Shaw v. Gee
| Decision Date | 19 October 2018 |
| Docket Number | 16 CVS 3878 |
| Citation | 2018 NCBC 108 |
| Parties | JAMES S. SHAW in the right of GVEST PARTNERS, LLC, a North Carolina Limited Liability Company, Plaintiff, v. RAYMOND M. GEE, Defendant. |
| Court | Superior Court of North Carolina |
Robinson, Bradshaw & Hinson, P.A., by Julian H. Wright Jr. and Stuart L. Pratt, for Plaintiff James S. Shaw.
Baucom, Claytor, Benton, Morgan & Wood, P.A., by Rex C Morgan, for Defendant Raymond M. Gee.
Adam M. Conrad Special Superior Court Judge.
1. Plaintiff James Shaw and Defendant Raymond Gee are former business partners-the co-members and co-managers of Gvest Partners, LLC ("Gvest"). In this derivative action, Shaw contends that Gee usurped a business opportunity belonging to Gvest, thereby breaching his fiduciary duty. After a seven-day trial, the jury found that Gee did so but that the doctrine of unclean hands barred Shaw's claim. Following the entry of final judgment, Shaw moved for judgment notwithstanding the verdict ("JNOV") or, alternatively, for a new trial. For the reasons set forth below, the Court DENIES the motion.
2. A previous opinion describes Shaw's allegations and claims for relief. See Shaw v. Gee, 2016 NCBC LEXIS 103 ( N.C. Super. Ct. Dec. 21, 2016). Here, the Court summarizes the trial testimony and other evidence, along with a brief description of the procedural posture.
3. Shaw and Gee met as students at the University of Oklahoma but lost touch after graduation. Many years later, they reconnected and decided to do business together. Among other ventures, they formed Gvest in 2011 to buy, develop, and sell real estate. Shaw provided most of the capital for Gvest's investments, and Gee found and evaluated potential deals. On occasion, Shaw also lent Gee the money necessary to make his share of capital contributions to Gvest. As equal co-members and co-managers, though, neither had sole control of the entity. (See Shaw Tr. Ex. 1 § 4.3, Ex. 2.)
4. This case concerns Gvest's interest in developing roughly 700 acres of land- referred to as either Sherrills Ford or Key Harbor-along the northwest shore of Lake Norman in Catawba County. In August 2013, Gvest signed an agreement to purchase the 700 acres for $6.5 million. (Shaw Tr. Ex. 3.) Gvest's plan was to develop the property with investments from Shaw and Tyson Rhame, one of Shaw's business associates. Shaw, Gee, and several Gvest employees conducted due diligence for roughly six months, at a cost of $243, 000. These "hard costs" covered expenses for attorneys, land planners, civil engineers, and environmental studies but excluded any amounts for Gvest's time and effort. Shaw and Gee each made loans to Gvest to cover the due-diligence costs.
5. During this period, the relationship between Shaw and Gee grew tense. Shaw accused Gee of absenteeism; Gee believed Shaw was exerting his economic leverage more as an adversary than as a co-manager. By early 2014, this personal friction had paved the way for a serious business quarrel. Shaw expressed his fear that Gvest's developer, John Bell, would leave the company over difficulties in working with Gee. (Gee Tr. Ex. 37 at 1.) Shaw also believed Gee had agreed to reduce his equity in one of their projects (known as Yards at NoDa) and that this equity would be offered to Bell as an incentive to stay. (Shaw Tr. Ex. 14 at 5.) But Gee denied any such agreement and refused to cede his equity to Bell. (Shaw Tr. Ex. 14 at 3.) In a heated e-mail exchange on March 10, 2014, Shaw demanded to be "immediately reimbursed" for the loans he had made to Gee. (Shaw Tr. Ex. 14 at 2.) He also told Gee that he was "over with this relationship" and "through" with Gee. (Gee Tr. Ex. 37 at 1.)
6. That same day, Shaw directed Gvest's Chief Financial Officer, Kevin Frericks, to instruct Gee to terminate the Sherrills Ford contract. (Gee Tr. Ex. 37 at 2.) Shaw testified that he made this decision because the economics of the deal were unfavorable. Gee, on the other hand, testified that Shaw's decision was personally motivated and that Frericks's instruction put him in a bind, jeopardizing Gvest's ability to recover the $243, 000 in hard costs it had incurred. Gee sought new investors to take over the contract, eventually arranging for it to be assigned to an entity owned by Rhame. As a result, Shaw recovered his $1.5 million investment, and Gvest was reimbursed for its hard costs. (See Shaw Tr. Ex. 3.)
