Gen. Fid. Ins. Co. v. WFT, Inc.

269 N.C.App. 181

837 S.E.2d 551

GENERAL FIDELITY INSURANCE COMPANY, Plaintiff,

v.WFT, INC., Blessmatch Marine Insurance Services, Inc., Alpha Marine Underwriters, Inc., and Peter J. Willis Fleming, Defendants.

No. COA18-1103

Court of Appeals of North Carolina.

Filed: January 7, 2020

James, McElroy & Diehl, P.A., Charlotte, by Preston O. Odom, III, John R. Buric, and John R. Brickley, for plaintiff-appellee.

Lincoln Derr PLLC, Charlotte, by Sara R. Lincoln and Kathleen K. Lucchesi, for defendants-appellants.

ZACHARY, Judge.

Defendants appeal from two judgments. Defendants first argue that the trial court erred (1) by granting partial summary judgment in favor of Plaintiff on Plaintiff's claims for breach of fiduciary duty/corporate fraud and fraudulent transfer; and (2) by disregarding Defendants’ corporate form and piercing the corporate veil, thereby enabling the court to enter judgment against all Defendants. Next, Defendants challenge a judgment entered against them for unfair and deceptive trade practices. Upon review, we affirm both judgments.

Background

Defendant WFT, Inc. ("WFT") was a North Carolina corporation with its principal place of business in Mecklenburg County. In 2005, WFT began working with General Fidelity Insurance Company ("Plaintiff"), a company organized in South Carolina with its principal place of business in New Hampshire. A dispute eventually arose, and arbitration proceedings commenced in Texas in June 2010. Following interim arbitration awards in 2012 and 2013, a final award was entered in favor of Plaintiff on 2 August 2013.

On 27 December 2013, a Texas court entered judgment on the arbitration award ("the Texas Judgment"). WFT was ordered to pay Plaintiff the principal amount of $2,367,943.89, together with pre-judgment interest of $67,022.00, attorneys’ fees of $218,586.69, and interest at the rate of 5% per year until fully paid. However, WFT was administratively dissolved on 7 January 2015, prior to fulfilling its obligation to Plaintiff under the Texas Judgment.

On 15 May 2014, Plaintiff filed the instant action in Mecklenburg County Superior Court seeking enforcement of the Texas Judgment. Plaintiff sued not only WFT, but also Blessmatch Marine Insurance Services, Inc. ("Blessmatch"), Alpha Marine Underwriters, Inc. ("Alpha Marine"), and Peter J. Willis Fleming ("Fleming").¹ Defendants are closely connected to one another. Blessmatch was incorporated in North Carolina in 2011 and administratively dissolved on 7 January 2015—the same day as WFT. Fleming was the registered agent and president of both WFT and Blessmatch. Fleming also formed Alpha Marine, which was incorporated in Delaware on 14 January 2013.

In its complaint, Plaintiff alleged that "sometime during the underlying arbitration, Defendants ceased conducting business through WFT and instead are now operating the same business through Blessmatch Marine and/or Alpha Marine[.]" Plaintiff further contended that these businesses were "the alter egos of each other," which were created to "avoid WFT paying Plaintiff the amounts due pursuant to the Texas Judgment." Plaintiff sought to enforce the Texas Judgment and pierce the corporate veil, and also asserted claims for (1) breach of fiduciary duty, (2) constructive fraud, (3) fraudulent transfer, (4) unfair and deceptive trade practices, and (5) facilitation of fraud and civil conspiracy.

On 13 July 2017, Plaintiff moved for summary judgment on all claims. The motion came on for hearing before the Honorable Eric L. Levinson in Mecklenburg County Superior Court on 17 August 2017 and 13 November 2017. By order entered 12 January 2018, Judge Levinson granted summary judgment in Plaintiff's favor as to its claims for (1) action on the Texas Judgment, (2) constructive fraud, (3) breach of fiduciary duty, and (4) fraudulent transfer; he also permitted recovery from Defendants jointly and severally, based on piercing the corporate veil. Judge Levinson denied Plaintiff's motion for summary judgment on its claim for unfair and deceptive trade practices, and granted summary judgment in favor of Defendants as to Plaintiff's claim for facilitation of fraud and civil conspiracy. The trial court denied Defendants’ request to certify the order for immediate appeal. On 19 January 2018, Fleming filed notice of appeal from the interlocutory summary judgment order.

