Freedman v. PayneÂ

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-969
Filed: 2 May 2017
New Hanover County, No. 14 CVS 4219
WILLIAM BARRY FREEDMAN and FREEDMAN FARMS, INC., Plaintiffs,
v.
WAYNE JAMES PAYNE and MICHAEL R. RAMOS, Defendants.
Appeal by plaintiff from order entered 25 July 2016 by Senior Resident Judge
Robert H. Hobgood in New Hanover County Superior Court. Heard in the Court of
Appeals 21 March 2017.
Randolph M. James, PC, by Randolph M. James, for plaintiff-appellant.
Cranfill Sumner & Hartzog LLP, by Melody J. Jolly and Patrick M. Mincey,
for defendant-appellee Wayne James Payne.
Dickie, McCamey & Chilcote, PC, by Joseph L. Nelson, for defendant-appellee
Michael R. Ramos.
ZACHARY, Judge.
William Barry Freedman (appellant) appeals from an order of the trial court
dismissing his claims for breach of fiduciary duty, breach of contract, constructive
fraud, and fraud brought against Wayne James Payne and Michael R. Ramos
(defendants). On appeal, appellant argues that the trial court erred by dismissing
his claims “based upon the law of the case and in pari delicto doctrines.” After careful
FREEDMAN V. PAYNE
Opinion of the Court
review of appellant’s arguments in light of the record on appeal and the applicable
law, we conclude that the trial court did not err.
I. Background
On 1 December 2014, appellant and Freedman Farms filed a complaint against
defendants “in New Hanover County Superior Court following defendants'
representation of appellant in federal district court. In the complaint, appellant
alleged professional malpractice, breach of fiduciary duty, constructive fraud, breach
of contract, and fraud. Freedman Farms alleged fraud and breach of contract by a
third-party beneficiary.” Freedman v. Payne, __ N.C. App. __, __, 784 S.E.2d 644, 646
(2016) (Freedman I). On 18 December 2014, our Supreme Court granted defendants’
motion to designate the case as exceptional and assigned the case to Senior Resident
Superior Court Judge Robert H. Hobgood.
Defendants filed separate motions to dismiss the complaint pursuant to N.C.
Gen. Stat. § 1A-1, Rule 12(b)(6) for failure to state a claim upon which relief could be
granted. On 19 March 2015, the court entered an order concluding that defendants’
motions to dismiss appellant’s claim for legal malpractice “should be allowed with
prejudice based on in pari delicto[.]” The trial court denied defendants’ motions to
dismiss the remaining claims, and certified the matter for appellate review pursuant
to N.C. Gen. Stat. § 1A-1, Rule 54(b) (2015). Plaintiff appealed the dismissal of his
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claim of legal malpractice to this Court, which affirmed the trial court’s order in
Freedman I. The factual background of this case was summarized in Freedman I:
Appellant and his parents manage Freedman Farms, a
multi-county farming operation in which they . . . operate
several hog farms. . . . [In] December 2007, Freedman
Farms discharged approximately 332,000 gallons of
liquefied hog waste . . . into Browder’s Branch, a water of
the United States. . . . [A]ppellant and Freedman Farms
were charged with intentionally violating the Clean Water
Act. Appellant retained defendants to represent him.
The trial began on 28 June 2011, and the prosecution put
on evidence for five days. In appellant’s complaint, he
alleges that prior to the resumption of trial on 6 July 2011,
defendant Ramos told appellant that the Assistant United
States Attorney (AUSA) had approached him with a plea
deal. . . . [A]ppellant states [that] defendant “Ramos asked
AUSA Williams whether the government, in exchange for
both [appellant] and Freedman Farms pleading guilty and
agreeing to pay $1,000,000 in restitution and a $500,000
fine, would reduce the charges against [appellant] to a
misdemeanor negligent violation of the Clean Water Act.”
. . . [A]ppellant claims that he asked defendant Ramos to
negotiate the fines and restitution to $500,000, to take
incarceration “completely off the table,” and to make AUSA
Williams agree that neither appellant nor Freedman
Farms would be debarred from federal farm subsidies.
Appellant further states in his complaint that when
defendant Ramos returned from negotiating, he told
appellant the following: the government was not interested
in active time, the prosecutor agreed to “stand silent” at
sentencing, appellant and Freedman Farms would avoid
debarment from federal farm subsidies, and these promises
were “part of a side-deal with [the prosecutor]–a wink-
wink, nudge-nudge–and that [appellant] must not disclose
this side-deal to the court,” as it “would cost [appellant] the
chance to assure that he would not be incarcerated.”
