Am. Mech., Inc. v. Bostic

Am. Mech., Inc. v. Bostic, 2014 NCBC 17.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
RANDOLPH COUNTY 12 CVS 1384

AMERICAN MECHANICAL, INC.,

Plaintiff,

v.

JOSEPH E. BOSTIC, JR., and JEFFREY ORDER AND OPINION
L. BOSTIC,

Defendants.

McKinney & Tallant, P.A. by Zeyland G. McKinney, Jr. for Plaintiff.

Nexsen Pruet, PLLC by David S. Pokela and Christine L. Myatt for Defendant Jeffrey
L. Bostic.

Murphy, Judge.
THIS MATTER is before the Court on Defendant Jeffrey L. Bostic’s
(“Defendant”) Motion for Summary Judgment pursuant to Rule 56 of the North
Carolina Rules of Civil Procedure (the “Motion”).
Having considered the Motion, the briefs and exhibits filed in support and
opposition to the Motion, and the arguments of counsel made at a hearing held on
December 17, 2013, the Court GRANTS the Motion.
I.
PROCEDURAL BACKGROUND
{1} Plaintiff American Mechanical, Inc. (“Plaintiff”) instituted this action on
June 4, 2012 in Randolph County, North Carolina, alleging a cause of action for
constructive fraud against Defendant and Melvin E. Morris (“Mel Morris”). (Compl.
¶¶ 78–106). The Complaint also included causes of action for aiding and abetting
constructive fraud against Tyler Morris, Michael Hartnett, and Joseph E. Bostic, Jr.
(Compl. ¶¶ 107–26).
{2} By order dated January 18, 2013, the Court dismissed Plaintiff’s claim for
aiding and abetting constructive fraud, effectively removing Tyler Morris and
Michael Hartnett as defendants in this case. American Mechanical, Inc. v. Bostic,
No. 12 CVS 1384 ¶ 12 (N.C. Super. Ct. Jan. 18, 2013) (dismissing Plaintiff’s claim
for aiding and abetting constructive fraud against Tyler Morris and Michael
Hartnett).
{3} On May 24, 2013, Plaintiff dismissed Mel Morris as a defendant, with
prejudice. (Pl.’s Stipulation of Dismissal of Melvin Morris, May 24, 2013).
{4} Defendant filed the Motion presently before the Court on June 19, 2013.
{5} Plaintiff filed its Response to the Motion on August 5, 2013 and Defendant
filed his Reply in Support of the Motion on August 30, 2013.1
{6} The Court held a hearing on the Motion, in conjunction with identical
motions for summary judgment in companion cases (Phillips and Jordan, Inc. v.
Bostic (11 CVS 53) and Yates Construction Co., Inc. v. Bostic (12 CVS 977)) on
December 17, 2013.
II.
FACTUAL BACKGROUND
{7} The Court recites material and uncontroverted facts from the record for
the purpose of deciding the motion and not to resolve issues of material fact. See
Collier v. Collier, 204 N.C. App. 160, 161–62, 693 S.E.2d 250, 252 (2010) (citing
Hyde Ins. Agency v. Dixie Leasing Corp., 26 N.C. App. 138, 142, 215 S.E.2d 162,
164–65 (1975)).
{8} Plaintiff is a corporation organized under the laws of North Carolina with
its principal place of business in Randolph County, North Carolina. (Compl. ¶ 1).
{9} Defendant is a resident of Georgia. (Compl. ¶ 9).
{10} As a subcontractor, Plaintiff rendered services on construction projects
with companies in which Defendant had at least an ownership interest (principally

