Sheng Yu Ke v. Heng-Qian Zhou

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-1297
Filed: 21 November 2017
Guilford County, No. 15 CVS 3736
SHENG YU KE a/k/a STEVEN KE and DUAN Z. ZHANG a/k/a SHIRLEY KE,
Plaintiffs,
v.
HENG-QIAN ZHOU a/k/a RAY ZHOU, and SEVEN SEAS, CONTRACTORS, INC.,
Defendants.
Appeal by Defendants from judgment entered 6 June 2016 and appeal by
Plaintiffs from order entered 6 June 2016 by Judge Richard S. Gottlieb in Guilford
County Superior Court. Heard in the Court of Appeals 10 August 2017.
Sigmon Klein, PLLC, by Grant Sigmon, for the Plaintiffs-Appellees/Cross-
Appellants.
Bennett & Guthrie, P.L.L.C., by Joshua H. Bennett, for the Defendants-
Appellants/Cross-Appellees.
DILLON, Judge.
This dispute arose from a contractual relationship between Plaintiffs and
Defendants. Plaintiffs are the owners of a restaurant in Winston-Salem. Defendant
Zhou is the owner and operator of Defendant Seven Seas Contractors, Inc. (“Seven
Seas”). All parties have appealed from separate orders of the trial court. Defendants
appeal from judgment entered upon a jury verdict finding that Plaintiffs were entitled
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Opinion of the Court
to damages for fraudulent acts committed by Defendants. Plaintiffs appeal from the
trial court’s order denying Plaintiffs’ request for attorney’s fees.
I. Background
The evidence presented at trial tended to show as follows:
In 2014, Plaintiffs entered into an agreement with Defendants to convert
property owned by Plaintiffs into a restaurant. Defendant Zhou held himself and his
company out to be a licensed general contractor, despite the fact that Defendants held
no such license. Rather, Defendant Zhou intended to obtain the necessary permits
under the name of an acquaintance who purportedly was licensed.
At some point during the project’s progress, the City became aware that
Defendant Zhou was performing the project work without supervision of a licensed
contractor. At a meeting with the City, Defendant Zhou indicated that he would have
no problem finding another contractor under whom he could complete the project.
Plaintiffs, however, decided to terminate the contract.
In February 2015, Plaintiffs filed a complaint against Defendants, alleging
that Defendants had failed to perform the work pursuant to the contract, despite
Plaintiffs’ payment of $60,000; that Defendant Zhou was not, in fact, a licensed
general contractor, despite his representation that he was; and that Defendants did
not obtain the proper permits to start and complete the project.
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In April 2015, after the time to answer had expired, but before any default had
been entered, Defendant Zhou filed and served a document pro se which responded
to Plaintiffs’ allegations. Shortly thereafter, Plaintiffs sought an entry of default
against both Defendants. The clerk of court, however, entered default only against
Defendant Seven Seas. The trial court later denied Defendant Seven Seas’ motion to
set aside the entry of default.
After a jury trial, the trial court entered judgment in favor of Plaintiffs, finding
both Defendants liable for fraud, unfair and deceptive trade practices, and punitive
damages. The jury awarded Plaintiffs $76,000 in compensatory damages and $5,000
in punitive damages. The trial court determined that, as a matter of law, Defendants’
misrepresentations violated the provisions of Chapter 75 of our General Statutes, and
therefore that Plaintiffs were entitled to a trebling of the compensatory damages. See
N.C. Gen. Stat. § 75-1.1 (2015). Accordingly, the trial court entered a treble damage
award of $201,0001 in favor of Plaintiffs. Defendants appealed.
After trial, Plaintiffs filed a motion for costs and a motion for attorney’s fees.
The trial court allowed the motion for costs but denied the motion for attorney’s fees.
Plaintiffs appealed.
II. Analysis
1 The trial court arrived at the $201,000 figure as follows: The trial court reduced the $76,000
compensatory damage award by $9,000, an amount Plaintiffs already received from two other
defendants who settled prior to trial. The trial court then trebled the difference ($67,000) to arrive at
the final amount.
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A. Defendants’ Appeal
1. Motion for Directed Verdict
At the close of Plaintiffs’ evidence, Defendants moved for directed verdict on
Plaintiffs’ fraud claim, arguing that Plaintiffs’ reliance upon Defendant Zhou’s
representation that he was a general contractor was unreasonable. The trial court
denied the motion. On appeal, Defendants contend that this was error. We disagree.
“The standard of review of directed verdict is whether the evidence, taken in
the light most favorable to the non-moving party, is sufficient as a matter of law to
be submitted to the jury.” Davis v. Dennis Lilly Co., 330 N.C. 314, 322, 411 S.E.2d
133, 138 (1991). In addition, where the question of granting a directed verdict is a
close one, our Supreme Court has instructed that “the better practice is for the trial
court to reserve its decision on the motion and allow the case to be submitted to the
jury.” Turner v. Duke Univ., 325 N.C. 152, 158, 381 S.E.2d 706, 710 (1989).
