Diorio Forest Prods.

IN THE COURT OF APPEALS OF NORTH CAROLINA
Nos. COA15-1209, COA15-1210
Filed: 19 July 2016
Wake County, Nos. 14 CVS 6788
JOHN NEWTON, HARRY SCHATMEYER, CHERYL SCHATMEYER,
JUANVELASQUEZ, ROBERT THOMPSON, KRISTI THOMPSON, DALE F.
CAMARA, A.J. RICE, VIOLANE RICE, RANDALL SLAYTON, MARIE PALADINO,
MARCAR ENTERPRISES, INC., MAYNARD SIKES, NANCY SIKES, BILLY
BACON, BEVERLY BACON, SABINA HOULE, KENNETH COURNOYER,
LAWANNA COURNOYER, GARY GROSS, ELKE GROSS, JACK DONNELLY, and
JOSEPH KINTZ, on behalf of themselves and all persons similarly situated,
Plaintiffs,
RICHARD B. SPOOR, Plaintiff,
v.
JOHN BARTH, JR., and JOHN BARTH, (SR.), Defendants.
Wake County, No. 14 CVS 10215
DIORIO FOREST PRODUCTS, INC., 919 MARKETING COMPANY, INC., and
JAMES B. ENTERPRISES, INC., formerly EPPERSON LUMBER SALES, INC., on
behalf of themselves and all entities similarly situated, Plaintiffs,
and RICHARD B. SPOOR, Plaintiff,
v.
JOHN BARTH, JR., and JOHN BARTH (SR.), Defendants.
Appeals by Plaintiffs John Newton, et al., from Order and Judgment entered 8
June 2015 and Plaintiffs Diorio Forest Products, Inc., et al., from Order and
Judgment entered 18 June 2015 by Judge Robert T. Sumner in Wake County
Superior Court. Heard in the Court of Appeals 9 June 2016.
NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
Barry Nakell, and Smith Moore Leatherwood LLP, by Matthew Nis Leerberg,
for Plaintiffs.
Manning Fulton & Skinner, P.A., by Judson A. Welborn and J. Whitfield
Gibson, for Defendant John M. Barth, Jr.
Wilson & Ratledge, PLLC, by Reginald B. Gillespie, Jr., and N. Hunter Wyche,
Jr., and Foley & Lardner LLP, by Michael J. Small and David B. Goroff, for
Defendant John M. Barth.
STEPHENS, Judge.
Plaintiffs John Newton, et al., and Diorio Forest Products, Inc., et al., appeal
from the trial court’s Orders and Judgments dismissing their claims against
Defendants John M. Barth, Jr. (“Junior”), and John M. Barth (“Senior”), based on
lack of subject matter jurisdiction and failure to state a claim upon which relief could
be granted. Plaintiffs argue that the trial court erred in determining they lacked
standing to assert their claims and that their claims were barred by the applicable
statutes of limitations. We agree, and we consequently reverse the trial court’s Orders
and Judgments.
Factual Background and Procedural History
This case arises from two separate class action lawsuits filed in Wake County
Superior Court alleging claims for fraud, unfair and deceptive trade practices
(“UDTP”), civil conspiracy, and punitive damages against Junior and Senior by the
customers, vendors, and suppliers of AmerLink, Ltd., a North Carolina corporation
that engaged in the business of selling materials and contracts for the construction
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of log homes. The Newton Plaintiffs were customers of AmerLink, and the Diorio
Plaintiffs were vendors and suppliers of AmerLink. Junior was AmerLink’s president
and CEO from 2006 to 2008. Senior is Junior’s father, and although he never held
any formal position with AmerLink, the Newton and Diorio Plaintiffs allege that
beginning in 2007 and continuing until October 2009, Junior and Senior engaged in
a fraudulent scheme to acquire control of AmerLink at a depreciated price by
falsifying financial statements and other documents, secretly infusing over $2 million
into AmerLink to prop up the corporation and conceal the falsified financial
statements, and misrepresenting AmerLink’s distressed financial condition.
