L'Heureux Enters., Inc. v. Port City Java, Inc.

L’Heureux Enters., Inc. v. Port City Java, Inc., 2009 NCBC 24.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF NEW HANOVER 06 CVS 3367

L’HEUREUX ENTERPRISES, INC.; DAVID )
ALAN L’HEUREUX and PETER ARNOLD )
L’HEUREUX, )
Plaintiffs )
)
v. ) ORDER AND OPINION
)
PORT CITY JAVA, INC.; PCJ )
FRANCHISING COMPANY, LLC; )
PCJ VENTURES, LLC; DONALD )
F. REYNOLDS, JR., Individually )
and WILD FLOUR BREAD COMPANY, LLC, )
Defendants )

THIS CAUSE, designated a complex business case by Order of the Chief Justice

of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b), and

assigned to the undersigned Special Superior Court Judge for Complex Business

Cases, by order of the Chief Special Superior Court Judge for Complex Business

Cases, is before the court upon (a) the Plaintiffs’ Motion for Summary Judgment

(“Plaintiffs’ Motion”) and Defendants’ Motion for Summary Judgment (“Defendants’

Motion”) (collectively, the “Motions”), pursuant to the provisions of Rule 56, North

Carolina Rules of Civil Procedure (“Rule(s)”); and (b) Plaintiff’s Motion to Strike and

Motion for Sanctions (“Motion to Strike”), 1 pursuant to Rule 12(f).

After considering the arguments, briefs, other submissions of counsel and

appropriate matters of record, as discussed infra, the court concludes that the Plaintiffs’

1
Plaintiffs withdrew their Motion for Sanctions on March 3, 2009.
Motion should be DENIED, Defendants’ Motion should be GRANTED and the Motion to

Strike should be DENIED.

The Law Office of Jacqueline M. Druar, PLLC by Jacqueline M. Druar, Esq. and
The Law Office of Robert M. Axelrod, PLLC by Robert M. Axelrod, Esq. for
Plaintiffs L’Heureux Enterprises, Inc.; David Alan L’Heureux and Peter Arnold
L’Heureux.

Wells Jenkins Lucas & Jenkins, PLLC by Ellis B. Drew, III, Esq. and John L.
Barber, Esq. for Defendants Port City Java, Inc.; PCJ Franchising Company,
LLC; PCJ Ventures, LLC; Donald F. Reynolds, Jr., Individually and Wild Flour
Bread Company, LLC.

Jolly, Judge.

I.

THE PARTIES

[1] Plaintiff L’Heureux Enterprises, Inc. (“L’Heureux Enterprises”) is a

corporation formed under the laws of the State of North Carolina with a principal place

of business in the State of Connecticut.

[2] Plaintiff David L’Heureux is a resident of the State of Connecticut.

[3] Plaintiff Peter L’Heureux is a resident of the State of Connecticut. He is

grandfather of David L’Heureux.

[4] Defendant Port City Java, Inc. (“PCJ”) is a corporation formed under the

laws of the State of North Carolina, with a principal office in Wilmington, New Hanover

County, North Carolina.

[5] Defendant PCJ Franchising Company, LLC (“PCJ Franchising”) is a

limited liability company formed under the laws of the State of North Carolina, with a

principal office in Wilmington, New Hanover County, North Carolina.

[6] Defendant PCJ Ventures, LLC (“PCJ Ventures”) is a limited liability

company formed under the laws of the State of North Carolina, with a principal office in
Wilmington, New Hanover County, North Carolina. It is alleged to be the parent entity of

PCJ Franchising.

[7] Defendant Donald Reynolds, Jr. (“Reynolds”) is a resident of New

Hanover County, North Carolina. Reynolds was Chief Operating Officer of Port City

Java and an agent of Wild Flour Bread Company, LLC during times material to this

action.

[8] Defendant Wild Flour Bread Company, LLC (“Wild Flour”) was at times

material to this civil action a limited liability company formed under the laws of the State

of North Carolina.

II.

