaction; included no promise by the developer to repurchase the lots; and listed Lenhil, Inc. as seller. King gave the earnest money check to Hollingsworth at "First Citizens [Bank] in Porters Neck[.]" In discussing a closing date with Hollingsworth, King indicated that his schedule would delay him coming to Brunswick County; Hollingsworth subsequently agreed to pick up the documents and meet to sign them.

         Lawrence acted as the closing agent on the Lennon Hills transaction, preparing all the documents for the closing on behalf of plaintiffs, pursuant to the contract and the instructions of the lender. He "treated [the closing] as a 'mail away' closing . . . [a] common practice in Brunswick County for real estate transactions . . . ."

         King's deposition indicates he was aware at the date of closing that Lawrence was the closing attorney. King also stated he did no due diligence investigation as to the viability of the developer, made no effort to contact Lawrence as to the developer or any loans needing to be paid off in connection to the closing, nor spoke to any attorneys of his choosing about the transaction.

         On 23 February 2007, King received "a good faith estimate and a proposed HUD," which Lawrence had faxed to Lumina Mortgage broker Nick Frank, who then faxed the statement to King's bookkeeper. The good faith estimate, which was not prepared by Lawrence, [3] reflected the $850, 000 purchase price for the ten lots, and listed a ten percent commission, split in two equal parts: $42, 500 to Viable Corp., and $42, 500 to Lawrence Sales & Marketing.

         Lawrence Sales & Marketing is operated by Pam Lawrence, a real estate agent who is also Gary Lawrence's wife. Pam Lawrence and Burnett previously worked together in marketing and developing the Lennon Hills subdivision and other real estate ventures. During the development of Lennon Hills, Pam Lawrence asked Gary Lawrence to draft a form contract for sales, restrictive covenants, and bylaws for the future homeowners' association. Lawrence did so. Plaintiff asserts it did not know of Pam and Gary Lawrence's relationship.

         In his deposition, Lawrence explained that in performing the title search in order to close the loan, he found a prior mortgage from BB&T Bank to Lennon Hills, L.L.C. as well as a deed of trust on the entire development from Lennon Hills, L.L.C. to Lenhil Inc., which Lawrence knew were essentially duplicate entities. Lawrence asked Alton Lennon, Lennon Hills' attorney, to release all ten lots that Plaintiff was purchasing from the deed of trust; Lennon agreed to do so. Lawrence further stated Burnett, "apparently" as Plaintiff's agent, was aware of the Lawrence's marriage, the covenants for the development, and the homeowners' association bylaws.

         The Lennon Hills transaction closed on 1 March 2007, when King met Hollingsworth in a parking lot and signed documents closing Plaintiff's purchase of the ten lots. King knew Lawrence was the closing attorney but had had no communications with Lawrence at that time. Lawrence did not attend the parking lot closing.

         The closing documents included a Wachovia Bank closing statement and a final HUD settlement statement, prepared by Lawrence as the settlement agent, and signed by King. King also affirmed during his deposition that he "had seen a draft HUD a week or so earlier that indicated [Lawrence] was the closing attorney[.]" The statement, which was included as an exhibit to plaintiffs' complaints, lists a $42, 500 commission payment each to Lawrence Sales & Marketing and Viable. Hollingsworth's commission was concealed in the sales commission paid to other defendants.

         As to the transaction, King admitted "BDM never reduced any binding repurchase agreement with the developers to writing," nor did plaintiffs perform any "due diligence investigation into the lot purchase" or "visit or look at the property before signing the homesite purchase agreement or closing the transaction." No documents included the promise by the seller to pay the first year's interest on the loan or to buy back the lots at a profit. King also admitted he "didn't pay any particular attention" to the entities receiving commission, nor did he raise questions with Hollingsworth about the commission for the transaction. At the closing, King gave Hollingsworth a check for $63, 526.48 covering the remaining balance of the ten percent down payment and additional closing costs.

         On 7 March 2007, Viable Corp. paid $42, 500 to Hollingsworth; this payment was not disclosed to Lawrence. Hollingsworth did not disclose the transaction to Evans/Homeplace, and upon questioning by Evans, he "denied receiving the $42, 500 commission."

         By letter of 30 March 2007, Lawrence "sent correspondence to plaintiffs enclosing a General Warranty Deed." The mailing included deeds for the ten lots in the Lennon Hills subdivision. Lawrence performed no further representation, nor did he and King communicate directly until this litigation began.

