UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-1933
CURTIS B. PEARSON MUSIC COMPANY; CURTIS B. PEARSON; ROBERT
C. PEARSON,
Plaintiffs - Appellants,
v.
WILLIAM S. EVERITT,
Defendant – Appellee,
and
MCFADYEN MUSIC, INCORPORATED; BROOK MAYS MUSIC COMPANY,
Defendants.
Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. James A. Beaty, Jr.,
Chief District Judge. (1:04-cv-00378-JAB)
Argued: January 26, 2010 Decided: March 2, 2010
Before GREGORY and DUNCAN, Circuit Judges, and Catherine C.
BLAKE, United States District Judge for the District of
Maryland, sitting by designation.
Affirmed by unpublished opinion. Judge Blake wrote the opinion,
in which Judge Duncan joined. Judge Gregory wrote a separate
opinion concurring in part and dissenting in part.
Ralph Hayes Hofler, III, HAYES HOFLER, PA, Durham, North
Carolina, for Appellants. Richard Steven DeGeorge, ROBINSON,
BRADSHAW & HINSON, PA, Charlotte, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
BLAKE, District Judge:
Curtis B. Pearson Music Company, Curtis B. Pearson, and
Robert C. Pearson (“Appellants” or “the Pearsons”) appeal the
district court’s entry of judgment against them on their claims
against William S. Everitt for unfair and deceptive trade
practices under the North Carolina Unfair and Deceptive Trade
Practices Act (“UDTPA”), N.C. Gen. Stat. § 75-1.1, and fraud
under North Carolina common law. Following a bench trial, the
district court found that Mr. Everitt lacked the intent to
deceive required to state a claim for fraud. Furthermore, the
district court held that Mr. Everitt’s actions did not rise to
the level of an unfair or deceptive trade practice prohibited
under North Carolina law. For the reasons that follow, we
affirm.
I.
The district court found the facts to include the
following. Until August 7, 2000, Curtis Pearson served as the
President of the Curtis B. Pearson Music Company (“Pearson
Music”), which owned and operated retail music stores in North
Carolina and South Carolina. Curtis Pearson’s son, Robert
Pearson, worked as a full-time employee and manager for Pearson
Music. Mr. Everitt is the President of Brook Mays Music Company
3
(“Brook Mays”), a music retail business based in Texas. 1 In mid-
2000, Curtis Pearson began negotiations with Mr. Everitt for the
sale of Pearson Music to Brook Mays. Curtis Pearson and Mr.
Everitt met on June 27, 2000 to discuss the terms of the sale in
detail. Vincent McBryde, a Brook Mays business consultant, also
attended and took notes of the meeting.
In connection with an asset purchase agreement, the parties
discussed an agreement whereby Curtis and Robert Pearson would
be paid certain amounts individually. Curtis Pearson would
receive $500,000 in five annual $100,000 installments after the
sale and Robert Pearson would receive $100,000 in five annual
$20,000 installments. The Pearsons and Mr. Everitt now disagree
over exactly what consideration was agreed upon at the June 27
meeting in exchange for these five-year payments. The Pearsons
claim that they promised not to compete with Brook Mays in
consideration of these payments and that Robert Pearson’s
payment was also in consideration of the rights to musical
instrument websites he had created. Mr. Everitt, however,
asserts that the Pearsons also agreed that these payments would
stop upon the termination of their at-will employment with Brook
1
Brook Mays acquired McFadyen Music, Inc. in May 2000. Mr.
Everitt continued as President of Brook Mays, the successor
company. The district court dismissed claims against McFadyen
Music, Inc. due to this acquisition and merger.
4
Mays. While Mr. McBryde’s notes from the June 27 meeting are
ambiguous on the issue, Mr. McBryde also testified at trial that
the payments were contingent on continued employment.
Following the June 27 meeting, Mr. Everitt transmitted Mr.
McBryde’s meeting notes to Brook Mays’s attorney, David Earhart,
and also left a voice mail, and instructed him to prepare a
draft agreement. Neither the July 6, 2000, nor the July 14,
2000, draft agreements sent to Curtis Pearson by Mr. Earhart,
however, contained any mention of an employment contingency.
