Wilson v. McAleer
| Decision Date | 05 January 2005 |
| Docket Number | No. 104CV00292.,104CV00292. |
| Citation | 368 F.Supp.2d 472 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | Robert T. WILSON, Jr., Plaintiff, v. Joseph Arrends MCALEER, John McAleer Orrell, and Steven Dale Smith, Defendants. |
Grover Gray Wilson, Winston-Salem, NC, for Plaintiff.
Philip J. Mohr, Ronald R. Davis, Winston-Salem, NC, for Defendants.
On December 1, 2004, the United States Magistrate Judge's Recommendation was filed and notice was served on the parties pursuant to 28 U.S.C. § 636. No objections were filed within the time limits prescribed by Section 636.
Therefore, the Court need not make a de novo review and the Magistrate Judge's Recommendation is hereby adopted.
IT IS THEREFORE ORDERED that defendants' motion to dismiss plaintiff's fraud and unfair and deceptive trade practices claims (docket no. 13) be, and the same hereby are denied.
The facts of this case, as alleged in plaintiff's amended complaint are as follows. Defendants are the former owners of a Krispy Kreme Doughnut franchise for parts of Texas and Louisiana. Plaintiff also states that at the time most of the events set out in the amended complaint occurred, defendants McAleer and Smith were directors and shareholders of Krispy Kreme and that Orell was an ex-employee and shareholder of Krispy Kreme. Plaintiff's occupation is not clear, but he refers to his personal relationship with defendants and past business ventures with Krispy Kreme.
Plaintiff claims that, based on his prior relationship with defendants and Krispy Kreme and his knowledge in the general industry, defendants engaged him to find a buyer for their franchise. Defendant Orrell initially negotiated with plaintiff, but the other defendants also agreed to the deal that plaintiff says they negotiated. Plaintiff alleges that they promised to pay him a 2-3% commission on the gross sales price and a 5% equity position in "the entity," payable by the buyer. Defendants also disclosed that Krispy Kreme had a right of first refusal which meant that, if plaintiff found a potential buyer, Krispy Kreme could match the offer. Plaintiff claims that defendants agreed that he would receive a 2% commission on the gross sales price if Krispy Kreme exercised its right and repurchased the franchise.
Relying on his agreement with defendants, plaintiff sought a buyer by making "numerous trips" around the country and investing "countless hours and expense." He also hired a financial delegate to coordinate an audit of the franchise and gathered and processed financial information for prospective buyers. Eventually, plaintiff was able to identify Arbor Private Investment Company as a possible buyer. He then met with defendants and discussed the pending offer and the possibility that Krispy Kreme would match the offer. He reminded them that he expected a commission no matter who eventually bought the franchise and says that they all agreed. Shortly thereafter, defendants submitted a letter of intent from Arbor to Krispy Kreme and informed the company that they intended to sell the franchise.
On or about December 20, 2002, defendants told plaintiff that Krispy Kreme was demanding a 5 percent "re-franchise fee" if they sold to an outside buyer. Plaintiff believes that this fee was not part of the franchise agreement between Krispy Kreme and defendants, but was created by Krispy Kreme in order to give it a competitive advantage over outside buyers. In fact, the appearance of the re-franchise fee made Arbor skeptical of the proposed transaction. Still, despite plaintiff's urging, defendants did not resist Krispy Kreme's demands for the fee.
Even with the demand for the re-franchise fee, negotiations with Arbor continued and, on March 22, 2003, plaintiff presented defendants with a formal offer of $70,000,000. In presenting the offer he told them that he felt Krispy Kreme would match the offer and that he expected his commission. He says that defendants again agreed.
Negotiations between defendants and Arbor continued, with defendants making a counter offer and Arbor making a new confidential offer of $73,000,000. In presenting that offer, plaintiff again stated his understanding that Krispy Kreme would likely match it and defendant Orrell again allegedly agreed to pay him his commission regardless. However, according to plaintiff, defendants never accepted or rejected the confidential offer, but instead secretly shared it with Krispy Kreme which then agreed to repurchase the franchise for $67,000,000. When plaintiff attempted to continue the negotiations between defendants and Arbor, he was unsuccessful in getting defendants to do so.
