Geo Plastics v. Beacon Development Company , 434 F. App'x 256 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1656
GEO PLASTICS; MICHAEL MORRIS,
Plaintiffs - Appellants,
v.
BEACON DEVELOPMENT COMPANY; SOUTHCROSS LLC,
Defendants - Appellees.
Appeal from the United States District Court for the District of
South Carolina, at Rock Hill. Joseph F. Anderson, Jr., District
Judge. (0:09-cv-01181-JFA)
Argued: March 22, 2011 Decided: June 8, 2011
Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Diaz wrote the opinion,
in which Judge Wilkinson and Judge Keenan joined.
ARGUED: Joshua D. Davey, MCGUIRE WOODS, LLP, Charlotte, North
Carolina, for Appellants. Scott M. Tyler, MOORE & VAN ALLEN,
Charlotte, North Carolina, for Appellees. ON BRIEF: Irving M.
Brenner, MCGUIRE WOODS, LLP, Charlotte, North Carolina, for
Appellants. Wm. Howell Morrison, MOORE & VAN ALLEN, Charleston,
South Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
DIAZ, Circuit Judge:
Geo Plastics and its sole shareholder Michael Morris
(collectively “Geo”) appeal a decision of the district court
granting summary judgment to Beacon Development Company and
SouthCross LLC (collectively “Beacon”). In the diversity action
giving rise to this appeal, Geo asserted several claims against
Beacon stemming from a failed attempt by Geo to purchase
commercial real estate from Beacon. The district court granted
summary judgment to Beacon on all of Geo’s claims. We affirm.
I.
A.
Appellant Geo Plastics is a California company that
manufactures plastic components for industrial and consumer
uses. Appellee Beacon Development Company is a property
management company headquartered in Charlotte, North Carolina
that leases and sells commercial properties. Appellee
SouthCross LLC is an affiliate of Beacon Development Company
established to manage and develop certain property located at
the SouthCross Corporate Center in Rock Hill, South Carolina
(“Property”). Beacon purchased the Property in 2006.
At all relevant times, the Property was subject to a
Reciprocal Easement Agreement (“Easement”) restricting the
acceptable uses of the Property. Specifically, the “Use
2
Restriction” provided that “[n]o portion of the Entire Tract may
be leased, used or occupied as [sic] . . . industrial
manufacturing.” J.A. 711. The Easement did not define
industrial manufacturing. Michael Harrell, the Beacon Vice
President responsible for the SouthCross development, received
and reviewed a copy of the Easement as part of Beacon’s due
diligence for the purchase of the Property.
In November 2007, Geo hired a real estate broker, Doug
Wynne, to locate a suitable property to satisfy Geo’s need for a
manufacturing location near Charlotte. Beacon sales agent Scott
Dumler responded to an email solicitation by Wynne and
recommended the Property. Following the initial contact, Beacon
and Geo continued discussions about the Property from late 2007
through 2008. During this period, Morris and Wynne visited the
Property and met with Dumler.
Morris discussed Geo’s intended use for the Property with
Dumler and Wynne and sought assurances that it would be suitable
for the manufacturing of plastic components. Wynne recalled
Dumler saying that Geo’s intended use “wouldn’t be a problem.”
Id. 1437. In December 2007, Dumler submitted a sales proposal
offering to sell the Property to Geo and touting the
availability of tax credits for manufacturing companies. As the
parties came closer to reaching an agreement in early 2008, Geo
had several discussions with Beacon regarding whether Geo’s
3
intended use complied with local zoning laws and ordinances. In
one exchange, Dumler indicated that “[t]here should not be any
issues with [Geo] installing silos” and offered to “work with
[Geo] during the due diligence period to confirm [the zoning
issues].” Id. 799. In a subsequent discussion about zoning,
however, Dumler suggested that Geo “get written approval for
everything.” Id. 861.
No one from Beacon ever informed Geo of the Easement and
its restriction on industrial manufacturing. Harrell, who had
previously reviewed the Easement during Beacon’s purchase of the
Property, testified via deposition that the Easement “[n]ever
came to mind” during his discussions with Geo and that “at the
time” he “had forgotten it.” Id. 1879–80. Dumler, on the other
hand, testified that he was unaware of the Easement when he
marketed the Property to Geo.