The facts underlying the allegations of the Newton and Diorio Plaintiffs’
complaints were previously discussed at length in this Court’s opinion in a related
action brought against Junior and Senior by AmerLink’s founder, chairman, and
former majority shareholder, Richard B. Spoor. See Spoor v. Barth, __ N.C. App. __,
781 S.E.2d 627, disc. review and cert. denied, __ N.C. __, __ S.E.2d __ (2016). As
detailed therein, after becoming president and CEO of AmerLink in September 2006,
Junior sought to purchase Spoor’s controlling interest in the company using funds
from Senior, who inspected AmerLink’s facilities, inquired into the company’s
financial situation with its principal lender, and drafted terms for a potential
purchase agreement in 2007. Id. at __, 781 S.E.2d at 629. No agreement was reached
at that time, but Junior and Spoor eventually agreed to form a new corporation which
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would serve as a vehicle for Junior to purchase Spoor’s majority interest in AmerLink
using $8 million in funds from Senior in exchange for shares Spoor deposited into the
new corporation. Id. at __, 781 S.E.2d at 629-30. Spoor alleged that by January 2008,
“Junior became aware that based on his mismanagement, AmerLink was facing
financial difficulty,” and he thereafter took steps to conceal this from Spoor and others
by falsifying sales and delivery reports. Id. at __, 781 S.E.2d at 629. In June 2008,
“Junior became aware that AmerLink was insolvent and was unable to purchase
materials to fulfill its contracts,” but he nevertheless continued to falsify financial
and delivery reports, “directed AmerLink staff to encourage customers to enter into
sales agreements with AmerLink, to send deposits and additional funds to AmerLink,
and to schedule deliveries,” and infused funds in excess of $2 million to prop up the
company, with half of those funds coming from Senior. Id. In October 2008, after
Spoor discovered Junior had been falsifying reports to conceal AmerLink’s rapidly
deteriorating financial situation, Junior was removed from his position as CEO but
remained president, promised Senior would loan the corporation up to $3 million, and
directed staff to continue to tell customers that new investment funds were on the
way. Id. at __, 781 S.E.2d at 630. However, Senior provided only $300,000 in funding,
and on 15 December 2008, Spoor shut down AmerLink after learning its financial
situation was even worse than Junior had represented in October. Id. at __, 781
S.E.2d at 631.
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On 12 February 2009, AmerLink filed for Chapter 11 bankruptcy. Id. In the
months that followed, Junior continued to represent that additional investments of
up to $8 million would be forthcoming from Senior, and at one point forged a bank
statement to reflect that such loans had been deposited. Id. However, in August 2009,
Senior informed AmerLink’s bankruptcy attorney that he had no intention of
providing any further financing for the company. Id. Thereafter, AmerLink’s Chapter
11 bankruptcy proceeding was converted to a Chapter 7 bankruptcy proceeding, and,
on 13 May 2010, Junior pleaded guilty to felony bankruptcy fraud. Id. at __, 781
S.E.2d at 631-32. On 23 April 2011, AmerLink’s bankruptcy trustee filed an
adversary proceeding against Junior, Senior, Spoor, and other AmerLink directors
alleging claims for, inter alia, fraudulent conveyances, preferential transfers, breach
of fiduciary duties, constructive trust, unjust enrichment, and civil conspiracy. Id. at
__, 781 S.E.2d at 636. These charges were based on the trustee’s allegations that
Junior, Spoor, and other AmerLink directors
engaged in the creation of new companies and transfer of
assets to companies in an effort to sell a substantial portion
of [Spoor’s] ownership interest in AmerLink. The trustee
also alleged that an employee stock option plan was
adopted at the urging of [Spoor] and Junior effective 1
October 2005 and that [Spoor], Junior, and AmerLink’s
directors’ actions were solely for the purpose of creating a
means for [Spoor] to extract as much cash as possible from
the business and for Junior to be in a position to take
control of the company. This adversary proceeding was
settled on 6 September 2011. The trustee dismissed with
prejudice all claims and causes of action against Senior,
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Junior, and [Spoor] and released them from claims by the
trustee or bankruptcy estate.
Id. Although the bankruptcy settlement included a waiver by Spoor releasing all
claims against AmerLink’s bankruptcy estate, on 5 October 2011, Spoor filed a
complaint alleging claims against Junior in his individual capacity for, inter alia,
breach of contract, breach of contract as third party beneficiary, breach of fiduciary
duty, fraud, punitive damages, UDTP, and civil conspiracy. Id. at __, 781 S.E.2d at
632. On 14 February 2012, Spoor filed his first amended complaint adding Senior as
a defendant. Id.
