Oliver v. Brown & Morrison, Ltd.
| Decision Date | 03 March 2022 |
| Docket Number | 21 CVS 6678 |
| Court | Superior Court of North Carolina |
| Parties | PERRY L. OLIVER, Plaintiff, v. BROWN & MORRISON, LTD., a North Carolina Business Corporation, and TIMOTHY J. MARKS, as President and Sole Shareholder of BROWN & MORRISON, LTD., and individually, SARA LYNN LITTLE, CPA, PLLC, a North Carolina Professional Limited Liability Company, and EARLE HILTON "PETE" WARD, CPA, individually, Defendants. |
PERRY L. OLIVER, Plaintiff,
v.
BROWN & MORRISON, LTD., a North Carolina Business Corporation, and TIMOTHY J. MARKS, as President and Sole Shareholder of BROWN & MORRISON, LTD., and individually, SARA LYNN LITTLE, CPA, PLLC, a North Carolina Professional Limited Liability Company, and EARLE HILTON "PETE" WARD, CPA, individually, Defendants.
No. 21 CVS 6678
Superior Court of North Carolina, Mecklenburg
March 3, 2022
1. THIS MATTER is before the Court upon the 3 July 2021 filing of Defendants Brown & Morrison, Ltd.'s and Timothy J. Marks's Rule 12(b)(6) Motion to Dismiss (the "Motion"). (ECF No. 19 ["Mot."].) The Motion seeks to dismiss all claims brought against Defendants Brown & Morrison, Ltd. ("B&M") and Timothy J. Marks ("Marks") (collectively referred to as the "Moving Defendants") in Plaintiff Perry L. Oliver's ("Oliver") Complaint. (ECF No. 3 ["Compl."].)
2. For the reasons set forth herein, the Court hereby GRANTS IN PART and DENIES IN PART the Motion.
Lake Norman Law Firm, by Rick Ruffin, for Plaintiff Perry L. Oliver.
Erwin, Bishop, Capitano & Moss, P.A., by Anthony Todd Capitano and Erin Christine Huegel, for Defendants Brown & Morrison, Ltd. and Timothy J. Marks.
Sharpless McClearn Lester Duffy, PA, by Frederick K. Sharpless, for Defendants Sara Lynn Little, CPA, PLLC, and Earle Hilton "Pete" Ward, CPA.
ORDER AND OPINION ON BROWN & MORRISON, LTD.'S AND TIMOTHY J. MARKS'S RULE 12(b)(6) MOTION TO DISMISS
Michael L. Robinson Special Superior Court Judge
I. INTRODUCTION
3. The Complaint includes six separate purported causes of action. Moving Defendants seek to have dismissed the following claims for relief alleged by Oliver in his Complaint: (1) First Claim for Relief (Breach of Contract), brought against both B&M and Marks; (2) Second Claim for Relief (Mutual Mistake), brought against B&M only; (3) Third Claim for Relief (Negligent Misrepresentation), brought against B&M only; (4) Fourth Claim for Relief (Constructive Fraud), brought against both B&M and Marks; and (5) Sixth Claim for Relief (Unjust Enrichment), brought against Marks only.[1]
II. FACTUAL BACKGROUND
4. The Court does not make findings of fact on the Motion, but recites only those facts that are relevant and necessary to the Court's determination of the Motion.
5. B&M is a North Carolina corporation. (Compl. ¶ 2.) B&M operates as a distributor and manufacturer's representative providing engineering solutions by offering process equipment products and services for industrial applications. (Compl. ¶ 17.)
6. Oliver joined B&M on 1 January 2015 pursuant to the terms and conditions of a Memorandum of Understanding and Stock Offer (the "Memorandum"). (Compl. ¶ 15.)
7. The Memorandum, which was allegedly prepared by Defendant Marks, referred to the Brown & Morrison, Ltd. Stock Partner Agreement and indicated that a new agreement would need to be executed effective 1 January 2015, between Doug Jackson ("Jackson"), the former president of B&M, Oliver, and Marks. (Compl. ¶¶ 15, 18, 19.)
8. However, in the Complaint, Oliver states the Stock Partner Agreement was in reality a stock purchase agreement which outlined B&M's share ownership, stock transfer restrictions, terms and conditions for stock transactions, and the formula for calculating the "Per-Share Purchase Price." (Compl. ¶¶ 20-21.)
9. B&M utilizes the Accrual-Accounting Method for financial reporting. (Compl. ¶ 32.)
10. At the time of his dealings with B&M, Oliver owned all the stock of a North Carolina corporation-Chapman Associates, Inc. ("Chapman").
11. On 1 January 2015, Oliver purchased a one-third undivided interest in B&M through the purchase of 100 shares of B&M common, no-par stock, and he
signed a $100, 000.00 Promissory Note payable to B&M for the excess consideration offered by B&M for Oliver's purchase of B&M Stock and the tendering of assets from Chapman. (Compl. ¶¶ 33, 35.)
12. B&M and Chapman sales were either direct sales of products B&M had purchased for resale, or indirect sales through product manufacturers for which commissions were earned by B&M or Chapman. (Compl. ¶ 38.) At B&M, the commissions earned from indirect sales through product manufacturers are known as "Open-Rep Commissions." (Compl. ¶ 39.)
13. After becoming a shareholder in B&M, Oliver discovered that not all Accounts Receivables or Commissions Receivables were being included in the accrual-based accounting records at B&M. (Compl. ¶ 46.)