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Opinion of the Court
Accordingly, . . . appellant pleaded guilty to negligently
violating the Clean Water Act. On 6 July 2011, the district
court approved [the] plea agreement[]. Contrary to the
terms of the alleged side-deal, in appellant’s plea
agreement, “the government expressly reserve[d] the right
to make a sentence recommendation . . . and made no
representations as to the effects of the guilty plea on
debarment from Federal farm subsidies.”
On 13 February 2012, . . . [a]ppellant was sentenced to six
months in prison and six months of house arrest[.] . . .
Appellant obtained a new attorney[.] . . . The district court
held a resentencing hearing on 1 October 2013 in which it
vacated appellant’s previous conviction. Pursuant to a new
plea agreement, appellant again pleaded guilty to
negligently violating the Clean Water Act. The district
court imposed a sentence of “five years of probation . . . and
ten months going forward of home detention[.]” . . .
Appellant was also required to pay the remaining
restitution that Freedman Farms owed[.] . . .
Freedman I, __ N.C. App. at __, 784 S.E.2d at 646-47. Our opinion in Freedman I,
which is discussed in greater detail below, held that certain allegations in appellant’s
complaint established that appellant had participated in the wrongdoing of which he
accused defendants, and affirmed the trial court’s dismissal of appellant’s legal
malpractice claim on the basis that appellant and defendants were in pari delicto.
The Freedman I opinion was filed in April, 2016. Thereafter, defendants filed
separate motions asking the trial court to strike certain allegations of appellant’s
complaint or to enter judgment on the pleadings pursuant to N.C. Gen. Stat. § 1A-1,
Rule 12(c) (2015), and to dismiss appellant’s remaining claims for breach of contract,
breach of fiduciary duty, constructive fraud, and fraud. Following a hearing
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Opinion of the Court
conducted on 17 June 2016, the trial court entered an order on 25 July 2016 that
granted defendants’ motions for judgment on the pleadings and dismissed appellant’s
remaining claims. Appellant noted a timely appeal to this Court.
II. Standard of Review
This Court will “review de novo the grant of a motion to dismiss under Rule
12(b)(6) and for judgment on the pleadings under Rule 12(c).” CommScope Credit
Union v. Butler & Burke, __ N.C. __, __, 790 S.E.2d 657, 659 (2016) (citations omitted).
“On a motion for judgment on the pleadings, [a]ll well pleaded factual allegations in
the nonmoving party’s pleadings are taken as true and all contravening assertions in
the movant’s pleadings are taken as false.” Id. (internal quotation omitted). In ruling
on a party’s motion for judgment on the pleadings, “[t]he trial court is required to
view the facts and permissible inferences in the light most favorable to the nonmoving
party.” Ragsdale v. Kennedy, 286 N.C. 130, 137, 209 S.E.2d 494, 499 (1974) (citation
omitted). “A Rule 12(c) movant must show that the complaint . . . fails to allege facts
sufficient to state a cause of action or admits facts which constitute a complete legal
bar to a cause of action.” CommScope, __ N.C. at __, 790 S.E.2d at 659 (internal
quotation omitted).
III. Discussion
The trial court dismissed appellant’s claims against defendants on the grounds
that appellant was in pari delicto with defendants and that the law of the case, as
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Opinion of the Court
established by this Court’s opinion in Freedman I, required dismissal of appellant’s
claims. On appeal, appellant argues that the trial court erred by ruling that the
doctrine of in pari delicto was applicable to his claims for breach of contract, breach
of fiduciary duty, constructive fraud, and fraud. Appellant also contends that the
holding of Freedman I does not constitute the law of the case with regard to these
claims. We have considered, but ultimately reject, these arguments.
A. Doctrine of In Pari Delicto
The courts of this State “have long recognized the in pari delicto doctrine,
which prevents the courts from redistributing losses among wrongdoers.” Whiteheart
v. Waller, 199 N.C. App. 281, 285, 681 S.E.2d 419, 422 (2009), disc. review denied,
363 N.C. 813, 693 S.E.2d 353 (2010). As explained in Freedman I:
The common law defense by which the defendants seek to
shield themselves from liability in the present case arises
from the maxim in pari delicto potior est conditio
possidentis [defendentis] meaning in a case of equal or
mutual fault . . . the condition of the party in possession [or
defending] is the better one. The doctrine, well recognized
in this State, prevents the courts from redistributing losses
among wrongdoers. The law generally forbids redress to
one for an injury done him by another, if he himself first be
in the wrong about the same matter whereof he complains.