That same day, the Newton Plaintiffs filed a complaint in Wake County
Superior Court alleging their claims for fraud, UDTP, civil conspiracy, and punitive
damages against Junior and Senior in their individual capacities. The Newton
Plaintiffs voluntarily dismissed their complaint without prejudice on 23 May 2013,
refiled their complaint on 22 May 2014, and filed an amended complaint on 9 June
2014. The Diorio Plaintiffs filed a substantially similar complaint on 30 July 2014. In
their complaints, the Newton and Diorio Plaintiffs alleged that by infusing funds into
AmerLink, falsifying corporate financial statements, and directing AmerLink staff to
assure customers, vendors, and suppliers that AmerLink would either comply with
its contracts or receive funds that would allow it to comply with those contracts,
Junior and Senior intentionally misrepresented and concealed AmerLink’s financial
distress in order to deceive and induce the Newton and Diorio Plaintiffs into entering
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into contracts with and providing funds, materials, and services to AmerLink, thus
leaving them unable to protect themselves from the company’s financial problems.
The Newton and Diorio Plaintiffs also alleged that they could not have discovered the
facts constituting Junior’s and Senior’s alleged fraud and UDTP through the exercise
of reasonable diligence before 1 January 2012, given that much of the information
supporting those facts was not produced until after Spoor filed his lawsuit against
Junior and Senior.1
On 11 July and 19 August 2014, our Supreme Court’s Chief Justice entered
separate orders designating these cases as exceptional pursuant to Rule 2.1 of the
General Rules of Practice for the Superior and District Courts. Junior and Senior
subsequently filed motions to dismiss both complaints pursuant to Rules 12(b)(1) and
12(b)(6) of our State’s Rules of Civil Procedure. Specifically, Junior and Senior
contended that: (1) the Newton and Diorio Plaintiffs lacked standing to sue, thereby
depriving the trial court of subject matter jurisdiction, because the claims they
alleged in their complaints were wholly derivative of claims that properly belonged
to the corporation and were already asserted, litigated, and settled by the adversary
proceeding that had been brought by AmerLink’s bankruptcy trustee; and (2) the
claims were barred by the applicable statutes of limitations, failed to comply with the
1Although Spoor was included as a plaintiff in the initial complaints filed by both the Newton and
Diorio Plaintiffs, the Newton and Diorio Plaintiffs voluntarily dismissed Spoor without prejudice from
both actions on 15 October 2014.
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heightened pleading requirements for alleging fraud as required by N.C.R. Civ. P.
9(b), and otherwise failed to state any basis upon which relief could be granted.
After a hearing held in Wake County Superior Court on 2 March 2015, the
Honorable Robert T. Sumner, Judge presiding, the trial court concluded that the
Newton and Diorio Plaintiffs lacked standing and that their claims were barred by
the applicable statutes of limitations, and consequently dismissed their claims with
prejudice by written orders entered 8 and 18 June 2015. The Newton and Diorio
Plaintiffs filed timely notice of appeal to this Court.
Analysis
A. Standing
The Newton and Diorio Plaintiffs argue first that the trial court erred in
dismissing their claims against Junior and Senior based on its conclusion that they
lacked standing to sue. Specifically, the Newton and Diorio Plaintiffs contend that
the adversary proceeding filed by the AmerLink bankruptcy trustee does not preclude
their claims for fraud, UDTP, civil conspiracy, and punitive damages against Junior
and Senior in their individual capacities because these claims were never asserted
during the adversary proceeding and because these claims belong to the Newton and
Diorio Plaintiffs, rather than the AmerLink bankruptcy estate. We agree.
“In order for a court to have subject matter jurisdiction to hear a claim, the
party bringing the claim must have standing.” Revolutionary Concepts, Inc. v.
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Opinion of the Court
Clements Walker PLLC, 227 N.C. App. 102, 106, 744 S.E.2d 130, 133 (2013) (citation
omitted). “[S]tanding to sue means simply that the party has a sufficient stake in an
otherwise justiciable controversy to obtain judicial resolution of that controversy.”
Mitchell, Brewer, Richardson, Adams, Burge & Boughman, PLLC v. Brewer, 209 N.C.
App. 369, 379, 705 S.E.2d 757, 765 (citation and internal quotation marks omitted),
disc. review denied, 365 N.C. 188, 707 S.E.2d 243 (2011). “[T]his Court’s review of an
order granting a Rule 12(b)(1) motion to dismiss is de novo.” Munger v. State, 202
N.C. App. 404, 410, 689 S.E.2d 230, 235 (2010), disc. review improvidently allowed,
