Allen v. Land Res. Group of N.C., LLC

Allen v. Land Res. Group of N.C., LLC, 2010 NCBC 15.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF RUTHERFORD 08 CVS 1283

HERSCHEL ALLEN and wife,
ELIZABETH P. ALLEN; SVEN RONNY
CARLSSON and wife, SUSAN P.
CARLSSON A/K/A CARLSSON
INVESTMENTS, LLC; WAYNE COX and
wife, JOSEPHINE COX; GLENN A. DAY
and wife, KATHERINE KOSTOFF-DAY;
CALVIN C. HENDERSON and wife,
ELAINE W. HENDERSON; JOHN J.
KASIANOWICZ and wife, RACHEL H.
KASIANOWICZ; GLENN M. SWARTZ,
JR. and wife, DAWNA L. SWARTZ; DAVID
LEE WOOD; STEPHEN PETER BLOOM;
MARCOS I. RUBERT and wife, KATHRYN
M. RUBERT; and BRIAN J. KREBS,

Plaintiffs,

v.

LAND RESOURCE GROUP OF NORTH ORDER ON MOTION
CAROLINA, LLC, a North Carolina limited TO SEVER
liability company, LAND RESOURCE
DEVELOPMENT GROUP, INC., a Georgia
corporation, LAND RESOURCE GROUP,
INC., a Georgia corporation, LR BUFFALO
CREEK, LLC, a Georgia limited liability
company; LAND RESOURCE, LLC a/k/a
LAND RESOURCE COMPANIES, LLC, a
Georgia limited liability company, together
with the following parties who have not
filed for bankruptcy protection as of this
date: MIKE FLASKEY; J. ROBERT WARD;
PAUL BEIDEL; ROB VACKO; SCRIPPS
NETWORK INTERACTIVE d/b/a HGTV;
MITCH BEN MILLER; SOUTHERN H.O.A.
MANAGEMENT, LLC; CLARK
CHAMPION; TAMMY MIKESELL;
ROBERT L. HULLETT; HOWARD
HULLETT APPRAISALS AND REALTY
INC.; MARIE A. FOX; TWO DAY
APPRAISAL; RANDALL COCHRAN;
JEANETTE MANNER-JONES; BRANCH
BANKING & TRUST COMPANY; BANK
OF AMERICA CORPORATION; JOHN
DOE OFFICERS OF LAND RESOURCE
GROUP OF NORTH CAROLINA, LLC;
JOHN DOE OFFICERS OF LAND
RESOURCE DEVELOPMENT GROUP,
INC.; JOHN DOE OFFICERS OF LAND
RESOURCE GROUP, INC.; JOHN DOE
OFFICERS OF LR BUFFALO CREEK,
LLC; JOHN DOE OFFICERS OF LAND
RESOURCE, LLC a/k/a LAND RESOURCE
COMPANIES, LLC; JOHN DOE
DIRECTORS OF LAND RESOURCE
GROUP OF NORTH CAROLINA, LLC;
JOHN DOE DIRECTORS OF LAND
RESOURCE DEVELOPMENT GROUP,
INC.; JOHN DOE DIRECTORS OF LAND
RESOURCE GROUP, INC.; JOHN DOE
DIRECTORS OF LR BUFFALO CREEK,
LLC; and JOHN DOE DIRECTORS OF
LAND RESOURCE, LLC a/k/a LAND
RESOURCE COMPANIES, LLC,

Defendants.

