Rountree v. Chowan Cty.Â

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-555
Filed: 7 March 2017
Chowan County, No. 13 CVS 88
WILTON GENE ROUNTREE, Plaintiff,
v.
CHOWAN COUNTY, Defendant.
Appeal by plaintiff from order entered 18 December 2015 by Judge J. Carlton
Cole in Chowan County Superior Court. Heard in the Court of Appeals 2 November
2016.
Maginnis Law, PLLC, by Edward H. Maginnis and T. Shawn Howard, for
plaintiff-appellant.
Womble Carlyle Sandridge & Rice, LLP, by Theresa M. Sprain and Lawrence
A. Moye, IV, for defendant-appellee.
ELMORE, Judge.
Wilton Gene Rountree (plaintiff), a former tax administrator, retired from his
employment with Nash County before accepting a new position with Chowan County
(defendant) on a limited basis. After working for nearly two years, plaintiff learned
that the terms of his employment with defendant had rendered him ineligible to
receive retirement benefits. He resigned and sued defendant for breach of contract
and negligent misrepresentation. The trial court granted summary judgment for
defendant on both claims.
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Opinion of the Court
Plaintiff appeals, arguing that the trial court erred in granting summary
judgment on his negligent misrepresentation claim. Upon review, we hold that
summary judgment for defendant was proper because (1) plaintiff failed to forecast
evidence which, taken as true, would establish that defendant owed plaintiff a duty
of care apart from defendant’s purported contractual obligation; and (2) assuming the
existence of a separate legal duty, plaintiff failed to produce evidence tending to show
that his reliance was justifiable. Affirmed.
I. Background
In 2009, defendant was experiencing financial difficulties. It had been forced
to increase taxes twice in the preceding year to fund its operations and, to make
matters worse, its longtime tax administrator resigned unexpectedly. Plaintiff was
referred to Peter Rascoe, the Chowan County manager, as a potential replacement.
Plaintiff had served as a tax administrator, first in Edgecombe County and then Nash
County, before his retirement in February 2009. Impressed with plaintiff’s
experience and reputation, Rascoe contacted plaintiff to discuss the position.
As a retiree, plaintiff was receiving benefits through the Local Government
Employees’ Retirement System (LGERS). During his initial meeting with Rascoe,
plaintiff expressed interest in the tax administrator position but made clear that he
wanted to protect his retirement benefits. After their meeting, Rascoe sent plaintiff
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an offer letter describing the terms of the proposed employment agreement. The
letter provided in part:
As a retiree realizing benefits from the local government
retirement system and health insurance benefits from your
former employer, you have expressed interest in the
position on a contract basis. I am prepared to offer you
such an arrangement along the parameters we discussed.
As such, the position if accepted by you, would be an “at
will” contract relationship. I am prepared to offer such an
arrangement to you for at least a term of twenty-four
months with the hope that it may continue for a longer
period if both parties are in agreement.
On the more specific conditions, the letter stipulated that plaintiff would receive an
annual salary of $46,800.00, or $30.00 per hour based on the number of actual hours
worked per week, with a target of a thirty-hour work week. Defendant would not
withhold retirement contributions, as plaintiff was already receiving those benefits.
Rascoe, an attorney, knew the state had employment restrictions in place for
its retirees which, if not observed, could disqualify them from their retirement
benefits. During his deposition, Rascoe explained that he was acting in defendant’s
interest when he drafted the letter although he tried to address plaintiff’s concerns.
He did not represent or guarantee that plaintiff’s benefits would be safe under the
proposed terms of employment but he did believe that plaintiff would find them
suitable. Rascoe testified: “It was my understanding that we had presented him . . .
with an arrangement that he could agree to that he would have—he could make the
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determination whether or not it affected his retirement . . . , but it was our
understanding . . . of the system that this did that. We thought.”
Plaintiff himself was also familiar with LGERS. When he prepared to retire
from his position in Nash County, he had consulted the State Employee Retirement
Handbook, which contained the benefits eligibility requirements, to determine the
amount of money he could expect to receive in retirement. He acknowledged during
his deposition that he would have been responsible for maintaining his own benefits
eligibility. According to plaintiff’s testimony and affidavit, however, Rascoe “assured”
him that the employment contract would protect his benefits. Beyond his
conversations with Rascoe, plaintiff performed no due diligence to confirm whether
defendant’s proposed terms of employment would affect his benefits.