365 N.C. 3, 705 S.E.2d 734 (2011).
“When a corporation enters bankruptcy, any legal claims that could be
maintained by the corporation against other parties become part of the bankruptcy
estate, and claims that are part of the bankruptcy estate may only be brought by the
trustee in the bankruptcy proceeding.” Keener Lumber Co. v. Perry, 149 N.C. App. 19,
25, 560 S.E.2d 817, 822 (citations omitted; emphasis in original), disc. review denied
and appeal dismissed, 356 N.C. 164, 568 S.E.2d 196 (2002). Federal law authorizes
the bankruptcy trustee to: (1) bring suit on behalf of the bankruptcy estate; and (2)
avoid or recover fraudulent conveyances of property from the bankrupt debtor for the
benefit of all creditors of the bankruptcy estate. See 11 U.S.C. §§ 541(a), 544, 548
(2012). However, as the United States Supreme Court recognized in Caplin v. Marine
Midland Grace Tr. Co., 406 U.S. 416, 433-34, 32 L. Ed. 2d 195, 206-07 (1972), the
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trustee’s authority to bring suit on behalf of the bankruptcy estate does not extend to
state law claims by the estate’s creditors against third parties.2 Thus, an action that
is “personal” to a creditor is not property of the bankruptcy estate. See, e.g., In re
Bostic Constr., Inc., 435 B.R. 46, 60 (M.D.N.C. 2010). The issue of whether a claim is
personal to a creditor depends on state law. See id.; see also Keener, 149 N.C. App. at
26, 560 S.E.2d at 822.
The North Carolina Supreme Court has recognized that, as a general matter,
a corporate officer “can be held personally liable for torts in which he actively
participates,” even when such torts were “committed when acting officially” and
“regardless of whether the corporation is liable.” Wilson v. McLeod Oil Co., Inc., 327
N.C. 491, 518, 398 S.E.2d 586, 600 (1990) (citations omitted), reh’g denied, 328 N.C.
336, 402 S.E.2d 844 (1991). In the context of a bankruptcy proceeding,
[s]hareholders, creditors, or guarantors of corporations
generally may not bring individual actions to recover what
they consider their share of the damages suffered by the
corporation. Recovery is available, naturally, when the
defendant owes an individual shareholder, creditor, or
guarantor a special duty, or when the individual suffered
an injury separate and distinct from that suffered by other
shareholders, creditors, or guarantors.
2 Although Caplin was decided prior to the enactment of the federal Bankruptcy Code, it remains good
law, see, e.g., E.F. Hutton & Co., Inc. v. Hadley, 901 F.2d 979, 986 (11th Cir. 1990) (“Caplin has been
held to remain the law under the revised bankruptcy statutes.”), and was recently cited by the United
States Court of Appeals for the Second Circuit to support its holding that the bankruptcy trustee in
proceedings arising from the liquidation of Bernie Madoff’s investment firm lacked standing to sue
several third parties on behalf of individual customers defrauded by Madoff’s Ponzi scheme. See In re
Bernard L. Madoff Inv. Secs. LLC, 721 F.3d 54, 67 (2d Cir. 2013).
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Barger v. McCoy Hillard & Parks, 346 N.C. 650, 660, 488 S.E.2d 215, 220-21 (1997)
(citations and ellipsis omitted). Therefore, the creditors of a bankruptcy estate may
prosecute individual actions against a third party if they “can show either (1) that the
wrongdoer owed [them] a special duty, or (2) that the injury suffered by the [creditors]
is personal to [them] and distinct from the injury sustained by the corporation itself.”
Id. at 661, 488 S.E.2d at 221.
In the present case, the Newton and Diorio Plaintiffs do not allege that Junior
or Senior owed them any special duty, so our analysis on the standing issue focuses
solely on whether the injuries they have alleged are personal and belong to them.
During the hearing on their motion to dismiss and in their briefs and oral arguments
to this Court, Junior and Senior argued that the Newton and Diorio Plaintiffs lacked
standing to bring these claims because the harms they alleged were generalized
injuries to AmerLink and had already been litigated by the bankruptcy estate trustee
during the adversary proceeding. However, this Court rejected a strikingly similar
argument in Spoor v. Barth, where we reversed the trial court’s grant of summary
judgment in favor of Junior and Senior, based in part on our conclusion that the court
erred in concluding that Spoor lacked standing to bring suit. See Spoor, __ N.C. App.
at __, 781 S.E.2d at 636. As demonstrated in Spoor, the adversary proceeding brought
by the AmerLink bankruptcy trustee focused on allegations that by setting up an
employee stock option plan and creating and transferring assets into new companies
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Opinion of the Court
in order to facilitate the sale of Spoor’s majority ownership interest in AmerLink,
Junior, Senior, and Spoor improperly diverted corporate assets for their own benefit.