On June 30, 2008, Geo and Beacon entered into a written
agreement for the purchase and sale of the Property
(“Agreement”). The agreed upon purchase price was $2,504,128.
Following execution of the Agreement, Geo shipped manufacturing
equipment from Germany to South Carolina for use at the
Property. 1
1
The Agreement required Beacon to construct an opening in
the building and a ramp within thirty days of the contract date.
(Continued)
4
The Agreement required Geo to make a $50,000 earnest money
deposit and provided Geo a sixty-day examination period for due
diligence. Important to this appeal, the Agreement also stated
that Geo “shall” perform a title examination during the
examination period. Id. 36. If Beacon did not cure any title
defects within thirty days, Geo had the right to terminate the
Agreement and receive a return of its earnest money. The
parties also agreed that if Beacon defaulted and the parties
failed to consummate the sale of the Property, then Geo’s “sole
and exclusive remedy” was either to terminate the Agreement and
recoup its earnest money or to seek specific performance. Id.
44.
B.
Geo retained an attorney, Paul Dillingham, to conduct the
title examination required by the Agreement. Dillingham
previously represented the title insurance company, Chicago
Title Company, during Beacon’s purchase of the Property in 2006.
In that role, Dillingham listed the exceptions to title and
ensured that the exceptions properly reflected the public
record. The limited scope of that prior representation,
According to Morris, the purpose of this improvement was to
accommodate delivery of the manufacturing equipment.
5
however, did not require Dillingham to examine the underlying
documents. Thus, although Dillingham had a copy of the Easement
in his files, he did not recall the specifics of the use
restriction in the Easement when Geo engaged him to conduct the
title examination.
On August 19, 2008, Geo first learned of the Easement from
a representative of Bank of America, the bank from which Geo
sought financing for its purchase of the Property. At the time,
Dillingham had not begun his title examination on behalf of Geo
and was unaware of the use restriction. Geo raised the issue of
the Easement with Dumler, who responded via email, “We reviewed
this provision during our initial due diligence period and was
[sic] confident enough with it to move forward with investing
nearly 10 million dollars to acquire and develop the project.”
J.A. 875. 2
Following discovery of the Easement, Geo and Beacon agreed
to extend the examination period for fifteen days to attempt to
resolve the issue of the use restriction. Beacon also offered
to indemnify Geo up to $250,000 to cover the risk of the
industrial manufacturing restriction in the Easement. Despite
2
Dumler testified that he was previously unaware of the
Easement and had not participated in the due diligence for
Beacon’s purchase of the Property. According to Dumler, he used
“we” in his email to Geo to refer to Beacon as an organization.
Id. 632.
6
Beacon’s indemnity offer, Geo’s title insurer would not insure
over the Easement. On October 13, 2008, Geo provided written
notice to Beacon terminating the Agreement. In response, Beacon
directed the escrow agent to release Geo’s earnest money.
Immediately after the termination, Geo shipped its manufacturing
equipment from South Carolina to its California facility in
order to place the equipment into service prior to expiration of
the manufacturer’s warranty.
C.
Geo sued Beacon in the U.S. District Court for the Central
District of California, which dismissed Geo’s complaint without
prejudice for lack of personal jurisdiction. Geo then filed
this action in the U.S. District Court for the District of South
Carolina. In the complaint, Geo asserted four claims against
Beacon: (1) fraud, (2) negligent misrepresentation, (3)
violation of the North Carolina Unfair and Deceptive Trade
Practices Act, N.C. Gen. Stat. § 75-1.1 (“UDTPA”), and (4)
breach of contract. Geo alleged that it incurred hundreds of
thousands of dollars in costs to prepare to purchase the
Property, including the shipment and storage of equipment.
Beacon filed a motion for summary judgment, which the
district court granted in full. The district court resolved
Geo’s fraud and misrepresentation claims together, holding that
7
it was not reasonable for Geo to rely on any misrepresentations
made by Beacon. With respect to the UDTPA claim, the district
court ruled that Geo failed to set forth evidence creating a
genuine issue of material fact. Finally, the district court
concluded that Beacon was entitled to judgment as a matter of
law on the breach of contract claim because Geo received its
sole and exclusive remedy under the Agreement when it received
its earnest money. Geo timely appealed.
