Campbell v Bowman, (05-16) 11/15/2005

Appeal by plaintiffs from judgment entered 22 July 2004 by Judge Anderson D. Cromer in Guilford County Superior Court. Heard in the Court of Appeals 25 August 2005.

Clark Bloss & Wall, by John F. Bloss, for plaintiffs- appellants.

Henson & Henson, L.L.P., by Perry C. Henson, Jr. and Karen Strom Talley, for defendant-appellee.

    ELMORE, Judge.

    Plaintiffs Barbara Wilkinson Campbell (Ms. Campbell) and Debra S. Alyea (Ms. Alyea) are sisters. Ms. Campbell met John Anthony Burris (Tony Burris) in the early 1990's when she hired him to give her daughters horse riding lessons, and the two became close friends. Tony Burris owned a horse barn, which Ms. Campbell agreed to finance with a loan of $57,000.00 with a seven percent interest rate. Defendant Christopher K. Bowman (Bowman) and Tony Burris metwhen they were both firefighters employed by the Greensboro Fire Department. Tony Burris and Bowman began a prepaid phone card business called Lasso Communications and, in August of 1996, Ms. Campbell paid Tony Burris $300,000.00 in connection with this business. Ms. Campbell stated that she provided the $300,000.00 based upon Burris's promise that the money would be either an investment in or a loan to the business.
    In September of 1997, Tony Burris and Bowman decided to get out of the prepaid phone card business and began an oxygenated bottled water business. Tony Burris stated that he rolled over the $300,000.00 from Ms. Campbell into the bottled water company, which was incorporated as “Aquoforce.” Ms. Campbell testified in her deposition that Tony Burris told her that she would receive 3% of Aquoforce product sales. In fact, Ms. Campbell did not subsequently receive any percentage of the sales and was not issued any certificates of stock. Tony Burris and Bowman each received 47.5% of the stock, and David Burch received 5%. Bowman was a director of Aquoforce and the President of the company. Tony Burris was a director and the company's Vice President.
    In May of 1998, Tony Burris asked Ms. Campbell if Ms. Alyea would be interested in investing in Aquoforce. Ms. Alyea agreed and wired $20,000.00 to Ms. Campbell, who paid it to Tony Burris. Later that month, Tony Burris informed Ms. Campbell that the company needed additional capital. Ms. Campbell paid $20,000.00 to Tony Burris in July of 1998. In April of 1999, Tony Burris asked Ms. Campbell for another investment and told her that NASCAR driverWally Dallenbach would find some investors to invest $500,000.00 in Aquoforce and that the money would be repaid to her within a few days. Based upon this information, Ms. Campbell then paid Tony Burris $40,000.00. In May, Ms. Alyea sent $30,000.00 to Ms. Campbell for delivery to Tony Burris after he told Ms. Campbell that Aquoforce was selling $100,000.00 in stock and expanding its bottling facilities. In July of 1999, Tony Burris told Ms. Campbell that he had lined up ten investors to invest $100,000.00 each in Aquoforce and that Wal-Mart was interested in stocking Aquoforce water. After receiving this information, Ms. Campbell paid $30,000.00 and Ms. Alyea paid $50,000.00 to Tony Burris.
    The final transaction, as alleged by plaintiffs, occurred in March of 2000 when Tony Burris told Ms. Campbell that Aquoforce needed $70,000.00 within two days or it would lose its exclusive rights to a water supplement. Ms. Campbell advised Tony Burris that she would incur a penalty if she withdrew money from an investment account, but Tony Burris said it was an emergency and that Wally Dallenbach would provide money to the company within a few days and that she would be repaid in full. Ms. Campbell thereafter withdrew $70,000.00 and paid it to Tony Burris. Wally Dallenbach testified that he never stated that he was going to obtain money to invest in the business.
    Plaintiffs filed an action against Tony Burris and Aquoforce on 18 April 2002. Plaintiffs filed an amended complaint, adding Bowman and other defendants, on 6 December 2002. The amended complaint alleged, inter alia, that Bowman conspired with TonyBurris to make false representations with the intent to deceive plaintiffs and to induce plaintiffs to loan money to Burris. Plaintiffs filed a voluntary dismissal without prejudice on 5 May 2003. The complaint in the instant action was filed on 25 June 2003. The trial court granted defendant Bowman's motion for summary judgment on all claims on 22 July 2004. Plaintiffs settled with the remaining defendants and voluntarily dismissed the action against these defendants on 3 August 2004. On 10 August 2004 plaintiffs filed notice of appeal to this Court from the entry of summary judgment in favor of Bowman.
    Plaintiffs contend that the trial court erred in dismissing the following claims: actual fraud, constructive fraud, unfair and deceptive trade practices in violation of Chapter 75 of our General Statutes, and violation of N.C. Gen. Stat. § 75D-1 et seq., the North Carolina Racketeer Influenced and Corrupt Organizations Act.