See id. Because these claims for, inter alia, fraudulent conveyances and preferential
transfers were rooted in conduct that depleted the AmerLink bankruptcy estate at
the expense of all its creditors, they properly belonged to the trustee. However, there
was no indication that the AmerLink bankruptcy trustee ever settled, brought, or
even discovered, any claims based on the fraudulent acts that Spoor alleged in his
complaint as the basis for his breach of contract, fraud, and UDTP claims against
Junior and Senior. See id. Indeed, because Spoor’s claims were based on Junior’s and
Senior’s conduct in their individual capacities to mislead Spoor by concealing
AmerLink’s dire financial condition and induce Spoor, in his individual capacity, to
invest his majority interest in AmerLink into a newly created company in exchange
for $8 million Junior and Senior promised but never paid, we concluded that the
injuries Spoor alleged were separate and distinct from any generalized harm suffered
by AmerLink or its shareholders. See id. We therefore held that the claims belonged
to Spoor alone, and we consequently rejected Junior’s and Senior’s argument that
AmerLink’s bankruptcy trustee had any, let alone exclusive, standing to bring those
claims. See id.
Here, the Newton and Diorio Plaintiffs’ claims against Junior and Senior in
their individual capacities arise from essentially the same set of facts as alleged in
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Spoor—namely, the cash infusions and falsified financial statements Junior and
Senior engaged in throughout 2008 to conceal AmerLink’s financial distress, as well
as Junior’s repeated assurances to Spoor and AmerLink’s staff, customers, vendors,
and suppliers that the company would receive additional funds and continue to
perform its contractual obligations. As in Spoor, despite characterizations by Junior
and Senior to the contrary, there is no indication in the record before us that the
AmerLink bankruptcy trustee brought or settled any action related to, or ever
discovered, the facts underlying these allegations.
Junior and Senior nevertheless contend that, unlike in Spoor, the injuries the
Newton and Diorio Plaintiffs allege are injuries to AmerLink itself, shared by all its
creditors, and therefore properly belonged to the bankruptcy trustee. In support of
their argument, Junior and Senior rely on cases holding that bankruptcy estate
creditors were barred from suing third parties for injuries arising from pre-
bankruptcy conveyances of corporate assets because such fraudulent conveyances
and preferential transfers resulted in injuries to the corporations themselves, and
thus, were injuries shared in common by every creditor to the bankruptcy estate, for
which federal law expressly vests the trustee with exclusive standing to bring suit.
See, e.g., Nat’l Am. Ins. Co. v. Ruppert Landscaping Co., 187 F.3d 439, 441 (4th Cir.
1999) (holding that sureties of bankrupt corporation lacked standing to sue third
party to whom corporate property was conveyed prior to bankruptcy filing because
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their claim had the same underlying focus as the bankruptcy trustee’s claim for
avoiding the conveyance), cert. denied, 528 U.S. 1156, 145 L. Ed. 2d 1073 (2000); In
re Bridge Info. Sys., Inc., 344 B.R. 587, 594 (E.D. Mo. 2006) (finding no standing for
bankruptcy estate creditors to bring claims for fraud against corporate shareholders,
who prior to bankruptcy caused the corporation to acquire a target company and then
transferred the corporation’s interest in that company to themselves, because their
suit was no different from the bankruptcy trustee’s claim for fraudulent conveyance).
We are not persuaded. To be sure, the allegations in the Newton and Diorio
Plaintiffs’ complaints do relate to conduct that undoubtedly harmed AmerLink itself.
However, the gravamen of the Newton and Diorio Plaintiffs’ fraud and UDTP claims
is not merely that they were injured by AmerLink’s collapse and the resulting breach
of its contractual obligations to them, but instead that they never would have suffered
any injury if they had not been fraudulently induced into entering into contracts with
AmerLink as a result of misrepresentations made by AmerLink staff acting at
Junior’s direction throughout 2008, when Junior was already aware of the company’s
financial distress. In their complaints, the Newton and Diorio Plaintiffs detail how
each member of their respective classes of AmerLink’s customers, vendors, and
suppliers relied on the alleged misrepresentations when entering into their
individual contracts with AmerLink on various dates and for varying amounts,
thereby resulting in injuries to themselves in their individual capacities. Junior and
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Senior argue that these alleged injuries are not separate and distinct because nearly
every creditor of AmerLink had a contract that AmerLink breached, and they
complain that if the Newton and Diorio Plaintiffs have standing to pursue their
claims, then so could every other creditor exposed to AmerLink’s financial distress,
which they insinuate would undermine the central purpose of bankruptcy to provide
an orderly process for disposing of claims against the estate. But this argument
ignores the fact that the United States Supreme Court expressly contemplated
exactly this sort of creditor class action suit when it reasoned in Caplan that there
was no need to empower a bankruptcy trustee to bring actions on behalf of creditors
against third parties because “Rule 23 of the Federal Rules of Civil Procedure, which
provides for class actions, avoids some of the[] difficulties” that would ensue from
allowing individual creditors to sue separately. Caplin, 406 U.S. at 433, 32 L. Ed. 2d
at 206. Moreover, Junior and Senior cite no authority to support their implicit
premise that the AmerLink bankruptcy proceeding ought to somehow immunize
them from liability for prior acts of fraud undertaken in their individual capacities.