Plaintiff eventually accepted the position under the terms set forth in the offer
letter. He worked as the tax administrator without incident for nearly two years until
1 August 2011, when he received a written notice from the North Carolina Retirement
Systems Division. The notice informed plaintiff that, based on his employment
agreement, he had returned to “regular employment” on 1 August 2009 and his
compensation since then was subject to retirement contributions, which had not been
made. In addition, because the Division had not been informed of plaintiff’s “return
to service,” he had received $114,448.32 in monthly retirement benefits to which he
was not entitled as an “employee” under LGERS. Plaintiff resigned the following day.
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Opinion of the Court
Beginning in September 2011, the Division began deducting $1,000.00 each
month from plaintiff’s retirement benefits to repay the $114,448.32 which he had
received over the past two years. Defendant later provided counsel to plaintiff, and
plaintiff entered into a settlement agreement with the Division to repay $30,000.00
of the $114.448.32 in wrongful distributions. Of the $30,000.00 which plaintiff agreed
to repay, $11,000.00 had already been satisfied through monthly deductions, leaving
$19,000.00 to be paid in the same manner.
On 29 April 2013, plaintiff filed a complaint against defendant alleging breach
of contract and negligent misrepresentation. Defendant answered and moved for
summary judgment on each of plaintiff’s claims, which the trial court granted.
Plaintiff timely appeals.
II. Discussion
On appeal, plaintiff does not challenge the trial court’s ruling on his breach of
contract claim. He argues instead that the court erred in granting summary
judgment on his negligent misrepresentation claim because he demonstrated genuine
issues of material fact for trial. Defendant maintains that the trial court’s grant of
summary judgment was proper for two reasons: first, plaintiff’s claim for negligent
misrepresentation is barred by the economic loss rule because it impermissibly arises
out of the same alleged contractual duty as his original breach of contract claim; and
second, plaintiff failed to establish the essential elements of negligent
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Opinion of the Court
misrepresentation—specifically, a duty of care, justifiable reliance, and detrimental
reliance.
“Our standard of review of an appeal from summary judgment is de novo.” In
re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). Such judgment is
appropriate only when “the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to a judgment as a matter
of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015). The movant has “the burden of
establishing the lack of any triable issue.” Lord v. Beerman, 191 N.C. App. 290, 293,
664 S.E.2d 331, 334 (2008) (citing Roumillat v. Simplistic Enters., Inc., 331 N.C. 57,
62–63, 414 S.E.2d 339, 341–42 (1992)). The movant may satisfy its burden “ ‘by
proving that an essential element of the opposing party’s claim is nonexistent, or by
showing through discovery that the opposing party cannot produce evidence to
support an essential element of his claim.’ ” Id. (quoting Collingwood v. G.E. Real
Estate Equities, 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989)); see also Ussery v. Branch
Banking & Trust Co., 368 N.C. 325, 335, 777 S.E.2d 272, 279 (2015) (“When the proof
offered by either party establishes that no cause of action or defense exists, summary
judgment may be granted.” (citation omitted)). “When considering a motion for
summary judgment, the trial judge must view the presented evidence in a light most
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favorable to the nonmoving party.” Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d
704, 707 (2001) (citation omitted).
“The tort of negligent misrepresentation occurs when a party justifiably relies
to his detriment on information prepared without reasonable care by one who owed
the relying party a duty of care.” Raritan River Steel Co. v. Cherry, Bekaert &
Holland, 322 N.C. 200, 206, 367 S.E.2d 609, 612 (1988) (citations omitted); see also
id. at 203, 214, 367 S.E.2d at 611, 617 (adopting the approach to negligent
misrepresentation set forth in Restatement (Second) of Torts § 552 (1977)); Simms v.
Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 532, 537 S.E.2d 237, 240 (2000)
(articulating elements of negligent misrepresentation).
The parties first disagree as to whether the economic loss rule bars plaintiff’s
negligent misrepresentation claim. The economic loss rule, as it has developed in
North Carolina, generally bars recovery in tort for damages arising out of a breach of
contract:
A tort action does not lie against a party to a contract who
simply fails to properly perform the terms of the contract,
even if that failure to perform was due to the negligent or
intentional conduct of that party, when the injury resulting
from the breach is damage to the subject matter of the
contract. It is the law of contract and not the law of
negligence which defines the obligations and remedies of
the parties in such a situation.
