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Equity Trust Company Custodian v. S&R Grandview, LLC

Court of Appeals of North Carolina

November 19, 2019


          Heard in the Court of Appeals 22 May 2019.

          Appeal by Plaintiffs from Orders entered 18 July 2014 by Judge W. Allen Cobb, Jr. and 4 May 2018 by Judge R. Kent Harrell in New Hanover County Superior Court No. 14 CVS 003.

          Law Offices of G. Grady Richardson, Jr., P.C., by G. Grady Richardson, Jr. and Jennifer L. Carpenter, for plaintiffs-appellants.

          Hodges Coxe & Potter, LLP, by C. Wes Hodges, II, for defendant-appellee.

          HAMPSON, JUDGE

         Factual and Procedural Background

         Equity Trust Company Custodian for Benefit of Gordon Frieze IRA Traditional Account Number 113190 and Roth Account Number 113192 (Equity Trust) and Gordon P. Frieze, Jr. (Frieze) (collectively, Plaintiffs) appeal from an Order granting summary judgment in favor of S&R Grandview, LLC (Defendant) and from Orders setting aside entry of default and default judgment against Defendant. This appeal arises out of a series of business transactions, questionable practices, internal and external business disputes, and multiple lawsuits involving the parties and others dating back to 2005. The result is a rather extensive and convoluted history of the case with all parties injecting accusations and innuendos into their arguments. Relevant, however, to this appeal, the Record tends to show the following:

         Defendant is a North Carolina limited liability company (LLC) formed in 2005, whose sole purpose is to invest, own, hold, develop, and/or sell real estate- specifically, a residential subdivision in Pender County known as Eagle's Watch. According to Defendant's Bylaws, Defendant is a manager-managed LLC, and at the time of its organization, Defendant's two managers were Donald J. Rhine (Rhine) and Steven Silverman (Silverman). Defendant's Bylaws dictated any action taken on behalf of Defendant required both managers' approval. From its inception, Frieze and Maxine Ganer (Ganer) have been members of Defendant. Defendant's Bylaws also provided in the event Silverman ceased to act as manager, Ganer would serve as a manager in his place. In order to develop Eagle's Watch in 2005, Defendant first obtained a loan from Gramercy Warehouse Funding II LLC (Gramercy), and on or about 17 November 2006, Defendant secured a second loan of $11, 000, 000.00 from Cooperative Bank (Cooperative Bank Loan), which was in turn used to pay off the Gramercy loan. The Cooperative Bank Loan was personally guaranteed by, among others, Frieze, Ganer, Rhine, and Silverman.

         On 22 November 2006, Defendant sold Lot 33R in Eagle's Watch for approximately $306, 000.00 to Robert Russell Haywood, Carla Jean Haywood, Robert Whitty Haywood, and Deborah Harris Haywood (collectively, the Haywoods), who financed a portion of the purchase price via a loan from SunTrust Mortgage, Inc. (SunTrust) in the amount of $289, 750.00. Plaintiffs' Complaint in this action (2014 Complaint) alleged the Haywoods subsequently became unwilling or unable to make payments on the loan to Suntrust. Thus, Plaintiffs alleged in early March 2008, to avoid allowing the Haywoods' Lot to go into foreclosure and to prevent any potential negative impact on the development, Defendant and the Frieze Enterprises, Inc. Defined Benefit Plan & Trust (Frieze Trust) entered into an agreement to purchase and resell Lot 33R (Lot 33R Agreement). The Lot 33R Agreement provided:

Lot 33R was originally sold to [the Haywoods] at a critical time in the development stage. This sale[1] was influenced by [Defendant's] need to close with the Haywoods in order to assist in the loan to [Defendant] by Cooperative Bank. The Haywoods were unable to sustain their monthly payments and were extremely close to forfeiting their ownership back to [SunTrust]. Because [Defendant] did not want this blemish on the subdivision and felt it would blemish the banking relationship with Cooperative Bank, it was agreed upon with [sic] [Defendant] and [the Frieze Trust] would purchase and resell Lot 33R in Eagle's Watch. The terms of purchase and resell are as follows:
1. [The Frieze Trust] will purchase Lot 33R at the exact cost of the lot to the Haywoods or $305, 675.
2. [The Frieze Trust] will list for sale in MLS and through the sales office at Eagle's Watch at a price agreed upon by Gordon Frieze, Don Rhine and Steve Silverman.
3. [Defendant] shall reimburse [the Frieze Trust] for the difference between the purchase price of this Lot [33R], $305, 675, and the net sales price.
4. [The Frieze Trust] shall be reimbursed at an interest rate of 7% APR on the amount of the purchase price until lot is sold.
5. Any loss and all interest due shall be paid to [the Frieze Trust] at closing on resale of lot.