Because we conclude that the injuries arising from the alleged fraudulent
misrepresentations that induced each class member’s individual contract are
separate and distinct from any injury to AmerLink or any other creditor of the
bankruptcy estate, we hold that these claims belong to the Newton and Diorio
Plaintiffs, rather than the AmerLink trustee. Consequently, we hold that the Newton
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and Diorio Plaintiffs have standing to sue, and that the trial court erred in granting
Junior’s and Senior’s motion to dismiss for lack of subject matter jurisdiction.
B. Statute of limitations
The Newton and Diorio Plaintiffs argue next that the trial court erred in
granting Junior’s and Senior’s Rule 12(b)(6) motion to dismiss their claims because
they failed to bring suit within the applicable statute of limitations. We agree.
This Court reviews de novo an order dismissing an action pursuant to N.C.R.
Civ. P. 12(b)(6). See State Emps. Ass’n of N.C., Inc. v. N.C. Dep’t of State Treasurer,
364 N.C. 205, 210, 695 S.E.2d 91, 95 (2010). In doing so, we must “determine whether,
as a matter of law, the allegations of the complaint, treated as true, are sufficient to
state a claim upon which relief may be granted under some legal theory. In ruling
upon such a motion, the complaint is to be liberally construed.” Id. (citation, internal
quotation marks, and ellipsis omitted). “Dismissal is warranted if an examination of
the complaint reveals that no law supports the claim, or that sufficient facts to make
a good claim are absent, or that facts are disclosed which necessarily defeat the
claim.” Id. (citation omitted).
“In general a cause or right of action accrues, so as to start the running of the
statute of limitations, as soon as the right to institute and maintain a suit arises.”
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Pierson v. Buyher, 330 N.C. 182, 186, 409 S.E.2d 903, 905 (1991) (citation and ellipsis
omitted). An action alleging claims for fraud and related conspiracy must be brought
within three years, and “the cause of action shall not be deemed to have accrued until
the discovery by the aggrieved party of the facts constituting the fraud . . . .” N.C.
Gen. Stat. § 1-52(9) (2015). “For purposes of [section] 1-52(9), discovery means either
actual discovery or when the fraud should have been discovered in the exercise of
reasonable diligence under the circumstances.” Forbis v. Neal, 361 N.C. 519, 524, 649
S.E.2d 382, 386 (2007) (internal quotation marks omitted). “[W]here a person is
aware of facts and circumstances which, in the exercise of due care, would enable him
or her to learn of or discover the fraud, the fraud is discovered for purposes of the
statute of limitations.” Jennings v. Lindsey, 69 N.C. App. 710, 715, 318 S.E.2d 318,
321 (1984). “Ordinarily, a jury must decide when fraud should have been discovered
in the exercise of reasonable diligence under the circumstances. This is particularly
true when the evidence is inconclusive or conflicting.” Forbis, 361 N.C. at 524, 649
S.E.2d at 386. The statute of limitations for a UDTP claim is four years. N.C. Gen.
Stat. § 75-16.2 (2015). “Under North Carolina law, an action [for UDTP] accrues at
the time of the invasion of [the] plaintiff’s right. For actions based on fraud, this
occurs at the time the fraud is discovered or should have been discovered with the
exercise of reasonable diligence.” Nash v. Motorola Commc’ns & Elecs., Inc., 96 N.C.
App. 329, 331, 385 S.E.2d 537, 538 (1989) (citations and internal quotation marks
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omitted; emphasis in original), affirmed per curiam, 328 N.C. 267, 400 S.E.2d 36(1991).