PROCEDURAL BACKGROUND

[9] On August 11, 2006, Plaintiffs filed a Complaint against Defendants

alleging five Claims for Relief (“Claim(s)”): First Claim – Misrepresentation, Fraud and

Deceit; Second Claim – Negligent Misrepresentation; Third Claim – Unfair and

Deceptive Trade Practices; Fourth Claim – Breach of Contract/Breach of Express

Warranty and Fifth Claim – Piercing the Corporate Veil.

[10] On October 6, 2006, Defendants filed an Answer and Counterclaims,

raising claims by their Counterclaim for breach of a bakery contract and a franchise

agreement. Neither of the Motions raises issues with regard to the Defendants’

Counterclaims. Consequently, they are not dealt with in this Order and Opinion, and

they remain in place.

[11] On April 7, 2008, Plaintiffs filed an Amended Complaint to add PCJ

Ventures as a party defendant (hereinafter, the court will refer to the Amended

Complaint as the “Complaint”).
[12] On July 31, 2008, Plaintiffs filed a Motion for Summary Judgment on all

claims. On August 1, 2008, Defendants filed a cross Motion for Summary Judgment on

all claims. The court heard oral argument on the Motions on November 3, 2008, and

the Motions are ripe for determination.

[13] On February 20, 2009, Defendants filed a Corrected Brief in Support of

Defendants’ Motion for Summary Judgment (“Corrected Brief”). On February 27, 2009,

Plaintiffs filed their Motion to Strike the Defendants’ Corrected Brief.

[14] Unless otherwise indicated herein, the material facts reflected in

paragraphs 15 through 29, 38, 39, 47, 53 through 57 and 66 of this Order exist, are

undisputed 2 and are pertinent to the issues raised by the Motions.

III.

FACTUAL BACKGROUND

[15] In July 2005, David L’Heureux and Peter L’Heureux, working together as

L’Heureux Enterprises, began searching in Wilmington, North Carolina for a business

investment opportunity. Plaintiffs had planned to purchase a franchise together in an

arrangement where Peter L’Heureux would supply the funds for purchase and David

L’Heureux would operate the business.

[16] In August 2005, Plaintiffs contacted Sharon Huffman (“Huffman”), of VR

Business Brokers, Inc., concerning a sales listing for Wild Flour. Huffman was

functioning at times material to this action as a sales agent for Wild Flour and Reynolds.

Huffman put Plaintiffs in contact with Reynolds, and the parties began negotiations as to

the potential purchase by Plaintiffs of Wild Flour.

2
It is not proper for a trial court to make findings of fact in determining a motion for summary judgment
under Rule 56. However, it is appropriate for a Rule 56 order to reflect material facts that the court
concludes exist and are not disputed, and which support the legal conclusions with regard to summary
judgment. Hyde Ins. Agency v. Dixie Leasing, 26 N.C. App. 138 (1975).
[17] At that time, Wild Flour was leasing 4,000 square feet in The Forum

Shopping Center, located at 1125 Military Cutoff Road in Wilmington, North Carolina. In

addition to a bakery, Wild Flour operated a Port City Java brand kiosk within the bakery.

The kiosk occupied approximately 150 to 300 square feet of space 3 in the bakery and

sold only Port City Java products. Wild Flour was an unprofitable bakery operation.

[18] Throughout the course of negotiations, Plaintiffs sought assurances that a

Port City Java franchise was included in the sale of Wild Flour. Plaintiffs’ plan had been

to purchase Wild Flour and convert the bakery into a full Port City Java franchise coffee

house (“PCJ Café”) while continuing to supply baked goods to PCJ.

[19] In a communication between Huffman and David L’Heureux prior to

closing, Huffman stated that Plaintiffs should “spend the $50,000 to fix up a really nice

Port City Java coffee house inside of Wild Flour.” 4 Huffman later stated that she did not

think there would be particular requirements for “the upfit of the coffeehouse” because

of the uniqueness of the space. 5

[20] On August 16, 2005, Huffman wrote David L’Heureux, telling him he could

“expand on the Port City Java coffee house as much as you want within the space.

