Oliver v. Brown & Morrison, Ltd.
| Decision Date | 07 April 2022 |
| Docket Number | 21 CVS 6678 |
| Citation | 2022 NCBC 16 |
| 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. |
1. THIS MATTER is before the Court upon the 1 July 2021 filing of the Motion to Dismiss of Defendants Sara Lynn Little, CPA, PLLC and Earle Hilton "Pete" Ward, CPA (the "Motion"). (ECF No. 13 ["Mot."].) The Motion seeks to dismiss all claims brought against Defendants Sara Lynn Little, CPA, PLLC ("Little") and Earle Hilton "Pete" Ward CPA ("Ward") (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.
Michael L. Robinson Special Superior Court Judge.
3. Moving Defendants seek to have dismissed both claims for relief alleged against them by Oliver in his Complaint: (1) the Third Claim for Relief (Negligent Misrepresentation); and (2) the Fifth Claim for Relief (Negligence).[1]
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 B&M 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 actually 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 also owned all the stock of a separate North Carolina corporation called Chapman Associates, Inc. ("Chapman"), which was a manufacturer's representative like B&M, offering similar products and services. (Compl. ¶¶ 34, 36.)
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. Oliver agreed to pay for the stock he purchased by: (1) signing a $100, 000.00 Promissory Note payable to B&M; and (2) transferring identified assets of Chapman to B&M. (Compl. ¶¶ 33, 35.)
12. B&M and Chapman's sales were either direct sales of products 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 has 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. Oliver alleges that "[t]he absence of Open-Rep Commissions Receivables in the calculations and tax reporting prepared by Little and Ward on behalf of B&M clearly reflects Little and Ward's intentional and/or negligent omission of these material amounts[.]" (Compl. ¶ 79.)
20. 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.)
21. On or about 1 January 2019, Jackson sold his 100 shares of B&M stock back to B&M. (Compl. ¶ 88.)
22. On or about 8 March 2019, Jackson submitted his letter of resignation from B&M to be effective 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.)
23. 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.)
24. 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.)
25. In August 2019, Oliver emailed his outside CPA, Shannon Earp ("Earp"), copies of B&M tax returns for her review, as well as possible recommendations to reduce the amount of 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.)
26. Also during August 2019, Oliver emailed Ward 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).
27. 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.)
28. 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.)
29. On 30 August 2019, Earp and Marks discussed Earp's findings and recommendations. (Compl. ¶ 113.)
30. On 16 September 2019, Oliver, Marks, and Stamey held an off-site meeting to discuss Oliver's correspondence with Earp, Marks's telephone discussion with Earp, and Oliver's potential resignation from B&M. (Compl. ¶ 114.)
31. 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.)
32. 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.)
33. 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.)
34. 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 (for a total increase of $608, 758.00 for Oliver's shares). (Compl. ¶ 124.)
35. In December 2019...
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