Nobel v. Foxmoor Grp. ( 2020 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA19-506
Filed: 7 July 2020
New Hanover County, No. 15 CVS 4534
LORETTA NOBEL, Plaintiff,
v.
FOXMOOR GROUP, LLC, MARK GRIFFIS, DAVE ROBERTSON, Defendants.
Appeal by Defendant Robertson from judgment entered 30 November 2018 by
Judge Charles H. Henry in New Hanover County Superior Court. Heard in the Court
of Appeals 5 February 2020.
Mason & Mason, by Amanda B. Mason and Sarah C. Thomas, for plaintiff-
appellee.
The Lea Schultz Law Firm, P.C., by James W. Lea, III, for defendant-appellant.
MURPHY, Judge.
A contract under seal is subject to a ten-year statute of limitations for its
breach, as opposed to a three-year statute of limitations for a contract not under seal.
A promissory note stating it shall take effect as a sealed instrument, with no seal
following the principal’s signature, may be deemed “sealed” where evidence
demonstrates that the parties intended the promissory note to be a sealed
instrument. To be entitled to judgment on a claim that a party has violated the
Unfair and Deceptive Trade Practices Act (“the UDTPA”), a plaintiff must establish,
among other things, that the defendant’s action in question was in or affecting
commerce, namely business activities. However, soliciting funds to build up capital
NOBEL V. FOXMOOR GROUP, LLC, ET AL.
Opinion of the Court
is not a business activity, even when it is unfair or deceptive, and is therefore not
subject to the UDTPA.
BACKGROUND
This case arises from Plaintiff Loretta Nobel’s (“Nobel”) loan to Foxmoor
Group, LLC, which did not repay the loan and subsequently dissolved. Mark Griffis
(“Griffis”) and Dave Robertson (“Robertson”) were the sole members and managers of
Foxmoor Group, LLC (collectively “Defendants”), and actively encouraged Nobel to
invest in the company.1
Nobel met Griffis and Robertson in 2003 through social and charitable
functions in which all three participated. Nobel contributed articles to a lifestyle
magazine that Robertson co-owned and managed, and Griffis and Robertson assisted
Nobel with custody litigation expenses and medical bills. After facing financial
difficulties and divorcing her spouse, Nobel moved from North Carolina to Ecuador
with her grandson, although she later returned to North Carolina. Griffis and
Robertson knew about Nobel’s difficulties.
Griffis founded Foxmoor Group, LLC in 2010 while Nobel was in Ecuador. On
9 December 2011, the Secretary of State sent “Notice of Grounds for Administrative
Dissolution” to Foxmoor Group, LLC due to the company’s failure to file an annual
1 Only Robertson filed a timely notice of appeal, and, to the extent the other two Defendants
intended to appeal the trial court’s judgment, their appeal of this matter was dismissed by our Order
on 31 January 2020.
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report. After the company was dissolved due to its failure to file an annual report in
2011, Robertson helped Griffis obtain Foxmoor Group, LLC’s reinstatement.
Foxmoor Group, LLC obtained reinstatement in 2012. Griffis and Robertson told
Nobel throughout this time period the business was performing very well and asked
Nobel to provide financial capital to Foxmoor Group, LLC.
Despite the 9 December 2011 notice of pending dissolution from the Secretary
of State, Griffis advised Nobel in a 12 December 2011 email of an investment
opportunity in the company and proposed potential investment amounts of
$75,000.00 or $150,000.00. Nobel responded that she could only invest $25,000.00 at
that time, and after Griffis agreed that amount was acceptable, she subsequently sent
a $25,000.00 check to Griffis on 9 January 2012 for “a buy in of 4 years and a renewal
of [$]10,000[.00] for an additional 4 years.” Defendants made three payments to
Nobel toward repaying the $25,000.00 investment on 1 March 2012, 1 April 2012, and
1 May 2012.
After moving back to North Carolina in February of 2012, and in response to
Griffis’s and Robertson’s continued representations concerning the strength and
growth of the company, and a corresponding financial opportunity for her, Nobel
loaned an additional $75,000.00 to Foxmoor Group, LLC. To convince Nobel to make
the loan, Griffis also offered her four years of health insurance as an employee of
Foxmoor Group, LLC, and included that promise in an additional written agreement.
