Freese v. Smith

• Decision Date: 04 May 1993
• Docket Number: No. 9226SC45,9226SC45
• Citation: 428 S.E.2d 841,110 N.C.App. 28
• Parties: Howard L. FREESE, v. George R. SMITH.
• Court: North Carolina Court of Appeals

Page 841

428 S.E.2d 841

110 N.C.App. 28

Howard L. FREESE, v. George R. SMITH.

No. 9226SC45.

Court of Appeals of North Carolina.

May 4, 1993.

Horack, Talley, Pharr & Lowndes, P.A. by Neil C. Williams, Charlotte, for plaintiff-appellant.

Weinstein & Sturges, P.A. by Thomas D. Myrick and James P. Crews, Charlotte, for defendant-appellee.

LEWIS, Judge.

The facts of this case arise out of a stock purchase agreement between Howard Freese (the "plaintiff") and George Smith (the "defendant") for shares in E.J. Smith & Sons Company ("EJS"), a company owned almost exclusively by defendant. EJS was a wholesale distributor of turf maintenance and irrigation equipment. However, in 1987, EJS was in financial difficulty and the defendant began to seek new capital for EJS. Defendant employed the services of Ronald Norelli to conduct a strategic feasibility study. It was the opinion of Mr. Norelli that EJS needed an infusion of $1.5 million in capital to survive, and contrary to the defendant's plan the irrigation division of EJS should not be sold to defendant's son. Mr. Norelli also recommended that if EJS did not receive the $1.5 million infusion of capital then an orderly dissolution of EJS would be necessary. Unhappy with these recommendations, defendant discharged Mr. Norelli and hired the Finley Group for further consultation. Late in 1987, seeking to generate more capital for EJS, Tim Finley of the Finley Group approached plaintiff to see if he was interested in investing in EJS. After doing extensive independent research, plaintiff invested $250,000 in EJS in February of 1988 in exchange for a 45% ownership interest in the company and assumed the duties of President of EJS.

After plaintiff's investment the business prospects of EJS declined drastically and on 7 November 1988, defendant terminated plaintiff's employment. Eventually, EJS was forced into involuntary bankruptcy by three of its creditors. Plaintiff seeks damages for breach of duty of good faith, fraud, breach of fiduciary duty, breach of contract, rescission, unjust enrichment, and unfair and deceptive trade practices. After numerous pretrial motions and volumes of discovery, this matter came to trial on 15 July 1991. At the conclusion of plaintiff's evidence defendant moved for and was granted a directed verdict on all claims. Plaintiff appeals.

I.

In his first assignment of error, plaintiff claims that the trial court erred in denying his motion to amend his complaint approximately 9 months prior to trial. We do not agree. When the complaint in this action was originally filed, plaintiff was represented by the law firm of James, McElroy & Diehl, P.A. Sometime after defendant's answer, but prior to trial, they were allowed to withdraw and plaintiff engaged the services of Horack, Talley, Pharr & Lowndes. On 12 October 1990, plaintiff's new attorney filed a motion to amend plaintiff's complaint to include a cause of action under N.C.G.S. § 78A-56(a)(2) which provides in pertinent part:

(a) Any person who: ...

(2) Offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of the untruth or omission), and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person purchasing the security from him....

N.C.G.S. § 78A-56(a)(2) (Cum.Supp.1992) (emphasis added).

When plaintiff's new counsel filed the motion to amend, almost two years had elapsed since the filing of the original complaint. During those two years all of the pretrial discovery, which consisted of over 3000 documents and many days of depositions, had been completed and the case had already been scheduled for trial at least once. At the request of plaintiff and with the consent of defendant, the original trial date of 11 June 1990 was rescheduled for the week of 1 October 1990. Again at the request of plaintiff, on 13 September 1990 the parties entered into a consent order to move the trial to 19 November 1990. However, no Civil Session of Superior Court was scheduled in Mecklenburg County for the week of 19 November 1990 and the trial was reset for the next available date which was 15 April 1991.

