Legacy Data Access, Inc. v. Cadrillion, LLC

• Decision Date: 03 May 2018
• Docket Number: No. 17-1215, No. 17-1277,17-1215
• Citation: 889 F.3d 158
• Parties: LEGACY DATA ACCESS, INC., a Georgia corporation; Dianne M. Peters, a Georgia resident, Plaintiffs—Appellees, v. CADRILLION, LLC, a North Carolina limited liability company; James Yuhas, a North Carolina resident, Defendants—Appellants, and Legacy Data Access, LLC, a North Carolina limited liability company, Defendant. Legacy Data Access, Inc., a Georgia corporation; Dianne M. Peters, a Georgia resident, Plaintiffs—Appellants, v. Cadrillion, LLC, a North Carolina limited liability company; Legacy Data Access, LLC, a North Carolina limited liability company; James Yuhas, a North Carolina resident, Defendants—Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

889 F.3d 158

LEGACY DATA ACCESS, INC., a Georgia corporation; Dianne M. Peters, a Georgia resident, Plaintiffs—Appellees,

v.CADRILLION, LLC, a North Carolina limited liability company; James Yuhas, a North Carolina resident, Defendants—Appellants,andLegacy Data Access, LLC, a North Carolina limited liability company, Defendant.

Legacy Data Access, Inc., a Georgia corporation; Dianne M. Peters, a Georgia resident, Plaintiffs—Appellants,

v.Cadrillion, LLC, a North Carolina limited liability company; Legacy Data Access, LLC, a North Carolina limited liability company; James Yuhas, a North Carolina resident, Defendants—Appellees.

No. 17-1215

No. 17-1277

United States Court of Appeals, Fourth Circuit.

Argued: March 22, 2018

Decided: May 3, 2018

ARGUED: Glen Kirkland Hardymon, Rayburn Cooper & Durham, P.A., Charlotte, North Carolina, for Appellants/Cross-Appellees. John Robert Buric, James, McElroy & Diehl, P.A., Charlotte, North Carolina, for Appellees/Cross-Appellants. ON BRIEF: Benjamin E. Shook, Rayburn Cooper & Durham, P.A., Charlotte, North Carolina, for Appellants. Preston O. Odom III, John R. Brickley, James, McElroy & Diehl P.A., Charlotte, North Carolina, for Appellees/Cross-Appellants.

Before MOTZ, DUNCAN, and HARRIS, Circuit Judges.

Affirmed in part, reversed in part, vacated in part, and remanded by published opinion. Judge Motz wrote the opinion, in which Judge Duncan and Judge Harris joined.

DIANA GRIBBON MOTZ, Circuit Judge:

In this diversity contract dispute, a jury awarded $256,500 for breach of contract and $1,499,999 for conversion. The jury rejected plaintiffs' unfair and deceptive trade practices claim, and the district court granted judgment as a matter of law to defendants on the abuse of process claim. In a second trial solely on punitive damages, another jury awarded $3 million in punitive damages. In response to numerous post-trial motions, the district court reduced compensatory and punitive damages, awarded attorneys' fees to plaintiffs, and otherwise denied the remaining motions. For the reasons that follow, we reverse the judgment of the district court as to conversion and punitive damages, remand for a new trial on damages for breach of contract, vacate the attorneys' fees award, and affirm as to the abuse of process and unfair and deceptive trade practices claims.

I.

A.

Legacy Data Access, Inc. ("Legacy Georgia") and its owner Dianne Peters (collectively, "Plaintiffs") agreed to sell certain assets to Cadrillion, LLC ("the Agreement"). Cadrillion formed a subsidiary, Legacy Data Access, LLC ("Legacy North Carolina"), to own the assets and operate the business acquired from Legacy Georgia. Cadrillion also hired Peters to manage Legacy North Carolina for three years. The parties expected that Cadrillion, with Peters's help, would grow Legacy North Carolina's business and sell it in three to five years.

In exchange for Legacy Georgia's assets, Cadrillion agreed to make two separate payments: first, $513,000, which Cadrillion paid on the closing date of the Agreement, and second, a "Deferred Purchase Price," which Cadrillion was to pay upon certain specified events, such as if Cadrillion sold Legacy North Carolina. In the event that Peters resigned from her position at Legacy North Carolina after her initial three-year term, but before Cadrillion was able to sell Legacy North Carolina, Cadrillion retained "the right, but not the obligation," to "purchase ... the rights to the Deferred Purchase Price." In other words, Cadrillion could choose to purchase Legacy Georgia's remaining interest in the value of Legacy North Carolina at that time. The Agreement called this "right" the "Call Option." To exercise this Call Option, Cadrillion had to provide "written notice to such effect" within 90 days of Peters's resignation. The Agreement included a complex formula to calculate the Deferred Purchase Price at the time Cadrillion exercised the Call Option, also known as the "Call Price."