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Griffis and Nobel signed the 24 May 2012 additional written agreement. The
additional written agreement also provided that the contract would renew “at a wage
of $3[,]500[.00] per month for as long as such time [Nobel] continues in her desire for
employment.” On 24 May 2012, a promissory note (“the promissory note”) was
executed for repayment of Nobel’s $75,000.00 loan. Robertson prepared the
promissory note, and Griffis signed the promissory note as “CEO” of Foxmoor Group,
LLC. The promissory note contained the language “[t]his note shall take effect as a
sealed instrument and is made and executed under, and is in all respects governed
by, the laws of: [] the State of North Carolina.” However, the promissory note did not
contain a seal following Griffis’s signature. According to the terms of the promissory
note, in exchange for the $75,000.00 “value received” from Nobel, Foxmoor Group,
LLC would make monthly payments of $3,500.00 to Nobel from 1 July 2012 to 1 July
2016. Nobel was initially hesitant to make the loan. On 24 May 2012, the same day
the promissory note and additional written agreement were executed, Defendants
cashed and deposited the $75,000.00 check.
Nobel later received a $7,000.00 check, dated 10 June 2012, from Foxmoor
Group, LLC, executed by Robertson. Only $3,500.00 was for repayment of the
promissory note, and the other half of the check was a fourth installment payment
toward her prior investment of $25,000.00. After the 10 June 2012 payment, Nobel
received no further payments from Defendants. Additionally, she was never covered
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by any health insurance policy in connection with Foxmoor Group, LLC. When she
contacted Griffis asking why she was not receiving payments, he responded that if
she tried to get the money owed to her, he would declare bankruptcy, and she would
lose everything. Instead of repaying Nobel for her $25,000.00 investment, and
$75,000.00 loan under the terms of the promissory note, Griffis and Robertson used
their position in Foxmoor Group, LLC to access corporate funds and use those funds
for personal use.
After obtaining reinstatement in 2012, Foxmoor Group, LLC did not file an
annual report in 2013, and was dissolved on 4 March 2014.
In December 2015, Nobel sued Defendants for breach of contract, piercing the
corporate veil, fraudulent misrepresentation, money owed, and unfair and deceptive
trade practices. Defendants argued that the promissory note was not a sealed
instrument, meaning the statute of limitations had expired, and denied Nobel’s
allegations. The trial court, sitting without a jury, found that the promissory note
was an instrument under seal, determined Foxmoor Group, LLC was an alter ego of
Griffis and Robertson, meaning the instrumentality rule allowed for the piercing of
the corporate veil, and held Defendants liable for breach of contract, fraud in the
inducement, and unfair and deceptive trade practices.
ANALYSIS
A. Statute of Limitations and Breach of Contract
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The first issue on appeal is whether the trial court erred in finding and
concluding the promissory note was an instrument under seal. Nobel’s breach of
contract cause of action regarding the $25,000.00 investment was barred by the
statute of limitations. N.C.G.S. § 1-52(1) (2019). If the 24 May 2012 promissory note,
with monthly payments beginning 1 July 2012, was not deemed to be a sealed
instrument, Nobel’s December 2015 breach of contract cause of action regarding the
$75,000.00 loan would likewise be barred by the statute of limitations. Miller v.
Randolph, 124 N.C. App. 779, 781, 478 S.E.2d 668, 670 (1996) (“[N.C.G.S. § 1-52(1)]
begins to run when the claim accrues; for a breach of contract action, the claim
accrues upon breach.”). The statute of limitations for actions “[u]pon a sealed
instrument . . . against the principal thereto” is ten years. N.C.G.S. § 1-47(2) (2019).
