Mangum v Johnson, (02-190) 04/15/2003

Appeal by plaintiffs from order entered 21 September 2001 by Judge Wiley F. Bowen in Harnett County Superior Court. Heard in the Court of Appeals 30 October 2002.

Blanchard, Jenkins, Miller & Lewis, PA, by Philip R. Miller, III, for plaintiff appellants William H. Mangum and Lillington Ford, Inc.

Moore & Van Allen, PLLC, by Christopher J. Blake and Betsy Cooke, for defendant appellees T.J. Johnson and River Ford, Inc.

    TIMMONS-GOODSON, Judge.
    William H. Mangum (“Mangum”) and Lillington Ford, Inc. (“Lillington Ford”) (collectively, “plaintiffs”) appeal from an order of the trial court granting summary judgment in favor of Thomas J. Johnson (“Johnson”) and River Ford, Inc. (“River Ford”) (collectively, “defendants”) and declining to impose sanctions against Johnson. After careful consideration, we affirm the order of the trial court.
    The pertinent factual and procedural history of the instant appeal is as follows: On 11 February 1998, plaintiffs and a third individual, Fred Sexton (“Sexton”), filed a complaint against defendants and Henry Suggs (“Suggs”) in Wake County Superior Court. The complaint alleged that defendants and Suggs had committed unfair and deceptive trade practices and had deprived Mangum of his ownership and right of control of Lillington Ford, a North Carolina corporation with its principal place of business in Harnett County. On 25 November 1998, the trial court in Wake County entered an order transferring the case for hearing to Harnett County. All claims by Sexton, as well as all claims against the third-party defendants, were dismissed with prejudice on 4 April 2001. Plaintiffs voluntarily dismissed, without prejudice, all claims against Suggs on 18 October 2001, leaving only present plaintiffs and defendants as parties to the instant action.
    Defendants filed a motion for summary judgment, which was heard by the trial court on 20 August 2001. The evidence at the summary judgment hearing tended to show the following: In November 1990, Mangum and Suggs purchased Lillington Ford, an automobiledealership. According to the deposition given by Mangum, the two men planned to “purchase the dealership, and the agreement was that [Suggs] would have 50 percent of the stock and [Mangum] would have 50 percent.” Mangum never received any stock in the business, however, despite his persistent inquiries and requests. Further, Suggs controlled the day-to-day management of the business, excluding Mangum. The business relationship between the two men quickly deteriorated, resulting in a lawsuit filed by Mangum against Suggs to recover his ownership interest in the company. The case eventually settled in April of 1997, with Suggs and Lillington Ford agreeing in a consent judgment to pay Mangum for his interest in the business. Under the consent judgment, the first installment payment of $100,000.00 was due to be paid to Mangum on or before 1 May 1997.
    Meanwhile, Lillington Ford was experiencing serious financial distress under Sugg's management. By April of 1997, the business was “out of trust” with its primary creditor, Ford Motor Credit Company (“Ford”), for $100,000.00. In April of 1997, Suggs contacted Johnson, a business acquaintance in the automobile dealership industry, regarding possible financial assistance. Johnson had loaned Suggs money in the past, and Suggs had always repaid these loans. Johnson agreed to loan Suggs approximately $200,000.00 in order to pay the debts owed to Mangum and to Ford. Pursuant to this agreement, Johnson delivered to Mangum's attorney on 1 May 1997 two checks totaling $100,000.00, and also delivered checks to Ford covering the debts of Lillington Ford due on thatdate. That same day, Johnson entered into a stock purchase agreement with Suggs wherein he agreed to purchase sixty percent of Sugg's shares in Lillington Ford for the sum of $100,000.00. The stock purchase agreement stated that Suggs and Johnson had “reached certain other agreements with respect to the future operations of [Lillington Ford].” In his deposition, Johnson explained that these conditions included Sugg's resignation as president and Johnson's assumption of the daily operations of the dealership. Johnson further testified that, despite the stock purchase agreement, he never received the promised stock certificates, nor did Suggs relinquish management control of Lillington Ford.