As a basis for affirming the grant of summary judgment on plaintiffs' claim for actual fraud, defendant argues that this claim is barred by the applicable statute of limitations. See N.C. Gen. Stat. § 1-52(9) (2003) (statute of limitations governing action for fraud is three years; cause of action does not accrue until discovery of facts constituting the fraud). Plaintiffs filed the instant action on 25 June 2003, and the most recent fraudulent statement alleged occurred on 30 March 2000, more than three years earlier. Defendant contends that plaintiffs should have discovered the alleged fraud when Ms. Campbell was not repaid her $70,000.00loan to the company within a few days of the March transaction, as promised by Tony Burris. However, as plaintiffs correctly point out, the determination of when a plaintiff in the exercise of reasonable care should have discovered the fraud is ordinarily a question of fact for the jury. See Hunter v. Guardian Life Ins. Co. of Am., 162 N.C. App. 477, 486, 593 S.E.2d 595, 601, disc. review denied, 358 N.C. 543, 599 S.E.2d 48 (2004). We need not address whether as a matter of law plaintiffs should have discovered the alleged fraud earlier because we find that plaintiffs' claim fails for lack of sufficient evidence of each essential element.
The elements of a claim for actual fraud are “(1) a 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.” Allen v. Simmons, 99 N.C. App. 636, 642, 394 S.E.2d 478, 482 (1990) (internal quotation omitted). It is undisputed that Bowman made no false representations to plaintiffs. Instead, plaintiffs assert that Bowman concealed information that Wally Dallenbach was not planning to procure investors for Aquoforce when Bowman knew that Tony Burris had represented falsely to plaintiffs that they would be repaid with Wally Dallenbach's investment money. However, the record is simply devoid of evidence that Bowman concealed any information material to plaintiffs' investments. Indeed, Bowman never spoke to plaintiffs regarding the possibility of investors through Wally Dallenbach. Accordingly, we find thatthe trial court properly granted summary judgment to defendant Bowman on plaintiffs' actual fraud claim.

    In order to defeat a motion for summary judgment on a claim for constructive fraud, the plaintiff must forecast evidence of “a relation of trust and confidence . . . 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 to the hurt of plaintiff.” Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666, 488 S.E.2d 215, 224 (1997) (internal quotation omitted). The basis for a constructive fraud claim, as opposed to a claim for actual fraud, is the existence of a confidential or fiduciary relationship. Id.
    Plaintiffs argue that Bowman, as a director and officer of Aquoforce, owed plaintiffs a fiduciary duty. However, plaintiffs have not presented facts in support of this allegation of a fiduciary relationship. Plaintiffs assert that they were owed a duty as shareholders of the company; yet, plaintiffs were not issued any stock certificates evidencing an ownership of stock. Plaintiffs' status as investors of the company, without more, does not create a fiduciary relationship. See Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 57, 554 S.E.2d 840, 845 (2001) (duties of corporation directors do not ordinarily run to creditors). Plaintiffs do not contend that they were owed a duty as personal guarantors of loans to Aquoforce. Cf. Barger, 346 N.C. at 661, 488 S.E.2d at 221 (plaintiffs alleged that a defendant'srepresentations induced them to personally guarantee several loans to the defendant company and that this created a relationship of trust). Also, plaintiffs do not assert that they were business partners with Bowman and that this was the basis of a fiduciary relationship. Cf. Marketplace Antique Mall, Inc. v. Lewis, 163 N.C. App. 596, 600, 594 S.E.2d 121, 124-25 (evidence that plaintiff and defendant were equal partners in two antique furniture businesses was sufficient evidence that they were business partners and thus in a fiduciary relationship), disc. review denied, 358 N.C. 544, 599 S.E.2d 399 (2004).
    Another element of constructive fraud is that the defendant sought to benefit himself from the transaction. See Barger, 346 N.C. at 666, 488 S.E.2d at 224 (“the defendant must seek his own advantage in the transaction; that is, the defendant must seek to benefit himself”). Here, plaintiffs have not forecast evidence, by affidavit or otherwise, that they were involved in any transaction with Bowman. Nor do plaintiffs argue that Bowman arranged transactions between Burris and plaintiffs and thereby sought to benefit himself. Instead, plaintiffs assert that Tony Burris used his position of trust with plaintiffs to bring about payment of funds into Aquoforce and that these funds were diverted from the company to the benefit of the company's directors. As plaintiffs cannot show specific facts creating a triable issue that Bowman participated in a transaction through which he sought to benefit himself, their constructive fraud claim cannot survive summary judgment. See Briley v. Farabow, 348 N.C. 537, 544, 501 S.E.2d649, 654 (1998) (conclusory allegations cannot create genuine issue of material fact).