In contrast, the statute of limitations for actions upon an unsealed contract or liability
arising out of an unsealed contract is three years. N.C.G.S. § 1-52(1) (2019). Here,
the promissory note includes language directly preceding the principal’s signature
that states: “[t]his note shall take effect as a sealed instrument . . . [,]” but does not
include a seal following the principal’s signature. Since the instrument lacks a seal,
Robertson argues it is not a sealed instrument and does not fall under the ten-year
statute of limitations.
Robertson does not contest any of the trial court’s findings of fact on the issue
of whether the promissory note was, in fact, sealed. Instead, he argues the trial court
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erred as a matter of law in concluding the instrument was sealed and that, therefore,
Nobel’s claims related to the promissory note fall under the three-year statute of
limitations. Conclusion of Law 2 concludes the promissory note is a sealed
instrument and the ten-year statutory period applies as to Nobel’s breach of contract
claim.
Our Supreme Court has advised, “the determination of whether an instrument
is a sealed instrument, commonly referred to as a specialty, is a question for the
court.” Square D Co. v. C.J. Kern Contractors, Inc., 314 N.C. 423, 426, 334 S.E.2d 63,
65 (1985) (citing Security Nat’l Bank v. Educator's Mut. Life Ins. Co., 265 N.C. 86,
143 S.E.2d 270 (1965)). However, we have treated the issue of the parties’ intention
to seal the document as an issue of fact: “We are constrained to hold that a material
issue of fact remains as to the intent of the parties to enter into a sealed instrument,
and accordingly [N.C.]G.S. [§] 1-47(2) is not necessarily applicable to the present
action.” First Citizens Bank & Trust Co. v. Martin, 44 N.C. App. 261, 267, 261 S.E.2d
145, 150 (1979) (holding “the trial court erred in concluding as a matter of law that
the statute of limitations did not bar [the] plaintiff’s action against [the] defendant .
. . , and summary judgment against [the defendant] was improvidently granted”).
In Square D Co., the question for the court was “whether [a] corporate seal
transforms the party’s contract into a specialty[.]” Square D Co., 314 N.C. at 428, 334
S.E.2d at 66. Our Supreme Court held the determinative factor in reaching such a
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decision “is whether the body of the contract contains any language that indicates that
the parties intended that the instrument be a specialty or whether extrinsic evidence
would demonstrate such an intention.” Id. (emphasis added). “[A]bsent any evidence
. . . indicat[ing] that the parties intended that the contract was to be a sealed
instrument, . . . the contract in this case was not a specialty and [] the ten-year period
of limitation contained within [N.C.]G.S. [§] 1-47(2) would be inapplicable to [the]
plaintiff’s action.” Id.
Although the instrument here does not contain a seal—corporate or
otherwise—there is convincing evidence within the four corners of the promissory
note that the parties intended the instrument to be sealed, which allows it to be
treated as such. Our holding in First Citizens Bank & Trust Co. v. Martin supports
the premise that the parties’ intent to file the instrument under seal is relevant to
the determination of whether the document was, in fact, filed under seal. First
Citizens Bank & Trust Co., 44 N.C. App. at 267, 261 S.E.2d at 150. The trial court
did not make such a finding of fact here, but still noted the language “this note shall
take effect as a sealed instrument” in the promissory note in Finding of Fact 16.
Based on our caselaw, an instrument will be deemed “sealed” where it appears
on its face or through extrinsic evidence that the parties intended it to be a sealed
instrument. In rare instances, as here, this clearly-stated intent will result in an
instrument being treated as though it was filed under seal even where the principal(s)
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to the contract do not include a seal after their name. The trial court concluded that
the promissory note was to be “strictly construed against [Robertson and Griffis]”
because it was “generated and drafted by [Robertson] and signed by [Griffis] as a
sealed contract.” Additionally, “[Robertson and Griffis] had the best opportunity to
protect their own interests thus any doubt as to its interpretation will be resolved
against them.” Each of these sub-conclusions is supported by unchallenged findings
of fact, and the trial court’s conclusion that the ten-year statute of limitations applies
to the promissory note is affirmed.2
B. Instrumentality Rule
Robertson argues that “the trial court erred in ruling that the individual
Defendants were the alter-egos of Defendant Foxmoor,” and the corporate veil should
not have been pierced.