In the trial court, Junior and Senior argued that the Newton and Diorio
Plaintiffs’ actions were barred by the statute of limitations since they should have
discovered the conduct underlying their fraud and UDTP claims in December 2008
when AmerLink closed its doors, because it was clear at that point that AmerLink
would breach its contractual obligations to them. We rejected a similar argument in
Spoor. There, we reversed the trial court’s grant of summary judgment in favor of
Senior based on a lapse of the statute of limitations, reasoning based on our Supreme
Court’s holding in Forbis that because the evidentiary forecast presented a genuine
issue of material fact as to when Spoor discovered or should have discovered the
alleged fraudulent conduct, the issue was one for the jury’s determination. __ N.C.
App. at __, 781 S.E.2d at 635.
Here, we reach a similar result. The Newton and Diorio Plaintiffs are suing for
fraud and UDTP based on a conspiratorial course of conduct by Junior and Senior
that they allege began in 2007, continued until at least August 2009, and could not
have been discovered until 1 January 2012. While the injuries the Newton and Diorio
Plaintiffs suffered may have been apparent once they learned that AmerLink could
not perform its contractual obligations in December 2008, our General Statues make
clear that the statute of limitations is triggered not upon discovery of an injury, but
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upon “the discovery by the aggrieved party of the facts constituting the fraud . . . .”
N.C. Gen. Stat. § 1-52(9). We find it difficult to discern how AmerLink’s mere act of
closing its doors somehow laid plain the existence of a fraudulent scheme that the
Newton and Diorio Plaintiffs allege had not even been completed yet, especially in
light of the fact that neither the AmerLink bankruptcy trustee, who brought the
adverse proceeding, nor the United States Attorney, who prosecuted Junior for
bankruptcy fraud, discovered the actions underlying these claims, either. In their
complaints, the Newton and Diorio Plaintiffs allege that as corporate outsiders, they
could not have discovered any of the facts underlying their claims before Spoor, a
corporate insider, exposed them by filing his initial complaint against Junior in
October 2011 and his first amended complaint adding Senior as a defendant in
February 2012. Taking these allegations as true—as we must, given the procedural
posture of this case, see State Emps. Ass’n of N.C., Inc., 364 N.C. at 210, 695 S.E.2d
at 95—we conclude that because they filed their respective complaints well within
three years of Spoor’s initial complaint, the Newton and Diorio Plaintiffs commenced
their actions within the three-year statute of limitations for fraud claims and the
four-year statute of limitations for UDTP claims. Consequently, we hold that the trial
court erred in granting Junior’s and Senior’s motion to dismiss based on a lapse of
the applicable statutes of limitations.
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NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
Junior and Senior present a series of related arguments as independent bases
to upold the trial court’s dismissal pursuant to N.C.R. Civ. P. 12(b)(6), but they are
unavailing. Specifically, Senior contends that dismissal of the fraud claims was
proper as to him because the Newton and Diorio Plaintiffs’ complaints failed to allege
their claims for fraud with sufficient particularity as required by N.C.R. Civ. P. 9(b).
“The elements of fraud are: (1) False representation or concealment of a material fact,
(2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does
in fact deceive, (5) resulting in damage to the injured party.” S.N.R. Mgmt. Corp. v.
Danube Partners 141, LLC, 189 N.C. App. 601, 609, 659 S.E.2d 442, 449 (2008)
(citation omitted); see also Terry v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678 (1981)
(“[I]n pleading actual fraud the particularity requirement [imposed by N.C.R. Civ. P
9(b)] is met by alleging time, place and content of the fraudulent representation,
identity of the person making the representation and what was obtained as a result
of the fraudulent acts or representations.”). Senior argues that the Newton and Diorio
Plaintiffs failed to state a claim for fraud against him because their complaints
contain no specific allegations that Senior himself ever personally made any
representations to, intended to deceive, deceived, or caused any injury to any member
of the plaintiff classes in either action. Senior contends that the UDTP claims against
him fail to state a UDTP claim “for the same reasons.”
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NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
These two arguments both depend on the validity of Senior’s argument that
the Newton and Diorio Plaintiffs also failed to properly plead their claims for civil
conspiracy. Our case law makes clear that “to state a claim for civil conspiracy, a
complaint must allege a conspiracy, wrongful acts done by certain of the alleged
conspirators, and injury.” Norman v. Nash Johnson & Sons’ Farms, Inc., 140 N.C.