No one is permitted to profit by his own fraud, or to take
advantage of his own wrong, or to found a claim on his own
iniquity, or to acquire any rights by his own crime.
Freedman I, __ N.C. App. at __, 784 S.E.2d at 648 (internal quotations omitted).
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Opinion of the Court
Freedman I upheld the trial court’s dismissal of appellant’s claim for legal
malpractice based upon the doctrine of in pari delicto. Appellant’s complaint alleged
that defendants approached appellant about a plea agreement under the terms of
which appellant would pay a substantial fine and would plead guilty to a
misdemeanor offense, avoid imprisonment, and preserve access to certain federal
programs. Appellant also alleged that defendants informed him that this was a secret
“side deal” that could not be revealed to the federal judge presiding over the trial,
that appellant agreed to conceal the alleged “side deal” from the judge, and that
appellant lied under oath about the basis for his agreement to plead guilty. Freedman
I held that certain allegations in appellant’s complaint, which the Court accepted as
true for purposes of a N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) motion, established
appellant’s wrongdoing and, based upon the doctrine of in pari delicto, barred
appellant from seeking recovery for legal malpractice.
B. Law of the Case
The “law of the case” doctrine is well-established in the jurisprudence of our
State. “[C]ertain points have been decided by the prior [decision] of this Court and
are thus the ‘law of the case.’ ” In re IBM Credit Corp., 222 N.C. App. 418, 421-22,
731 S.E.2d 444, 446 (2012). The Supreme Court of North Carolina has described the
law of the case doctrine as follows:
[A]s a general rule when an appellate court passes on a
question and remands the cause for further proceedings,
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Opinion of the Court
the questions there settled become the law of the case, both
in subsequent proceedings in the trial court and on
subsequent appeal, provided the same facts and the same
questions which were determined in the previous appeal
are involved in the second appeal.
However, the doctrine of the law of the case contemplates
only such points as are actually presented and necessarily
involved in determining the case. The doctrine does not
apply to what is said by the reviewing court, or by the
writing justice, on points arising outside of the case and not
embodied in the determination made by the Court. Such
expressions are obiter dicta and ordinarily do not become
precedents in the sense of settling the law of the case.
Hayes v. Wilmington, 243 N.C. 525, 536, 91 S.E.2d 673, 681-82 (1956). This Court
may not revisit issues that have become the law of a case:
[O]nce a panel of the Court of Appeals has decided a
question in a given case that decision becomes the law of
the case and governs other panels which may thereafter
consider the case. . . . [A] succeeding panel of that court has
no power to review the decision of another panel on the
same question in the same case.
N.C.N.B. v. Virginia Carolina Builders, 307 N.C. 563, 567, 299 S.E.2d 629, 631-32
(1983). However, “the law of the case applies only to issues that were decided in the
former proceeding, whether explicitly or by necessary implication[.]” Goldston v.
State, 199 N.C. App. 618, 624, 683 S.E.2d 237, 242 (2009).
C. Discussion
We next apply the principles discussed above to the facts of this case. In
Freedman I, appellant appealed from the trial court’s dismissal of his claim for legal
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Opinion of the Court
malpractice on the basis of the doctrine of in pari delicto. On appeal, appellant argued
that the trial court erred “because . . . appellant’s complaint does not establish as a
matter of law his intentional wrongdoing.” Freedman I, __ N.C. App. at __, 784 S.E.2d
at 647. This Court disagreed and held as follows:
Here, treating the allegations in appellant’s complaint as
true as we must at this stage, defendants are at fault for
striking a “side-deal” with the prosecutor regarding prison
time and federal farm subsidies, and for instructing
appellant that he must not disclose the side-deal to the
court. Appellant is at fault for lying under oath in federal
court by affirming that he was not pleading guilty based on
promises not contained in the plea agreement. . . . Although
appellant claims that his complaint does not establish his
intentional wrongdoing, we agree with defendants that
appellant’s complaint shows otherwise. Appellant’s
complaint reveals the following [allegations]:
34. Ramos returned and told [appellant] that AUSA
Williams said the government was not interested in
active time and that AUSA Williams had agreed to
“stand silent” at sentencing and would not argue for
an active sentence.
...
36. Ramos also told [appellant] that . . . AUSA
Williams told him that the government did not want
to pursue debarment [from federal farm subsidies].
...