Instead, they simply stated that the installment payments would
be contingent on the Pearsons not disclosing trade secrets, not
competing with Brook Mays for five years after the date of the
closing or the cessation of their employment with Brook Mays,
and not inducing Brook Mays’s employees to leave the company
during the non-compete period. Although Mr. Everitt asked Mr.
Earhart to add the continued employment contingency to the July
14 draft, Mr. Earhart failed to do so.
Curtis Pearson reviewed the July 14 draft agreement in
detail with an attorney and both Pearsons indicated their
approval to Mr. Earhart. At Mr. Everitt’s behest, Mr. Earhart
subsequently added the continued employment provision to the
contract. Mr. Everitt asserts that he faxed a copy of the
amended agreement to the Pearsons on August 4, 2000, but they
claim to have never received it. The district court found that
5
Mr. Everitt intended to fax the revised draft to the Pearsons
but was not successful in doing so. On August 7, 2000, Mr.
Everitt travelled to North Carolina for the closing and
presented Curtis Pearson with the amended agreement for signing.
Mr. Everitt did not point out the revision because he believed
the Pearsons had already received the faxed copy of the amended
agreement. Before signing the agreement, Curtis Pearson asked
Mr. Everitt, “Is this the contract we agreed to?” J.A. 551. In
response, Mr. Everitt answered “yes.” Id. Curtis and Robert
Pearson signed the contract without reading it.
Until 2002, the Pearsons continued to work for Brook Mays
as at-will employees and received their annual installments, in
addition to their regular salaries and sales commissions,
pursuant to the contract. In response to Brook Mays managers
reducing the scope of the Pearsons’ sales territory, Robert
Pearson resigned in 2002. Soon after, Brook Mays informed Curtis
Pearson that they also considered him to have resigned. Upon the
Pearsons’ departure from Brook Mays, their installment payments
ended, leaving an unpaid balance of $400,000 as to Curtis
Pearson and $60,000 as to Robert Pearson. Neither of the
Pearsons violated the non-compete provisions of the agreement
during this time period. On April 22, 2002, the Pearsons learned
of the employment contingency provision in the final version of
the contract.
6
On April 6, 2004, the Pearsons and Pearson Music filed a
complaint in state court against Brook Mays and Mr. Everitt, in
his individual capacity, alleging (1) breach of contract, (2)
fraud and breach of fiduciary duty, and (3) unfair and deceptive
trade practices. The defendants removed the case to the U.S.
District Court for the Middle District of North Carolina on
April 29, 2004. As Brook Mays filed for bankruptcy after the
case was removed to federal court, the district court dismissed
all claims and counterclaims involving Brook Mays without
prejudice. Given that Mr. Everitt did not sign the purchase
contract in his individual capacity, the district court found
the breach of contract claim not applicable to him. Instead, the
district court held a bench trial in January 2007 on the (1)
fraud or breach of fiduciary duty and (2) unfair and deceptive
trade practices claims against Mr. Everitt personally. The
Pearsons now appeal the district court’s denial of their claims
against Mr. Everitt. 2
2
In addition to appealing the district court’s judgment,
the Pearsons initiated a separate cause of action against Mr.
Earhart and his law firm, claiming that they defrauded the
Pearsons in drafting the contract at issue in this case. See
Pearson v. Gardere Wynne Sewell LLP, No. 08-0919-JAB (M.D.N.C.).
We granted Mr. Everitt’s motion to take judicial notice of the
complaint in that case (hereinafter “Appellants’ Second
Compl.”).
7
II.
We review a district court’s determination of legal
questions de novo. See South Atlantic Ltd. v. Riese, 284 F.3d
518, 535 (4th Cir. 2002). We may set aside a district court’s
factual findings following a bench trial only if they are
clearly erroneous. See Ellis v. Grant Thornton LLP, 530 F.3d
280, 286 (4th Cir. 2008); Fed. R. Civ. P. 52(a). “A finding of
fact is clearly erroneous when, ‘although there is evidence to
support it, the reviewing court on the entire evidence is left
with the definite and firm conviction that a mistake has been
committed.’” Ellis, 530 F.3d at 287 (quoting United States v.
United States Gypsum Co., 333 U.S. 364, 395 (1948)). In
addition, if “there are two permissible views of the evidence,
the factfinder’s choice between them cannot be clearly
erroneous.” Anderson v. City of Bessemer City, N.C., 470 U.S.