         B. Procedural History

         On 28 February 2011, plaintiffs filed the original complaint and issuance of summons against 29 defendants. The complaint included 19 causes of action and a separately pled claim for punitive damages against all defendants. On 16 March 2011, plaintiffs filed the First Amended Complaint against 29 defendants, with 19 causes of action and a claim for punitive damages against all defendants. On 8 April 2011, the North Carolina Supreme Court designated the case a Complex Business Case, and assigned the case on 14 April 2011 to the Honorable James L. Gale, Special Superior Court Judge for Complex Business Cases.

         Between April and November of 2011, defendants filed answers to the complaints, motions to strike, and numerous motions to dismiss.

         On 18 January 2012, the trial court dismissed by order the following claims pursuant to motions to dismiss under N.C. Gen. Stat. § 1A-12(b)(6): Legal Malpractice and Breach of Fiduciary Duty against Lawrence; Negligent Misrepresentation and Unfair and Deceptive Trade Practices against Lennon Hills Defendants;[4] and all claims against Evans/Homeplace Realty.

         Claims not dismissed were subject to discovery. After discovery concluded, the trial court heard oral arguments on 17 December 2013. On 20 March 2014, the trial court issued an order and opinion on six motions:[5] (1) Plaintiff's motion for summary judgment against Lennon Hills Defendants, which the court denied; (2) Plaintiff's motion for summary judgment against the Estate of Hollingsworth, which the court denied; (3) Defendant Judith Hollingsworth's, as Executrix of the Estate of Hollingsworth, motion for summary judgment on all claims, which the court granted in part and denied in part; (4) Lennon Hills Defendants' motion for summary judgment, which the court granted in part and denied in part; (5) Defendant Lawrence's motion for summary judgment, which the court granted; and (6) Plaintiff's motion to amend complaint and to rescind and/or amend pursuant to Rules 15 and 54(b), which the court granted in part and denied in part.

         On 27 May 2014, the Lennon Hills Defendants filed a motion for summary judgment as to Plaintiff's claim for piercing the corporate veil. The trial court issued an order and opinion on 21 July 2014 explaining that after the 20 March 2014 order, the parties disagreed as to whether Plaintiff's claim for piercing the corporate veil survived that order. The court determined the claim remained and allowed the Lennon Hills Defendants to file a motion as to the claim. The court granted the motion as to Plaintiff's claim for piercing the corporate veil and dismissed the claim with prejudice, leaving no other claims against Defendants Burnett or Hilla.

         On 17 October 2017, Plaintiff filed a Notice of Dismissal with Prejudice, dismissing its claims against Judith Hollingsworth individually and as Executrix of the Estate of Glenn Hollingsworth.

         In an Opinion and Final Order filed 16 November 2017, the trial court dismissed Plaintiff's action by denying its motions for summary judgment as to all defendants, granting the defendants' cross-motions, and resolving all claims in the action. Accordingly, the court dismissed the following claims pursuant to defendants' motions for summary judgment: Constructive Fraud and Negligent Misrepresentation against Lawrence; Civil Conspiracy against all defendants; Aiding and Abetting Breach of Fiduciary Duty against all defendants; and Punitive Damages.

         On 12 December 2017, Plaintiff filed a Notice of Appeal as to Judge Gale's 18 January 2012, 20 March 2014, 21 July 2014 interlocutory orders and 16 November 2017 Final Order and Opinion dismissing all remaining defendants.

         II. Jurisdiction

         Judge Gale's orders of 18 January 2012, 20 March 2014, and 21 July 2014 were interlocutory; his Opinion and Final Order of 16 November 2017 is a final judgment. The North Carolina Supreme Court designated this a Complex Business Case on 8 April 2011. Because the designation was prior to 1 October 2014, this Court reviews the appeal pursuant to N.C. Gen. Stat. § 7A-27(b).