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Lord v. Customized Consulting Specialty, Inc., 182 N.C. App. 635, 639, 643 S.E.2d 28,
30–31 (2007) (alteration omitted) (citations omitted); see also N.C. State Ports Auth.
v. Lloyd A. Fry Roofing Co., 294 N.C. 73, 81–82, 240 S.E.2d 345, 350–51 (1978)
(explaining that absent four enumerated exceptions, “a breach of contract does not
give rise to a tort action by the promisee against the promisor”), rejected in part on
other grounds by Trs. of Rowan Technical Coll. v. J. Hyatt Hammond Assocs., Inc.,
313 N.C. 230, 241–43, 328 S.E.2d 274, 289–82 (1985).
Plaintiff alleged in his complaint that defendant breached the employment
agreement which, according to plaintiff, “required Defendant to provide employment
terms that would not limit, abridge, or diminish Plaintiff’s right to receive Retirement
Benefits from LGERS.” If this condition was part of the agreement, as plaintiff
initially pleaded, then his tort claim would fail as a matter of law because “a breach
of contract does not give rise to a tort action.” N.C. State Ports Auth., 294 N.C. at 81,
240 S.E.2d at 350. In support of his tort claim, however, plaintiff pleaded in the
alternative that a misrepresentation occurred prior to the execution of the agreement
for the purpose of inducing plaintiff to enter into a contract:
“Defendant . . . represented to Plaintiff that it was offering employment terms that
would not violate his eligibility for retirement benefits through LGERS,” and
“Defendant, hoping to induce Plaintiff into employment, intended for him to rely upon
the aforesaid representation regarding continued eligibility for retirement benefits.”
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Opinion of the Court
Defendant argues that plaintiff’s tort claim is “merely a restatement of his failed
contract claim disguised as a distinct cause of action.” But if the evidence otherwise
showed that defendant had no contractual obligation to protect plaintiff’s retirement
benefits, then plaintiff’s tort claim, construed liberally, would not be barred by the
economic loss rule.
Even so, a viable tort action “must be grounded on a violation of a duty imposed
by operation of law, and the right invaded must be one that the law provides without
regard to the contractual relationship of the parties.” Asheville Contracting Co. v.
City of Wilson, 62 N.C. App. 329, 342, 303 S.E.2d 365, 373 (1983) (emphasis added)
(citation omitted). “When there is no dispute as to the facts or when only a single
inference can be drawn from the evidence, the issue of whether a duty exists is a
question of law for the court.” Mozingo v. Pitt Cnty. Mem’l Hosp., Inc., 101 N.C. App.
578, 588, 400 S.E.2d 747, 753 (1991) (citations omitted), aff’d, 331 N.C. 182, 415
S.E.2d 341 (1992).
A breach of duty that gives rise to a claim of negligent misrepresentation has
been defined as:
One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the
guidance of others in their business transactions, [and
thus] is subject to liability for pecuniary loss caused to
them by their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence in
obtaining or communicating the information.
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Simms, 140 N.C. App. at 534, 537 S.E.2d at 241 (alteration in original) (emphasis
omitted) (quoting Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C. 214,
218, 513 S.E.2d 320, 323–24 (1999)) (internal quotation marks omitted).
Such a duty commonly arises within professional relationships. See, e.g.,
Ballance v. Rinehart, 105 N.C. App. 203, 207–08, 412 S.E.2d 106, 109 (1992) (real
estate appraisers); Stanford v. Owens, 46 N.C. App. 388, 400, 265 S.E.2d 617, 625
(1980) (engineers); Shoffner Indus., Inc. v. W.B. Lloyd Constr. Co., 42 N.C. App. 259,
271–72, 257 S.E.2d 50, 59 (1979) (architects). In Raritan River Steel, for example,
two plaintiff-corporations claimed to have extended credit to Intercontinental Metals
Corporation (IMC) based upon an audit report of IMC’s financial status. 322 N.C. at
203, 367 S.E.2d at 611. IMC had retained a firm of certified public accountants to
prepare the report. Id. When IMC defaulted, the plaintiffs sued the accounting firm
for negligent misrepresentation, alleging that plaintiffs “incurred damages when they
extended credit to IMC in reliance on incorrect information contained in an audit
report on IMC’s financial status prepared for IMC by defendants.” Id. As to whether
the accounting firm owed a duty of care to the plaintiffs, the Supreme Court
explained:
As we understand it, under the Restatement approach an
accountant who audits or prepares financial information
for a client owes a duty of care not only to the client but to
any other person, or one of a group of persons, whom the
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accountant or his client intends the information to benefit;
and that person reasonably relies on the information in a
transaction, or one substantially similar to it, that the
accountant or his client intends the information to
influence.