    Despite Johnson's loans, Lillington Ford's financial condition continued to deteriorate. By September of 1997, it had ceased making payments it owed to Mangum pursuant to the consent judgment. John Sardinia (“Sardinia”), a branch manager with Ford, testified that Lillington Ford was once more “out of trust” for $71,000.00 by September of 1997. Because of Lillington Ford's poor financial condition, Ford sent “on site” representatives to the business in order to monitor its daily operations and protect Ford's interest in the dealership. On 18 September 1997, Ford filed a complaint against Lillington Ford in Harnett County Superior Court to recover outstanding amounts allegedly owed totaling $1,276,520.00.
    Once again, Suggs sought assistance from Johnson. On 14 October 1997, Johnson entered into an option contract to purchase the assets owned by Lillington Ford. The option to purchase the assets remained open for ninety days. On 21 October 1997, Johnsonentered into a further agreement with Lillington Ford authorizing Johnson to manage the assets of the business until the asset purchase agreement could be closed. The management agreement designated Johnson as Lillington Ford's “agent solely for the operation of the Dealership upon the Property during the term of this agreement.” The agreement further recited that
        The parties acknowledge that this Agreement creates the relationship of Manager being an independent contractor of Owner and this Agreement shall not be construed so as to create between Owner and Manager the relationship of master and servant, employer and employee, joint ventures, co-partner or any similar relationship. Manager hereby accepts such appointment and agrees to perform the duties incident thereto in a faithful manner and in the best interest of the Dealership, as an ongoing business.

Pursuant to the management agreement, Johnson assumed management of Lillington Ford on 21 October 1997. As manager, Johnson supervised the sale of automobiles and began paying the operating expenses incurred by Lillington Ford using checks that read “T.J. Johnson d/b/a Lillington Ford, Inc.” Sardinia testified that Ford was pleased to have Johnson manage Lillington Ford, in that active retail of Lillington Ford's inventory mitigated losses by Ford as Lillington Ford's creditor. According to Sardinia, Johnson saved Ford approximately $116,790.00 by keeping the business open and active.
    On 12 December 1997, Johnson drafted a “Notice of Bulk Transfer” to creditors of Lillington Ford informing them that, in order to pay Lillington Ford's existing debts, a bulk transfer of assets owned by Lillington Ford would take place on or about 22December 1997 pursuant to a “private repossession sale made by Ford Motor Credit Company, which holds a security interest in the assets to be transferred, for the price and upon the terms and conditions set out in [the 14 October 1997 agreement].”
    On 18 December 1997, Mangum filed a motion in the cause against Lillington Ford and Suggs for their default in payments to Mangum as required by the earlier consent judgment. In his motion, Mangum requested that the court award him one hundred percent of the stock ownership in Lillington Ford. On 20 January 1998, Ford obtained a default judgment against Lillington Ford in the amount of $1,276,520.00. On 26 January 1998, the trial court found that Lillington Ford and Suggs were in default of the consent judgment and entered an order decreeing Mangum to be the sole owner of one hundred percent of the stock in Lillington Ford. The order further required “agents and any purported officers, directors or fiduciaries” of Lillington Ford “to cease all transfers of assets.” Johnson's agreement to purchase the assets of Lillington Ford was thereafter never effectuated.
    In April of 1998, Lillington Ford ceased its operations. Ford thereafter sold the vehicle inventory and assets, leaving Ford with a deficiency of approximately $375,000.00. On 7 July 1999, Johnson purchased from Ford office furniture and fixtures formerly belonging to Lillington Ford.
    The cessation of Lillington Ford's operations left Harnett County with an available Ford dealership. Both Johnson and Mangum applied for the dealership, which was eventually awarded toJohnson. Johnson thereafter opened a Ford automobile dealership under the name “River Ford, Inc.”
    After considering all of the evidence and arguments by counsel, the trial court concluded that no genuine issues of material fact existed, and that defendants were entitled to judgment as a matter of law. Accordingly, the trial court entered an order in favor of defendants, from which order plaintiffs appeal.