         III. Standards of Review

         A. Motion to Dismiss

         "On appeal of a [Rule] 12(b)(6) motion to dismiss, this Court conducts a de novo review of the pleadings to determine their legal sufficiency and to determine whether the trial court's ruling on the motion to dismiss was correct." Podrebarac v. Horack, Talley, Pharr, & Lowndes, P.A., 231 N.C.App. 70, 74, 752 S.E.2d 661, 663-64 (2013) (citation omitted). This Court views the allegations in the complaint in the light most favorable to the non-moving party. Donovan v. Fiumara, 114 N.C.App. 524, 526, 442 S.E.2d 572, 574 (1994); N.C. Gen. Stat. § 1A-1, Rule 12(b)(6). This Court considers "whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim upon which relief may be granted under some legal theory[.] Harris v. NCNB Nat. Bank of North Carolina, 85 N.C.App. 669, 670, 355 S.E.2d 838, 840 (1987). Under North Carolina's notice pleading requirements, "[a] complaint is sufficient to withstand a motion to dismiss where no insurmountable bar to recovery on the claim alleged appears on the face of the complaint and where allegations contained therein are sufficient to give a defendant notice of the nature and basis of [a plaintiff's] claim so as to enable [them] to answer and prepare for trial." McAllister v. Ha, 347 N.C. 638, 641, 496 S.E.2d 577, 580 (1998) (citation omitted).

         While this Court takes factual allegations in the complaint as true, Hargett. v. Holland, 337 N.C. 651, 653, 447 S.E.2d 784, 786 (1994) (citation omitted), we are not required to "accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Good Hope Hosp., Inc. v. N.C. Dep't of Health and Human Svcs., 174 N.C.App. 266, 274, 620 S.E.2d 873, 880 (2005). In North Carolina, dismissal pursuant to Rule 12(b)(6) is appropriate when one of three conditions is satisfied:

(1) when on its face the complaint reveals no law that supports plaintiff's claim; (2) when on its face the complaint reveals the absence of fact sufficient to make a good claim; and (3) when some fact disclosed in the complaint necessarily defeats plaintiff's claim.

Johnson v. Bollinger, 86 N.C.App. 1, 3, 356 S.E.2d 378, 380 (1987).

         "A statute of limitations can be the basis for dismissal on a Rule 12(b)(6) motion if the face of the complaint discloses that plaintiff's claim is so barred." Reunion Land Co. v. Village of Marvin, 129 N.C.App. 249, 250, 497 S.E.2d 446, 447 (1998) (citation omitted). "Whether a statute of repose has run is a question of law." Glens of Ironduff Prop. Owners Ass'n v. Daly, 224 N.C.App. 217, 220, 735 S.E.2d 445, 447 (2012) (citation omitted). It is well settled that "[q]uestions of statutory interpretation are ultimately questions of law for the courts and are reviewed de novo." In re Summons of Ernst & Young, 363 N.C. 612, 616, 684 S.E.2d 151, 154 (2009) (citation omitted). B. Summary Judgment

         Pursuant to Rule 56 of the North Carolina Rules of Civil Procedure, this Court reviews de novo a claim for a motion for summary judgment. Stanback v. Stanback, 297 N.C. 181, 185, 254 S.E.2d 611, 615 (1979). Such review requires a two-part analysis of whether: the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that no genuine issue as to any material fact exists, and that the movant is entitled to judgment as a matter of law. N.C. Gen. Stat. § 1A-1, Rule 56(c); Andresen v. Progress Energy, Inc., 204 N.C.App. 182, 184, 696 S.E.2d 159, 160-61 (2010). The moving party must demonstrate the absence of a triable issue: "(1) by showing that an essential element of the opposing party's claim is nonexistent; or (2) [by] demonstrating that the opposing party cannot produce evidence sufficient to support an essential element of the claim or overcome an affirmative defense which would work to bar [its] claim." Wilhelm v. City of Fayetteville, 121 N.C.App. 87, 89, 464 S.E.2d 299, 300 (1995) (citing Roumillat v. Simplistic Enters., Inc., 331 N.C. 57, 63, 414 S.E.2d 339, 342 (1992)).

         If the moving party is able to meet this burden, the non-moving party "must 'produce a forecast of evidence demonstrating that the [non-moving party] will be able to make out at least a prima facie case at trial.'" Roumillat, 331 N.C. at 63, 414 S.E.2d at 342 (quoting Collingwood v. Gen. Elec. Real Estate Equities, Inc., 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989)). This forecast "may not rest upon the mere allegations or denials of [a] pleading," N.C. R. Civ. P. 56(e), nor may it rest upon unsworn affidavits or other inadmissible materials, see Rankin, 210 N.C.App. at 218-22, 706 S.E.2d at 314-16 (affirming summary judgment where only inadmissible, unauthenticated documents and no affidavits or sworn testimony were submitted in response to summary judgment motion).

         IV. ...

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