App. 390, 416, 537 S.E.2d 248, 265 (2000) (citations and internal quotation marks
omitted), disc. review denied, 353 N.C. 378, 547 S.E.2d 14, appeal withdrawn, 354
N.C. 219, 553 S.E.2d 684 (2001). Moreover, it is well established that “[i]f two or more
persons conspire or agree to engage in an unlawful enterprise, each is liable for acts
committed by any of them in furtherance of the common design and the manner or
means used in executing the common design; the fact that one conspirator is the
instigator and dominant actor is immaterial on the question of the guilt of the other.”
Curry v. Staley, 6 N.C. App. 165, 169, 169 S.E.2d 522, 525 (1969) (citations omitted).
Senior’s argument on this point appears to be based on selective quotations from the
subsections in both complaints that formally allege causes of action for civil
conspiracy by stating:
The acts and agreements of [Senior] and [Junior] constitute
a civil conspiracy, which existed for wrongful acts to be
committed, and which were actually committed, by said
[Senior] and [Junior] for the purpose of said civil
conspiracy.
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NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
Senior contends these allegations are conclusory and legally insufficient because they
fail to allege any specific details of any conspiratorial agreement he made with Junior.
This argument fails, however, because it ignores the fact that the relevant
paragraphs in both complaints expressly incorporate all prior allegations made,
including, inter alia, that Junior and Senior “acted in concert and each acted as the
agent of the other in a plan or scheme” to acquire Spoor’s majority stake in AmerLink.
The complaints also provide dozens of paragraphs of allegations extensively detailing
the specific actions both Junior and Senior took over a period of several years to
further this scheme by concealing AmerLink’s financial distress, as well as Junior’s
directions to AmerLink staff throughout 2008, when he knew the company was nearly
insolvent, to continue entering into contracts with the Newton and Diorio Plaintiffs
and to assure them that AmerLink had or would soon receive funds that would allow
it to honor its contractual obligations to them. The allegations in both complaints
further outline the specific dates when the Newton and Diorio Plaintiffs entered their
contracts and the specific amounts of damages suffered by each member of the class
when Junior’s and Senior’s scheme finally unraveled. Because the complaints are
“replete with allegations of a conspiracy by and between the defendants, acts done by
some or all of the defendants in furtherance of that alleged conspiracy, and injury” to
the Newton and Diorio Plaintiffs, we reject Senior’s argument that their complaints
failed to state a claim for civil conspiracy. Norman, 140 N.C. App. at 416, 537 S.E.2d
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NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
at 265. Further, given the extensive details provided in the complaints regarding the
nature and circumstances surrounding Junior’s misrepresentations and the injuries
the Newton and Diorio Plaintiffs suffered as a result, we also reject Senior’s argument
that the complaints failed to state a claim for fraud with sufficient particularity, as
well as Senior’s argument that the Newton and Diorio Plaintiffs failed to state a claim
for UDTP. See, e.g., Bhatti v. Buckland, 328 N.C. 240, 243, 400 S.E.2d 440, 442 (1991)
(“The case law applying Chapter 75 holds that a plaintiff who proves fraud thereby
establishes that unfair or deceptive acts have occurred. Proof of fraud would
necessarily constitute a violation of the prohibition against unfair and deceptive
acts.”) (citation, internal quotation marks, and ellipsis omitted).
Finally, we reject Junior’s and Senior’s argument that the claims for civil
conspiracy and punitive damages must be dismissed. Junior and Senior are correct
that these cannot survive as separate causes of action. See, e.g., Dove v. Harvey, 168
N.C. App. 687, 690, 608 S.E.2d 798, 800 (2005) (“[T]here is not a separate civil action
for civil conspiracy in North Carolina.”) (citation omitted), disc. review denied, 360
N.C. 289, 628 S.E.2d 249 (2006); Watson v. Dixon, 352 N.C. 343, 348, 532 S.E.2d 175,
178 (2000) (“As a rule, you cannot have a cause of action for punitive damages by
itself. If the complainant fails to plead or prove his cause of action, then he is not
allowed an award of punitive damages because he must establish his cause of action
as a prerequisite for a punitive damage award.”). However, their argument on this
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NEWTON V. BARTH; DIORIO FOREST PRODS., INC. V. BARTH
Opinion of the Court
point fails because it presumes the trial court was correct in determining that the
Newton and Diorio Plaintiffs’ complaints for fraud and UDTP should be dismissed.
Accordingly, we hold that the trial court erred in dismissing the Newton and
Diorio Plaintiffs’ complaints, and that its Orders and Judgments must be, and hereby
are,
REVERSED.
Judges McCULLOUGH and ZACHARY concur.
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