Next, plaintiffs assert that there was sufficient evidence to create a genuine issue of material fact on their claim for violation of N.C. Gen. Stat. § 75-1.1. To prevail on a claim for unfair or deceptive trade practices, a plaintiff must establish “(1) defendant engaged in an unfair or deceptive practice or act, (2) in or affecting commerce, and (3) such act proximately caused actual injury to the plaintiff.” Governor's Club, Inc. v. Governor's Club Ltd. P'ship, 152 N.C. App. 240, 250, 567 S.E.2d 781 788 (2002) (internal quotations omitted), aff'd per curiam, 357 N.C. 46, 577 S.E.2d 620 (2003). Plaintiffs cite to Governor's Club, 152 N.C. App. at 250, 567 S.E.2d at 788 (“allegations sufficient to allege constructive fraud are likewise sufficient to allege unfair and deceptive trade practices”), in arguing that constructive fraud by a company director or officer constitutes sufficient evidence of an unfair act or practice. But plaintiffs have failed to forecast evidence of a relation of trust and confidence between Bowman and plaintiffs and thus cannot establish all elements of constructive fraud. Absent evidence of a fiduciary relationship between Bowman and plaintiffs, plaintiffs cannot show that Bowman engaged in an unfair or deceptive act within the purview of N.C. Gen. Stat. § 75-1.1. As such, the trial court properly granted defendant Bowman's motion for summary judgment on the unfair and deceptive trade practices claim.

    Finally, plaintiffs assert that Bowman's conduct was a violation of the North Carolina Racketeer Influenced and Corrupt Organizations (RICO) Act, which provides in pertinent part as follows:
        (a) No person shall:

        (1) Engage in a pattern of racketeering activity or, through a pattern of racketeering activities or through proceeds derived therefrom, acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money; or

        (2) Conduct or participate in, directly or indirectly, any enterprise through a pattern of racketeering activity whether indirectly, or employed by or associated with such enterprise; or

        (3) Conspire with another or attempt to violate any of the provisions of subdivision (1) or (2) of this subsection.

        (b) Violation of this section is inequitable and constitutes a civil offense only and is not a crime, therefore a mens rea or criminal intent is not an essential element of any of the civil offenses set forth in this section.

N.C. Gen. Stat. § 75D-4 (2003). Racketeering activities include most offenses stated in Chapter 14 of the General Statutes. See N.C. Gen. Stat. § 75D-3(c)(1)(b) (2003). Plaintiffs assert claims of embezzlement and malfeasance of a corporate officer against Bowman for writing checks from the Aquoforce account to himself. Embezzlement and malfeasance of a corporate officer are among those offenses within the definition of racketeering activity.    At the outset, we must emphasize that plaintiffs' RICO claim is not against Tony Burris. To the extent that plaintiffs attempt to hold Bowman liable under RICO based in part upon Burris's fraudulent statements to plaintiffs to induce their investments, we reject the use of the RICO Act to reach that result. Even assuming plaintiffs could satisfy all elements of a breach of fiduciary duty by Bowman as a director, this act is not within the definition of racketeering activities. See N.C. Gen. Stat. § 75D-3(c)(1)(b) (listing criminal offenses); Heath v. Craighill, Rendleman, Ingle & Blythe, 97 N.C. App. 236, 244, 388 S.E.2d 178, 183 (breach of fiduciary duty is a negligence or professional malpractice claim), disc. review denied, 327 N.C. 428, 395 S.E.2d 678 (1990).
    In determining whether plaintiffs' claims against Bowman for writing checks to himself are within the scope of the RICO Act, we consider the express legislative intent stated therein. Section 75D-2 of the Act, “Findings and intent of General Assembly,” states:
        It is not the intent of the General Assembly that this Chapter apply to isolated and unrelated incidents of unlawful conduct but only to an interrelated pattern of organized unlawful activity, the purpose or effect of which is to derive pecuniary gain. Further, it is not the intent of the General Assembly that legitimate business organizations doing business in this State, having no connection to, or any relationship or involvement with organized unlawful elements, groups or activities be subject to suit under the provisions of this Chapter.

N.C. Gen. Stat. § 75D-2(c) (2003). The General Assembly delineated the scope of the Act clearly with reference to organized unlawfulactivities. This Court has had previous occasion to examine the breadth of the North Carolina RICO Act in Kaplan v. Prolife Action League of Greensboro, 123 N.C. App. 720, 475 S.E.2d 247 (1996), modified and aff'd per curiam, 347 N.C. 342, 493 S.E.2d 416 (1997). There, we explained:
        The plain language of the statute, coupled with the legislative intent, clearly indicates the scope of NC RICO is limited to cases where pecuniary gain is derived from organized unlawful activity prohibited under the statute. Put simply, section 75D-2(c) requires the aggrieved party to establish a causal connection between the alleged pecuniary gain and defendant's activities which allegedly violate section 75D-4.

Kaplan, 123 N.C. App. at 724, 475 S.E.2d at 251. Kaplan did not address the organized aspect of the unlawful activities asserted by the plaintiffs therein but instead focused on the pecuniary gain requirement. Here, by contrast, we determine the limits of RICO's applicability where the underlying dispute between investors and an officer of a corporation does not implicate organized criminal activities. As the General Assembly did not intend that an investor's claim to recoup money lost through a failed financial venture with no larger criminal scope could be the basis of a RICO claim, we hold that Bowman's conduct is not within the scope of the North Carolina RICO Act.
     The trial court properly granted summary judgment on each of plaintiffs' claims against defendant Bowman. We affirm.
    Affirmed.
    Judges TIMMONS-GOODSON and HUDSON concur.
    Judge TIMMONS-GOODSON concurred in this opinion prior to 31 October 2005
    Report per Rule 30(e).

*** Converted from WordPerfect ***