Jay Group, Ltd. v. Glasgow

• Decision Date: 15 August 2000
• Docket Number: No. COA99-208.,COA99-208.
• Citation: 139 NC App. 595,534 S.E.2d 233
• Court: North Carolina Court of Appeals
• Parties: The JAY GROUP, LTD. and B. Klitzner & Son, Inc. v. Braxton GLASGOW, III; Michael A. Almond; and Parker, Poe, Adams & Bernstein

534 S.E.2d 233

139 NC App. 595

The JAY GROUP, LTD. and B. Klitzner & Son, Inc. v. Braxton GLASGOW, III; Michael A. Almond; and Parker, Poe, Adams & Bernstein

No. COA99-208.

Court of Appeals of North Carolina.

August 15, 2000.

Hartzell & Whiteman, L.L.P., by Andrew O. Whiteman and J. Jerome Hartzell, Raleigh, for plaintiff-appellants.

Smith Helms Mulliss & Moore, L.L.P., by Stephen P. Millikin, Alan W. Duncan, and Shannon R. Joseph, Greensboro, for defendant-appellee Braxton Glasgow, III.

Bell, Davis & Pitt, P.A., by William K. Davis and Stephen M. Russell, Winston-Salem, for defendant-appellees Michael A. Almond and Parker, Poe, Adams & Bernstein.

MARTIN, Judge.

Plaintiffs, The Jay Group, Ltd., and its wholly owned subsidiary, B. Klitzner & Son, Inc., formerly D. Jay Fashions, Inc., (hereinafter collectively referred to as "Jay Group") brought this action against defendants Braxton Glasgow ("Glasgow"), Michael Almond ("Almond"), and Parker, Poe, Adams & Bernstein ("Parker Poe") for actions allegedly committed in connection with Jay Group's purchase of a North Carolina corporation, Shoefactory, Inc. ("Shoefactory"), from its German parent corporation, Shoefactory Vertriebs GmbH. In summary, plaintiffs alleged that defendants had intentionally and negligently failed to disclose material facts to plaintiffs, had stated other material facts known to them to be false, had conspired to defraud plaintiffs, and had breached their fiduciary duties to plaintiffs. In addition, plaintiffs alleged that Almond and Parker Poe had committed "fraudulent practices" within the meaning of G.S. § 84-13 in connection with their representation of plaintiffs during the transaction, and had committed legal malpractice as attorneys for plaintiffs. Defendants filed answers in which they denied the material allegations of plaintiffs' complaint and asserted affirmative defenses.

The trial court, ex mero motu, ordered that the issues of liability and damages be bifurcated into separate trials before the same jury. Plaintiffs' evidence at trial, in the light most favorable to plaintiffs, tended to show that prior to August 1994, defendant Glasgow was president and director of Shoefactory, Inc., and owned approximately 20% of the stock in Shoefactory Vertriebs GmbH. In 1993, Glasgow had employed Parker Poe and Almond to represent Shoefactory in connection with Shoefactory's attempts to register the trademark "Blue Heart" and, subsequently, to register a new trademark, "BH Studio." These trademarks were the subject of a controversy with another shoe company, and the Patent and Trademark Office subsequently refused Shoefactory's applications to register the trademarks.

David Jay, the owner, C.E.O., and Chairman of the Board of Jay Group, had become acquainted with Glasgow through Jay's earlier efforts to sell some of his ownership interest in Jay Group. Jay and Glasgow discussed the possibility of Glasgow becoming employed by Jay Group, and Glasgow conditioned the employment upon Jay Group's purchase of Shoefactory, which was insolvent. Glasgow told Jay that Jay Group could thereby obtain the use of the "Blue Heart" and "BH Studio" brands to revitalize Jay Group's new shoe business. Jay was aware of the financial condition of Shoefactory, but agreed to its acquisition in order to obtain the trademarks. Glasgow began work for the Jay Group on 1 August 1994; his first assignments were to work with Jay Group's new shoe business and to complete Jay Group's acquisition of Shoefactory.

According to plaintiffs' evidence, Almond, who was an attorney with Parker Poe and a friend of Glasgow's, represented Glasgow in connection with his employment by the Jay Group. At Glasgow's urging, plaintiffs hired Almond and Parker Poe to handle the Shoefactory acquisition. Parker Poe drafted the stock purchase agreement for plaintiffs' acquisition of Shoefactory. At Glasgow's instruction, the agreement contained no warranties or representations concerning the transaction. The agreement contained the following provision:

5.b Company owns the following applications for trademark registration on the Principal Register of the U.S. Patent and Trademark Office: BH STUDIO (no serial number assigned; filed July 15, 1994), BLUE HEART s/n:74/293127 and BLUE HEART and design s/n:74/293126

The agreement also prohibited Jay Group from conveying the trademarks until the purchase price was paid in full.