[Reynold]’s estimate is that it would take about 50,000 to upfit the space into a nice PCJ

inside the Wildflour space.” 6

[21] Plaintiffs allege that these communications created the impression that the

costs associated with turning Wild Flour into a PCJ Café would be approximately

$50,000. Subsequently, when David L’Heureux requested a guarantee before closing

that the cost to turn Wild Flour into a full PCJ Café would only cost $50,000, Reynolds

3
The record is unclear as to the exact square foot area of the kiosk.
4
Pls.’ Mot. Summ. J. Supp. Br., Ex. F.
5
Id., Ex. G.
6
Id., Ex. C.
said he would not make any guarantee with regard to specific costs. 7 The final

counteroffer, which Plaintiffs accepted, included a provision stating that “[r]enovations

will be as determined by Buyer with suggestions by PCJ corporate officials. Cost will be

entirely dependent on the extent and quality of same.” 8

[22] Included in the contractual agreements for the sale of Wild Flour (the

“Transaction”) were a Franchise Agreement 9 and a Uniform Franchise Offering Circular

(“UFOC”). 10 The Franchise Agreement made no representations as to the costs

required to turn Wild Flour into a PCJ Café and made only oblique reference to the

UFOC for franchise requirements. 11 While the UFOC did not make representations or

warranties as to the costs associated with turning Wild Flour into a PCJ Café, it did

provide an estimated range for typical costs associated with creating a PCJ Café. 12

The Franchise Agreement also included a merger clause expressly excluding prior

negotiations between parties and language indicating that the documents executed at

closing governed the entire agreement. 13

[23] On September 26, 2005, prior to signing the Franchise Agreement,

Plaintiff David L’Heureux signed a letter acknowledging that he had read the UFOC. 14

This letter included a provision that no statements or promises that were not authorized

7
Br. Supp. Defs.’ Mot. Summ. J., Ex. H.
8
Pls.’ Mot. Summ. J. Supp. Br., Ex. M.
9
Br. Supp. Defs.’ Mot. Summ. J., Ex. F.
10
Answer Am. Compl., Ex. A.
11
Although Defendants contend that the Franchise Agreement references the UFOC, the court cannot
find any such direct reference. Rather, the Franchise Agreement does refer to the “Manual,” the table of
contents of which was provided to Plaintiffs. Br. Supp. Defs.’ Mot. Summ. J., Ex. F. The absence of a
direct reference between the documents notwithstanding, the Plaintiffs received, and are charged with,
knowledge of both the Franchise Agreement and the UFOC.
12
Br. Supp. Defs.’ Mot. Summ. J., Ex. F.
13
Id.
14
Pls.’ Mot. Summ. J. Supp. Br., Ex. B-1.
and which may be untrue, inaccurate or misleading were made to David L’Heureux by

PCJ employees or authorized representatives. 15

[24] On October 25, 2005, the Transaction closed, and L’Heureux Enterprises

purchased the assets of Wild Flour. 16 These assets included a bakery contract to

produce the baked goods for all Wilmington PCJ Café locations and the Franchise

Agreement with PCJ Franchising to operate a PCJ Café. 17

[25] Plaintiffs subsequently met with David Ports, a PCJ architect. 18 On

October 31, 2005, Ports provided a design proposal, and on November 11, 2005, he

provided a budget estimate in the range of $133,025 to $172,325 to upfit the Wild Flour

space into a PCJ Café. 19 On December 6, 2005, David L’Heureux e-mailed Reynolds

with regard to the estimated costs. 20

[26] Reynolds responded to David L’Heureux’s e-mail on December 9, 2005,

stating that PCJ is a separate entity from Wild Flour and that operation of the granted

PCJ Café must be in conformity with that of all other PCJ Café franchises. 21

[27] On December 22, 2005, Huffman e-mailed Reynolds and David

L’Heureux, stating her understanding that there would not be a minimum requirement

for renovations in order to operate a PCJ Café 22 in the Wild Flour space.