“In North Carolina, what has been commonly referred to as the
‘instrumentality rule,’ forms the basis for disregarding the corporate entity or
‘piercing the corporate veil.’” Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E.2d 326,
330 (1985). The corporate form may be disregarded, and the corporation and the
shareholder treated as the same entity, if “the corporation is so operated that it is a
2 Robertson also argues, in Section V of his Appellant’s Brief, that the trial court “erred as a
matter of law by entering judgment against [him] for breach of contract[.]” This argument is two
sentences long: the first sets out the two elements of a breach of contract claim under North Carolina
law, and the second states, “[t]he trial court erred in concluding that [Robertson] executed a sealed
promissory note with [Nobel] . . . .” Given our conclusion that the promissory note was filed under
seal, we hold the trial court did not err in entering judgment against Robertson for breach of contract.
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mere instrumentality or alter ego of the sole or dominant shareholder and a shield for
his activities in violation of the declared public policy or statute of the State[.]” Estate
of Hurst ex rel. Cherry v. Moorehead I, LLC, 228 N.C. App. 571, 577, 748 S.E.2d 568,
573–74 (2013). There are three elements of a successful “instrumentality rule” claim:
(1) Control, not mere majority or complete stock control,
but complete domination, not only of finances, but of
policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own; and
(2) Such control must have been used by the defendant to
commit fraud or wrong, to perpetrate the violation of a
statutory or other positive legal duty, or a dishonest and
unjust act in contravention of plaintiff's legal rights;
and
(3) The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
of.
Glenn, 313 N.C. at 454-55, 329 S.E.2d at 330.
Here, in Finding of Fact 28, the trial court made the following unchallenged
finding:
The individual defendants had complete domination over
the finances, policy making and business practices of
Foxmoor with respect to the events which injured [Nobel]
so that Foxmoor had at the time no existence of its own.
Griffis and Robertson used their control over the company
to siphon and drain the corporation of funds for personal
use so that it could not satisfy its legal obligations under
the promissory note delivered to the plaintiff.
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As this finding of fact is not challenged by Robertson, it is binding on appeal. See
Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991). This finding
independently supports the trial court’s Conclusion of Law 5 that Nobel proved all
three elements of an “instrumentality rule” claim—indeed, the trial court used the
exact language from Glenn in entering this finding of fact. See Glenn, 313 N.C. at
454-55, 329 S.E.2d at 330.
Conclusion of Law 5 is supported by Finding of Fact 28, which is supported by
competent evidence. The trial court heard the following testimony: that Griffis and
Robertson were the only members of Foxmoor Group, LLC; that both Griffis and
Robertson told Nobel that business was thriving; that Robertson prepared the
promissory note; that Robertson signed the 10 June 2012 check from Foxmoor, LLC
toward repaying the promissory note; and, that Nobel never received further
payment, other than the 10 June 2012 check, toward the promissory note. Although
Robertson points us to testimony to the contrary, it is the factfinder’s duty to
determine the credibility of testimony. GEA, Inc. v. Luxury Auctions Marketing, Inc.,
259 N.C. App. 443, 455, 817 S.E.2d 422, 432 (2018); see also Smithwick v. Frame, 62
N.C. App. 387, 392, 303 S.E.2d 217, 221 (1983) (noting that “the trial judge, sitting
without a jury, has discretion as finder of fact with respect to the weight and
credibility that attaches to the evidence”). “The trial court must itself determine what
pertinent facts are actually established by the evidence before it, and it is not for an
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appellate court to determine de novo the weight and credibility to be given to evidence
disclosed by the record on appeal.” Coble v. Coble, 300 N.C. 708, 712-13, 268 S.E.2d
185, 189 (1980). The trial court’s conclusion that the instrumentality rule applies is
affirmed.