In order to establish a claim for fraud in North Carolina, a plaintiff must show,
in part, that his reliance on the allegedly false representation made by the defendant
was reasonable. See Forbis v. Neal, 361 N.C. 519, 526–27, 649 S.E.2d 382, 387 (2007).
Here, for the following reasons, we conclude that the trial court properly denied
Defendants’ motion for directed verdict, allowing the jury to decide the issue of
whether Plaintiffs’ reliance was reasonable. See id. at 527, 649 S.E.2d at 387 (stating
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“[t]he reasonableness of a party’s reliance is a question for the jury, unless the facts
are so clear that they support only one conclusion”).
Defendants argue that Plaintiffs’ reliance on Defendant Zhou’s representation
that he held a general contractor’s license was not reasonable in light of the fact that
Defendant Zhou displayed an electrician’s license during a conversation involving his
certifications. However, there was also evidence presented that Defendant Zhou told
Plaintiff Ke that “he had all the legal paper,” that he “had [a] general contractor’s
license,” and that Defendant Zhou showed Plaintiff Ke papers with the State seal and
his company name on them and told Plaintiff Ke that the papers were his general
contractor’s license. Although the license Defendant Zhou actually displayed was an
electrician’s license, we conclude that the above evidence, taken as true and
considered in the light most favorable to Plaintiffs, was sufficient to withstand
Defendants’ motion for directed verdict. The issue of whether Plaintiffs were
reasonable in relying upon Defendant Zhou’s statement that he was a licensed
general contractor, despite the fact that he simultaneously displayed an electrician’s
license, is one for the jury to resolve. See id; see also Johnson v. Owens, 263 N.C. 754,
758, 140 S.E.2d 311, 314 (1965) (noting that pinpointing “[j]ust where reliance ceases
to be reasonable and becomes [] negligence and inattention [such] that it will, as a
matter of law, bar recovery for fraud is frequently very difficult to determine”).
2. Motion to Set Aside Entry of Default
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Defendant Seven Seas challenges the trial court’s denial of its motion to set
aside entry of default.
Defendants were both personally served with Plaintiff’s complaint on 11 March
2015. Defendants were required to serve their answers “within 30 days after service
of the summons and complaint[.]” N.C. Gen. Stat. § 1A-1, Rule 12(a)(1) (2015).
However, two months later, the only response filed with the court was an answer
prepared and signed by “Ray Chow.”2
On 18 May 2015, Plaintiffs moved for entry of default against both Defendants.
A week later, the clerk of superior court entered default against Defendant Seven
Seas due to its “fail[ure] to plead or otherwise respond to [Plaintiffs’] Complaint
within the time allowed under the North Carolina Rules of Civil Procedure.”
Seven months later, in January 2016, at a hearing on Defendant Seven Seas’
motion to set aside entry of default, the trial court determined that Defendant Seven
Seas had failed to show good cause, and denied the motion.
On appeal, Defendant Seven Seas contends that Defendant Zhou intended his
answer to be on behalf of both himself and his company. Indeed, the heading of the
answer reads: “Ray Zhou” on one line and “Seven Seas Contractors, Inc.” on the next
line, followed by an address. Defendants argue that Defendant Zhou, as the owner
of Seven Seas Contractors, Inc., had the right to make an appearance in court on
2 It appears from the record that Defendant Zhou signed his name as “Ray Chow” on his answer
to Plaintiffs’ complaint.
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Defendant Seven Seas’ behalf for the limited purpose of avoiding default. In support
of this position, Defendants cite Lexis-Nexis, Div. of Reed Elsevier, Inc. v. Travishan
Corp., 155 N.C. App. 205, 208, 573 S.E.2d 547, 549 (2002), which states:
The prevailing rule is that a corporation cannot appear and
represent itself either in proper person or by its officers,
but can do so only by an attorney admitted to practice law.
. . . [However,] the North Carolina Court of Appeals [has]
recognized that a corporation may make an appearance in
court through its vice-president and thereby avoid default.
Id. (citing Roland v. W&L Motor Lines, Inc., 32 N.C. App. 288, 231 S.E.2d 685 (1977)).
Defendants contend that this quotation from Lexis-Nexis compels the conclusion that
the answer was properly filed on behalf of Defendant Seven Seas.
We conclude that Defendants misconstrue Lexis-Nexis. The precise holding in
Lexis-Nexis was that a corporate officer may not represent the corporation in a
lawsuit, except in small claims court. Id. at 209, 573 S.E.2d at 549. The above
quotation was mere dicta and did not stand for the proposition that a corporate officer
could file an answer in a lawsuit pending in superior court in order to avoid default.
Rather, in Roland on which Lexis-Nexis relies, we merely held that an officer could
make an appearance for a corporation in order to require that any default judgment
be entered by a judge and not by the clerk of court. See Roland, 32 N.C. App. at 291,
231 S.E.2d at 688 (holding that “when a party, or his representative, has appeared in
an action and later defaults, then [N.C. Gen. Stat. §] 1A-1, Rule 55(b) requires that
the judge, rather than the clerk, enter the judgment by default after the required
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notice has been given”).