[28] In early 2006, Plaintiffs ceased operating their business at the existing

Wild Flour facility.

[29] On or about June 5, 2006, Plaintiffs sold Wild Flour for $106,360. 23

15
Id.
16
Br. Supp. Defs.’ Mot. Summ. J., Ex. K.
17
Id.
18
Pls.’ Mot. Summ. J. Supp. Br., § II. The record is unclear as to whether Ports worked for PCJ, PCJ
Franchising or PCJ Ventures.
19
Id.
20
Id., Ex. O.
21
Id., Ex. P.
22
Id., Ex. Q.
IV.

THE MOTIONS – DISCUSSION

[30] Under Rule 56(c), summary judgment is to be rendered “forthwith” 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. When the forecast of evidence

demonstrates that the plaintiff cannot satisfy an essential element of a claim or

overcome an affirmative defense established by the defendant, summary judgment for

the defendant should be granted. Grayson v. High Point Dev. Ltd. P’ship, 175 N.C.

App. 786, 788 (2006).

[31] Rule 8(a)(1) provides that a pleading setting forth a claim for relief 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 . . . .”

[32] The Complaint in this case is drafted awkwardly and contains extensive

and unnecessary recitations of evidentiary material that go far beyond the requirements

of notice pleading envisioned by Rule 8. In presenting pleadings containing claims or

defenses, counsel is cautioned henceforth to be advertent to the pleading requirements

of the Rules.

[33] The court will examine the Motions in the context of each of Plaintiffs’

respective Claims.

23
Id., Ex. Z.
A.

Plaintiffs’ First Claim – Misrepresentation, Fraud and Deceit.

[34] In substance, Plaintiff’s First Claim is stated as a fraud claim. It is based

upon allegations of active fraud, knowing and purposeful misrepresentation and deceit.

[35] It is well settled in North Carolina that to support a claim for fraud, a

plaintiff must prove that there existed (a) false representation or concealment of a

material fact; (b) that was reasonably calculated to deceive; (c) that was made with an

intent to deceive; (d) did in fact deceive, i.e., was relied upon and (e) resulted in

damage to the injured party. State Properties, LLC v. Ray, 155 N.C. App. 65 (2002);

Helms v. Holland, 124 N.C. App. 629, 634 (1996).

[36] Further, if there was in fact reliance upon the representation or

concealment, an actionable claim for fraud requires the reliance to have been

reasonable. Johnson v. Owens, 263 N.C. 754 (1965).

[37] Reliance is reasonable if the plaintiff has made an independent

investigation or if the plaintiff was not informed of the true condition of the subject matter

at issue. Reliance is not reasonable where the plaintiff could have discovered the truth

of the matter through reasonable diligence, but failed to investigate, Calloway v. Wyatt,

246 N.C. 129 (1957); or if the plaintiff was informed of the true condition of the subject

matter. Sullivan v. Mebane Packaging Group, Inc., 158 N.C. App. 19, 26 (2003); Jay

Group, Ltd. v. Glasgow, 139 N.C. App. 595 (2000). The reasonableness of a party’s

reliance is a question for the jury, unless the facts are so clear that they support only

one conclusion. Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C. 214

(1999); State Properties,155 N.C. App. at 73.
[38] Under the undisputed facts of this matter, the court is forced to conclude

that Plaintiffs’ reliance on any alleged misrepresentations or concealments as a matter

of law was unreasonable. The Plaintiffs signed the Franchise Agreement, and are

charged with knowing the true nature of the contractual documents. Plaintiff David

L’Heureux also signed a statement acknowledging that he had read and understood the

UFOC. 24 Defendant Reynolds clearly and explicitly stated in a counteroffer that he

could not warrant that the costs of upfitting the kiosk into a PCJ Café would not exceed

$50,000. 25 The final contractual documents are not inconsistent with the prior

disclaimer. Had Plaintiffs used reasonable diligence, they would have recognized this

consistency.