On 17 August 1994, the date the transaction was supposed to close, David Jay contacted Michael Colo, an attorney in Rocky Mount, North Carolina, who had represented Jay Group over a period of years, and requested that he look over the documents prepared by Parker Poe. Colo reviewed the documents, noticed there were no covenants of title regarding the trademarks, and called Almond the following day to inquire. Almond told him the parties had agreed there would be no representations or warranties. Colo advised David Jay of his conversation with Almond and advised him that to enter such an agreement without warranties was a "business risk." David Jay told Colo that he had been told by Glasgow that Shoefactory owned the trademarks; Colo responded that if Jay trusted Glasgow and Almond he should not worry about the lack of warranties.

On 17 August 1994, Forrest Norman, president and a director of Jay Group, and Robert Elliott, controller of Jay Group and an officer and director of its subsidiary, D. Jay Fashions, Inc., went to the Shoefactory offices in Richmond to conduct a "due diligence" review of the Shoefactory financial records in connection with the purchase. While they were there, Norman and Elliott learned that Shoefactory's applications for registration of the Blue Heart trademarks had been denied. However, David Jay denied that Norman or Elliott gave him this information before Jay Group's acquisition of Shoefactory was completed on 31 August 1994. He testified that he first became aware of problems with the trademarks when he tried to license them to a third party in August 1995. He testified that he would not have proceeded with the acquisition of Shoefactory had he been advised of the problem with the trademarks.

At the close of plaintiffs' evidence, the trial court granted all defendants' motions for directed verdict. Plaintiffs appeal.

The single issue presented by the assignment of error brought forward in plaintiffs' brief is whether the trial court properly granted directed verdicts in favor of defendants at the conclusion of plaintiffs' evidence. A motion for a directed verdict tests the legal sufficiency of the evidence to take the case to the jury. West v. King's Dept. Store, Inc., 321 N.C. 698, 365 S.E.2d 621 (1988). In ruling upon the motion, the evidence is viewed in the light most favorable to the nonmoving party, who is to be given the benefit of every reasonable inference which may be drawn from it. Manganello v. Permastone, Inc., 291 N.C. 666, 231 S.E.2d 678 (1977). Appellate review of an order granting a directed verdict is limited to the grounds asserted by the moving party at the trial level. Crane v. Caldwell, 113 N.C.App. 362, 438 S.E.2d 449 (1994).

Plaintiffs asserted claims against Almond and Parker Poe alleging fraud, conspiracy to defraud, breach of fiduciary duty (constructive fraud), negligent misrepresentation and legal malpractice, based upon their failure to inform plaintiffs that the trademarks were not and could not be registered. Plaintiffs also asserted claims for fraud, conspiracy to defraud, and negligent misrepresentation against Glasgow and, additionally, alleged that Glasgow, by not disclosing the information about the trademarks, is liable for breach of his fiduciary duty as an officer and director of Jay Group. Plaintiffs argue that the order granting directed verdicts for all defendants was improper because sufficient evidence was presented to the trial court to support each of these claims. We disagree and affirm the trial court's order granting defendants' motions for directed verdict.

Each of plaintiffs' claims is based upon their contention that defendants either affirmatively concealed or negligently failed to disclose that the trademarks had not been registered and could not be registered due to a conflict with the mark of another company. Defendants' motions for directed verdict were based upon, inter alia, evidence presented by plaintiffs which showed that they had knowledge of the problems with the trademarks in advance of the Shoefactory acquisition.

To establish fraud, a plaintiff must show "(1) that defendant made a false representation or concealment of a material fact; (2) that the representation or concealment was reasonably calculated to deceive him; (3) that defendant intended to deceive him; (4) that plaintiff was deceived; and (5) that plaintiff suffered damage resulting from defendant's misrepresentation or concealment." Claggett v. Wake Forest University, 126 N.C.App. 602, 610, 486 S.E.2d 443, 447 (1997)

(emphasis supplied). A claim for conspiracy to defraud cannot succeed without a successful underlying claim for fraud. See Burton v. Dixon, 259 N.C. 473, 476, 131 S.E.2d 27, 30 (1963) ("A civil action for conspiracy is an action for damages resulting from acts committed by one or more of the conspirators pursuant to the formed conspiracy,...."). "The elements of a constructive fraud claim are proof of circumstances `(1) which created the relation of trust and confidence, and (2) 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.' " Estate of Smith...