1
Defendant filed a Motion to Strike the last sentence in Plaintiff’s Brief in Opposition to the Motion for Summary
Judgment and Objections to Purported Evidence Submitted by Plaintiff in Opposition to Defendant’s Motion for
Summary Judgment on August 30, 2013. Subsequently, Plaintiff filed a Motion to Strike Defendant’s Reply Brief
and Objections to Purported Evidence Submitted in Opposition to Defendant’s Motion for Summary Judgment on
December 5, 2013. Because the Court concludes that none of the arguments contained in the aforementioned
motions nor the opposing parties’ responses thereto are essential to the Court’s determination of the present Motion
for Summary Judgment, the Court concludes that a ruling on those motions is unnecessary.
Bostic Construction, Inc. (“BCI”) and Bostic Development, LLC (collectively, the
“Affiliated Companies”)). (Compl. ¶¶ 3, 20).
{11} This lawsuit stems from BCI’s failure to pay Plaintiff in full for work
Plaintiff performed on the construction projects. (See Compl. ¶¶ 78–106).
{12} In the Complaint, Plaintiff alleges that Defendant and Mel Morris, in their
capacities as officers or directors of BCI, engaged in deceptive and fraudulent
business schemes by locating properties near a college or university to build multi-
housing units and apartments on. (Compl. ¶ 57(a)). After locating the property,
Defendant and Mel Morris would seek out third-party equity investors to fund the
project or to provide the property for the project. (Compl. ¶ 57(b)). Defendant and
Mel Morris would then form a “Project LLC”, take out a construction loan, and enter
into a construction contract between BCI and the Project LLC. (Compl. ¶¶ 57(d),
(o)). Thereafter, according to Plaintiff, Defendant and Mel Morris would enter into
subcontracts with contractors for services and materials for the project, all the while
understating the actual costs of construction. (Compl. ¶¶ 57 (q)–(s)). Defendant
and Mel Morris then used their positions and control over the Affiliated Companies
to create “a relationship wherein the Plaintiff trusted that [Defendant and Mel
Morris] would use the construction loan proceeds for each project to pay for the
actual costs of each project . . . .” (Compl. ¶ 84).
{13} Generally, Plaintiff contends that Defendant and Mel Morris used a group
of sham companies to “commingle, misuse, and misappropriate the construction
loans provided to finance the construction projects on which the Plaintiff performed
services,” and rather than holding loan proceeds to pay off debts for a particular
project, Defendant and Mel Morris used the proceeds to advance large sums of
money to other companies owned by them and make preferential payments for their
own benefit. (Compl. ¶¶ 83, 90–91).
{14} A Chapter 7 involuntary bankruptcy petition was filed against BCI on
January 17, 2005. American Mechanical, No. 12 CVS 1384 at ¶ 10.
{15} In response to BCI’s failure to pay Plaintiff for the work performed on the
projects, Plaintiff instituted this action against Defendant for constructive fraud.
{16} Although Plaintiff originally included Mel Morris in this action for
constructive fraud, Plaintiff dismissed him from the lawsuit with prejudice on May
24, 2013.
III.
LEGAL STANDARD
{17} “Summary judgment is appropriate if ‘the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that any party is entitled
to a judgment as a matter of law.’” Variety Wholesalers, Inc. v. Salem Logistics
Traffic Servs., LLC, 365 N.C. 520, 523, 723 S.E.2d 744, 747 (2012) (quoting N.C.G.S.
§ 1A-1, Rule 56(c) (2013)). Here, the Court considers the facts in the light most
favorable to Plaintiff. See Ron Medlin Constr. v. Harris, 364 N.C. 577, 580, 704
S.E.2d 486, 488 (2010).
IV.
ANALYSIS
{18} Plaintiff’s sole claim against Defendant is for constructive fraud. A cause
of action for constructive fraud “arises where a confidential or fiduciary relationship
exists, which has led up to and surrounded the consummation of the transaction in
which [the] defendant is alleged to have taken advantage of his position of trust to
the hurt of [the] plaintiff.” Forbis v. Neal, 361 N.C. 519, 528, 649 S.E.2d 382, 388
(2007) (citations omitted) (internal quotation marks omitted).
{19} Generally, directors and officers of a corporation are not liable, solely by
virtue of their offices, for torts committed by the corporation or its other directors
and officers. Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 57, 554 S.E.2d 840,
845 (2001) (citation omitted). Furthermore, as a director or officer of BCI,
Defendant may only be liable to a creditor of BCI for “‘a tort personally committed
by [him] or one in which he participated.’” Id. (citation omitted).
{20} In his capacity as Plaintiff’s Rule 30(b)(6) designated deponent, Vernon
Hinshaw (“Hinshaw”) stated that the “only dealings [he] had with [BCI], really, as
far as contact with them, was with Mel Morris.” (Am. Mech. Dep. 23:22–24, March
14, 2013). Hinshaw testified at deposition that he had a verbal master contract
with BCI and the only person from BCI involved in forming that contract was
Melvin Morris. (Am. Mech. Dep. 29:16–30:23). Hinshaw repeatedly testified that
he did not recall nor was he aware of any conversations or other communications
between himself or other employees of Plaintiff and Defendant. (Am. Mech. Dep.
47:2–54:21). Plaintiff’s own attorney, Zeyland McKinney, confirmed Hinshaw’s
statement that “[he] never talked to [Defendant]” and “that nobody at American
Mechanical [had] ever talked to [Defendant].” (Am. Mech. Dep. 48:21–49:2).
{21} Notwithstanding Hinshaw’s deposition testimony, Plaintiff delivered the
final blow to its claim for constructive fraud when Hinshaw testified that Defendant
did not do or say anything to induce him into entering the verbal master contract,
nor did Defendant sign any document or say anything that Plaintiff relied upon in
performing the jobs that were the subject of the lawsuit. (Am. Mech. Dep. 55:3–17,
57:23–58:18). All of the evidence before the Court points to the inescapable
conclusion that Defendant did not participate in the tort for which he has been
sued.
{22} Accordingly, Plaintiff has presented no evidence to support a finding that
Defendant actually took advantage of a position of trust to the hurt of Plaintiff that
could constitute constructive fraud. As such, it is unnecessary for the Court to
address Plaintiff and Defendant’s remaining arguments regarding the elements of
constructive fraud.
V.
CONCLUSION
{23} For the reasons stated herein, the Court GRANTS the Motion and
dismisses Plaintiff’s claim for constructive fraud against Defendant Jeffrey L. Bostic
with prejudice.
SO ORDERED, this the 12th day of May, 2014.