    ____________________________________________________
    Plaintiffs contend that the trial court erred in granting summary judgment in favor of defendants, arguing that genuine issues of material fact exist concerning acts by Johnson constituting breach of fiduciary duty and unfair and deceptive trade practices. For the reasons set forth herein, we affirm the judgment of the trial court.
    Summary judgment is properly rendered if the pleadings, depositions, interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact and that any party is entitled to judgment as a matter of law. N.C. Gen. Stat. § 1A-1, Rule 56(c) (2001); Fordham v. Eason, 351 N.C. 151, 159, 521 S.E.2d 701, 706 (1999). The rule is designed to eliminate the necessity of a formal trial where only questions of law are involved and a fatal weakness in the claim of a party is exposed. See Hotel Corp. v. Taylor and Fletcher v. Foremans, Inc., 301 N.C. 200, 203, 271 S.E.2d 54, 57 (1980). When considering a motion for summary judgment, the trial judge mustview the evidence in a light most favorable to the nonmoving party. See Coats v. Jones, 63 N.C. App. 151, 154, 303 S.E.2d 655, 657 affirmed per curiam, 309 N.C. 815, 309 S.E.2d 253 (1983). “The party moving for summary judgment has the burden of establishing the lack of any triable issue.” Boudreau v. Baughman, 322 N.C. 331, 342, 368 S.E.2d 849, 858 (1988).
    In the instant case, plaintiffs argue they submitted ample evidence establishing that defendants owed them a fiduciary duty that was breached when defendants failed to contest or otherwise answer the lawsuit filed by Ford against Lillington Ford, resulting in a substantial default judgment entered against Lillington Ford. Defendants respond that they owed plaintiffs no fiduciary duty. Defendants further argue that, even if such a duty were owed, none of defendants' actions resulted in harm to plaintiffs, in that Lillington Ford's financial distress was caused entirely by Suggs, and not by defendants. We agree with defendants.
    To show breach of fiduciary duty, a plaintiff must first establish that a fiduciary relationship exists between the parties. See Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001); Curl v. Key, 311 N.C. 259, 264, 316 S.E.2d 272, 275 (1984). A fiduciary relationship exists where “'there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence'” extending “'to any possible case in which a fiduciary relationship exists in fact, and in which there is confidence reposed on one side, and resulting domination andinfluence on the other.'” Dalton, 353 N.C. at 651, 548 S.E.2d at 707-08 (quoting Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931)).
    Plaintiffs argue that Johnson “exercised dominion and control” over Lillington Ford to such extent that a fiduciary relationship arose between the parties. As evidence for their argument, plaintiffs note that Johnson: (1) entered into an agreement on 1 May 1997 to purchase stock in the dealership with the expressed intent of becoming an officer of the corporation; (2) entered into agreements to purchase the dealership's assets and to manage the daily operations; (3) became the “managing agent” of Lillington Ford; (4) personally paid some of the debts of the dealership; (5) wrote checks on behalf of the dealership that read “T.J. Johnson d/b/a Lillington Ford, Inc.;” and (6) applied for and received a motor vehicle surety bond from the North Carolina Division of Motor Vehicles. Based on these facts, plaintiffs assert that Johnson “exercised complete control over Lillington Ford, Inc. from May 1, 1997 until the demise of Lillington Ford in mid-1998.” We disagree with this assertion.
    Although Johnson entered into a stock purchase agreement with Suggs in May of 1997, there is no evidence that he actually received the stock certificates, or ever held an ownership interest in the dealership. Johnson testified that, despite the agreement, he never acquired the stock from Suggs, and plaintiffs offer no evidence to the contrary. In fact, Suggs' dealings with Johnson appear to mirror his dealings with Mangum, who, like Johnson, neverreceived from Suggs the stock certificates to which he was entitled. Further, there is no evidence that Johnson ever became an officer or director of Lillington Ford, regardless of any expressed intent on Johnson's part. Thus, plaintiffs have failed to show that Johnson owed them any duty as a shareholder or officer of the corporation.
