Spoor v. Barth

• Decision Date: 05 January 2016
• Docket Number: No. COA15–172.,COA15–172.
• Citation: 781 S.E.2d 627,244 N.C.App. 670
• Parties: Richard B. SPOOR, individually and Derivatively, Plaintiff, v. John M. BARTH, Jr., John M. Barth, John Does 1–5, and J.R. International Holdings, LLC, Defendants.
• Court: North Carolina Court of Appeals

244 N.C.App. 670

781 S.E.2d 627

Richard B. SPOOR, individually and Derivatively, Plaintiff,

v.John M. BARTH, Jr., John M. Barth, John Does 1–5, and J.R. International Holdings, LLC, Defendants.

No. COA15–172.

Court of Appeals of North Carolina.

Jan. 5, 2016.

Smith Moore Leatherwood LLP, Raleigh, by Matthew Nis Leerberg and

Sidney S. Eagles, Jr., and Barry Nakell for plaintiff-appellant.

Manning Fulton & Skinner, P.A., Raleigh, by Judson A. Welborn and J. Whitfield Gibson, for defendant-appellee John Barth, Jr.

Wilson & Ratledge, PLLC, by Reginald B. Gillespie, Jr., Durham and N. Hunter Wyche, Jr., Raleigh and Foley & Lardner LLP, by Michael J. Small and David B. Goroff, for defendant-appellee John M. Barth.

McCULLOUGH, Judge.

Plaintiff Richard Spoor appeals from an order of the trial court granting summary judgment in favor of defendants John M. Barth and John M. Barth, Jr. Based on the reasons stated herein, we reverse the order of the trial court.

I. Background

On 5 October 2011, plaintiff Richard Spoor filed a complaint against John M. Barth, Jr. ("Junior"), John Doe, Sr., and John Does in Wake County Superior Court. On 14 February 2012, plaintiff filed his first amended complaint against Junior, John Barth, Sr. ("Senior"), John Does 1–5, and JR International Holdings, LLC ("JRI") (collectively "defendants").

On 16 February 2012, Junior removed the case to the United States District Court for the Eastern District of North Carolina. On 31 October 2012, the action was remanded to Wake County Superior Court.

On 16 June 2012, plaintiff filed his Second Amended Complaint against defendants. The complaint alleged as follows: Plaintiff was the chairman and majority shareholder of AmerLink, Ltd. ("AmerLink"). AmerLink was a North Carolina corporation "engaged in the business of selling packages of materials for the construction of log homes." Junior was President of AmerLink and Senior was Junior's father. JRI is a North Carolina corporation. Plaintiff owns 50% and Junior owns 50% of JRI. In September 2006, Junior became President and CEO of AmerLink and Junior told plaintiff that he was interested in purchasing plaintiff's controlling interest in AmerLink with the use of Senior's funds. In Fall 2007, Junior and Senior first attempted to purchase plaintiff's controlling interest. Senior visited and inspected the AmerLink facility and discussed with National Consumer Cooperative Bank ("NCB"), AmerLink's principal lender, the financial situation for a purchase. A proposed contract went through three or four drafts before Junior and Senior decided not to complete the purchase at that time.

Plaintiff alleged that by January 2008, Junior became aware that based on his mismanagement, AmerLink was facing financial difficulty. Junior told AmerLink's Vice–President that he wanted to show NCB a "higher than accurate sales volume" and asked the Vice–President to make false entries in AmerLink's sales and delivery reports to reflect this. When the Vice–President refused to falsify reports, Junior directed the Vice–President to send sales and delivery reports to Junior only.

In the summer of 2008, a second proposal regarding Junior and Senior's purchase of plaintiff's controlling interest in AmerLink was discussed. Plaintiff alleged that on or about 11 June 2008, Junior became aware that AmerLink was insolvent and was unable to purchase materials to fulfill its contracts. Regardless of this fact, Junior directed AmerLink staff to encourage customers to enter into sales agreements with AmerLink, to send deposits and additional funds to AmerLink, and to schedule deliveries. Junior became aware that he needed funds in excess of $2 million from Senior in order to keep AmerLink operating. From September 2007 through September 2008, Junior prepared false financial and delivery reports for AmerLink and directed AmerLink employees to falsify reports in order to conceal AmerLink's dire financial situation. Junior prepared these false reports "in order to mislead Plaintiff on the current state of AmerLink's sales and profits, to keep his position as President and CEO of AmerLink, Ltd., and to facilitate his purchase of Plaintiff's majority interest in AmerLink, Ltd."