Plaintiff's motion to amend was not actually heard until 2 November 1990, two weeks prior to the scheduled trial date of 19 November 1990. The record is not clear whether plaintiff's motion was made before or after the trial date was moved to 15 April 1991, but based upon the evidence available, the trial court denied plaintiff's motion to amend and made detailed findings of fact in support of its conclusion. The trial court noted that plaintiff's amended complaint sought to add a cause of action under N.C.G.S. § 78A-56(a)(2), but that § 78A-56(f) provided that no person could sue under that section more than two years after the contract of sale. There is no doubt that plaintiff's amendment was outside the two years contemplated by N.C.G.S. § 78A-56(f). In addition, the trial court noted that a cause of action under § 78A-56(a)(2) would have the effect of shifting the burden of proof to the defendant. The trial court also found as fact that the relief sought in the proposed amendment could be attained by proving the other allegations contained in the complaint. Given this information and the late date at which the amendment was sought, the trial court denied plaintiff's motion on the basis that it would be unfairly prejudicial to the defendant.

Amendments to pleading are governed by N.C.G.S. § 1A-1, Rule 15(a) (1990) which provides:

A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 30 days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.

(Emphasis added). It is clear that plaintiff did not file his amended complaint before the defendant answered. Therefore the only way in which the plaintiff could have amended his complaint was with the written permission of the defendant which was not granted, or by leave of court.

"A motion to amend is addressed to the sound discretion of the trial judge and the denial of such motion is not reviewable absent a clear showing of abuse of discretion." House of Raeford Farms, Inc. v. City of Raeford, 104 N.C.App. 280, 282, 408 S.E.2d 885, 887 (1991) (citation omitted). Although the trial court is not required to state reasons for its denial of a motion to amend, orally or in writing, the trial court here chose to do so. Therefore, we will be guided by the factors the trial court considered in denying plaintiff's motion.

In its order, the trial court specifically noted that undue prejudice would result to the defendant if the amendment was allowed. Given the vast amount of discovery that had taken place and the potential that the burden of proof would have shifted to the defendant, we agree that undue prejudice would have resulted. Plaintiff argues that his amendment did not change the facts of the case, but instead merely applied the proper legal theory to the facts. According to plaintiff since the facts are the same no prejudice would result to defendant even though the period for discovery had passed. We do not agree because the addition of a new legal theory may well have changed defendant's approach to discovery. Plaintiff's first assignment of error is overruled.

II.

For his second assignment of error, plaintiff argues that it was error for the trial court to grant defendant's motion for a directed verdict at the conclusion of plaintiff's evidence. As to this assignment of error, we do agree. Unlike the trial judge who denied plaintiff's motion to amend, the trial judge who granted defendant's directed verdict did not provide us with specific findings of fact as to why the defendant's motion for a directed verdict was granted. Instead, the trial court simply said in open court: "The motion made by the Defendant for a directed verdict is granted." When asked by plaintiff's counsel if the ruling applied to all counts of the complaint, the trial court responded in the affirmative. In his brief, plaintiff has only argued the propriety of the trial court's ruling as to three of his claims: common law fraud, breach of contract and breach of fiduciary duty. Therefore, we will only consider the appropriateness of the trial court's order as to these three theories and plaintiff's remaining theories for recovery are deemed abandoned.

The purpose of a motion for a directed verdict is to test the legal sufficiency of the evidence to take the case to the jury. DeHart v. R/S Fin. Corp., 78 N.C.App. 93, 337 S.E.2d 94 (1985), disc. rev. denied, 316 N.C. 376, 342 S.E.2d 893 (1986). The trial court, in deciding on a motion for a directed verdict, must determine whether the evidence in the light most favorable to the nonmovant is sufficient to take the case to the jury. Southern Bell Tel. & Tel. Co. v. West, 100 N.C.App. 668, 397 S.E.2d 765 (1990), aff'd, 328 N.C. 566, 402 S.E.2d 409 (1991). In making this determination a directed verdict should be denied if there is more than a scintilla of evidence supporting each element of the nonmovant's case. Snead v. Holloman, 101 N.C.App. 462, 400 S.E.2d 91 (1991). To decide whether there is more than a scintilla of evidence on a defendant's motion for directed verdict, all of the plaintiff's evidence must be taken as true, and the evidence must be considered in the light most favorable to the plaintiff, giving him the benefit of every...