There is a clear distinction between making an appearance for a corporation
and filing an answer for a corporation, as detailed in the case of Bodie Island Beach
Club Ass'n, Inc. v. Wray, 215 N.C. App. 283, 289 716 S.E.2d 67 (2011). In Bodie
Island, we articulated the exceptions to the general rule that “a corporation must be
represented by a duly admitted and licensed attorney-at-law” and cannot proceed pro
se:
The exceptions noted by our court in Lexis-Nexis were as
follows: [1] a corporate employee, who was not an attorney,
could prepare legal documents[;] [2] a corporation need not
be represented by an attorney in the Small Claims
Division[;] and [3] a corporation may make an appearance
in court through its vice-president and thereby avoid
default.
Bodie Island at 289–90, 716 S.E.2d at 74 (internal marks omitted) (citing Lexis-Nexis,
155 N.C. App. at 208, 573 S.E.2d at 549). We then concluded that an attempt by a
doctor to file an answer on behalf of his corporate medical practice did not “fit within
the exceptions noted by our Court in Lexis-Nexis” because the doctor “was not a
licensed attorney.” Id. at 290, 716 S.E.2d at 74.
Therefore, here, even if Defendant Zhou in fact intended to file his answer on
behalf of both himself and his corporation, the answer was not a valid response for
his corporation because he was not a licensed attorney. Accordingly, it was
appropriate for the clerk to enter default pursuant to Rule 55(b) (2015).
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We now turn to Defendants’ argument that the trial court improperly denied
Defendant Seven Seas’ motion to set aside entry of default. In evaluating Defendants’
argument, we note that on appeal, “[t]he determination of whether an adequate basis
exists for setting aside [an] entry of default rests in the sound discretion of the trial
judge[,]” Byrd v. Mortenson, 308 N.C. 536, 539, 302 S.E.2d 809, 812 (1983), and “the
order of the trial court ruling on such a motion will not be disturbed on appeal absent
a showing of abuse of that discretion.” Coulbourn Lumber Co. v. Grizzard, 51 N.C.
App. 561, 563, 277 S.E.2d 95, 96 (1981). Further, we note that an entry of default
may be set aside for “good cause shown.” N.C. Gen. Stat. § 1A-1, Rule 55(d).
Here, Defendant Seven Seas did not file its motion to set aside entry of default
until approximately seven months after the default was entered by the clerk. In First
Citizens Bank & Tr. Co. v. Cannon, 138 N.C. App. 153, 530 S.E.2d 581 (2000), our
Court found no abuse of discretion in the trial court’s refusal to set aside an entry of
default where the defendant filed her motion to set aside almost six months after the
entry of default. First Citizens, 138 N.C. App. at 158, 530 S.E.2d at 584. In light of
the time elapsed before the motion was filed to set aside the entry of default, we are
unable to conclude that the trial court abused its discretion in denying Defendant
Seven Seas’ motion. See Automotive Distributors, 87 N.C. App. at 608, 361 S.E.2d at
896-97 (requiring this Court to consider whether the defendant was “diligent in
pursuit of [the] matter”).
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B. Plaintiffs’ Appeal
Plaintiffs have appealed the trial court’s denial of their motion for attorney’s
fees. Because the decision as to whether to award attorney’s fees is discretionary,
and because we do not believe the trial court abused its discretion in this case, we
hereby affirm the trial court’s order denying Plaintiffs’ motion for attorney’s fees.
Section 75-16.1 of our General Statutes provides that a presiding judge may
award attorney’s fees against an opposing party found to have willfully violated N.C.
Gen. Stat. § 75-1.1 and who has engaged in “an unwarranted refusal by such party to
fully resolve the matter which constitutes the basis of such suit[.]” N.C. Gen. Stat. §
75-16.1 (2015). And as stated in the statute, “[w]hether to award or deny attorneys’
fees is within the sound discretion of the trial judge.” Custom Molders, Inc. v.
American Yard Products, Inc., 342 N.C. 133, 141-42, 463 S.E.2d 199, 204 (1995). So
even where the trial court finds that the elements of N.C. Gen. Stat. § 75-16.1 have
been met, the trial court retains the discretion to refuse to award attorney’s fees.
Willen v. Hewson, 174 N.C. App. 714, 722, 622 S.E.2d 187, 192 (2005).
Here, while the trial court did find that Defendants’ actions constituted unfair
and deceptive trade practices, it also found that Defendants did not engage in an
unwarranted refusal to fully resolve the matter. On appeal, Plaintiffs do not
challenge this finding as unsupported by the evidence; rather, Plaintiffs note that the
trial court should consider settlement offers by opposing parties in exercising its
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discretion to award or deny attorney’s fees, citing Washington v. Horton, 132 N.C.
App. 347, 350-51, 513 S.E.2d 331, 334 (1999). We have reviewed the findings and the
evidence, and we conclude that the trial court did not abuse its discretion in refusing
to order attorney’s fees. See Custom Molders, 342 N.C. at 141-42, 463 S.E.2d at 204;
Willen, 174 N.C. App. at 722, 622 S.E.2d at 192 (2005).
NO ERROR.
Judges ZACHARY and BERGER concur.
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