C. False Representation/Fraud
Robertson next argues “the trial court erred as a matter of law in concluding
the Defendants made false representations to induce [Nobel] to invest in Foxmoor.”
Although he does not use the word “fraud” here, Robertson’s argument is that the
trial court erred in concluding he committed fraud in the inducement. In relevant
part, the trial court concluded:
7. The [D]efendants made false representations to
induce [Nobel] to loan the [D]efendants the sum of
$75,000[.00]. [Nobel] did, in fact, rely on this
misrepresentation in reaching her decision to loan this
money. The [D]efendants demonstrated no intention on
providing health insurance to [Nobel] or repaying fully
their obligation established by the promissory note.
8. [Nobel] has suffered a financial injury, and the
[D]efendants’ conduct was the proximate cause of that
injury.
These two conclusions of law do not include a specific monetary award.
However, Conclusion of Law 10 is an award that corresponds with the breach of
contract, fraud, and UDTPA violation claims. Specifically, Conclusion of Law 10
states: “[Nobel] is to recover as damages from the [D]efendants for breach of contract
the sum of $164,500[.00]. That same amount is also the amount of damages for the
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unfair and deceptive trade practices. Pursuant to N.C.G.S. § 75-16 those damages
are trebled.” In light of our holdings that (1) the promissory note was not erroneously
determined to be a sealed instrument, and our affirming the trial court’s conclusion
that Defendants breached their contract with Nobel, and (2) the corporate veil could
be pierced as to Robertson, we need not address the fraud issue because vacating the
trial court’s conclusion regarding fraud would not make an impact on the trial court’s
ultimate award of monetary damages.
D. Unfair and Deceptive Trade Practices Act
To be entitled to judgment on a claim that a party has violated the UDTPA, a
plaintiff must have established that: “(1) 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.” Dalton v. Camp, 353 N.C. 647, 656, 548
S.E.2d 704, 711 (2001). In challenging the trial court’s conclusion that Robertson
violated the UDTPA, he does not take issue with elements one or three; instead, he
argues the acts in question were not “in or affecting commerce” and therefore do not
fall within the protections of the UDTPA. N.C.G.S. § 75-1.1 (2019). On this issue,
the trial court concluded that “[t]he [D]efendants[’] conduct involved a regular
business activity of the [D]efendants that affected commerce.”
“For [the] purposes of [the UDTPA], ‘commerce’ includes all business activities,
however denominated, but does not include professional services rendered by a
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member of a learned profession.” N.C.G.S. § 75-1.1(b) (2019). “‘Business activities’
is a term which connotes the manner in which businesses conduct their regular, day-
to-day activities, or affairs, such as the purchase and sale of goods, or whatever other
activities the business regularly engages in and for which it is organized.” HAJMM
Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991).
However, “any unfair or deceptive practices occurring in the conduct of extraordinary
events of, or solely related to the internal operations of, a business will not give rise
to a claim under the [UDTPA].” White v. Thompson, 364 N.C. 47, 52, 691 S.E.2d 676,
679 (2010).
In HAJMM Co., our Supreme Court addressed a situation where a corporate
defendant had issued a corporate plaintiff a number of “fund certificates,” or, “in
essence, corporate securities.” HAJMM Co., 328 N.C. at 593, 403 S.E.2d at 493. The
defendant’s “bylaws provide[d] that the purpose of issuing the certificates was to
‘build up . . . capital.’” Id. Our Supreme Court held that the sale of such instruments
was not a business activity, but an “extraordinary event done for the purpose of
raising capital in order that the enterprise can either be organized for the purpose of
conducting its business activities or, if already a going concern, to enable it to
continue its business activities.” Id. at 594, 403 S.E.2d at 493. Our Supreme Court
reasoned “[s]ecurities transactions are related to the creation, transfer, or retirement
of capital. Unlike regular purchase and sale of goods, or whatever else the enterprise
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was organized to do, they are not ‘business activities’ as that term is used in the
[UDTPA].” Id. Therefore, “[t]hey are not . . . ‘in or affecting commerce,’ even under
a reasonably broad interpretation of the legislative intent underlying these terms.”
