Bank of America, N.A. v. Rice

244 N.C.App. 358

780 S.E.2d 873

BANK OF AMERICA, N.A., Plaintiff,

v.Christopher Harvey RICE, David Halvorsen, Haley Beck Hill, Jennifer Burkhardt–Blevins, Mark Grow, and UBS Financial Services, Inc., Defendants.

No. COA15–251.

Court of Appeals of North Carolina.

Dec. 15, 2015.

Williams Mullen, by Michael C. Lord, Raleigh and Kelly Colquette Hanley, for plaintiff.

Johnston, Allison & Hord, P.A., by Martin L. White, Charlotte and Munashe Magarira, for defendant Christopher Harvey Rice.

DAVIS, Judge.

This case involves a dispute regarding the entitlement of Plaintiff Bank of America, N.A. ("BOA") to enforce novations to three promissory notes executed by Defendant Christopher Harvey Rice ("Rice").¹ BOA appeals from an order entered by Judge W. Robert Bell granting summary judgment in favor of Rice regarding BOA's attempt to enforce two of the novations. Rice appeals from an order entered by Judge Richard D. Boner granting both BOA's motion for judgment on the pleadings on its claim arising from the third novation and BOA's motion to dismiss Rice's counterclaims. After careful review, we (1) affirm the order of Judge Boner; (2) reverse the order of Judge Bell; and (3) remand for additional proceedings.

Factual Background

This matter is before us for the second time. The underlying facts giving rise to this action are set out more fully in Bank of Am., N.A. v. Rice, 230 N.C.App. 450, 750 S.E.2d 205 (2013) ("BOA I "), and are quoted in pertinent part as follows:

On 24 September 2004, [BOA's] corporate affiliate BAI [Banc of America Investment Services, Inc.] hired [Rice] as an employee. On this same date [Rice] and [BAI], entered into an agreement entitled "BAI SERIES 7 AGREEMENT [.]" The BAI Series 7 Agreement contained provisions regarding the following general topics: "employment ‘at-will[,]’ " "customer lists and other proprietary and confidential information[,]" "non-solicitation covenants [,]" "right to an injunction[,]" "compliance with applicable laws, rules, policies and procedures[,]" "hold harmless[,]" "arbitration[,]" "assignment [,]" "non-waiver[,]" "invalid provisions[,]" "choice of law[,]" and "terms and modifications[.]" (Original in all caps.)

....

[O]n 24 September 2004, [Rice] executed a promissory note payable to [BOA], not BAI ("2004 Note"). The 2004 Note provided for [Rice] to pay to [BOA] the sum of $500,000.00, to be paid in six separate annual payments between 2005 and 2010.... For the following two years, [Rice] executed substantially similar promissory notes ... but these two notes are payable to BAI, not [BOA]. The promissory note from 2005 was for $219,928.50, payable from 2006 to 2011 ("2005 Note") and the promissory note from 2006 was for $219,928.50, payable from 2007 to 2012 ("2006 Note").

On 4 May 2010, [BOA] entered into three "PROMISSORY NOTE NOVATION AGREEMENT [S;]" ("2010 Novations"). The 2010 Novations all stated they were between [BOA], not BAI, and [Rice] and they were "replac[ing]" the prior 2004 Note, 2005 Note, and 2006 Note; the 2010 Novations ... provided that [t]his Note contains the complete understanding between [Rice] and ... [BOA] relating to the matters contained herein and supersedes all prior oral, written and contemporaneous oral negotiations, commitments and understandings between and among [BOA] and [Rice]. [Rice] did not rely on any statements, promises or representations made by [BOA] or any other party in entering into this Note.

....

On 2 March 2011, [BOA] filed a "COMPLAINT, MOTION FOR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION, AND MOTION FOR EXPEDITED DISCOVERY" against defendants, including ... Rice, the only defendant in this appeal. (Original in all caps.) [BOA] summarized its allegations of the case as follows,

This Complaint arises from [Rice's] breach of contract and misappropriation of [BOA's] confidential, proprietary and trade secret information which occurred at the time of [his] coordinated and abrupt resignation from [BOA's] U.S. Trust business on January 28, 2011. BOA is informed and believes that [Rice] continue[s] to breach [his] contractual duties and continue[s] to commit tortious acts by misappropriating [BOA's] confidential, proprietary and trade secret information (despite a demand for its return) and by soliciting certain clients and customers of [BOA's] U.S. Trust business. BOA is informed and believes that [Rice is] engaged in this misconduct for the benefit of UBS [UBS Financial Services, Inc.].

[BOA] brought claims for breach of contract, conversion, computer trespass, misappropriation of trade secrets, tortious interference with contractual relations, tortious interference with contractual relations with [BOA's] U.S. Trust business clients, unfair competition, and breach of the 2010 Novations of the promissory notes. On 23 April 2011, pursuant to Rule 41 of the North Carolina Rules of Civil Procedure, [BOA] stipulated to dismissal of its first seven claims against [Rice] with prejudice; thus, the only remaining claim was for breach of the promissory notes identified in [BOA's] complaint as the 2010 Novations.