[39] Further, Plaintiffs did not use reasonable diligence in relying on the word

of Huffman over clearly contrary language in the Franchise Agreement, the UFOC and

the Agreement for the Purchase of Assets (the “Sales Contract”). 26 Likewise, e-mail

correspondence dated December 22, 2005, from Huffman to David L’Heureux and

Reynolds with regard to the “minimum requirement for . . . renovations in order to

operate a [PCJ Café] . . .”27 in the Wild Flour space took place after closing on the sale

of Wild Flour to Plaintiffs. Accordingly, the e-mail could not have been relied upon in

Plaintiffs’ decision to go forward.

[40] Plaintiffs’ forecast of evidence also fails to support an inference that they

(a) were denied an opportunity to investigate the subject matter of the claim, or (b) could

not discover the truth about the contract by exercise of reasonable diligence or (c) were

induced to forego additional investigation by Reynolds’ misrepresentations. Our courts

24
Id., Ex. B-1.
25
Br. Supp. Defs.’ Mot. Summ. J., Ex. H.
26
Defs.’ Br. Opp. Pl. Mot. Summ. J., Ex. C.
27
Pls.’ Mot. Summ. J. Supp. Br., Ex. Q.
have held that such facts are necessary to support a fraud claim. State Properties, 155

N.C. App. at 73. See also, Oberlin Capital, LP v. Slavin, 147 N.C. App. 52, 59-60

(2001); Hearne v. Statesville Lodge No. 687, 143 N.C. App. 560 (2001); Hudson-Cole

Dev. Corp. v. Beemer, 132 N.C. App. 341, 346 (1999).

[41] Consequently, based upon the undisputed facts of this action, the court is

forced to conclude that any reliance by the Plaintiffs upon representations made by or in

behalf of one or more of the Defendants was unreasonable. Therefore, as a matter of

law the Plaintiffs cannot prove the reliance element required to support the allegations

of misrepresentation, fraud and deceit contained in their First Claim.

[42] As to this First Claim, there exist no genuine issues as to any material

fact, and the Defendants are entitled to summary judgment in their favor with regard to

such Claim.

B.

Plaintiffs’ Second Claim – Negligent Misrepresentation.

[43] To support a claim for negligent misrepresentation, a plaintiff must prove

that (a) it justifiably relied, (b) to its detriment, (c) upon information prepared by a

defendant without reasonable care and (d) that the defendant was one who owed

plaintiff a duty of care. Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529,

532 (2000). As is the case with allegations of fraud, reasonable reliance is also a

required element of negligent misrepresentation. MacFadden v. Louf, 182 N.C. App.

745, 749 (2007), citing Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C.

214, 224 (1999).
[44] As discussed, supra, with regard to Plaintiffs’ First Claim, the court has

concluded that Plaintiffs are not able to demonstrate reasonable reliance with respect to

any misrepresentations or concealments by or in behalf of Defendants.

[45] Consequently, as to this Second Claim, there exist no genuine issues as

to any material fact, and the Defendants are entitled to summary judgment in their favor

with regard to such Claim.

C.

Plaintiffs’ Third Claim – Unfair and Deceptive Trade Practices.

[46] In order to state a claim for unfair and deceptive trade practices (“UDTP”)

pursuant to the provisions of N.C. Gen. Stat. Chapter 75, the plaintiff must prove the

existence of (a) an unfair or deceptive act or practice or an unfair method of competition

(b) in or affecting commerce (c) that proximately caused actual injury. Johnson v.

Phoenix Mutual Life Ins. Co., 300 N.C. 247, 266 (1980) (in order to establish that an act

is “unfair,” it must “offend established public policy” or be “immoral, unethical,

oppressive, unscrupulous, or substantially injurious to a consumer”).

[47] In support of their Third Claim, Plaintiffs rely upon conclusory allegations

to the effect that the various Defendants, through Reynolds, made intentional

misrepresentations calculated to induce Plaintiffs to enter into the Transaction.