{1} This matter comes before the Court on the motion of Defendants J. Robert
Ward, Michael Flaskey, Robert Vacko, Paul Beidel, Clark Champion, Jeanette
Manner-Jones, Tammy Mikesell, Marie Fox Miller, Mitch Miller, Shannon Glover,
Patrick Moore and Charlene Miller (collectively, the “LRC Individual Defendants”)
pursuant to Rules 20 and 21 of the North Carolina Rules of Civil Procedure asking
the Court to sever the claims of the individual Plaintiffs. The posture of this case
and the pleadings raise issues with implications for similar litigation pending in the
North Carolina Business Court and elsewhere.
{2} As a result of the ongoing economic downturn and the burst of the real
estate bubble in the United States economy, many real estate developments have
gone into bankruptcy, leaving lots purchased in those developments undeveloped
and worth less than the amount paid for them and less than the amount owed on
the mortgages secured when they were purchased. Many of the developments had
incomplete amenities and even lacked basic services such as roads and water when
they collapsed, further diminishing the value of the lots purchased.
{3} Significant litigation has followed the collapse of developments and
development companies, as evidenced by the number of such cases pending in
the North Carolina Business Court. See, e.g., Arnesen v. Rivers Edge Golf Club
& Plantation, Inc., Brunswick County No. 10-CVS-781 (N.C. Super. Ct.); Barry v.
Ocean Isle Palms, Inc., Brunswick County No. 10-CVS-496 (N.C. Super. Ct.); Barton
v. Coastal Communities at Ocean Ridge Plantation, Inc., Brunswick County No.
10-CVS-314 (N.C. Super. Ct.); Anderson v. Coastal Communities at Ocean Ridge
Plantation, Inc., Brunswick County No. 09-CVS-1042 (N.C. Super. Ct.); Branch
Banking & Trust Co. v. Gilmartin, New Hanover County No. 09-CVS-1208 (N.C.
Super. Ct.); Beadnell v. Coastal Communities at Ocean Ridge Plantation, Inc.,
Brunswick County No. 09-CVS-3376 (N.C. Super. Ct.); Cabrera v. The Ridges at
Morgan Creek, LLC, McDowell County No. 09-CVS-544 (N.C. Super. Ct.); Abraham
v. Jauregui, Onslow County No. 09-CVS-3608 (N.C. Super. Ct.). These cases are
further complicated when claims are asserted against individuals and companies
other than the developer, who may well be in bankruptcy.
{4} Generally, plaintiffs assert claims in such cases for breach of contract,
rescission, fraud, misrepresentation, unfair and deceptive trade practices, and
violations of the Interstate Land Sales Full Disclosure Act. Numerous plaintiffs
with separate claims are routinely joined in one lawsuit with numerous and varied
defendants. Plaintiffs’ claims diverge with respect to some of the defendants, and
the pleadings often fail to specify who is being sued for what.
{5} This case is a classic example. There were originally twenty-two plaintiffs,
twenty-nine named defendants, and at least fifteen causes of action. Each plaintiff
participated in his or her own transaction involving a specific lot or lots. Each
plaintiff may have dealt with different defendants, including different salespeople,
different appraisers, and different banks, and each plaintiff may have had a
different level of knowledge. The defendants are varied and include officers and
owners of the development company as well as administrative employees and
salesmen who had no ownership or control of the company, appraisers, banks and
even TV show producers.
{6} After having been directed to plead their fraud and misrepresentation
claims more specifically, Plaintiffs filed a 107-page Amended Complaint with
795 paragraphs. The Amended Complaint still does not clarify which claims are
asserted by which plaintiff against which defendant. Complaints in similar cases
suffer from the same deficiencies. The largest problems are created by the
indiscriminate references to all “Defendants” when specific defendants should be
identified.
{7} The pertinent rules of the North Carolina Rules of Civil Procedure are set
forth below.

Rule 8(a)(1): A pleading which sets forth a claim for relief, whether an
original claim, counterclaim, crossclaim, or third-party claim shall
contain a short and plain statement of the claim sufficiently particular
to give the court and the parties notice of the transactions, occurrences,
or series of transactions or occurrences, intended to be proved showing
that the pleader is entitled to relief.

Rule 8(e)(1): Each averment of a pleading shall be simple, concise, and
direct. No technical forms of pleading or motions are required.

Rule 9(b): In all averments of fraud, duress or mistake, the
circumstance constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other condition of mind
of a person may be averred generally.

