rFactr, Inc. v. McDowell, 18 CVS 12299
| Docket Nº | 18 CVS 12299 |
| Citation | 2023 NCBC 8 |
| Case Date | January 27, 2023 |
| Court | Superior Courts of Law and Equity of North Carolina |
2023 NCBC 8
RFACTR, INC., RICHARD BRASSER, and GREG GENTNER, Plaintiffs,
v.
CHRIS MCDOWELL and CAROLINE MCDOWELL, Defendants.
No. 18 CVS 12299
Superior Court of North Carolina, Mecklenburg
January 27, 2023
Lincoln Derr PLLC, by Sara R. Lincoln and Phoebe Norton Coddington, for Plaintiffs Richard Brasser and Greg Gentner.
James, McElroy & Diehl, P.A., by John R. Buric and John R. Brickley, for Plaintiff rFactr, Inc.
Rosenwood, Rose & Litwak, PLLC, by Erik M. Rosenwood, for Defendants Caroline McDowell and Chris McDowell.
ORDER AND OPINION ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND DEFENDANTS' MOTION TO STRIKE OR PRECLUDE RELIANCE ON CERTAIN STATEMENTS OF THE DECLARATION OF LUIS GOM
LOUIS A. BLEDSOE, III CHIEF BUSINESS COURT JUDGE
1. THIS MATTER is before the Court upon Defendants Caroline McDowell ("Caroline") and Chris McDowell's ("Chris") (together, "Defendants" or the "McDowells") Motion for Summary Judgment on Plaintiffs' Affirmative Claims (the "SJ Motion"), (ECF No. 202), and Defendants' Motion to Strike or Preclude Reliance on Certain Statements of the Declaration of Luis Gomez ("Gomez"), (the "Motion to Strike"), (ECF No. 215), (together, the "Motions") in the above-captioned case.
2. After considering the Motions, the briefs and related materials submitted in support of and in opposition to the Motions, and the arguments of counsel at the hearing on the Motions, the Court hereby GRANTS in part and DENIES in part each Motion.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
3. This litigation arises out of Caroline's October 2017 telephone call to Jackson National Life Insurance Company ("Jackson National"), in which Plaintiffs allege that Caroline falsely represented that Plaintiff rFactr, Inc. ("rFactr" or the "Company"), a company with outstanding Internal Revenue Service ("IRS") liabilities and with which Jackson National was negotiating a contract, was financially unstable. Soon after the call, Jackson National informed rFactr that it no longer wished to pursue negotiations or enter into a contract with the Company. Plaintiffs subsequently filed suit against the McDowells, asserting claims based on Caroline's call and contending that the call was the sole reason that Jackson National did not enter a contract with rFactr.
4. The McDowells have asserted counterclaims in response, alleging, among other things, that Plaintiffs misrepresented the Company's financial condition to induce the McDowells' investment in the Company and that Plaintiffs Richard Brasser ("Brasser") and Greg Gentner ("Gentner") breached their fiduciary duties to the McDowells by misrepresenting rFactr's financial condition, paying themselves excessive and unreasonable salaries, and otherwise diverting corporate resources for their personal benefit.
5. The Court does not make findings of fact when deciding a motion for summary judgment. The Court previously considered and ruled upon three motions for summary judgment in this action on 8 December 2020 (the "2020 Opinion").[1] Because the parties rely extensively upon the prior summary judgment record on the current Motions, the Court incorporates by reference the factual and procedural background set forth in paragraphs 6-19 of the 2020 Opinion to provide context for the Court's analysis and ruling here.