On or about 31 May 2011, [Rice] filed a motion "to compel arbitration and stay litigation" contending that the "[o]riginal [p]romissory [n]otes [m]andate [a]rbitration" and "[BOA] is bound to [a]rbitrate even without [an] [a]rbitration [a]greement[.]" On or about 1 July 2011, [Rice] amended his motion, adding to his initial motion that "[t]he [a]mended [p]romissory [n]otes do not replace the [o]riginal [p]romissory [n]otes" and "[BOA] is bound to [a]rbitrate regardless of [the] language of [the] [a]mended [p]romissory [n]otes[.]" On 16 April 2012, the trial court denied [Rice's] amended motion.

Id. at 452–55, 750 S.E.2d at 207–09 (emphasis omitted).

In BOA I , the sole issue before this Court was whether Rice was entitled to compel arbitration of BOA's claims against him because of the existence of arbitration clauses in the 2004, 2005, and 2006 notes despite the fact that no such clauses were contained in the 2010 novations. Rice argued that the 2010 novations were invalid and did not supersede the 2004, 2005, and 2006 notes because there was no mutuality of parties as between the 2010 novations and the original notes. We determined that the trial court had not erred in denying Rice's motion to compel arbitration. Id. at 458–59, 750 S.E.2d at 211.

With regard to the 2004 note and its 2010 novation, we held as follows:

[Rice] makes no specific argument regarding the 2004 Note, presumably because the 2004 Note was between [Rice] and [BOA], and the 2010 Novation "replac[ing]" the 2004 Note was also between [Rice] and [BOA]. Accordingly, the 2004 Note and the 2010 Novation both have the same parties, [Rice] and [BOA]. [Rice] has not attacked the 2010 Novation on any other ground. As the 2010 Novation replacing the 2004 Note stated that it is the entirety of the parties' agreement regarding the 2004 Note obligation it is replacing and as it does not contain an agreement to arbitrate, there was no agreement to arbitrate the 2004 Note since the 2010 Novation superseded any agreement the parties may or may not have made in the 2004 Note and/or the BAI Series 7 Agreement. Thus, the 2010 Novation as to the 2004 Note is a valid novation which is enforceable and not subject to arbitration.

Id. at 457–58, 750 S.E.2d at 210 (internal citation omitted).

We also affirmed the portion of the trial court's order rejecting Rice's attempt to compel arbitration as to BOA's claims arising under the novations to the 2005 and 2006 notes but on a different ground.

[Rice] contends that the 2005 Note and 2006 Note are between [Rice] and BAI, but the 2010 Novations "replac[ing]" those documents were between [Rice] and [BOA]; thus, contends [Rice], a valid novation could not have occurred because BAI was not a party to the 2010 Novations replacing the 2005 and 2006 Notes. This is correct.

....

[BOA] ... contends that "the parties' mutual performance under the New Notes confirms the novation." But the 2010 Novations would have to be confirmed by the performance of the original party to the 2005 and 2006 Notes, BAI. Any performance by [Rice] or [BOA] would not indicate that BAI, the original party to the 2005 Note and the 2006 Note which the 2010 Novation purportedly "replace [d,]" agreed to the 2010 Novations. Indeed, BAI is not even a party to this lawsuit.... Here, [BOA] has not directed us to nor are we aware of any action taken by BAI which shows acquiescence to the "replace[ment]" of its 2005 Note and 2006 Note with the 2010 Novations to which it was not a party. We conclude that the 2010 Novations regarding the 2005 Note and 2006 Note are invalid and unenforceable because BAI was not a party to the 2010 Novations purporting to "replace" the 2005 Note and 2006 Note, as the record does not contain any evidence indicating that BAI agreed, acquiesced, ratified or in any other form accepted the 2010 Novations purportedly "replac[ing]" the 2005 Note and 2006 Note. As such, the purported 2010 Novations between [BOA] and [Rice] had no effect upon the 2005 Note and 2006 Note. Both the 2005 Note and 2006 Note, which, we assume without deciding, are in full force and effect, contained arbitration provisions, but [BOA] has not brought any claim based upon the 2005 Note and 2006 Note. Furthermore, [BOA] is not even a party to the 2005 Note or 2006 Note. Accordingly, [Rice] cannot compel arbitration as to [BOA's] claims under the 2010 Novations of the 2005 and 2006 Notes, because a valid novation could not occur without BAI and [BOA] was not a party to the 2005 Note and 2006 Note.

Id. at 458–59, 750 S.E.2d at 210–11 (internal citations omitted).

We then summarized our holding as follows:

In conclusion, we affirm the trial court's order denying arbitration as to the 2010 Novation regarding the 2004 Note, because the 2010 Novation includes the entire agreement of the parties as to the 2004 Note and that novation does not contain an arbitration provision. We further

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