38. Ramos then warned [appellant] that these
promises from AUSA Williams were part of a side-
deal with Williams–a wink-wink, nudge-nudge–and
that [appellant] must not disclose this side-deal to
the court, because this would upset Judge Flanagan
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and would cost [appellant] the chance to assure that
he would not be incarcerated.
...
41. . . . [F]aced with the opportunity to avoid
incarceration and debarment, . . . [appellant] agreed
to plead guilty, on the terms as described by Ramos.
...
43. Ramos and Payne lied to [appellant] and Ms.
Pearl about having an undisclosable side-deal, as a
result of which [appellant] pled guilty, Ms. Pearl
pled guilty on behalf of Freedman Farm[s], and both
[appellant] and Freedman Farms became liable for
$1,500,000 in fines and restitution.
44. The actual and only plea deal with AUSA
Williams was precisely what appeared in the Plea
Agreement itself that the government expressly
reserve[d] the right to make a sentence
recommendation and made no representations as to
the effects of the guilty plea on debarment from
Federal farm subsidies. . . .
...
Appellant lied under oath in order to benefit from an
alleged side-deal in which he thought he could pay
$1,500,000 to avoid going to prison. When the deal
unraveled and appellant was bound by the express terms
of his plea agreement, appellant attempted to redistribute
the loss, which the courts of this State will not do. . . .
Because appellant is in the wrong about the same matter
he complains of, the law forbids redress. . . . Although the
underlying criminal prosecution of appellant may have
been complex, appellant was able to ascertain the illegality
of his actions during the sentencing hearing. . . . “The
allegations of the complaint are discreditable to both
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Opinion of the Court
parties. They blacken the character of the plaintiff as well
as soil the reputation of the defendant. As between them,
the law refuses to lend a helping hand. The policy of the
civil courts is not to paddle in muddy water, but to remit
the parties, when in pari delicto, to their own folly. So, in
the instant case, the plaintiff must fail in his suit.”
Id. at __, 784 S.E.2d at 648-49 (quoting Bean v. Detective Co., 206 N.C. 125, 126, 173
S.E. 5, 6 (1934)). Thus, Freedman I held as a matter of law that certain allegations
in appellant’s complaint established that he was in pari delicto with defendants. This
holding became the law of the case, which we are without authority to revisit. As a
result, it is definitively established that those allegations of appellant’s complaint
that were discussed in Freedman I show appellant to be in pari delicto with
defendants.
Appellant argues that the holding of Freedman I applies only to the dismissal
of his claim for legal malpractice and does not constitute the law of the case in his
appeal from the dismissal of his other claims. It is true that this Court in Freedman
I did not discuss appellant’s claims for breach of contract, breach of fiduciary duty,
constructive fraud, or fraud, as those claims were not before this Court. However,
Freedman I held that appellant was barred from recovering damages for legal
malpractice because specific allegations in appellant’s complaint showed him to be in
pari delicto with defendants. The holding of Freedman I did not depend upon analysis
of appellant’s allegations regarding legal malpractice. Instead, Freedman I held,
without discussion of whether appellant had stated a valid claim against defendants
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Opinion of the Court
for legal malpractice, that appellant was barred from recovery because, as a matter
of law, specific allegations in appellant’s complaint established his wrongdoing and
therefore implicated the doctrine of in pari delicto. The same allegations that were
at issue in Freedman I are also incorporated into each of appellant’s other claims.
Under Freedman I, these allegations establish both appellant’s wrongdoing and also
the legal holding that appellant is in pari delicto with defendants. This conclusion,
which we may not revisit, is independent of the specific allegations regarding the
remaining claims.
Appellant also argues that the allegations of his complaint do not support the
application of the doctrine of in pari delicto to the claims whose dismissal he has
appealed. Appellant directs our attention to the fact that these claims are supported
by factual allegations that are specific to each claim. In addition, appellant contends
that his culpability was less than that of defendants, making application of the
doctrine of in pari delicto improper. Appellant fails to acknowledge, however, that
Freedman I held that appellant was in pari delicto with defendants based upon
specific allegations which are part of each of the claims that were dismissed. We
conclude that the trial court did not err by ruling that the holding of Freedman I,
which became the law of the case, required dismissal of appellant’s remaining claims.
V. Conclusion
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Opinion of the Court
For the reasons discussed above, we conclude that the trial court did not err by
granting defendants’ motions for judgment on the pleadings or by dismissing
appellant’s claims and that its order should be
AFFIRMED.
Judges BRYANT and INMAN concur.
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