When Peters resigned after her three-year term but before Cadrillion could sell Legacy North Carolina, Cadrillion timely provided written notice that it was exercising the Call Option. However, Cadrillion did not pay the Call Price to Legacy Georgia as the Agreement required. Instead, Cadrillion filed a declaratory judgment action in federal court, seeking a declaration that the Call Price was no more than $460,406, along with a motion to deposit that amount with the court. Plaintiffs countered that Cadrillion had incorrectly calculated the Call Price, and that depositing the funds with the court would not satisfy the Agreement. Cadrillion then decided to dismiss its action voluntarily, now taking the position that it had never exercised its Call Option in the first place.

B.

On April 14, 2015, Plaintiffs initiated this action against Cadrillion, Legacy North Carolina, and James Yuhas, a manager at Cadrillion. Plaintiffs asserted claims for breach of contract, conversion, abuse of process, and unfair and deceptive trade practices. The district court bifurcated the trial into a first trial on liability and compensatory damages, and a second trial on punitive damages.

After Plaintiffs' presented their evidence, the court granted judgment as a matter of law to Defendants on the abuse of process claim. The jury returned a verdict finding Cadrillion liable for breach of contract and awarding $256,500 in compensatory damages. The jury also found Cadrillion and Yuhas liable for conversion and awarded $1,499,999 in damages. The jury rejected Plaintiffs' claim of unfair and deceptive trade practices.

A separate jury later awarded Peters $3 million in punitive damages: $2 million against Cadrillion, and $1 million against Yuhas. The jury did not award punitive damages to Legacy Georgia.

Both sides filed post-trial motions. In response, the district court reduced the compensatory damages for conversion to $460,406, eliminated compensatory damages for breach of contract as a double recovery, and reduced punitive damages to $1.38 million total. The court also granted Plaintiffs' request for pre- and post-judgment interest, and awarded Plaintiffs $743,297 in attorneys' fees against Cadrillion.

Cadrillion and Yuhas timely noted this appeal, challenging their liability for conversion, the jury's award of punitive damages, and the district court's award of attorneys' fees. However, Cadrillion now concedes its liability for breach of contract. See Appellants/Cross-Appellees Br. at 17. Plaintiffs cross-appeal, contending they are entitled to a new trial on breach of contract damages, that the district court erred in ruling against them on their abuse of process claim, and that they are entitled to judgment as a matter of law on their unfair and deceptive trade practices claim. The parties agree that North Carolina law governs this diversity case.

II.

We first address Cadrillion and Yuhas's challenge to the conversion claim.¹

A.

The jury found Cadrillion liable for conversion, and the district court denied its renewed motion for judgment as a matter of law. We review de novo the denial of a motion for judgment as a matter of law, viewing the evidence in the light most favorable to Plaintiffs, the prevailing party in the trial court. Bresler v. Wilmington Trust Co. , 855 F.3d 178, 196 (4th Cir. 2017).

Cadrillion principally contends that North Carolina's economic loss rule bars Plaintiffs from asserting conversion, a tort claim,² for what is nothing more than a breach of contract. North Carolina's economic loss rule provides that "[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor." N.C. State Ports Auth. v. Lloyd A. Fry Roofing Co. , 294 N.C. 73, 240 S.E.2d 345, 350 (1978).

A "tort action must be grounded on a violation of a duty imposed by operation of law," not a violation of a duty arising purely from "the contractual relationship of the parties." Rountree v. Chowan Cty. , 796 S.E.2d 827, 831 (N.C. Ct. App. 2017) (citation and internal quotation marks omitted). Thus, a "tort action does not lie against a party to a contract who simply fails to properly perform the terms of the contract." Id. at 830 (citation omitted). "It is the law of contract," not tort law, "which defines the obligations and remedies of the parties in such a situation." Id. (citation omitted). Accordingly, "North Carolina law requires" courts "to limit plaintiffs' tort claims to only those claims which are ‘identifiable’ and distinct from the primary breach of contract claim." Broussard v. Meineke Disc. Muffler Shops, Inc. , 155 F.3d 331, 346 (4th Cir. 1998) (quoting Newton v. Standard Fire Ins. Co. , 291 N.C. 105, 229 S.E.2d 297, 301 (1976) ).

The economic loss rule reflects "the fundamental difference between tort and contract claims." Id. Contract law is designed to place an injured party in the position he would have occupied had the parties adhered to their contract. Tort law, by contrast, incorporates "principles of punishment" by allowing recovery of punitive damages. Strum v. Exxon Co. , 15 F.3d 327, 330 (4th Cir. 1994). In preventing parties from asserting tort claims for a simple breach of contract, the economic loss rule thus "encourages contracting parties to allocate risks for economic loss themselves." Lord v. Customized Consulting Specialty, Inc. , 182 N.C.App. 635, 643 S.E.2d 28, 30 (2007) (opinion by Wynn, J.); see also Moore v. Coachmen Indus., Inc. , 129 N.C.App. 389, 499 S.E.2d 772, 780 (1998) ("To give a party a remedy in tort ... would permit the party to ignore and avoid the rights and remedies granted or imposed by the parties' contract.").

We have previously rejected "attempt[s] by the plaintiff to manufacture a tort dispute out of what is, at bottom, a simple breach of contract claim" as "inconsistent both with North Carolina law and sound commercial practice." Broussard , 155 F.3d at 346 (quoting Strum , 15 F.3d at 329 ). In Broussard , the defendants contended that various contract provisions...