Around April 3, 2003, plaintiff spoke to Orrell by telephone and found that the confidential offer had been shared with Krispy Kreme. Orrell told plaintiff that the offer had not been what defendants expected, yet refused a proposal from plaintiff to continue negotiations with Arbor or seek another buyer. Orrell did not reveal to plaintiff that Krispy Kreme had exercised its right of first refusal. Then, on April 9, 2003, defendants Smith and McAleer resigned their positions on Krispy Kreme's board of directors. Plaintiff says that they did this in order to distance themselves from Krispy Kreme's decision to repurchase the franchise.
Finally, at a May 2, 2003 breakfast meeting, Orrell told plaintiff that Krispy Kreme had offered to repurchase the franchise and that defendants had accepted the offer. He finally admitted that defendants had shared Arbor's offer with Krispy Kreme prior to Krispy Kreme making the offer, but denied that Krispy Kreme's purchase of the franchise for $67,000,000 was a match of Arbor's offer. Defendants further refused to pay plaintiff his commission on the sale.
Based on the facts described above, plaintiff sued defendants in state court. That action was removed to this Court where defendants filed a motion to dismiss portions of the complaint. Plaintiff responded with an amended complaint alleging breach of contract, fraud, and unfair and deceptive trade practices. Defendants now move to have the fraud and unfair and deceptive trade practices claims dismissed pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b).
Defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(6) contends that plaintiff has failed to state a claim upon which relief can be granted. Such a motion cannot succeed "`unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Republican Party of North Carolina v. Martin, 980 F.2d 943, 952 (4th Cir.), cert. denied, 510 U.S. 828, 114 S.Ct. 93, 126 L.Ed.2d 60 (1993), quoting Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Further, the Court must assume that the allegations in the amended complaint are true and construe them in the light most favorable to plaintiff. Id. Here, the complaint will be judged under the heightened pleading standards of Fed.R.Civ.P. 9(b). That rule requires that the circumstances giving rise to a claim for fraud be pled with particularity.
As stated above, defendants seek dismissal of plaintiff's fraud and unfair and deceptive trade practices claims. The basis for their argument is that the case is really nothing more than a straightforward contract action over plaintiff's alleged right to a commission and that plaintiff should not be allowed to turn the case into a tort action by adding fraud and unfair trade practices claims. They also claim that plaintiff has not adequately pled a claim for fraud or unfair trade practices.
To allege a claim for fraud in North Carolina, a party must plead five "essential elements: (1) a false representation or concealment of a material fact, (2) that was reasonably calculated to deceive, (3) which was made with the intent to deceive, (4) that did in fact deceive, and (5) resulted in damage." Breeden v. Richmond Community College, 171 F.R.D. 189, 194 (M.D.N.C.1997) (citations omitted). Not only must these elements be pled, but under Fed.R.Civ.P. 9(b) "the circumstances constituting fraud or mistake shall be stated with particularity." Courts apply this to mean that plaintiffs must set out the "`time, place, and contents of the alleged fraudulent misrepresentation, as well as the identity of each person making the misrepresentation and what was obtained thereby.'" Id. at 195, quoting, Liner v. DiCresce, 905 F.Supp. 280, 287 (M.D.N.C.1994).
Here, plaintiff has alleged in his amended complaint that defendants, either together or through Orrell, told him that they intended to sell their Krispy Kreme franchise. They represented to him that they wished to sell it to an outside buyer or to Krispy Kreme if it matched the offer of any outside buyer pursuant to a right of first refusal. He claims that they promised to pay him commission on either of these two types of sales and that, based on all of these statements, he then proceeded in good faith to expend his time and resources to secure an outside offer to buy the franchise.
Plaintiff contends as the basis for his fraud claims that defendants' statements and actions were all part of an elaborate scheme to provide an independent basis for establishing and placing a high value on their franchise and that defendants never had an intention of complying with their agreement with plaintiff, but instead intended to use it for their aforesaid ulterior purpose of legitimizing a high price for the repurchase of the franchise by Krispy Kreme. Plaintiff alleges that, from the very beginning, defendants never intended to sell their franchise to an outside buyer or even to have Krispy Kreme exactly match an outside buyer's price. However, they needed bids from such buyers in order to raise or legitimate the price that they could charge Krispy Kreme. Plaintiff claims that, in order to...
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