Plaintiff and Junior settled on an arrangement to accomplish their purpose of having Junior purchase plaintiff's majority interest in AmerLink through JRI, a North Carolina corporation formed by them. Plaintiff agreed to put all of his AmerLink shares into JRI. Junior agreed to put funds equivalent to the value of plaintiff's shares into JRI. Both Junior and plaintiff agreed that the value of plaintiff's AmerLink shares was $8 million and Junior agreed to invest $8 million primarily obtained from Senior. Junior and plaintiff also agreed that JRI, which was jointly owned by Junior and plaintiff, would invest its funds in AmerLink and become the majority shareholder of AmerLink. AmerLink would then obtain the "capital investment it needed to rescue it from insolvency and enable it to continue doing business." The plan also included for Junior to eventually purchase plaintiff's interest in JRI, making Junior the controlling owner of AmerLink.

Plaintiff further alleged that on 8 October 2008, plaintiff learned in a letter from an employee that Junior had been submitting false reports containing inflated sales and delivery figures. The letter provided no specifics but stated that the employee was " ‘resigning under duress' because he could no longer trust [Junior] and would not be a party to ‘lies and deception at AmerLink, Ltd.’ " A few hours after receiving the letter, plaintiff met with Junior and confronted Junior with the information he had just received. Junior admitted falsifying the reports but stated that he was "just ‘fudging’ the numbers a little bit, by small amounts, minor numbers." On 10 October 2008, plaintiff called Senior and left a message on Senior's answering device informing him of the following: that plaintiff was upset with Junior; plaintiff learned that Junior had been falsifying reports; Junior had been "running the company down" and concealing AmerLink's financial situation; there was a need to correct AmerLink's problems and to accomplish this, they needed the JRI deal in order to "get an infusion of capital" for AmerLink. On 13 October 2008, the AmerLink Board replaced Junior with plaintiff as CEO. Junior remained president and continued to assert that Senior would be making a sizable cash investment in AmerLink.

On 16 October 2008, pursuant to the agreement between himself and Junior, plaintiff transferred his AmerLink shares into JRI. Although the agreement required Junior to provide his investment of $8,000,000, he failed to do so. On 17 October 2008, Junior represented to plaintiff that $1.6 million from Senior was on its way to JRI. Accordingly, Junior and plaintiff signed and sent UBS Financial Services ("UBS") a written request in JRI's name to prepare a wire transfer for $1.6 million, once funds were available, from JRI's account into AmerLink's account. However, the funds were never received in JRI's account.

Plaintiff alleged that on or about 7 November 2008, Senior agreed to loan Junior up to $3 million, plus interest, to invest into JRI in order to overcome the problems arising from Junior's deception. Senior wrote a check payable to JRI in the amount of $300,000, signifying the initial $300,000 of Senior's loan of up to $3 million. Plaintiff and Junior endorsed this check and deposited it into AmerLink's account.

On 26 November 2008, Senior confirmed the 7 November 2008 loan agreement in writing to Junior in an e-mail in which he wrote "I will initially loan up to $3,000,000 to [JRI] with the understanding that $300,000 has already been contributed." On 11 November 2008, Junior sent plaintiff an e-mail, attaching a "proposed schedule of payments to [JRI]" that included as follows:

$300,000	Paid on November 7, 2008
$1.7M	Paid by November 14, 2008
$1.3M	Paid when loan closes on new Barth residence
$600,000	Paid when Lantern Ridge Residence sells
$4.1M	Remaining to be paid as soon as my father is in a position to do so. This final payment may be made in full or in part.

Also on 11 November 2008, Junior directed AmerLink staff to continue to tell customers that new investment funds were on the way. On 13 November 2008, Junior assured plaintiff that $1.7 million was on its way from Senior to UBS for JRI. Thereafter, Junior and plaintiff signed another request that UBS wire $1.7 million from JRI. However, because the funds were never received in the JRI account, no funds were ever transferred by UBS.

Although the first payment had already been made in the form of a $300,000 check from Senior to JRI, no additional payments were made into JRI by Junior. On 15 December 2008, plaintiff received AmerLink's financial reports for the 30 September 2008 end of the fiscal year and learned that AmerLink's actual financial situation was worse than Junior had represented. Plaintiff alleged that Junior had falsified the reports of AmerLink "to a far more severe degree than he had admitted." Plaintiff closed the doors of AmerLink on or about 15 December 2008.

The complaint further alleged that on 11 February 2009, plaintiff, through counsel, sent a letter to Junior advising him of his failure to make his contribution of funds to JRI, stating that Junior had knowingly and intentionally made false representations to the AmerLink Board of Directors, and demanding that Junior immediately remedy the situation by paying $8 million to JRI. On 12 February 2009, AmerLink filed for Chapter 11 bankruptcy. On 11 March 2009, Junior caused AmerLink's bankruptcy attorney to advise the Bankruptcy Court that within ten days AmerLink would seek approval of a $7.5 million loan from JRI and would use those funds to "complete its existing orders for log homes." A letter very similar to the letter sent from plaintiff's counsel to Junior on 11 February 2009 was sent to Senior on 20 February 2009.

Plain...