Rule 10(b): All averments of claim or defense shall be made in
numbered paragraphs, the contents of each of which be limited as far
as practicable to a statement of a single set of circumstances; and a
paragraph may be referred to by number in all succeeding pleadings.
Each claim founded upon a separate transaction or occurrence and
each defense other than denials shall be stated in a separate count or
defense whenever a separation facilitates the clear presentation of the
matters set forth.
Rule 11(a) (excerpt): The signature of an attorney or party constitutes
a certificate by him that he has read the pleading, motion, or other
paper; that to the best of his knowledge, information, and belief formed
after reasonable inquiry it is well grounded in fact and is warranted by
existing law or a good faith argument for the extension, modification,
or reversal of existing law, and that it is not interposed for any
improper purpose, such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation.

Rule 20(a): All persons may join in one action as plaintiffs if they
assert any right to relief jointly, severally, or in the alternative in
respect of or arising out of the same transaction, occurrence, or series
of transactions or occurrences and if any question of law or fact
common to all parties will arise in the action. All persons may be
joined in one action as defendants if there is asserted against them
jointly, severally, or in the alternative, any right to relief in respect of
or arising out of the same transaction, occurrence, or series of
transactions or occurrences and if any question of law or fact common
to all parties will arise in the action. A plaintiff or defendant need not
be interested in obtaining or defending against all the relief demanded.
Judgment may be given for one or more of the plaintiffs according to
their respective rights to relief, and against one or more defendants
according to their respective liabilities.

Rule 20(b): The court shall make such orders as will prevent a party
from being embarrassed, delayed, or put to expense by the inclusion of
a party against whom he asserts no claim and who asserts no claim
against him, and shall order separate trials or make other orders to
prevent delay or prejudice

Rule 21: Neither misjoinder of parties nor misjoinder of parties and
claims is ground for dismissal of an action; but on such terms as are
just parties may be dropped or added by order of the court on motion of
any party or on its own initiative at any stage of the action. Any claim
against a party may be severed and proceeded with separately.

{8} The rules specified above are all designed to impose upon counsel and the
courts the obligation to conduct litigation in a cost-effective and efficient manner.
The rules provide judges with wide latitude in their enforcement and in managing
litigation. The goal is to ensure that parties are not forced to settle cases based on
considerations other than the merits of the claims and defenses.
{9} Rule 8 calls for simple, concise and direct pleadings which are sufficiently
particular to give the court and each defendant fair notice of what claims the
plaintiff is asserting against each of the defendants and the grounds upon which the
claims rest. That directive is supplemented by Rule 9’s requirement that fraud and
similar claims include allegations of all material facts and circumstances
constituting the alleged fraud. Our courts have based the requirement for
particularity of pleading in fraud cases in part on the wide variety of potential
conduct that can constitute fraud and the need for specificity to protect defendants
from unjustified injury from general allegations. Terry v. Terry, 302 N.C. 77, 273
S.E.2d 674 (1981).
{10} Rule 10(b) provides further guidance by specifying that each paragraph
be limited to a single set of circumstances and that each claim is founded upon a
separate transaction or occurrence.
{11} The clear and simple purpose of these rules is to put the court and the
parties on notice of the claims asserted against a party so that the claims can be
managed by the court and defended by the party against whom they are asserted.
Pleadings that fail to meet these requirements are deficient because they
unnecessarily increase motion practice, the workload of the courts, the costs to the
parties, and the friction between counsel. They also impact the basic fairness of
the system as well as the costs. Pleadings that do not follow the rules subject the
profession to criticism and cause the public to lose confidence in—or at least not
understand—the justice system.
{12} Rules 20 and 21 provide the courts and counsel with management tools to
join or sever parties and claims in a manner that promotes judicial economy and
justice. The court cannot adeptly exercise its discretion with respect to these rules
without clear pleadings that comply with the rules discussed earlier. Clear and
concise pleadings that spell out which claims are asserted against which defendants
are essential to the decision-making process under Rules 20 and 21.
{13} Rule 11 ensures that counsel have done their homework before filing
claims, particularly those involving fraud and conspiracy to commit fraud. Having
done the work required by Rule 11, there is no excuse for not properly pleading
separate causes of action that put each defendant on notice of the claims asserted
against that defendant. Failure to properly plead separate causes of action and to
identify specifically the party against whom a claim is asserted may be an
indication of a Rule 11 violation.
{14} Despite its length and breadth, the Amended Complaint in this action fails
to tell the Court or Defendants which claims are asserted against which defendants
by which plaintiffs. Complaints in this type of case should clearly specify each claim
that a plaintiff is asserting against a particular defendant. 1 With respect to fraud
and misrepresentation claims, each such claim made against a defendant must be
supported by specific allegations as to that defendant as required by Rule 9. By
way of example, allegations of misrepresentations by a salesperson should specify
each misrepresentation, the salesperson making the misrepresentation and the
plaintiff to whom the misrepresentation was made.
{15} Claims against individuals or institutions that are based upon mere
conclusory allegations of conspiracy to defraud or aiding and abetting fraud are
insufficient. Such claims should be supported by factual allegation sufficient to
apprise each defendant of the basis for his or her liability. Rule 9 requires that
allegations of conspiracy to commit fraud or aiding and abetting fraud specify the
factual basis and acts supporting the participation in the conspiracy. For example,
claims of conspiracy to defraud against financial institutions loaning funds to
borrowers secured by the property purchased should specify the basis for the
financial institutions’ knowledge of and participation in the conspiracy. Where
known, the names of the specific employee of the financial institution knowing of
and participating in the fraud should be pled.
{16} Care should be taken to distinguish owners/officers of defendant companies
from non-managerial employees who have no authority and who do not benefit from
the alleged fraud. Allegations of unfair and deceptive practices should specify the