564, 574 (1985).
As the court has diversity jurisdiction over this case, it
must interpret the law in accordance with the highest court in
North Carolina. See Wells v. Liddy, 186 F.3d 505, 527-28 (4th
Cir. 1999). Where the law is unclear, the court must predict how
the Supreme Court of North Carolina would rule, considering:
“canons of construction, restatements of the law, treatises,
recent pronouncements of general rules or policies by the
8
state’s highest court, well considered dicta, and the state’s
trial court decisions.” Id. at 528.
III.
We turn first to Appellants’ argument that the district
court erred in dismissing their fraud claim. Under North
Carolina law, a plaintiff must prove that the defendant had the
“intent to deceive” in order to prevail on a claim for fraud.
See Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 374 S.E.2d
385, 391-92 (N.C. 1988). Appellants first argue that the
district court ignored its own factual findings by concluding
that Mr. Everitt lacked the requisite intent to deceive. They
note the district court’s finding that Mr. Everitt made “false
representations to Plaintiffs regarding the content of the
agreement” by replying “yes” when Curtis Pearson asked him if
the contract he was about to sign was the one to which they had
previously agreed. J.A. 554-55. Yet the district court also
found that Mr. Everitt intended to give Curtis Pearson an honest
answer to his question about the contract, finding that Mr.
Everitt believed that the parties had discussed the employment
contingency provision at the June 27 meeting and that the
Pearsons had seen the faxed copy of the revised agreement. Id.
at 555. The district court’s characterization of Mr. Everitt’s
statement to Curtis Pearson as factually untrue does not negate
9
its overall finding that Mr. Everitt made an honest mistake.
Thus the district court’s factual findings support its legal
conclusion that Mr. Everitt lacked the intent to deceive
necessary to prove fraud. 3
In the alternative, Appellants argue that the district
court’s factual findings as to Mr. Everitt’s intent are clearly
erroneous. They note that the year and a half that passed
between the bench trial and the district court’s decision may
have clouded the court’s recollections from the trial. Given the
ambiguity in the notes from the June 27 meeting, the testimony
of Mr. McBryde supporting Mr. Everitt’s recollection of what was
discussed June 27, and Mr. Everitt’s testimony that Mr. Earhart
failed to add the employment provision to the July 14 draft as
he had requested and that he believed the Pearsons were aware of
the employment contingency provision, however, the district
3
The district court also held that the Pearsons had failed
to establish a claim for “constructive fraud,” or breach of
fiduciary duty, which the Pearsons have not challenged on
appeal. Based on the court’s findings that the Pearsons were
“experienced businesspeople,” that Mr. Everitt was not in a
“confidential, advisory, or otherwise close relationship with
them,” and that the parties engaged in an arms-length business
transaction, the court properly denied the Pearsons’
constructive fraud claim. J.A. 557-58.
10
court’s finding that Mr. Everitt unintentionally misled the
Pearsons is a permissible interpretation of the evidence. 4
The Pearsons’ allegations in their subsequent complaint
against Mr. Earhart and his law firm further support the
district court’s findings of fact. In this complaint, the
Pearsons allege that “Everitt believed that the Pearsons had
already agreed to the termination contingency provisions which
he had instructed his attorney, Earhart, to include for review.”
(Appellants’ Second Compl. ¶ 14.) They also assert that Mr.
Everitt did not provide copies of the final agreement to the
Pearsons “because he believed the Pearsons had reviewed and
approved the agreement.” Id. at ¶ 15. Generally, a party is
bound by admissions in its pleadings. See Lucas v. Burnley, 879
F.2d 1240, 1242 (4th Cir. 1989). Although this later pleading
was filed in a different lawsuit, Pearson v. Gardere Wynne
Sewell LLP, its allegations relate to the same events at issue
in this case. Thus Appellants’ admissions in this subsequent
pleading relating to Mr. Everitt’s good faith, whether or not
binding in this case, at least support our conclusion that the
4
As Mr. Everitt points out in his brief, Curtis Pearson’s
recollection of events at trial was not always reliable.