Id. at 210, 367 S.E.2d at 614; see also Restatement (Second) of Torts § 552 cmt. e
(1977) (“When the information [supplied] concerns a fact not known to the recipient,
he is entitled to expect that the supplier will exercise that care and competence in its
ascertainment which the supplier’s business or profession requires and which,
therefore, the supplier professes to have by engaging in it.”).
We have also recognized, albeit in a more limited context, that a separate duty
of care may arise between adversaries in a commercial transaction. In Kindred of
North Carolina, Inc. v. Bond, 160 N.C. App. 90, 584 S.E.2d 846 (2003), the buyer sued
the seller for negligent misrepresentation in connection with the purchase of a
closely-held business. Id. at 92–95, 584 S.E.2d at 848–49. After entering into a
purchase agreement, the buyer discovered that the seller had provided inaccurate
financial information about the company. Id. at 93–95, 584 S.E.2d at 848–49. This
Court held that the seller owed a duty to the buyer during the course of negotiations
“to provide accurate, or at least negligence-free financial information” about the
company because the seller “was the only party who had or controlled the information
at issue” and the buyer “had no ability to perform any independent investigation.” Id.
at 101, 584 S.E.2d at 853 (emphasis added) (citing Libby Hill Seafood Rests., Inc. v.
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Owens, 62 N.C. App. 695, 698, 303 S.E.2d 565, 568 (1983) (“[W]here material facts
are available to the vendor alone, he or she must disclose them.”)).
Unlike the buyer in Kindred, however, here plaintiff has failed to establish a
viable tort action based on a violation of a duty of care. The dispute arose out of a
potentially adversarial arm’s-length negotiation between an employer and
prospective employee. Defendant did not have exclusive access or control over the
benefits eligibility information, which was publicly available and readily accessible.
In addition, plaintiff had an equal opportunity to perform his own investigation to
determine whether the proposed terms of employment were suitable. In the course
of their discussions, therefore, defendant had no legal duty to provide accurate
information regarding plaintiff’s continued benefits eligibility.
Even assuming that defendant owed to plaintiff a duty of care, plaintiff’s
negligent misrepresentation claim fails for another reason. Specifically, plaintiff
failed to produce evidence tending to show that he made a reasonable inquiry into
Rascoe’s representations, that he was denied the opportunity to investigate, or that
he could not have learned the true facts through reasonable diligence. While
normally a question for the jury, the only conclusion that can be drawn from the
evidence is that plaintiff’s reliance was not justifiable. See Dallaire v. Bank of Am.,
N.A., 367 N.C. 363, 369, 760 S.E.2d 263, 267 (2014) (“Whether a party’s reliance is
justified is generally a question for the jury, except in instances in which ‘the facts
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are so clear as to permit only one conclusion.’ ” (quoting Marcus Bros. Textiles, Inc.,
350 N.C. at 225, 513 S.E.2d at 327)).
Plaintiff maintains that, according to Walker v. Town of Stoneville, 211 N.C.
App. 24, 712 S.E.2d 239 (2011), he was under no obligation to undertake his own
investigation into the accuracy of defendant’s representations. In that case, the
defendant Town of Stoneville argued that Walker had a “duty to investigate” the
Town’s representations, and because Walker “failed to show he was denied the
opportunity to investigate or that he could not have learned the true facts by exercise
of reasonable diligence,” the evidence was insufficient to establish reasonable
reliance. Id. at 34, 712 S.E.2d at 246. Rejecting the Town’s contention, this Court
first explained that “ ‘a man is not expected to deal with another as if he is a knave,
and certainly not unless there is something to excite his suspicion.’ ” Id. (quoting
White Sewing Mach. Co. v. Bullock, 161 N.C. 1, 8, 76 S.E. 634, 637 (1912)). In
addition, the evidence showed that “[Walker] and the Town were not on equal
footing,” and there was nothing in the Town’s representations “that would put a
person of ordinary prudence upon inquiry.” Id. at 34, 712 S.E.2d at 246–47. Because
“the evidence was sufficient to show that [Walker] could not have learned the true
facts by exercise of reasonable diligence,” the Court did not specifically address
whether Walker “was required to show that he was denied the opportunity to
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investigate, or that he could not have learned the true facts by exercise of reasonable
diligence.” Id. at 35, 712 S.E.2d at 247.