Id.
Our Supreme Court affirmed this interpretation of the UDTPA in White, and
described the central holding of HAJMM Co. as standing for the proposition that “any
unfair or deceptive practices occurring in the conduct of extraordinary events of, or
solely related to the internal operations of, a business will not give rise to a claim
under the [UDTPA].” White, 364 N.C. at 52, 691 S.E.2d at 679. Further, our Supreme
Court reasoned that the General Assembly’s intent in passing the UDTPA was to
regulate “two types of interactions in the business setting: (1) interactions between
businesses, and (2) interactions between businesses and consumers.” Id. “As a result,
any unfair or deceptive conduct contained solely within a single business is not
covered by the [UDTPA].” Id. at 53, 691 S.E.2d at 680.
Here, Robertson’s unfair or deceptive practices all relate to inducing an
investment from Nobel for the purpose of funding Foxmoor Group, LLC, i.e. providing
a loan for the purpose of giving the business additional capital with which to operate.
Based on our Supreme Court’s interpretation of the UDTPA, soliciting funds to build
up capital, as occurred here, was an extraordinary act and not a business activity of
Foxmoor Group, LLC. It is not a “regular purchase and sale of goods, or whatever
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else the enterprise was organized to do[.]” HAJMM Co., 328 N.C. at 594, 403 S.E.2d
at 493. Instead, the alleged unfair or deceptive act here is almost directly equivalent
to the sale of fund certificates by the defendant in HAJMM Co., as the promissory
note signed by Griffis is a “capital-raising device[].” 328 N.C. at 595, 403 S.E.2d at
493. In following our binding precedent from HAJMM Co. and White, we conclude
the trial court erred as a matter of law in concluding Robertson’s acts were “in or
affecting commerce,” and therefore subject to the UDTPA. The trial court’s
conclusions to the contrary—and the related monetary award and trebling of the
same—are reversed.3
CONCLUSION
The trial court did not err in concluding the promissory note was an instrument
under seal, Nobel could pierce the corporate veil, and Robertson was liable for breach
of contract as to the promissory note. However, Defendants’ soliciting funds to raise
capital were not a business activity, and the trial court erred in concluding that the
proven acts violated the UDTPA.
AFFIRMED IN PART; REVERSED IN PART.
Judge ZACHARY concurs.
Judge ARROWOOD concurs in part and dissents in part in a separate opinion.
3As the appeals of Foxmoor Group, LLC and Griffis were dismissed, the judgments against
them remain undisturbed.
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ARROWOOD, Judge, concurring in part and dissenting in part.
I concur fully with that portion of the opinion in so far as it affirms the trial
court’s holding that the promissory note was an instrument under seal, and plaintiff’s
claims are thus not barred by the statute of limitations. I also concur with that
portion of the opinion concerning defendant’s liability for breach of contract and
fraud.
However for the reasons set forth below, I dissent from that portion of the
majority’s opinion which reverses the trial court’s award of damages on plaintiff’s
claim under the Unfair and Deceptive Trade Practices Act.
I. Discussion
Pursuant to the North Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”), “[u]nfair methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce, are declared unlawful.” N.C.
Gen. Stat. § 75-1.1(a) (2019). The majority correctly notes that to be entitled to
judgment on a claim that a party has violated the UDTPA, a plaintiff must establish
that: “(1) 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.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001) (citing
Spartan Leasing Inc. v. Pollard, 101 N.C. App. 450, 461, 400 S.E.2d 476, 482 (1991)).