14. Oliver alleges that the failure to account for Open-Rep Commissions Receivables by B&M resulted in an understatement of the company's value. (Compl. ¶ 51.)
15. Oliver alleges that Defendants Little and Ward were aware of and complicit in these accounting practices. (Compl. ¶¶ 6, 10, 52, 76, 77, 79.)
16. Little provides professional accounting and tax-related services to B&M. (Compl. ¶ 8.) Ward has been employed by or associated with Little and served in a fiduciary capacity as the outside accounting, tax reporting contact, and advisor between Little and B&M at all times relevant to this matter. (Compl. ¶ 12.)
17. Upon discovering the failure to properly account for Open-Rep Commissions, Oliver immediately requested the inclusion of Open-Rep Commissions
Receivables in B&M's reported financial information, particularly because internal practices were not accurately tracking this information. (Compl. ¶¶ 55, 61.)
18. Oliver claims that "Open-Rep Commissions Receivables were a material portion of the overall B&M value." (Compl. ¶ 63.)
19. Therefore, the exclusion of the Open-Rep Commissions Receivables in the financial statements prepared using the Accrual-Accounting Method by B&M allegedly resulted in both an understatement of company assets, net worth, and Per-Share Purchase Price of company stock. (Compl. ¶ 87.)
20. On or about 1 January 2019, Jackson sold his 100 shares of B&M stock back to B&M. (Compl. ¶ 88.)
21. On or about 8 March 2019, Jackson submitted his letter of resignation from B&M to be effective as of 30 March 2019. (Compl. ¶ 93.) However, per Oliver's Complaint, the "Due On A Specific Date Promissory Note" issued by B&M to Jackson for the repurchase of Jackson's stock was backdated to 1 January 2019. (Compl. ¶ 94.)
22. Oliver alleges that the "Per-Share Purchase Price Formula" used for calculating Jackson's stock value referenced the use of "Accrual basis Net Worth as of 12/31/2018" as the starting basis. (Compl. ¶ 96.)
23. This transaction left Marks and Oliver as the only remaining B&M shareholders as of 1 January 2019. (Compl. ¶ 97.) Marks then assumed the position of president of B&M. (Compl. ¶ 98.)
24. In August 2019, Oliver emailed his outside CPA, Shannon Earp ("Earp"), copies of B&M tax returns for her review and possible recommendations to reduce the taxes being paid by B&M shareholders. (Compl. ¶ 101.) Oliver copied Marks and Vickie Stamey ("Stamey"), B&M's Controller, on the email. (Compl. ¶ 100.)
25. Also during August 2019, Oliver emailed Ward with several tax questions relating to being a B&M shareholder. (Compl. ¶ 102.) As alleged, Ward did not respond to Oliver's emails, (Compl. ¶ 103), or return Oliver's phone calls during this time, (Compl. ¶ 104).
26. Meanwhile, Earp replied to Oliver on 30 August 2019. (Compl. ¶ 106.) Earp purportedly indicated that the amount of taxes being paid by the B&M shareholders was "absurd" and Earp was concerned about B&M not including Open-Rep Commissions Receivables in the company's financial statements. (Compl. ¶¶ 106, 108.) According to the Complaint, Earp indicated that Little and Ward's practices were not in line with good accounting practices. (Compl. ¶ 108.)
27. Oliver discussed Earp's findings and recommendations with Stamey and informed Stamey of Oliver's possible departure from B&M in light of Earp's findings and recommendations. (Compl. ¶ 111.) Oliver asked Stamey to relay Oliver's concerns to Marks. (Compl. ¶ 112.) 28. On 30 August 2019, Earp and Marks discussed Earp's findings and recommendations. (Compl. ¶ 113.)
29. On 16 September 2019, Oliver, Marks, and Stamey held an off-site meeting to discuss Oliver's meeting with Earp, Marks's telephone discussion with Earp, and Oliver's potential resignation from B&M. (Compl. ¶ 114.)
30. On 24 September 2019, Marks followed up with Oliver by email for the purpose of outlining Oliver's resignation plan; Oliver allegedly reminded Marks that his resignation was not officially tendered. (Compl. ¶¶ 115-16.)
31. On 10 December 2019, Oliver emailed Marks, Little, Ward, Stamey, and Earp a copy of a Per-Share Purchase Price calculation that he computed for his sale of stock back to B&M based on the reported November 2019 financial statements. (Compl. ¶ 118.) At that time, Oliver had failed to include the Open-Rep Commissions Receivables in his Per-Share Purchase Price calculation by mistake, but this oversight was later disclosed. (Compl. ¶ 120.) According to the Complaint, the inclusion of the Open-Rep Commissions Receivables would significantly increase the Per-Share Purchase Price to be paid to Oliver. (Compl. ¶ 122.)
32. The B&M "Weekly Financial Information" spreadsheet for the week of 22 December 2019 indicated Open-Rep Commissions Receivables in the amount of $1, 217, 516.38 that were not included on the B&M financial statements prepared according to the Accrual-Accounting Method. (Compl. ¶ 123.)
33. Given that Oliver held 100 shares of the 200 total outstanding shares of B&M stock, Oliver alleged that the inclusion of the Open-Rep Commissions Receivables would have resulted in a Per-Share Purchase Price increase of $6, 087.58. (Compl. ¶ 124.)
34. In December 2019, Oliver attended a slew of cardiologist appointments due to personal health issues. (Compl. ¶ 125.) He was ultimately advised to undergo coronary bypass surgery. (Compl. ¶ 126.)
35. After allegedly receiving no response from Little or...
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