Mckinnon v. Cv Indus. Inc.

• Decision Date: 19 July 2011
• Docket Number: No. COA10–1105.,COA10–1105.
• Citation: 713 S.E.2d 495
• Parties: Bobby E. McKINNON, Plaintiff,v.CV INDUSTRIES, INC., Defendant.
• Court: North Carolina Court of Appeals

713 S.E.2d 495

Bobby E. McKINNON, Plaintiff,

v.CV INDUSTRIES, INC., Defendant.

No. COA10–1105.

Court of Appeals of North Carolina.

July 19, 2011.

OPINION TEXT STARTS HERE

Appeal by Plaintiff from summary judgment Order entered 3 June 2010 by Judge Ben F. Tennille in the North Carolina Business Court. Heard in the Court of Appeals 24 March 2011.

C. Gary Triggs, P.A., Hildebran, by C. Gary Triggs, for Plaintiff-appellant.

Parker Poe Adams & Bernstein LLP, Charlotte, by William L. Rikard, Jr., and James C. Lesnett, Jr., for Defendant-appellee.

HUNTER, JR., ROBERT N., Judge.

Bobby E. McKinnon (“Plaintiff”) appeals from an Order granting Defendant's Motion for Summary Judgment pursuant to Rule 56 of the North Carolina Rules of Civil Procedure. Plaintiff argues the trial court erred in granting the Motion for Summary Judgment since genuine issues of material fact existed. We affirm the trial court's Order.

I. Factual and Procedural History

This dispute arises out of a disagreement over payment of severance benefits between Plaintiff and CV Industries, Inc. (“CVI”). Plaintiff, formerly President and CEO of CVI, entered into a severance agreement with CVI upon his resignation from the company to pursue a position at Joan Fabrics Corporation (“Joan Fabrics”), a competitor. Plaintiff alleges that by failing to pay his severance benefits, CVI breached its contract, engaged in fraud, and violated North Carolina unfair and deceptive trade practices statutes.

CVI acts as a holding company for Century Furniture, LLC (“Century”) and Valdese Weavers, LLC (“Valdese”). CVI is an Employee Stock Ownership Plan (ESOP) company that permits employees of CVI to take an equity ownership interest in the company.¹ Century manufactures high-grade furniture, and Valdese manufactures mid to high quality jacquard fabric ² for use by furniture manufacturers. Valdese also funded the textile research of Mr. Frank Land (“Land”), an inventor with a scientific background who was developing a fire-resistant yarn to be used in upholstery for furniture manufacturing.

Plaintiff became President of Valdese on 8 August 1978. Over the next two decades, Plaintiff served several managerial roles within CVI and its subsidiary companies. By 2000, Plaintiff was President and CEO of CVI. On 3 May 2000, Plaintiff notified CVI that he intended to resign in order to take a new job and acquire an ownership interest in Joan Fabrics and its affiliate Mastercraft Fabrics, Corp. (“Mastercraft”). Throughout the course of his employment with CVI, Plaintiff negotiated four employment agreements and incentive plans (Plans A, B, C, and D) in which he benefited. On 25 May 2000, after the announcement of Plaintiff's intended resignation, Plaintiff and CVI reached an agreement to modify these plans into a comprehensive Severance Agreement. Plaintiff's resignation became effective on 16 June 2000.

Plan A of this Severance Agreement provided Plaintiff would receive shadow equity ³ benefits once he disengaged from continuous competition with CVI, as long as CVI's ESOP stock price exceeded its 31 December 1999 price of $9.90 per share. The Plan A benefits, comprising 145,280 units, were valued in excess of $1,000,000 at the time Plaintiff filed his complaint. Under Plan B, CVI agreed to make fifteen annual payments of $75,000 to Plaintiff beginning on 17 June 2000. Under Plan C, Plaintiff received annual payments of $148,067 from CVI beginning on 17 June 2000. Under Plan D, CVI would make a onetime payment of $300,000 to Plaintiff by 15 December 2000. Pursuant to the Severance Agreement, Plaintiff agreed not to acquire Land's patents or processes in producing fire-resistant yarn. Plaintiff also agreed not to solicit or employ any employee of CVI or its subsidiaries.

On 16 June 2000, Plaintiff began his employment with Joan Fabrics and Mastercraft. On 12 February 2001, Plaintiff resigned from his positions at Joan Fabrics and Mastercraft to become President and CEO of Doblin, a division of Mastercraft. He also assumed a management role in EBM Fabrics (“EBM”) and Circa 1801 (“Circa”), affiliates of Joan Fabrics.

In October 2001, Valdese terminated funding of Land's research into fire-resistant yarn. Land soon contacted Plaintiff about the possibility of a joint business venture. Interested in this opportunity, Plaintiff requested a release from his Severance Agreement obligation prohibiting his business involvement with Land. CVI released Plaintiff from this requirement on 20 November 2001.

