Zagaroli v. Neill
| Decision Date | 28 March 2018 |
| Docket Number | 15 CVS 2635 |
| Citation | 2018 NCBC 25 |
| Parties | PETE ZAGAROLI, Plaintiff and Counterclaim Defendant, v. JAMES CLAYTON NEILL; RICK BERRY; NEILL GRADING AND CONSTRUCTION COMPANY, INC.; and RECLAMATION, LLC, Defendants and Counterclaim/Third-Party Plaintiffs, v. BENCHMADE, LLC and DEAN PRITCHETT, Third-Party Defendants. |
| Court | Superior Court of North Carolina |
Law Offices of Matthew K. Rogers, PLLC, by Matthew K. Rogers, for Plaintiff and Third-Party Defendant Benchmade, LLC.
Young Morphis, Bach & Taylor, LLP, by Paul E. Culpepper and Timothy D. Swanson, for Defendants.
1. THIS MATTER is before the Court on the parties' motions for summary judgment. For the reasons set forth below, the Court GRANTS in part and DENIES in part the motions.
2. This litigation arises out of a failed business relationship among long-time family friends. Plaintiff Pete Zagaroli ("Plaintiff" or "Zagaroli") approached Defendant James Clayton Neill ("Neill") about the opportunity to redevelop historic mills, including the Hollar Hosiery Mill ("Hollar"), Moretz Mills ("Moretz"), and Lyerly Mills ("Lyerly"). After Zagaroli had failed to close on the purchase of Hollar, Zagaroli approached Neill about purchasing the property. Discussions ensued between Zagaroli, Neill, Defendant Rick Berry ("Berry"), and other investors sought out by Neill, and Neill formed Hollar Hosiery Investments, LLC ("HHI") to close on the purchase of Hollar. Zagaroli entered into an agreement with HHI pursuant to which he assigned his rights to purchase Hollar to HHI. Zagaroli was initially involved in the discussions among the HHI members regarding the development of Hollar, but Zagaroli and HHI had a falling out, and Zagaroli did not participate any further in the Hollar development.
3. In the midst of the Hollar development, Zagaroli informed Neill about an opportunity to reclaim materials from a historic mill which could be used to manufacture furniture. This discussion ultimately led to the formation of Reclamation, LLC ("Reclamation"), the initial members of which were Zagaroli, Neill, Berry, and Ryan Lovern ("Lovern"). Initially, Reclamation's business operations included mill redevelopment and furniture manufacturing.
4. Despite Neill and Berry's capital contributions and loan financing, Reclamation struggled financially. Lovern voluntarily relinquished her ownership interest, and Neill and Berry entered into an agreement with Zagaroli and Third-Party Defendant Dean Pritchett ("Pritchett") pursuant to which Neill and Berry's ownership interests in Reclamation would transfer to Zagaroli and Pritchett upon repayment of Neill and Berry's cash advances and of the promissory notes used to fund Reclamation's operations. Zagaroli and Pritchett did not make the repayments, and Reclamation ultimately failed.
5. The Court sets forth here only those portions of the procedural history relevant to its determination of the motions.
6. Zagaroli filed his Complaint on October 26, 2015, (ECF No. 1), and his First Amended Complaint on March 21, 2016, (ECF No. 2). The First Amended Complaint asserts claims for (1) breach of fiduciary duty, constructive fraud, and fraud[1]; (2) self-dealing and misappropriation of corporate opportunities; (3) quasi contract and unjust enrichment; (4) breach of contract; (5) violation of the North Carolina Wage and Hour Act (the "Wage and Hour Act"); and (6) defamation. (First Am. Compl. 14, 16-19.)
7. This action was designated as a mandatory complex business case by order of the Chief Justice of the Supreme Court of North Carolina dated April 14, 2016, (ECF No. 4), and assigned to Chief Business Court Judge James L. Gale that same day, (ECF No. 5). This case was later reassigned to the undersigned by order dated July 5, 2016. (ECF No. 19.)
8. On May 18, 2016, Defendants filed their Answer, Counterclaim, and Third-Party Complaint against Benchmade, LLC ("Benchmade") and Pritchett. (ECF No. 12.) Defendants assert counterclaims for (1) a declaratory judgment; (2) conversion; (3) fraud; (4) breach of contract; (5) claim and delivery; and (6) judicial dissolution. Defendants assert a third-party claim for conversion against Benchmade and a third-party claim for breach of contract against Pritchett. (Answer 28-29.) On December 29, 2016, the Court partially granted Zagaroli's motion to dismiss and dismissed Defendants' fraud claim without prejudice. (ECF No. 42.)
9. Zagaroli filed his reply to Defendants' counterclaims on July 18, 2016, (ECF No. 21), and a "revised" reply on October 14, 2016, which Defendants did not contest, (ECF No. 32).