However, Plaintiffs have not forecast evidence sufficient to support their allegations of

unfair or deceptive acts or practices on the part of Defendants. Instead, the forecast of

undisputed admissible evidence shows that Defendants made no guarantees and

provided appropriate disclosures and documents to the Plaintiffs before the Transaction

closed. While the disclosures and documents unfortunately appear not to have been

adequately digested, investigated or understood by Plaintiffs, the forecast evidence
does not establish any violation of duty on the part of Defendants to educate Plaintiffs

on the plain meaning of the contractual documents involved in the Transaction.

[48] The Plaintiffs’ conclusory allegations of wrongdoing by Defendants are

not sufficient. There must be a forecast of a sufficient evidentiary foundation for each of

the elements of a UDTP Claim for it to survive summary judgment dismissal. First

Atlantic Management Corp. v. Dunlea Realty Co., 131 N.C. App. 242 (1998). Here,

based upon the forecast of undisputed evidence, the court is forced to conclude that the

evidence does not support Plaintiffs’ allegations that Defendants’ actions constituted an

unfair or deceptive act.

[49] As to this Third Claim, there exist no genuine issues as to any material

fact, and the Defendants are entitled to summary judgment in their favor with regard to

such Claim.

D.

Plaintiffs’ Fourth Claim – Breach of Contract/Breach of Express Warranty

[50] In their Fourth Claim, the Plaintiffs allege that Defendants breached

certain contractual obligations with regard to Plaintiffs’ acquisition of Wild Flour and the

Port City Java kiosk, and the prospective upfit of the Port City Java kiosk into a PCJ

Café. The substance of Plaintiffs’ contention is that Defendants contractually agreed

and/or expressly warranted that the cost of upfitting the Port City Java kiosk into a PCJ

Café would not exceed a specified amount, and that Defendants breached this

agreement to the financial detriment of Plaintiffs.

[51] In North Carolina, it is established that a contract is interpreted by

examining the language of the entire contract for indicators of the parties’ intent at the

moment of contract execution. State v. Phillip Morris USA, Inc., 359 N.C. 763, 773
(2005). This intention is to be gathered from the entire instrument, viewing it from its

four corners. Jones v. Palace Realty Co., 226 N.C. 303, 305 (1946). If there is only

one reasonable interpretation of the contract, the courts “may not, under the guise of

construing an ambiguous term, rewrite the contract or impose liabilities on the parties

not bargained for and found therein.” Woods v. Nationwide Mutual Ins. Co., 295 N.C.

500, 506 (1978) (applying general contract principles in an insurance contract case).

The parol evidence rule precludes admission of extrinsic evidence of prior or

contemporaneous negotiations or conversations that contradict such a fully integrated

written contract. Craig v. Kessing, 297 N.C. 32, 34-35 (1979). Extrinsic evidence is

allowed, however, to show that fraud prevented a meeting of the minds and the

consequent formation of a contract. Cunningham v. Brown, 51 N.C. App. 264, 270

(1981).

[52] In the instant case, Plaintiffs contend the court should consider a wide

range of communications and conversations that took place between them and one or

more of Defendants, or their representatives, prior to execution of the contractual

documents involved in the Transaction. Plaintiffs contend that Reynolds made

fraudulent misrepresentations in order to induce Plaintiffs to purchase Wild Flour. As

discussed in the court’s analysis of Plaintiffs’ First and Second Claims, supra, a claim

for fraud requires a showing of reasonable reliance; and based upon the forecast of

undisputed admissible evidence in this case, the Plaintiffs cannot make a showing of

reasonable reliance on any misrepresentations or communications contrary to the

contractual documents. As such, the contractual documents may only be read within

the meaning of their four corners.
[53] Neither the Franchise Agreement, the UFOC nor any of the other

documents involved in closing of the Transaction contain representations as to the cost

necessary to upfit a PCJ Café. To the contrary, the Franchise Agreement specifically

disclaims any warranties as to “the amount which franchisee may be required to

expend” with regard to “furniture, furnishings, trade fixtures and furniture, furnishings,

trade fixtures (sic) and equipment, food and beverage products, supplies and materials

used in connection with” a PCJ Café. 28 The UFOC estimates, but does not warrant, the

initial investment cost to develop a PCJ Café. The foregoing provisions are stated

clearly within the contract documents and stand in direct contradiction to any prior

conversations between Plaintiffs and any Defendant or representative thereof

speculating the costs of upfitting and renovation.