On 26 November 2001, Plaintiff resigned from Doblin, EBM, and Circa to pursue his business venture with Land. Together, they formed three companies: McKinnon–Land, LLC, which controlled the Alessandra Yarn patent; Basofil Fibers, LLC, which manufactured a key fiber for the making of Alessandra Yarn; and McKinnon–Land–Moran, LLC, which was a holding company for Basofil. Valdese, a CVI subsidiary, originally was a client of Basofil, but Valdese stopped purchasing Basofil fiber in August 2002 due to concerns over its quality.

CVI hired outside auditing firm Deloitte & Touche, LLP (“Deloitte & Touche”) to examine its financial statements in March 2002. Upon review, Deloitte & Touche determined that CVI no longer needed to categorize Plaintiff's Plan A benefits as a liability, since, after leaving Joan Fabrics, Plaintiff was no longer in continuous competition with CVI, and at that time CVI's ESOP stock price had not exceeded its 31 December 1999 value. Acting on this advice, CVI no longer listed Plaintiff's Plan A benefits as a liability on its financial statements as of 30 March 2002.

In August 2002, Valdese's Executive Vice–President of Sales, Joe Feege, personally invested over $840,000 in Basofil and became a member of the company. Valdese was aware of Feege's investment in Basofil and did not object to it as a conflict of interest.

In October of 2006, Basofil faced restructuring due to a default on its financing agreement with an investor. Because of the restructuring, Plaintiff resigned from his position as CEO of Basofil on 1 November 2006. Despite his resignation, Plaintiff agreed to consult for Basofil for the next two years.

On 23 June 2008, Plaintiff contacted CVI to notify them of his withdrawal from continuous competition and to demand his Plan A benefits. At that time, CVI's ESOP stock price had exceeded its 31 December 1999 value. Between 23 June 2008 and 10 October 2008, Plaintiff exchanged several communications with Richard Reese, Chief Financial Officer of CVI, discussing Plaintiff's eligibility for the Plan A benefits. On 10 October 2008, Plaintiff received a letter from CVI stating that the company refused to pay the Plan A benefits. CVI alleged that Plaintiff ceased continuous competition with CVI when he resigned from Doblin, EBM, and Circa on 26 November 2001. CVI argued that since its ESOP stock price was below the 31 December 1999 value of $9.90 at that time, it did not owe Plaintiff any benefits under the Severance Agreement.

On 11 March 2009, Plaintiff filed his complaint in Catawba County Superior Court, claiming breach of contract, specific performance, fraud, and unfair and deceptive trade practices. The matter was designated a mandatory complex business case and assigned to the Chief Special Superior Court Judge for Complex Business Cases, the Honorable Ben F. Tennille. On 1 March 2010, CVI filed a Motion for Summary Judgment, alleging there were no genuine issues of material fact regarding Plaintiff's claims. The case came on for hearing during the 19 April 2010 session of the North Carolina Business Court, Judge Tennille presiding. CVI's Motion was granted on 3 June 2010. Plaintiff timely entered notice of appeal.

II. Jurisdiction and Standard of Review

This Court has jurisdiction to hear the instant appeal pursuant to N.C. Gen.Stat. § 7A–27(b) (2009). The trial court will grant summary judgment when a situation exists where there is no genuine dispute as to any material fact. Volkman v. DP Associates, 48 N.C.App. 155, 157, 268 S.E.2d 265, 267 (1980); N.C. Gen.Stat. § 1A–1, Rule 56(c).

The moving party bears the burden of proving that no genuine dispute of material fact exists. Leake v. Sunbelt Ltd. of Raleigh, 93 N.C.App. 199, 201, 377 S.E.2d 285, 287, disc. rev. denied, 324 N.C. 578, 381 S.E.2d 774 (1989). “A movant may meet its burden by showing either that: (1) an essential element of the non-movant's case is nonexistent; or (2) based upon discovery, the non-movant cannot produce evidence to support an essential element of its claim; or (3) the movant cannot surmount an affirmative defense which would bar the claim.” Moore v. City of Creedmoor, 120 N.C.App. 27, 36, 460 S.E.2d 899, 904 (1995) (citing Watts v. Cumberland Cnty. Hosp. Sys., 75 N.C.App. 1, 6, 330 S.E.2d 242, 247 (1985), rev'd in part on other grounds, 317 N.C. 321, 345 S.E.2d 201 (1986)).

If the moving party meets these requirements, the burden then “shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial.” Pacheco v. Rogers & Breece, Inc., 157 N.C.App. 445, 448, 579 S.E.2d 505, 507 (2003) (citation omitted). The non-moving party “may not rest upon the mere allegations or denials of his pleading, but his response. must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.” N.C. Gen.Stat. § 1A–1, Rule 56(e) (2009).

When the trial court decides to grant or deny a Motion for Summary Judgment, all evidence must be viewed in the light most favorable to the non-moving party, and all reasonable inferences should be drawn in the non-moving party's favor. Best v. Duke Univ., 337 N.C. 742, 749, 448 S.E.2d 506, 510 (1994). A trial court's ruling on summary judgment receives de novo review. Barringer v. Wake Forest Univ. Baptist Med. Ctr., 197 N.C.App. 238, 247, 677...