7. The decision to pull out of the Sherrills Ford deal and transfer it to Rhame also led to another dispute-whether Gvest should accept a fee, which Rhame was willing to pay, for its time and effort on the transaction. Gee favored doing so, but Shaw refused. Shaw's reason, Gee testified, was that he had an existing business relationship with Rhame and hoped to do more deals with Rhame in the future. Frericks also testified that, generally, Shaw did not want to charge Rhame fees. According to Gee, he had no option but to go along with Shaw's decision.
8. Gee conveyed all of this to Rhame, grumbling about how hard he had worked on the deal only to receive nothing in return. Rhame responded that Shaw's decision was unfair and that he would "take care of" Gee. Over the next few weeks, Rhame asked Gee several times what the normal compensation would be for the type of work he had done on the Sherrills Ford transaction. Gee demurred at first but eventually said $300, 000.
9. On March 20, 2014, Rhame closed the Sherrills Ford transaction. The following day, Shaw asked to see the closing statement to ensure no fees other than the $243, 000 for due diligence costs were being paid to Gvest. The closing statement reflected no payment for Gvest's time and effort.
10. A few weeks passed. During this time, Gee and his associate, Adam Martin, began working more closely with Rhame. They assisted with several projects, including the potential acquisition of a telecommunications company, referred to as the BCM/Setel deal. After performing roughly seventy hours of consulting work, Gee and Martin advised against making the deal, and Rhame agreed. Gee and Martin also continued to assist Rhame with Sherrills Ford after he closed on the property, working with Catawba County officials on various matters and evaluating a possible conservation easement.
11. On April 10, 2014, Gee and Martin visited Rhame at his home, and Rhame wrote one check to Gee for $200, 000 (made out to Gee Real Estate, LLC) and another check to Martin for $100, 000 (made out to NAV Real Estate, LLC). (Shaw Tr. Exs. 34, 35.) The purpose of the checks was vigorously disputed at trial. Gee and Martin each testified that the payments were solely for their work on the BCM/Setel deal. They highlighted the checks' memo lines, which read "BCM ACQUISITION CONSULTING FEE." (Shaw Tr. Exs. 34, 35.) Shaw, on the other hand, alleged that the combined $300, 000 was, in fact, a payment for Gvest's work on the Sherrills Ford deal-a payment that should have been disclosed and made to Gvest. Shaw pointed to Rhame's testimony that the checks were intended for work on the Sherrills Ford deal and also to a series of e-mails between Gee and Martin, in which each appears to refer to the payments as compensation for Sherrills Ford, split one-third to Martin and two-thirds to Gee. (See Shaw Tr. Ex. 47 at 6, 9.)
12. While all of this was taking place, Shaw and Gee were also negotiating an end to their business relationship, including a division of Gvest and other jointly owned entities. The resulting Dissolution and Separation Agreement ("Separation Agreement") contained a mutual release, in which Shaw and Gee "discharge[d] each other from any other rights, claims or interest related to Gvest." (Shaw Tr. Ex. 43 § VI.) The Separation Agreement was executed on April 24, 2014. (Shaw Tr. Ex. 43.) At no time during the negotiation of the Separation Agreement was Shaw aware of the April 10 payments.
13. When Rhame disclosed the payments to Shaw about a year later, Shaw sent a demand letter, stating that the $300, 000 should have been paid to Gvest and requesting that Gvest take action to recover the funds. Gvest did not bring suit, and Shaw initiated this derivative action.
14. Trial began on February 5, 2018. Shaw asserted two claims for relief. He asserted, first, a derivative claim for breach of fiduciary duty, alleging that Gee usurped a business opportunity belonging to Gvest when he accepted payment from Rhame. Second, Shaw sought a declaration that the release in the Separation Agreement is unenforceable because, during negotiations, Gee fraudulently concealed the payment he received from Rhame. (ECF Nos. 10, 45.) Gee asserted several affirmative defenses, including unclean hands, waiver, equitable estoppel, and ratification.
15. At the close of all evidence, Shaw moved for a directed verdict on each of Gee's affirmative defenses. As to waiver, estoppel, and ratification, Shaw argued that the evidence was insufficient to support a verdict in Gee's favor. As to unclean hands, Shaw did not challenge the sufficiency of the evidence. Instead, he argued that the defense was inapplicable because unclean hands is a defense to claims for equitable relief but his claim for breach of fiduciary duty is a legal claim for money damages. The next day (a Saturday), in an e-mail to the Court and opposing counsel, Shaw's counsel conceded that this argument was incorrect and that the derivative claim for breach of fiduciary duty was equitable in nature. When trial resumed, the Court denied Shaw's motion for directed verdict as to unclean hands and granted his motions as to waiver, estoppel, and ratification.
16. During the charge conference, Shaw did not object to the Court's...
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