1 Family members may be grouped together.
actual acts or practices forming the basis of the claim and the defendants who
allegedly committed those acts.
{17} In order for the Court to determine which claims should be tried together
and which should be separated, Plaintiffs’ counsel shall file within thirty (30) days
of the entry of this Order a Statement of Claims in the form of the example attached
hereto as Appendix A. At the close of discovery, the Court will determine whether
to try each of Plaintiffs’ claims individually or in groups of plaintiffs or claims. The
Statement of Claims will be the beginning point for those determinations. The
Court’s goal will be to find the most efficient and economical way to present the
claims to a jury.

SO ORDERED, this 22nd day of September, 2010.
APPENDIX A

STATEMENT OF CLAIMS

PLAINTIFF(S) 1 asserts the following claims against DEFENDANT 1:
(List all claims asserted against this Defendant)

1. Violation of the Interstate Land Sales Full Disclosure Act (Failure to Provide
Property Report): the transactions or occurrences on which the claim is founded

2. Violation of Interstate Land Sales Full Disclosure Act (Fraud and Deceit Upon
Purchasers): the transactions or occurrences on which the claim is founded

3. Rescission: the transactions or occurrences on which the claim is founded

4. Breach of Contract/Anticipatory Breach: the transactions or occurrences on which
the claims are founded

5. Breach of Covenant of Good Faith and Fair Dealing: the transactions or occurrences
on which the claim is founded

6. Negligence: the transactions or occurrences on which the claim is founded

7. Fraud/Misrepresentation/Negligent Misrepresentation: all material facts and
circumstances constituting the fraud/misrepresentation/negligent misrepresentation
with particularity

8. Breach of Fiduciary Duty: the transactions or occurrences on which the claim is
founded

9. Fraud in the Inducement: all material facts and circumstances constituting the fraud
in the inducement with particularity

10. Constructive Fraud: all material facts and circumstances constituting the
constructive fraud with particularity

11. Unfair and Deceptive Trade Practices: the acts or practices forming the basis of the
claim

12. Obtaining Property by False Pretenses: all material facts and circumstances
constituting the false pretenses with particularity

13. Fraudulent Conveyance: all material facts and circumstances supporting the
fraudulent conveyance claim with particularity
14. Piercing the Corporate Veil: the transactions or occurrences on which the claim is
founded

15. Racketeer Influence and Corrupt Organizations: all material facts and circumstances
constituting the racketeer influence and corrupt organizations claim with
particularity

16. Punitive Damages: the transactions or occurrences on which the claim is founded

17. Civil Conspiracy/Aiding and Abetting: the factual basis and acts supporting the
participation in the conspiracy with particularity