On 22 January 2018, Fleming filed a Motion to Stay Proceedings Pending Appeal. The motion asserted that "[w]hile Fleming's appeal is interlocutory, he has a substantial right to immediately appeal the [summary judgment] order to avoid the possibility of two trials and inconsistent verdicts on the same issues." Plaintiff challenged the Motion to Stay, arguing that "Fleming's intent is clear – he simply seeks to delay this matter and avoid a trial where he faces liability" on Plaintiff's claim for unfair and deceptive trade practices. Plaintiff further asserted that postponing appeal until resolution of the unfair and deceptive trade practices claim would not affect any substantial right of Fleming, and that "there is no risk of inconsistent verdicts" because all of the claims are distinct.

On 1 February 2018, the remaining Defendants filed notice of appeal from Judge Levinson's summary judgment order, and four days later, they too filed a Motion to Stay Proceedings Pending Appeal. Defendants set forth two grounds for staying the proceedings: (1) they had undergone several changes in counsel; and (2) like Fleming, they were at risk "of two trials and inconsistent verdicts on the same issues."

On 12 February 2018, a bench trial was held before the Honorable Forrest D. Bridges in Mecklenburg County Superior Court on Plaintiff's remaining claim for unfair and deceptive trade practices.

On 20 March 2018, Judge Bridges entered an order denying both of Defendants’ Motions to Stay. Judge Bridges concluded that there was little risk of inconsistent verdicts, and, although there may be some "overlapping facts" between the unresolved claim and those in the 12 January 2018 summary judgment order, the issues are "separate and apart" from each other. He also noted that "the matters will best be addressed by the appellate court when considered within the context of the case as a whole and not a series of piecemeal appeals."

On 30 April 2018, Judge Bridges entered judgment in Plaintiff's favor on its claim for unfair and deceptive trade practices. All Defendants timely appealed the judgment on 21 May 2018.

Discussion

On appeal, Defendants argue that (1) Judge Levinson erred in granting partial summary judgment in favor of Plaintiff; and (2) Judge Bridges erred by entering judgment in favor of Plaintiff on its claim for unfair and deceptive trade practices.

I.

We first consider whether the trial court erred in granting partial summary judgment in favor of Plaintiff on its claims for (1) breach of fiduciary duty/constructive fraud, and (2) fraudulent transfer, and (3) by piercing the corporate veil and entering judgment against all Defendants. We affirm the trial court's ruling and address each issue in turn.

A. Standard of Review

Summary judgment is appropriate 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." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2017). On appeal, summary judgment orders are reviewed de novo . Mancuso v. Burton Farm Dev. Co. LLC , 229 N.C. App. 531, 536, 748 S.E.2d 738, 742 (quotation marks omitted), disc. review denied , 367 N.C. 279, 752 S.E.2d 149 (2013). "Both before the trial court and on appeal, the evidence must be viewed in the light most favorable to the non-moving party and all inferences from that evidence must be drawn against the moving party and in favor of the non-moving party." White v. Consol. Planning, Inc. , 166 N.C. App. 283, 296, 603 S.E.2d 147, 157 (2004), disc. review denied , 359 N.C. 286, 610 S.E.2d 717 (2005). "If the trial court grants summary judgment, the decision should be affirmed on appeal if there is any ground to support the decision." Nifong v. C.C. Mangum, Inc. , 121 N.C. App. 767, 768, 468 S.E.2d 463, 465, aff'd , 344 N.C. 730, 477 S.E.2d 150 (1996).

B. Breach of Fiduciary Duty/Constructive Fraud

Constructive fraud "arises where a confidential or fiduciary relationship exists, which has led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff." Forbis v. Neal , 361 N.C. 519, 528, 649 S.E.2d 382, 388 (2007) (internal citations and quotation marks omitted). To recover under a claim of constructive fraud, "a plaintiff must establish the existence of circumstances (1) which created the relation of trust and confidence, and (2) which led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust[.]" Trillium Ridge Condo. Ass'n v. Trillium Links & Vill., LLC , 236 N.C. App. 478, 502, 764 S.E.2d 203, 219 (internal brackets and quotation marks omitted), disc. review denied , 766 S.E.2d 646 (2014). Unlike a claim for actual fraud, there is no element of intent to deceive. Link v. Link , 278 N.C. 181, 192, 179 S.E.2d 697, 704 (1971).

"[D]irectors of a corporation owe a fiduciary duty to creditors of the corporation only where there exist circumstances amounting to a winding-up or dissolution of the corporation." Keener Lumber Co. v. Perry , 149 N.C. App. 19, 31, 560 S.E.2d 817, 825 (internal quotations omitted), disc. review denied , 356 N.C. 164, 568 S.E.2d 196 (2002). Once a fiduciary relationship is established, constructive fraud occurs when the director of the debtor-corporation takes advantage of the fiduciary relationship in order to benefit himself, and the plaintiff-creditor is injured as a result. White , 166 N.C. App. at 294, 603 S.E.2d at 156.

Several non-dispositive factors may be...