10. On August 1, 2016, Benchmade filed its Answer to Defendants' third-party complaint. (ECF No. 22.)
11. On October 31, 2016, the Court entered default in favor of Defendants against Pritchett. (ECF No. 37.)
12. On September 25, 2017, the parties filed their motions for summary judgment. Defendants move for summary judgment on all of Zagaroli's claims, save and except for his defamation claim. Zagaroli moves for summary judgment on all of Defendants' counterclaims. Benchmade moves for summary judgment on Defendants' third-party claim for conversion against it.
13. On November 7, 2017, the Court partially granted Defendants' motion for judgment on the pleadings and dismissed with prejudice Zagaroli's claim for self-dealing and misappropriation of corporate opportunities. (ECF No. 105.) Accordingly, Defendants' motion for summary judgment as to this claim is moot.
14. Save and except for Benchmade's motion for summary judgment, to which Defendants did not respond, the motions have been fully briefed, and the Court held a hearing on the motions on February 8, 2018. The motions are now ripe for resolution.
15. The Court does not make findings of fact when ruling on motions for summary judgment. E.g., In re Estate of Pope, 192 N.C.App. 321, 329, 666 S.E.2d 140, 147 (2008). The following factual background, taken from the evidence submitted in support of and in opposition to the motions for summary judgment, is intended solely to provide context for the Court's analysis and ruling.
16. Zagaroli is a resident of Catawba County, North Carolina. (First Am. Compl. ¶ 1; Answer 1, ¶ 1.) Until the end of 2010, Zagaroli was a general contractor who built new construction, renovations, and additions. (First Am. Compl. ¶ 9; Answer 2, ¶ 9; Defs.' Mot. Summ. J. Ex. H, at 25:9-23, ECF No. 93.9 ["Zagaroli Dep."].) Zagaroli started Zagaroli Construction Co., Inc. ("Zagaroli Construction") in 1993, which went out of business in 2010. (Zagaroli Dep. 26:9-11, 28:18-20.)
17. Neill and Berry are also residents of Catawba County. (First Am. Compl. ¶¶ 2-3; Answer 1, ¶¶ 2-3.)
18. Defendant Neill Grading and Construction Company, Inc. ("Neill Grading") is a North Carolina corporation with its principal place of business in Hickory, North Carolina. (First Am. Compl. ¶ 4; Answer 2, ¶ 4.) Neill is the secretary of Neill Grading. (Defs.' Mot. Summ. J. Ex. I, at 10:1, ECF No. 93.10 ["Neill Dep."].) Ed Neill, who is not a party to this action, is the president and sole owner of Neill Grading. (Neill Dep. 12:4-6, 14:16-17.)
19. Reclamation is a North Carolina limited liability company, which was administratively dissolved on February 2, 2017. (Pl.'s Mot. Summ. J. Ex. 28, ECF No. 102.29.)
20. Zagaroli prepared a general business plan for the renovation of historic factories and mills throughout Catawba County, including Hollar, Moretz, and Lyerly (the "Wingfoot Business Plan"). (Zagaroli Dep. 37:4-11, 44:15-17, 45:2-3.) Zagaroli sought to renovate the old mills and develop the infill properties to attract new businesses. (Zagaroli Dep. 37:9-20.) Zagaroli contends, and Defendants deny, that Zagaroli, Neill, Berry, and Neill Grading entered into a partnership to redevelop Hollar, Moretz, and Lyerly.
21. On three separate occasions between 2006 and July 2009, Zagaroli contracted to purchase Hollar, an abandoned hosiery mill property. (Zagaroli Dep. 130:20-22, 131:16-19, Ex. 2.) Zagaroli was unable to close on the property pursuant to the first two contracts, and Zagaroli contracted to purchase Hollar a third time on July 28, 2009. (Pl.'s Resp. Defs.' Mot. Summ. J. Ex. 2, ¶ 6, ECF No. 108 ["Second Zagaroli Aff."]; Zagaroli Dep. Ex. 2.) After Zagaroli went under contract on July 28, 2009, Zagaroli asked Neill for his help in closing on the purchase, and Neill sought out other investors. (Neill Dep. 138:8-13.) Zagaroli then had meetings with Neill, Ed Neill, Berry, Patrick Joyner, and Heather Joyner regarding Hollar, and Neill formed HHI to close on the property. (Neill Dep. 107:1-4, 130:1-11, 130:20-131:2.) The original members of HHI were Neill, Ed Neill, Berry, and Laurel Homes, Inc., of which Patrick and Heather Joyner are members.[2] (Neill Dep. 133:22-134:3, 162:10-13.)
22. On September 22, 2009, Zagaroli, on behalf of himself and Zagaroli Construction, and HHI entered into an Agreement to Assign Rights to Purchase Real Property and to Purchase Real Property (the "Assignment Agreement"). Pursuant to the Assignment Agreement, Zagaroli assigned his rights to purchase Hollar to HHI, and HHI agreed to purchase Hollar. (Zagaroli Dep. Ex. 2.) The Assignment Agreement provided that "[i]t is the intention of the parties hereto, and a material part of the consideration hereof, to use Zagaroli Construction Co., Inc. to renovate and perform construction on [Hollar]." (Zagar...
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