Dalton v. Camp, COA98-1330.

• Decision Date: 21 September 1999
• Docket Number: No. COA98-1330.,COA98-1330.
• Citation: 519 S.E.2d 82,135 NC App. 32
• Court: North Carolina Court of Appeals
• Parties: Robert Earl DALTON d/b/a B. Dalton & Company, Plaintiff, v. David CAMP, Nancy J. Menius and Millennium Communication Concepts, Inc., Defendants.

519 S.E.2d 82

135 NC App. 32

Robert Earl DALTON d/b/a B. Dalton & Company, Plaintiff, v. David CAMP, Nancy J. Menius and Millennium Communication Concepts, Inc., Defendants.

No. COA98-1330.

Court of Appeals of North Carolina.

September 21, 1999.

Moser Schmidly Mason & Roose, by Stephen S. Schmidly and Andrew K. McVey, Asheboro, for plaintiff-appellant.

Wyatt Early Harris & Wheeler, L.L.P., by William E. Wheeler, High Point, for defendant-appellees.

EAGLES, Chief Judge.

This appeal arises out of a former employer's allegations of unfair competitive activity by employees and their new corporation.

Plaintiff Robert Earl Dalton d/b/a B. Dalton & Company engages in the business of selling advertisements and publishing employment magazines. In July of 1993, plaintiff obtained the rights to publish the employment magazine for Klaussner Furniture Industries, Inc. (KFI) for a three-year period. The agreement called for Klaussner to pay all print charges of $3,575.00 per issue. Plaintiff then hired defendant David Camp as his General Manager. Plaintiff gave Camp full responsibility for the KFI publication. Plaintiff later acquired rights to publish several other employee magazines and gave full responsibility to Camp for those publications. Camp alleges that at the time of his initial employment, plaintiff promised that he would offer Camp an ownership interest in the company in the near future. In December of 1995, plaintiff hired defendant Nancy Menius. Both defendants were at-will employees and neither had "a covenant not to compete" with plaintiff.

In March of 1994, plaintiff published the first issue of KFI's magazine Inside Klaussner. Plaintiff continued to produce the magazine over the next three years. KFI officials expressed satisfaction with the plaintiff's efforts.

On or about 15 January 1997, plaintiff and both defendant Menius and Camp entered discussions with KFI officials about renewing the publication agreement. Among the topics discussed was a price reduction that KFI expected to receive from plaintiff. Plaintiff said he would "get back to" KFI. Plaintiff alleges that the parties left this meeting with an understanding that the current publishing relationship would continue. Immediately following the meeting, Camp engaged in the first of a series of discussions with KFI's representative, Mark Walker. Plaintiff alleges that many of these discussions took place while Camp was at KFI's place of business in connection with his duties as plaintiff's general manager. Defendants respond that Walker initiated each conversation and that Camp never pressured Walker to do business with him.

In February 1997, plaintiff alleges Menius engaged in several conversations with her fellow employee, Camp, about forming a competing company. Defendants claim that no "serious" conversations took place until after defendant Menius resigned on 28 February 1997. Following her resignation, both defendants prepared a business plan for defendant Millennium Communication Concepts, Inc. (MCC). In March 1997, defendants submitted their business plan to a lending institution and represented Camp to be a former employee of plaintiff. On 13 March 1997, Menius incorporated MCC with defendants being the sole officers, directors, and shareholders. Also in March, MCC entered into a written publishing contract with KFI. This contract gave MCC the exclusive right to publish Inside Klaussner for twenty months beginning in May 1997. The contract called for KFI to pay the printing costs of $3,245.00 per month and to pay all production costs of $1,227.00 per month. Camp signed the contract on behalf of MCC while still employed by plaintiff. On 26 March 1997, Camp resigned from plaintiff's employment and informed plaintiff of his activities. Subsequently, MCC obtained the business of several of plaintiff's other customers.

Plaintiff sued Camp, Menius, and MCC alleging breach of the fiduciary duty of loyalty, conspiracy to appropriate customers, tortious interference with contract, interference with prospective advantage and unfair and deceptive trade practices under Chapter 75. Judge Peter M. McHugh dismissed plaintiff's claim for tortious interference with contractual and business relations on 12 September 1997. Prior to trial on the remaining claims Judge H.W. Zimmerman, Jr. granted defendants' motion for summary judgment on 13 July 1998. Plaintiff appeals from the order granting summary judgment only.