II.
Geo contends that the district court erroneously granted
summary judgment to Beacon on each of its claims. We review a
district court’s decision to grant summary judgment de novo,
“applying the same standard as the district court.” Homeland
Training Ctr., LLC v. Summit Point Auto. Research Ctr., 594 F.3d
285, 290 (4th Cir. 2010). Summary judgment is appropriate “if
the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a).
In a case premised on diversity jurisdiction, we apply the
law that the forum state would have applied if it had heard the
case. Homeland, 594 F.3d at 290–91. The parties do not dispute
that North Carolina law governs Geo’s fraud, negligent
8
misrepresentation, and UDTPA claims, while South Carolina law
governs the breach of contract claim.
A.
We first consider whether it was reasonable for Geo to rely
on any misrepresentations made by Beacon. The district court’s
conclusion on reasonable reliance formed the foundation for its
decision to award summary judgment to Beacon on Geo’s fraud and
negligent misrepresentation claims. As such, we consider these
claims together.
Under North Carolina law, fraud requires proof of “(1) [a]
[f]alse representation or concealment of a material fact, (2)
reasonably calculated to deceive, (3) made with intent to
deceive, (4) which does in fact deceive, (5) resulting in damage
to the injur[ed] party.” Ragsdale v. Kennedy, 209 S.E.2d 494,
500 (N.C. 1974). A claim of negligent misrepresentation
requires the plaintiff to demonstrate (1) that he justifiably
relied (2) to his detriment (3) on information prepared without
reasonable care (4) by a defendant who owed a duty of care.
Hospira Inc. v. AlphaGary Corp., 671 S.E.2d 7, 12 (N.C. Ct. App.
2009).
Claims of fraud and negligent misrepresentation both
require that the plaintiff’s reliance on any misrepresentations
be reasonable. MacFadden v. Louf, 643 S.E.2d 432, 435 (N.C. Ct.
9
App. 2007). A purchaser of property asserting a claim for
losses incurred based on reliance on a false representation “may
not be heard to complain if the parties were on equal terms and
[the purchaser] had knowledge of the facts or means of
information readily available and failed to make use of his
knowledge or information, unless prevented by the seller.” Fox
v. S. Appliances, Inc., 141 S.E.2d 522, 526 (N.C. 1965).
North Carolina courts have explained the reasonableness
requirement as follows:
[R]eliance is not reasonable if a plaintiff fails to
make any independent investigation unless the
plaintiff can demonstrate: (1) it was denied the
opportunity to investigate the property, (2) it could
not discover the truth about the property’s condition
by exercise of reasonable diligence, or (3) it was
induced to forego additional investigation by the
defendant’s misrepresentations.
MacFadden, 643 S.E.2d at 434 (internal quotations omitted).
Although reasonable reliance is typically a question for the
jury, summary judgment is appropriate in a situation in which
“ ‘the facts are so clear that they support only one
conclusion.’ ” Id. (quoting State Props., LLC v. Ray, 574
S.E.2d 180, 186 (N.C. Ct. App. 2002)).
The evidence in this case, even when viewed in the light
most favorable to Geo, shows that Geo had the means available to
identify the restriction contained in the Easement. First,
Dillingham, Geo’s attorney, had a copy of the Easement in his
10
files from his prior representation of Chicago Title Company.
Second, even though Dillingham had no independent recollection
of the terms of the Easement, he acknowledged that he would have
discovered the restriction as part of the title examination
required by the Agreement.
Geo contends that it acted reasonably in investigating the
suitability of the Property for its intended use by hiring an
experienced real estate broker to assist in its search, asking
Beacon about the acceptable uses of the Property, and hiring an
attorney to conduct a title examination. The conduct that Geo
cites as its independent investigation, however, amounts to
little more than the preparation for an investigation. We
conclude that such steps did not give Geo reasonable grounds to
expend the shipping and other pre-closing costs that it now
seeks to recover as tort damages in this case.