(Appellee’s Br. 4.) Although Curtis Pearson denied during his
deposition that the $500,000 payment was discussed at all during
the June 27 meeting, he testified at trial that the payment was
indeed discussed at the meeting. See J.A. 151, 154.
11
district court did not clearly err in finding that Mr. Everitt
made an honest mistake rather than an intentional
misrepresentation. Finding that the Pearsons have not sustained
their burden of showing clear error in the district court’s
factual determinations, we conclude that the district court did
not err in denying their claim for fraud.
IV.
Appellants also contend that the district court erred in
holding that Mr. Everitt had not engaged in unfair or deceptive
trade practices under the UDTPA. 5 We have earlier noted that
“[w]hat constitutes an unfair or deceptive trade practice is a
somewhat nebulous concept.” Gilbane Bldg. Co. v. Fed. Reserve
Bank of Richmond, 80 F.3d 895, 902 (4th Cir. 1996). Unfairness
and deception have been identified as distinct bases for
liability under the UDTPA. See id. at 903; Johnson v. Phoenix
Mut. Life Ins. Co., 266 S.E.2d 610, 621 (N.C. 1980), abrogated
on other grounds by Myers, 374 S.E.2d at 391-92. For a trade
practice to be deceptive, it need not be untruthful, it simply
5
“In order to establish a violation of the [UDTPA], a
plaintiff must show: (1) an unfair or deceptive act or practice,
(2) in or affecting commerce, and (3) which proximately caused
injury to plaintiffs.” Gray v. N.C. Ins. Underwriting Ass’n, 529
S.E.2d 676, 681 (N.C. 2000). The latter two elements are not at
issue on appeal as the district court based its ruling solely on
its conclusion that the conduct at issue did not constitute an
unfair or deceptive act.
12
must have the “capacity or tendency to deceive.” Johnson, 266
S.E.2d at 622. Furthermore, an actor’s good faith has been
described as irrelevant to the question of whether his conduct
was deceptive. Marshall v. Miller, 276 S.E.2d 397, 403 (N.C.
1981). A practice is “unfair” under the UDTPA, however, “when it
offends established public policy as well as when the practice
is immoral, unethical, oppressive, unscrupulous, or
substantially injurious to consumers.” Id.
Given that the UDTPA provides for treble damages, courts
have been reluctant to classify every instance of wrongdoing in
business transactions as a violation of the UDTPA. To prevail on
an UDTPA claim, plaintiffs must demonstrate “some type of
egregious or aggravating circumstances.” Dalton v. Camp, 548
S.E.2d 704, 711 (N.C. 2001) (italics in original) (internal
quotations and alterations omitted); see also South Atlantic,
284 F.3d at 535 (describing the “egregious or aggravating
circumstances” requirement as a limit on the UDTPA’s
application); Hancock v. Renshaw, -- B.R. --, 2009 WL 4840231,
at *4 (M.D.N.C. Dec. 11, 2009) (holding that a defendant’s
willful conversion did not constitute an unfair or deceptive
trade practice in and of itself under the UDTPA; there needed to
be sufficient egregious or aggravating factors in addition).
Moreover, North Carolina courts look largely to the practice’s
impact on the marketplace in determining whether conduct is
13
deceptive or unfair. See Marshall, 276 S.E.2d at 403 (noting
that “[w]hether a trade practice is unfair or deceptive usually
depends on the facts of each case and the impact the practice
has in the marketplace”); Carcano v. JBSS, LLC, 684 S.E.2d 41,
50 (N.C. Ct. App. 2009) (explaining that “[t]he ‘relevant gauge’
of an act’s unfairness or deception is ‘[t]he effect of the
actor’s conduct on the marketplace’”) (quoting Ken-Mar Finance
v. Harvey, 368 S.E.2d 646, 648 (N.C. Ct. App. 1988)).
In Carcano, the court refused to conclude that the
defendants’ recruitment of the plaintiffs into a fictional
limited liability company, which involved “deception, lies, and
misrepresentations,” was an unfair or deceptive trade practice.
Carcano, 684 S.E.2d at 50-51 (internal quotation marks omitted).
The court based its decision primarily on the fact that the
conduct simply involved a request to invest in a business
arrangement among “sophisticated business entrepreneurs.” Id. at
50. As the court noted, the UDTPA “does not apply to all wrongs
in a business setting.” Id. 6
6
Contrary to the dissent’s assertion, Carcano was not a
“situation in which a third-party sabotages the business
dealings of a plaintiff and a defendant.” Dissent.Op. at n.3.