6. Of particular relevance, it is undisputed that Brasser and Gentner were executive officers, directors, and shareholders of rFactr and ran its day-to-day operations.[2] Chris sat on rFactr's board of directors beginning in 2015, but his wife, Caroline, did not.[3]
7. While Chris sat on the board, he often worked from home, and had business calls on speakerphone that Caroline could sometimes hear.[4] Caroline also had access to Chris's email account, and frequently read his work emails without his knowledge.[5]
8. In 2015, rFactr began negotiations for a multi-year software license with Jackson National that continued into the autumn of 2017.[6] Plaintiffs contend, and Defendants dispute, that by October 2017, rFactr and Jackson National had reached an agreement on services and pricing, and the finalization of a contract awaited only a review by Jackson National's legal department.[7]
9. Before and during these negotiations, it is undisputed that rFactr had incurred significant losses and struggled to pay its creditors or business expenses,[8] and that the IRS had filed sizable tax liens against the Company.[9]
10. On 26 October 2017, Caroline placed the phone call to Jackson National that lies at the center of Plaintiffs' claims (the "Call"). It is undisputed that she posed as a former rFactr employee named "Susan," and that she made several representations about rFactr to Jeffrey Mitchell ("Mitchell"), a senior human resources consultant for Jackson National, including that rFactr and its owners were in financial difficulty, that rFactr was in trouble with the IRS, that rFactr's owners were being investigated for arson, and that rFactr's owners had withdrawn their children from school and were moving out of the country.[10] Mitchell reported the call to Jackson National's in-house counsel.[11]
11. On the following day, 27 October 2017, Luis Gomez ("Gomez"), Jackson National's Vice President of Marketing and Digital Strategy and its point of contact with rFactr concerning the software license negotiations,[12] emailed rFactr stating that Jackson National had "decided to move in another direction" and that it would discontinue its contract negotiations with rFactr.[13] Brasser initially suspected that
Jackson National had ended negotiations because it had discovered rFactr's tax liens.[14] Brasser and Gentner did not learn of the Call until months afterwards.[15]
B. Procedural History
12. In its 2020 Opinion, the Court denied (i) Brasser and Gentner's motion for summary judgment on their claim for defamation; (ii) Brasser and Gentner's motion for summary judgment against Chris's counterclaims for breach of fiduciary duty, constructive fraud, and fraudulent misrepresentation; and (iii) rFactr's motion for summary judgment on its claims for tortious interference with prospective economic advantage, breach of fiduciary duty, and unfair and deceptive trade practices and on Chris's counterclaims for breach of contract and constructive fraud. In that same opinion, the Court granted (i) Brasser and Gentner's motion for summary judgment against Caroline's counterclaims for breach of fiduciary duty, constructive fraud, and fraudulent misrepresentation; and (ii) rFactr's motion for summary judgment against Caroline's breach of contract and constructive fraud counterclaims and the McDowells' shareholder inspection counterclaim. See generally rFactr, Inc., 2020 NCBC LEXIS 144.
13. On 31 March 2021, the Court noticed a jury trial to commence on 11 July 2022 on all remaining claims, specifically: (i) Brasser and Gentner's claim against both Defendants for slander per se; (ii) rFactr's claims against both Defendants for
tortious interference with prospective economic advantage and unfair and deceptive trade practices and against Chris for breach of fiduciary duty; and (iii) Chris's counterclaims against Brasser and Gentner for breach of fiduciary duty, constructive fraud, and fraudulent misrepresentation and against rFactr for breach of contract and constructive fraud.[16] The Court subsequently continued the trial to 5 December 2022.[17]
14. On 2 August 2022, the Court entered an Order reopening the discovery period in this action through and including 17 October 2022 for the limited purpose of affording Defendants the opportunity to conduct discovery on witnesses and documents that Plaintiffs failed to disclose and produce until 13 May 2022 (the "Late Information"). The Late Information was produced two years after the close of discovery, over three years after Defendants served discovery requests seeking this information, and only six weeks prior to the then-scheduled trial.[18]
15. On 3 November 2022, Defendants moved to amend the Case Management Order (the "CMO"), (ECF No. 22), to permit Defendants to move for summary judgment based on the Late Information and the discovery related to that information
("New Discovery").[19] The Court granted Defendants' motion on 16 November 2022 (the "CMO Amendment Order")[20] and continued the jury trial to 13 February 2023.[21]
16. The CMO Amendment Order specifically provided that Defendants were permitted to file "a post-discovery dispositive motion based on the Late Information and the New Discovery" and directed that the motion "shall not be primarily based on information Defendants acquired before the close of discovery[.]"[22] The Order further provided that "Defendants may reference and rely upon such information if, in fairness, the Late Information, the New Discovery, and information Defendants acquired before the close of discovery should be considered together for purposes of Defendants' motion[.]"[23] The Order also made clear that its entry was "without prejudice to Plaintiffs' right to oppose Defendants' anticipated summary judgment motion on grounds that it does not comply with the restrictions[.]"[24]
17. As permitted by the CMO Amendment Order, Defendants filed the SJ Motion on 17 November 2022, seeking summary judgment on all of Plaintiffs' claims. After full briefing, the Court held a hearing on the SJ Motion on 9 January 2023, at
which all parties were represented by counsel (the "Hearing"). The SJ Motion is now ripe for resolution.
II. LEGAL STANDARD
18. Summary judgment is proper only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to judgment as a matter of law." N.C. R. Civ. P. 56(c). An issue is genuine if it is "supported by...
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