The bottom line is that Geo and Beacon were commercial
parties, each represented by legal counsel, engaged in a $2.5
million real estate transaction. In these circumstances, we
hold that an independent investigation by the buyer as to the
suitability of the property for its intended commercial use--at
least as a prelude to asserting claims for fraud and negligent
misrepresentation--requires more than discussions with the
seller and the retention of a real estate broker and a lawyer.
See RD & J Props. v. Lauralea-Dilton Enters., 600 S.E.2d 492,
11
499 (N.C. Ct. App. 2004) (affirming summary judgment where
plaintiff failed to forecast evidence that its reliance was
reasonable and emphasizing that the parties were sophisticated
businesspersons dealing at arm’s length). Rather, when the
purchaser of property in an arm’s length transaction, like the
one between Geo and Beacon, “has the opportunity to exercise
reasonable diligence and fails to do so, the element of
reasonable reliance is lacking and the purchaser has no action
for fraud” or negligent misrepresentation. See id. at 499
(citing Calloway v. Wyatt, 97 S.E.2d 881, 885–86 (N.C. 1957));
see also MacFadden, 643 S.E.2d at 434–35 (affirming summary
judgment on negligent misrepresentation claim).
Having failed to conduct an independent investigation, Geo
could not reasonably rely on any misrepresentations made by
Beacon to incur substantial pre-closing costs, unless Beacon
either denied Geo the opportunity to investigate or induced Geo
to forgo investigation. See id. at 434. There is no evidence
to support either contention. To the contrary, the undisputed
evidence is that the Agreement required Geo to conduct a title
examination and that Geo would have discovered the restriction
on industrial manufacturing as part of that investigation.
Accordingly, Geo’s reliance on any misrepresentations by Beacon
prior to incurring the alleged damages was not reasonable as a
matter of law.
12
We quickly address Geo’s contention that the district court
improperly resolved several factual disputes in favor of Beacon.
On appeal, Geo points to three such conclusions by the district
court: (1) Geo made no independent investigation of the
suitability of the Property for its use and relied only on
Dumler’s statement that its use would be acceptable; (2)
Dillingham had previously searched the title on behalf of
SouthCross and had the ability and opportunity to discover the
restrictive easement; and (3) only Harrell at Beacon knew of the
Easement, he forgot about it, and there is no evidence that
Beacon negligently or intentionally failed to disclose the
Easement’s existence to Geo.
The district court was at least partially correct in its
analysis of the facts. Viewed in the light most favorable to
Geo, the evidence shows that Geo in fact failed to conduct an
independent investigation and that it had the ability and
opportunity to discover the Easement. Because the undisputed
facts are fatal to Geo’s claims of fraud and negligent
misrepresentation, we need not decide whether the district court
erred in resolving the other alleged factual disputes identified
by Geo.
To summarize, the undisputed facts are that Geo and Beacon
were commercial parties engaged in a $2.5 million real estate
transaction, the Agreement required Geo to conduct a title
13
examination, such an examination would have revealed the
restriction on industrial manufacturing, and Beacon did nothing
to prevent or discourage Geo’s investigation. These undisputed
facts in turn demonstrate that Geo’s reliance on any
misrepresentations was not reasonable as a matter of law.
Accordingly, we agree with the district court that Geo failed to
raise a genuine issue of material fact in support of its fraud
and negligent misrepresentation claims.
B.
We next consider whether Geo set forth evidence raising a
genuine issue of material fact in support of its UDTPA claim.
The elements of a UDTPA claim are (1) the defendant committed an
unfair or deceptive act or practice, (2) the action in question
was in or affecting commerce, and (3) the act proximately caused
injury to the plaintiff. Gray v. N.C. Ins. Underwriting Ass’n,
529 S.E.2d 676, 681 (N.C. 2000).
A UDTPA claim does not require proof of fraud, bad faith,
or actual deception. RD & J, 600 S.E.2d at 500–01. Instead, a
plaintiff need only show that the defendant’s acts “possessed
the tendency or capacity to mislead or created the likelihood of
deception.” Id. at 501. While it is a question of fact whether
a defendant performed the acts alleged by the plaintiff, it is a
14
question of law whether those acts constitute a UDTPA violation.
Gray, 529 S.E.2d at 681.