[54] Moreover, the Franchise Agreement contains clear and unambiguous

merger language, which provides:

This Agreement, together with the Application, constitutes the
entire Agreement of the Parties and supersedes all prior
negotiations, commitments, representations and undertakings
of the Parties with respect to the subject matter of this
Agreement. 29

....

This Agreement and the documents referred to herein
constitute the entire agreement between the Parties hereto
with respect to the subject matter hereof, superseding and
canceling any and all prior and contemporaneous agreements,
understandings, representations, inducements and
statements, oral or written, of the parties in connection with the
subject matter hereof. 30

28
Br. Supp. Defs.’ Mot. Summ. J., Ex. F, p. 13, ¶ 5.6.
29
Id. at p. 2, ¶ 10.
30
Id. at p. 51, ¶ 26.4.
[55] The Franchise Agreement also provides that “oral statements made by

Franchisor’s employees or agents . . . do not constitute warranties.” 31

[56] Further, the Sales Contract provides that “[no] modifications hereof or

other purported agreements of the parties shall be enforceable unless the same are in

writing and signed by all parties.” 32

[57] Plaintiffs, in what the undisputed facts reflect was an arms-length business

transaction, had the opportunity to and did review the Franchise Agreement, the UFOC,

the Sales Contract and any supporting documents prior to signing the Franchise

Agreement and prior to closing on the Transaction. Specifically, the Franchise

Agreement provides, in capitalized letters:

FRANCHISEE EXPRESSLY ACKNOWLEDGES THAT IT
HAS ENTERED INTO THIS FRANCHISE AGREEMENT AS A
RESULT OF ITS OWN INDEPENDENT INVESTIGATION
AND AFTER CONSULTATION WITH ITS OWN ATTORNEY,
AND NOT AS A RESULT OF ANY REPRESENTATIONS OF
FRANCHISOR, ITS AGENTS, OFFICERS OR EMPLOYEES,
EXCEPT AS CONTAINED HEREIN. 33

[58] The forecast of admissible evidence simply does not support either the

Plaintiffs’ contentions as to construction of the contractual documents arising from the

Transaction or their contentions of breach of contract or of express warranty.

[59] As to this Fourth Claim, there exist no genuine issues as to any material

fact, and the Defendants are entitled to summary judgment in their favor with regard to

such Claim.

31
Id. at p. 13, ¶ 5.6.
32
Sales Contract, ¶ 18.
33
Br. Supp. Defs.’ Mot. Summ. J., Ex. F, p. 51, ¶ 26.4.
E.

Plaintiffs’ Fifth Claim – Piercing the Corporate Veil (Defendant Reynolds).

[60] Plaintiffs contend that Reynolds should have personal liability for Plaintiffs’

first four Claims. Their theory is that Defendant Wild Flour was the mere instrumentality

of Reynolds and that Reynolds therefore should be personally liable for any actionable

wrongs or breaches by Wild Flour.

[61] They argue that the veil of protection typically offered to its members by

Wild Flour’s limited liability company form of organization under N.C. Gen. Stat. Chapter

57C should be disregarded, or “pierced,” in this action as to Reynolds.