At least two Supreme Court cases decided since Walker support defendant’s
argument that plaintiff was required to show more to establish justifiable reliance.
In Dallaire, the Court held that “a borrower cannot establish a claim for negligent
misrepresentation based on a loan officer’s statements about lien priority if the
borrower fails to make reasonable inquiry into the validity of those statements.” 367
N.C. at 364, 760 S.E.2d at 264. Because the borrowers offered no evidence that they
inquired, or were prevented from inquiring, into the accuracy the loan officer’s
statements, the Court affirmed summary judgment for the lender on the borrower’s
negligent misrepresentation claim. Id. at 369–70, 760 S.E.2d at 267–68; see also
Pinney v. State Farm Mut. Ins. Co., 146 N.C. App. 248, 256, 552 S.E.2d 186, 192 (2001)
(“[W]hen a party relying on a ‘misleading representation could have discovered the
truth upon inquiry, the complaint must allege that he was denied the opportunity to
investigate or that he could not have learned the true facts by exercise of reasonable
diligence.’ ” (citation omitted)), disc. review denied, 356 N.C. 438, 572 S.E.2d 788(2002).
Similarly, in Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C.
440, 781 S.E.2d 1 (2015), the Court relied on Dallaire to affirm the dismissal of the
plaintiffs’ negligent misrepresentation claim pursuant to Rule 12(b)(6). Id. at 451–
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52, 781 S.E.2d at 9–10. The Court explained: “Reliance is not reasonable if a plaintiff
fails to make any independent investigation or fails to demonstrate he was prevented
from doing so.” Id. at 449, 781 S.E.2d at 8 (citations omitted) (internal quotation
marks omitted). Rather, “to establish justifiable reliance a plaintiff must sufficiently
allege that he made a reasonable inquiry into the misrepresentation and allege that
he was denied the opportunity to investigate or that he could not have learned the
true facts by exercise of reasonable diligence.” Id. at 454, 781 S.E.2d at 11 (citations
omitted) (internal quotation marks omitted). Because the plaintiffs did “not allege
that they inquired, or were prevented from inquiring,” into certain appraisal
information, they failed to establish justifiable reliance. Id. at 451, 781 S.E.2d at 9
(citing Dallaire, 367 N.C. at 370, 760 S.E.2d at 268); see also Fazzari v. Infinity
Partners, LLC, 235 N.C. App. 233, 241, 762 S.E.2d 237, 242 (2014) (affirming
summary judgment for the defendant-lender where the plaintiffs failed to forecast
evidence that they conducted an independent inquiry into the value of lots in planned
subdivision or were prevented from doing so).
In this case, plaintiff failed to produce any evidence—or allege in his
complaint—that he made a reasonable inquiry into Rascoe’s representations, that he
was denied the opportunity to investigate, or that he could not have learned the true
facts through reasonable diligence. On the contrary, defendant directs our attention
to plaintiff’s deposition testimony in which plaintiff stated that he was familiar with
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LGERS and was aware that the rules governing his benefits were available in the
State Employee Retirement Handbook. Plaintiff also confirmed that his
understanding of his benefits eligibility was based purely on his review of the
handbook, and that he even consulted the handbook for other benefits information as
he prepared to retire from Nash County. And while he acknowledged his own
responsibility for maintaining his personal retirement benefits, he did not consult
with anyone else regarding his eligibility requirements before accepting the position
with defendant. In the absence of any evidence tending to show justifiable reliance,
the trial court properly granted summary judgment in favor of defendant.
III. Conclusion
Because defendant met its burden by proving the absence of a separate duty of
care and justifiable reliance, we affirm the trial court’s order granting summary
judgment for defendant on plaintiff’s negligent misrepresentation claim.
AFFIRMED.
Judges HUNTER, JR. and DILLON concur.
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