Plaintiff contends that the trial court erred in granting summary judgment, arguing that there were genuine issues of material fact concerning defendants' actions. Summary judgment is properly granted "if 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 and that any party is entitled to judgment as a matter of law." N.C.R. Civ. P. 56(c); Toole v. State Farm Mut. Auto. Ins. Co., 127 N.C.App. 291, 294, 488 S.E.2d 833, 835 (1997). All of the evidence is viewed in the light most favorable to the nonmoving party. Coats v. Jones, 63 N.C.App. 151, 303 S.E.2d 655 (1983), aff'd, 309 N.C. 815, 309 S.E.2d 253 (1983). The movant bears the burden of proving the absence of any genuine issue of material fact. Holley v. Burroughs Wellcome Co., 318 N.C. 352, 348 S.E.2d 772 (1986).

I. Breach of the Duty of Loyalty

We first consider plaintiff's claims for breach of the duty of loyalty. One may create a confidential or fiduciary relationship with another by instilling a special confidence in him. See Speck v. N.C. Dairy Foundation, 311 N.C. 679, 685, 319 S.E.2d 139, 143 (1984), citing Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931). The existence of such a relationship binds the individual to act with good faith and loyalty towards the one instilling confidence. Id.; Sara Lee Corp. v. Carter, 129 N.C.App. 464, 470, 500 S.E.2d 732, 736, disc. review allowed, 349 N.C. 232, 514 S.E.2d 271 (1998). An employee must faithfully serve his employer and perform his duties with reasonable diligence, care, and attention. McKnight v. Simpson's Beauty Supply, Inc., 86 N.C.App. 451, 453, 358 S.E.2d 107, 109 (1987). Where an employee deliberately acquires an interest adverse to his employer, he is disloyal. In Re Burris, 263 N.C. 793, 795, 140 S.E.2d 408, 410 (1965).

Plaintiff claims that summary judgment is inappropriate because there is a genuine issue of material fact as to whether Camp breached his duty of loyalty. We agree. Plaintiff placed Camp in the position of General Manager and gave him sole responsibility over plaintiff's publications. The evidence shows that defendant Camp was responsible for editing, designing, and publishing plaintiff's magazines. Additionally, defendant Camp handled the payroll, checkbook, and accounts dealing with the plaintiff's publications. His responsibilities necessarily included some "one on one" contact with customers including monthly contacts with KFI's representatives. Plaintiff argues that by this pattern of dealing he instilled special confidence in Camp. Accordingly, plaintiff contends that Camp was required to be loyal to plaintiff.

Plaintiff presented evidence that defendant Camp began discussions with Mark Walker of KFI, while still plaintiff's employee. Those conversations all occurred while Camp was on official business for plaintiff. In those discussions, Camp expressed dissatisfaction with the plaintiff and raised the possibility of forming his own company. Walker and Camp also considered the possibility of Camp publishing KFI's magazine. The talks culminated in the signing of an exclusive publication agreement between Camp and KFI. This signing took place before Camp left plaintiff's employment. Camp did not disclose to plaintiff his adverse activities prior to resigning his employment. Menius and Camp went to talk with another of plaintiff's customers, Acme-McCrary, while plaintiff still employed Camp. Menius admitted that she and Camp solicited Acme-McCrary's business. Defendants argue that Fletcher, Barnhardt & White, Inc. v. Matthews, 100 N.C.App. 436, 397 S.E.2d 81 (1990),disc. review denied, 328 N.C. 89, 402 S.E.2d 411 (1991) controls here. However, Fletcher dealt with the situation where the employee had merely prepared to compete with his employer. Id. at 441, 397 S.E.2d at 84. This Court stated that merely forming a company is not enough to find a breach of a fiduciary duty. Id. From plaintiff's forecast of the evidence, it appears that Camp's actions went beyond merely forming a company. Therefore, plaintiff has presented a genuine issue of material fact as to whether Camp went beyond merely preparing to compete. If Camp, while he was plaintiff's employee, was actually competing without plaintiff's consent, then he has breached his duty of loyalty. See Long v. Vertical Technologies, Inc., 113 N.C.App. 598, 439 S.E.2d 797(1994); In re Burris, 263 N.C. at 795, 140 S.E.2d at 410. Therefore, summary judgment was improper.

Plaintiff argues that he has presented a genuine issue of material fact as to whether Menius breached her duty of loyalty. We disagree. At the most, plaintiff has shown that Menius discussed forming a new company with Camp while plaintiff employed her. There was no showing that Menius talked with Walker one on one prior to her leaving plaintiff's employment nor any showing that she was bound by a covenant not to compete. Plaintiff acknowledges that Menius engaged in most of her questioned conduct after she left plaintiff's employment. Menius's activities while employed by plaintiff may be best described as mere preparations to compete. Merely preparing to compete is not a breach of the duty of loyalty. See Fletcher, 100 N.C.App. at 441-42, 397 S.E.2d at 84. Therefore, summary judgment was proper as to Menius.

II. Chapter 75 Unfair and Deceptive Trade Practices

Plaintiff argues that he has presented a genuine question of material fact as to...