The Act clarifies that “[f]or purposes of this section, ‘commerce’ includes all business
activities, however denominated, but does not include professional services rendered
NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
by a member of a learned profession.” N.C. Gen. Stat. § 75-1.1(b). “Business
activities” refers to “the manner in which businesses conduct their regular, day-to-
day activities, or affairs, such as the purchase and sale of goods, or whatever other
activities the business regularly engages in and for which it is organized.” HAJMM
Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991).
The Act thus does not cover all wrongs in a business setting: it does not cover
ordinary employer-employee disputes, Buie v. Daniel International, 56 N.C. App. 445,
289 S.E.2d 118 (1982), securities transactions, Skinner v. E.F. Hutton & Co., 314 N.C.
267, 333 S.E.2d 236 (1985), or those wrongs committed by and against partners
within the same company, where the wrongs committed only affected that company
and or its co-owners, White v. Thompson, 364 N.C. 47, 691 S.E.2d 676 (2010).
For instance, in White, three partners formed Ace Fabrication and Welding
(“ACE”) to provide specialty construction and fabrication services for a plant operated
by Smithfield Packing Company, Inc. (“Smithfield”). Id. at 48, 691 S.E.2d at 677.
The partners agreed that they would divide up the contracts ACE won among
themselves and receive hourly wages from ACE for the hours each of them actually
worked. Id. One of the partners, the defendant, later violated this agreement by
hiring several people not affiliated with ACE to help him perform certain Smithfield
jobs that had been awarded to ACE. In addition, he formed a new company, called
PAL, and used it to compete for Smithfield jobs. Id. at 49-50, 691 S.E.2d at 677-78.
2
NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
As a result of the defendant’s actions, ACE ultimately went out of business. Id. at
50, 691 S.E.2d at 678. The defendant’s former business partners sued him for unfair
and deceptive trade practices, among other claims. Id.
Our Supreme Court held that “[b]ecause [the] defendant . . . unfairly and
deceptively interacted only with his partners, his conduct occurred completely within
the ACE partnership and entirely outside the purview of the [UDTPA].” Id. at 54,
691 S.E.2d at 680. In reaching its decision, our Supreme Court emphasized that the
UDTPA “is not focused on the internal conduct of individuals within a single market
participant, that is, within a single business[,]” but rather “the General Assembly
intended the Act’s provisions to apply to interactions between market participants.”
White, 364 N.C. at 53, 691 S.E.2d at 680. See also Alexander v. Alexander, 250 N.C.
App. 511, 516-17, 792 S.E.2d 901, 905 (2016) (quoting Id. at 53-54, 691 S.E.2d at 680)
(holding that, where the “ ‘unfairness of [Defendant’s] conduct did not occur in his
dealings with [other market participants]’ ” but rather only with the plaintiff, his co-
owner, his conduct fell “ ‘entirely outside the purview of the [UDTPA].’ ”).
In the present case, unlike the plaintiff in White, plaintiff here is neither a
partner nor has any ownership stake in Foxmoor Group, LLC (“Foxmoor”). Instead,
plaintiff acted as an outside investor, and is therefore better viewed as a separate
market participant. Moreover, though part of the repayment agreement for plaintiff’s
second loan included an agreement that Foxmoor would pay for her insurance as an
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NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
employee of the company, she was not an employee in any real sense of the term.
Rather, as the agreement between the parties made clear, plaintiff was to be treated
as an employee for health insurance purposes only, as part of the consideration for,
and repayment of, her $75,000.00 loan. Because defendant did not “unfairly and
deceptively interact[] only with his partners,” White, 364 N.C. at 54, 691 S.E.2d at
680, or employee, I would hold that his conduct does not fall outside the scope of the
UDTPA.
The majority argues that the present case is analogous to that of HAJMM.