    Further, although it is clear that Johnson assumed management of Lillington Ford on 21 October 1997, such employment did not create a fiduciary duty toward the corporation. Under the general rule, “[t]he relation of employer and employee is not one of those regarded as confidential.” King v. R.R., 157 N.C. 44, 62, 72 S.E. 801, 808 (1911); see also Hiatt v. Burlington Industries, 55 N.C. App. 523, 529, 286 S.E.2d 566, 569, disc. rev. denied, 305 N.C. 395, 290 S.E.2d 365 (1982).
    In Dalton, our Supreme Court examined the fiduciary duty owed by a manager to his employer. The plaintiff-employer in Dalton brought a lawsuit against a former manager of the plaintiff- employer's business, alleging that the defendant-manager had breached his fiduciary duty by establishing a competing corporation while employed by the plaintiff-employer. As manager, the defendant's duties included “overseeing the business's day-to-day operations by ordering parts and supplies, operating within budgetary constraints, and meeting production deadlines.” Dalton, 353 N.C. at 652, 548 S.E.2d at 708. The Court held that, although the defendant-manager's “duties . . . were such that a certain level of confidence was reposed in him by [the plaintiff-employer]”and even though the defendant-manager was “bound to act in good faith and with due regard to the interests of [the plaintiff- employer],” the plaintiff-employer had nevertheless failed to establish that a fiduciary relationship existed between the parties. Id. This was because there was no “evidence [to] suggest[] that [the defendant-manager's] position in the workplace resulted in 'dominion and influence on the other [plaintiff- employer],' an essential component of any fiduciary relationship.” Id.
    Despite their assertions to the contrary, plaintiffs in the instant case fail to establish that Johnson's position as manager of Lillington Ford resulted in such “dominion and influence” over the dealership that a fiduciary relationship was created. As manager, Johnson agreed to “perform [his] duties . . . in a faithful manner and in the best interest of the Dealership, as an ongoing business.” Thus, Johnson owed Lillington Ford a duty to act in good faith and with due regard to the interests of the dealership, which duty Johnson fulfilled by actively retailing the dealership's inventory, thereby mitigating Lillington Ford's debt to Ford, its primary creditor.
    Even assuming arguendo that a fiduciary relationship giving rise to a fiduciary duty existed between the parties, plaintiffs have failed to demonstrate that Johnson breached such duty. The evidence tended to show that Lillington Ford's financial distress occurred well before Johnson's management tenure. In fact, Sardinia testified that Johnson's management of Lillington Fordavoided further losses by the dealership, and that Johnson personally paid for some of Lillington Ford's debt. Plaintiffs nevertheless argue that Johnson breached his fiduciary duty by failing to contest the lawsuit filed by Ford against Lillington Ford to recover monies owed, resulting in a substantial default judgment entered against Lillington Ford. Plaintiffs do not contest, however, the validity of Ford's claim, nor do they identify any possible defenses Johnson could or should have raised to the lawsuit, particularly as the debt arose well before Johnson became manager. Because plaintiffs presented insufficient evidence that defendants breached any fiduciary duty owed to plaintiffs, the trial court properly concluded that defendants were entitled to summary judgment on this claim. We overrule this assignment of error.
    By further assignment of error, plaintiffs argue that the trial court erred by granting summary judgment in favor of defendants on plaintiffs' claim of unfair and deceptive trade practices. Plaintiffs contend that the same evidence supporting their claim for breach of fiduciary duty constitutes the basis for their claim of unfair and deceptive trade practices. Given our resolution of the foregoing argument, we conclude that plaintiffs have failed to present any genuine issue of material fact regarding their claim for unfair and deceptive trade practices. The trial court properly granted summary judgment to defendants on this claim, and we therefore overrule this assignment of error.
    By their final assignment of error, plaintiffs argue that thetrial court erred in declining to impose contempt sanctions against Johnson. Plaintiffs concede that this assignment of error is dependent upon this Court's determination that the trial court erred in granting summary judgment to defendants. As we have concluded that the trial court properly granted summary judgment to defendants, this assignment of error is overruled.
    In conclusion, we hold that the trial court did not err in granting summary judgment to defendants and in declining to impose contempt sanctions against Johnson. The order of the trial court is hereby
    Affirmed.
    Judges WYNN and HUNTER concur.
    Report per Rule 30(e).

*** Converted from WordPerfect ***