         The Lot 33R Agreement was purportedly signed by Frieze on behalf of the Frieze Trust, Rhine, and Silverman, although the Agreement contains no date of signature.[2] On 11 March 2008, Defendant obtained a second loan from Cooperative Bank for $500, 000.00. In his deposition, Frieze acknowledged he drafted the Lot 33R Agreement and claimed it was necessary because Defendant had not yet obtained the second Cooperative Bank Loan and a foreclosure on the Haywoods' Lot 33R could jeopardize Defendant's relationship with Cooperative Bank and ability to obtain this second loan. On 12 March 2008, the Haywoods sold Lot 33R to the Frieze Trust[3] for $315, 000.00, instead of the $305, 675.00 price listed in the Lot 33R Agreement.

         In December of 2009, Silverman passed away, and under Defendant's Bylaws, Ganer became the other manager of Defendant and served in this role until July of 2014. According to Ganer, Silverman never mentioned the Lot 33R Agreement, and copies of this Agreement were not located in his business files after his death. Ganer claimed she first learned of the Lot 33R Agreement on 19 May 2010 when Frieze sent her an email informing her of the Agreement and providing her with a copy. In her affidavit, Ganer asserted:

On numerous occasions during 2010, [Frieze] attempted to get me, as manager of [Defendant], to agree on a listing price for Lot 33R, as required by the [Lot 33R Agreement]. Due to my uncertainties regarding the legality and authenticity of the purported agreement, and the state of the real estate market at the time, I never agreed upon a price for Lot 33R.

         On 20 December 2010, the Frieze Trust assigned its interest in the Lot 33R Agreement to Equity Trust. Although Defendant's managers never agreed on a list price in accordance with the Lot 33R Agreement, on 13 December 2010, Equity Trust listed Lot 33R for $79, 900.00, and on 12 January 2011, Equity Trust and Pleasure Holdings, LLC[4] entered into a contract to sell and purchase Lot 33R for $78, 000.00. According to their contract, Equity Trust agreed to seller finance $74, 100.00 of the purchase price and to indemnify Pleasure Holdings, LLC against any claims or losses arising from any dispute between Frieze and Defendant. On 7 February 2011, a deed transferring Lot 33R to Pleasure Holdings, LLC was recorded. On 15 February 2011, Frieze emailed Rhine and Ganer requesting payment of $301, 299.86 under the Lot 33R Agreement.

         On 16 May 2011, at the request of his attorney, Frieze sent Ganer an email containing two documents related to the Lot 33R Agreement. The first document was a draft confession of judgment requesting Defendant "confess[] judgment in favor of Plaintiff in the sum of $302, 171.07," the amount due under the Lot 33R Agreement. Notably, this draft confession of judgment contained a signature block for both Ganer and Rhine as the two managing members of Defendant. The second document was a draft complaint alleging Defendant breached the Lot 33R Agreement. According to her affidavit, Ganer informed Frieze and Rhine that she would not sign the confession of judgment.

         The following day, 17 May 2011, Frieze signed a verification of the complaint (2011 Complaint). The same day, Rhine, purportedly on behalf of Defendant, signed a revised version of the confession of judgment (Confession of Judgment), which listed only Rhine as the managing member. On 19 May 2011, Plaintiffs filed the 2011 Complaint in New Hanover County (First Action). According to Plaintiffs, however, because they now had the Confession of Judgment signed by Rhine, Plaintiffs took a voluntary dismissal without prejudice, pursuant to Rule 41(a) of the North Carolina Rules of Civil Procedure, of the First Action on 23 May 2011 (First Voluntary Dismissal). The next day, on 24 May 2011, Plaintiffs filed the Confession of Judgment, signed only by Rhine, in Pender County (Pender County Case) where Defendant's property was located. Attached to this filing was a civil action cover sheet listing the type of pleading as a "confession of judgment" and specifying the claim for relief was based on "contract."

         On 22 June 2011, Ganer filed a Motion to Intervene and Motion for Relief from Judgment Pursuant to Rule 60 (2011 Motion for Relief) in the Pender County Case. In her Motion to Intervene, Ganer alleged the filing of the Confession of Judgment was contrary to Defendant's Bylaws-which required both managers' consent to bind Defendant-and therefore invalid and sought to intervene on behalf of Defendant in the Pender County Case. ...

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