There, the plaintiff was an LLC engaged in agricultural marketing, and the
defendant was an agricultural cooperative engaged in the business of processing
turkeys and other poultry. 328 N.C. at 580, 403 S.E.2d at 485. The defendant was
formed and partially capitalized with the plaintiff’s sale of all of its stock in Raeford
Turkey Farms, Inc. In consideration for the sale, the plaintiff received revolving fund
certificates issued by the defendant which became part of the defendant’s capital
structure. Id. The defendant’s bylaws specified that the certificates could be retired
at the discretion of the board and “[f]unds arising from the issue of such certificates
shall be used for creating a revolving fund for the purpose of building up such an
amount of capital as may be deemed necessary by the board of directors from time to
time and for revolving such capital.” Id. at 581, 403 S.E.2d at 486. The plaintiff’s
certificate continued to be listed on the defendant’s books as part of its capital
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NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
structure. When the plaintiff later demanded payment on the certificate, the
defendant refused without good reason. Id.
Our Supreme Court, relying on its decision in Skinner, held the plaintiff was
not entitled to recover under the UDTPA because corporate securities were outside
the scope of the Act. Id. at 593, 403 S.E.2d at 492-93. In Skinner, that Court held
that securities transactions are beyond the scope of the UDTPA. Specifically, it
reasoned that it’s holding
is consistent with [N.C. Gen. Stat.] § 75-1.1’s purpose to
protect the consuming public, the North Carolina cases
holding that other federal or state statutes may limit the
scope of [N.C. Gen. Stat.] § 75-1.1, the absence of any other
state court decision holding that securities transactions are
subject to a similar Unfair Trade Practices Act, and the
absence of any federal court decision holding that
securities transactions are subject to § 5(a)(1) of the FTC
Act. We do not believe that the North Carolina legislature
would have intended [N.C. Gen. Stat.] § 75-1.1, with its
treble damages provision, to apply to securities
transactions which were already subject to pervasive and
intricate regulation under the North Carolina Securities
Act, N.C. Gen. Stat. § 78A-1 et seq. (1981), as well as the
Securities Act of 1933, 15 U.S.C. § 77a et seq. (1982), and
the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
(1982). Furthermore, to hold that [N.C. Gen. Stat.] § 7-51.1
applies to securities transactions could subject those
involved with securities transactions to overlapping
supervision and enforcement by both the North Carolina
Attorney General, who is charged with enforcing [N.C.
Gen. Stat.] § 75-1.1, and the North Carolina Secretary of
State, who is charged with enforcing the North Carolina
Securities Act.
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NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
314 N.C. at 275, 333 S.E.2d at 241 (quoting Lindner v. Durham Hosiery Mills, Inc.,
761 F.2d 162, 167-68 (1985)). Our Supreme Court in HAJMM thus further extended
its holding in Skinner to include corporate securities, noting that “the legislature
simply did not intend for the trade, issuance and redemption of corporate securities
or similar financial instruments to be transactions ‘in or affecting commerce’ as those
terms are used in N.C. [Gen. Stat.] § 75-1.1(a).” Id. at 594, 403 S.E.2d at 493. Because
“revolving fund certificates are, in essence, corporate securities[,]” whose “purpose is
to provide and maintain adequate capital for enterprises that issue them,” the Court
held that the plaintiff’s claim did not fall under the purview of the UDTPA. Id. at
593, 403 S.E.2d at 493.
The majority asserts the same reasoning applies to the current case. However,
there is a significant distinction between the two cases: HAJMM involved corporate
securities, while the present case notably does not. While the plaintiff’s claim in
HAJMM fell outside the purview of the UDTPA precisely because it involved
corporate securities, the same reasoning cannot apply here because no securities
transactions or corporate securities are at issue. Rather, the present dispute arose
due to nonpayment of a promissory note (along with certain other considerations),
whose funds were misappropriated. Because, in my view, plaintiff, as an outside
investor, was a separate market participant and her promissory note was not the
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NOBEL V. FOXMOOR GRP., LLC
Arrowood, J., Concurrence-Dissent
equivalent of a corporate security or similar instrument, I would affirm the judgment
of the trial court and hold that her claim does not fall outside the scope of the UDTPA.
7