North Carolina courts have routinely granted summary
judgment on UDTPA claims where, as here, the plaintiff could not
reasonably rely on the defendant’s misrepresentations. E.g.,
Sunset Beach Dev., LLC v. AMEC, Inc., 675 S.E.2d 46, 53–54 (N.C.
Ct. App. 2009) (affirming summary judgment on the issue of
reasonable reliance); RD & J, 600 S.E.2d at 501 (“[S]ummary
judgment was proper on [UDTPA] claim for the same reasons that
the court had previously found any reliance on representations
to be unreasonable.”) (construing Spartan Leasing Inc. of N.C.
v. Pollard, 400 S.E.2d 476, 482 (N.C. Ct. App. 1991)). As
discussed in the preceding section, Geo could not reasonably
rely on any misrepresentations made by Beacon. Accordingly,
even when viewing the evidence in the light most favorable to
Geo, Beacon’s acts do not constitute a violation of the UDTPA.
We therefore agree with the district court that Geo failed to
raise a genuine issue of material fact in support of its UDTPA
claim.
C.
Finally, we address whether the district court erred in its
conclusion that Beacon was entitled to judgment as a matter of
law on the breach of contract claim. Summary judgment is
15
appropriate in breach of contract cases if the parties’
intentions are clear based on the plain and unambiguous language
of the contract. M & M Grp., Inc. v. Holmes, 666 S.E.2d 262,
266 (S.C. Ct. App. 2008); see also Laser Supply and Servs., Inc.
v. Orchard Park Assocs., 676 S.E.2d 139, 143 (S.C. 2009) (“When
the language of a contract is clear and unambiguous, the
determination of the parties’ intent is a question of law for
the court.”).
Geo contends that Beacon breached section 15 of the
Agreement, which states as follows:
To Seller’s actual knowledge . . . (ii) performance of
the Agreement will not result in the breach of . . .
any agreement or other instrument . . . by which . . .
the Property is bound; and (iii) there are no legal
actions, suits or other legal or administrative
proceedings pending or threatened against the
Property, and Seller is not aware of any facts which
might result in any such action, suit or other
proceeding.
J.A. 39. Geo argues that Beacon’s representations in this
section were false because Beacon had knowledge of the Easement
and knew that performance of the Agreement would breach the
Easement. Beacon responds that Geo offered no evidence that
Beacon had actual knowledge of the Easement during the relevant
time period and that performance of the Agreement would not
violate the Easement.
We need not resolve the issue of whether Beacon breached
section 15, however, because--as the district court correctly
16
concluded--Geo received its sole and exclusive remedy for any
such breach after terminating the Agreement. Paragraph 12 of
the Addendum to the Agreement provides as follows:
[I]f the sale and purchase of the Property
contemplated by this Agreement is not consummated
because Seller defaults hereunder, then Buyer may, as
its sole and exclusive remedy, either (i) terminate
this Agreement and upon such termination, the Seller
shall take such action as to cause the Escrow Agent to
release the Earnest Money to Buyer or (ii) seek
specific performance of this Agreement.
Id. 44.
The terms of the Agreement providing Geo’s remedies
following any breach by Beacon are clear and unambiguous. 3 As
its sole and exclusive remedy, Geo may either terminate the
Agreement and recoup its earnest money or seek specific
performance. The undisputed facts show that Geo terminated the
Agreement because Beacon failed to cure title defects and that
Beacon directed the escrow agent to return Geo’s earnest money
following the termination. Even assuming that Beacon’s alleged
misrepresentations regarding knowledge of the Easement breached
the Agreement, the undisputed facts show that Geo received its
3
Geo contends that paragraph 12 does not apply here because
it is implicated only in the event of a “default.” Geo argues
that Beacon’s conduct breached the Agreement but did not result
in a default. Geo’s attempt to draw a distinction between a
default and a breach is unsupported by the Agreement, as well as
the plain meaning of the two terms. We find no ambiguity and
hold that paragraph 12 provides Geo’s exclusive contractual
remedy.
17
contractual remedy when it recouped its earnest money.
Accordingly, we agree with the district court that Beacon is
entitled to summary judgment on the breach of contract claim.
III.
For these reasons, we affirm the district court’s order
granting summary judgment in favor of Beacon.
AFFIRMED
18