[62] It is well established that in certain circumstances North Carolina will

disregard the separate and independent existence of a corporation or limited liability

company to hold a shareholder or member liable for the business entity’s conduct when

necessary to prevent fraud or to achieve equity. 18 Am. Jur. 2d, Corporations § 47

(1008). However, the North Carolina courts do not invoke this doctrine lightly because it

removes legal protections explicitly adopted. Department of Transp. v. Airlie Park, Inc.,

156 N.C. App. 63, 68, appeal dismissed by 357 N.C. 504, 587 (2003); Keener Lumber

Co. v. Perry, 149 N.C. App. 19, 37, disc. rev. denied, 356 N.C. 164 (2002) (quoting

Dorton v. Dorton, 77 N.C. App. 667, 672 (1985)) (noting that piercing the corporate veil

is “‘a drastic remedy’ and ‘should be invoked only in an extreme case where necessary

to serve the ends of justice’”); Cherry v. State Farm Mutual Automobile Ins. Co., 162

N.C. App. 535, 542 (2004). Typically, this remedy is available only when the business

entity is acting as the alter ego or the “mere instrumentality” of the member or

shareholder. B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 8 (1966).
[63] Although generally reluctant to invoke this doctrine, our courts recognize

three necessary elements required for a “piercing of the veil” claim to go forward. Glenn

v. Wagner, 313 N.C. 450, 454-55 (1985). They are:

(a) A showing of control by the target individual defendant. This

means not mere majority or complete stock control, but complete domination, not

only of finances, but of policy and business practice in respect to the transaction

attacked so that the business entity as to the transaction complained of had at

the time no separate mind, will or existence of its own. Id.

(b) Such control must have been used by the target defendant to

commit a fraud or other wrong, to perpetrate the violation of a statutory or other

positive legal duty, or to do a dishonest and unjust act in contravention of

plaintiff’s legal rights. Id.

(c) The aforesaid control and breach of duty must proximately cause

the injury or unjust loss complained of. Id.

[64] In assessing such a claim, the court must consider several factors,

including (a) adequacy of capitalization of the business entity, (b) non-compliance with

corporate formalities, (c) whether there is such complete domination and control of the

business entity so that it has no independent identity and (d) whether there is excessive

fragmentation of a single enterprise into separate corporations. Id. at 455.

[65] Here, this court has ruled, supra, that none of Plaintiffs’ first four Claims

are supported by the forecast of undisputed evidence, and that Defendants are entitled

to summary judgment in their favor as to such Claims. Accordingly, there exists no

underlying breach of duty to support a piercing claim against Reynolds.
[66] However, even if any of Plaintiffs’ first four Claims were to survive

summary judgment, the court is forced to conclude that the evidentiary forecast here

does not support this Fifth Claim. Although Reynolds was an agent of Wild Flower

during times material to this action, there is no forecast of evidence that he had

complete control over the company. Rather, Wild Flour was owned by Java Partners,

LLC and another member that is not a party defendant to this action. Moreover,

Reynolds owns Java Partners, LLC with at least one other member not a party to this

action. 34

[67] Furthermore, there is no allegation or showing here that Wild Flour was

inadequately capitalized, that Reynolds failed to comply with corporate formalities or

that the company was excessively fragmented. Plaintiffs do allege that Reynolds

exercised complete domination and control over Wild Flour to the extent that Wild Flour

did not have its own identity. However, the forecast of admissible evidence does not

support that allegation, and the court concludes that these facts do not support

application of the doctrine of piercing the corporate veil.

[68] As to this Fifth Claim, there exist no genuine issues as to any material

fact, and Defendant Reynolds is entitled to summary judgment in his favor with regard

to such Claim.

V.

CONCLUSION

NOW THEREFORE, based upon the foregoing, it is ORDERED that:

[69] Defendants’ Motion for Summary Judgment is GRANTED as to all Claims

stated in the Complaint, and each of said Claims hereby is DISMISSED.

34
Reynolds Dep., p. 37.
[70] The Plaintiffs’ Motion for Summary Judgment in this civil action is

DENIED.

[71] In the discretion of the court, the Plaintiffs’ Motion to Strike is DENIED.

[72] This matter will come before the court for a status conference on

Wednesday, October 7, 2009, at 11:00 a.m., in the North Carolina Business Court at

225 Hillsborough Street, Third Floor, Raleigh, North Carolina. 35

This the 4th day of September, 2009.

35
Note that this is the new Campbell University School of Law location.