Rather, as in this case, Carcano concerned the aftermath of a
defendant’s mistaken belief about a business transaction.
Although the defendants in Carcano also suffered as a result of
this misconception, this does not alter the court’s analysis as
to the level of egregiousness required under the UDTPA and the
(Continued)
14
The Pearsons have not demonstrated any egregious or
aggravating factors at work in this case. Instead, based on the
district court’s findings, Mr. Everitt is guilty only of a
mistaken belief with regard to a specific transaction, having
little impact on the general marketplace. Misunderstandings,
despite their capacity to deceive, ordinarily are insufficient
to sustain a claim of deceptive conduct under the UDTPA. See
Rice v. Vitalink Pharmacy Servs., Inc., 124 F. Supp. 2d 343, 348
(W.D.N.C. 2000) (concluding that “a mutual misunderstanding
between the parties” did not give rise to a claim for deceptive
trade practices); Cockman v. White, 333 S.E.2d 54, 55 (N.C. Ct.
App. 1985) (holding that “[w]e do not believe the
misunderstanding between plaintiff and defendant constituted a
deceptive representation”). 7
importance of a trade practice’s effect on the marketplace. 684
S.E.2d at 50.
7
The dissent, in elaborating its theory of “objective”
egregiousness, relies heavily on Pearce v. American Defender
Life Ins. Co., 343 S.E.2d 174 (N.C. 1986). We note that Pearce
involved a suit by a widow against an insurance company for
failure to pay on a policy. A separate statute governs unfair or
deceptive trade practices in the insurance industry under North
Carolina law, including misrepresentations about policy terms.
See N.C. Gen. Stat. § 58-54.4. In Pearce the court held “that a
violation of [N.C. Gen. Stat.] § 58-54.4 as a matter of law
constitutes an unfair or deceptive trade practice in violation
of [N.C. Gen. Stat.] § 75-1.1.” 343 S.E.2d at 179. Thus we
believe Pearce is distinguishable from the present
circumstances.
15
Appellants argue, however, that Mr. Everitt’s failure to
disclose the addition of the employment contingency provision to
the Pearsons was so unscrupulous as to qualify as an unfair
trade practice under the UDTPA. In support of this proposition,
they cite South Atlantic, in which this court found that the
defendant’s failure to disclose pertinent information was “the
essence of unscrupulous behavior” and “sufficiently egregious to
constitute an unfair trade practice.” 284 F.3d at 538. Yet this
characterization was based on a finding that the defendant
“deliberately withheld the information” from the claimant. Id.
(italics in original). As Mr. Everitt was not found to have
acted deliberately in this case, his conduct does not rise to
the level of unscrupulousness observed in South Atlantic.
Accordingly, the district court properly ruled in favor of Mr.
Everitt on the Pearsons’ UDTPA claim.
V.
For the foregoing reasons, we conclude that the district
court did not err in ruling against the appellants on their
fraud and UDTPA claims. Accordingly, the judgment of the
district court is
AFFIRMED.
16
GREGORY, Circuit Judge, concurring in part and dissenting in
part:
Faced with what it suggests is an incoherent statutory
scheme, the majority rewrites North Carolina law to require that
a plaintiff alleging a UDTPA violation prove that the defendant
engaged in intentionally deceptive conduct. North Carolina law
is clear, however, that a UDTPA plaintiff need only show that
the defendant’s conduct was objectively egregious, irrespective
of that defendant’s subjective knowledge or intent. Because the
district court found facts sufficient to establish that Everitt
misrepresented the contents of the final contract to the
Pearsons in an objectively egregious way, the Pearsons are
entitled to judgment in their favor on the UDTPA claim. 1 I
therefore respectfully dissent.
I.
The UDTPA, as applied and interpreted by the North Carolina
courts, is not nearly as “nebulous” as the majority claims.
Several things about the statute are, in fact, perfectly clear.
A defendant commits an unfair trade practice when that defendant
1
As to the Pearsons’ fraud claim, though I believe that the
Pearsons adduced evidence sufficient to prove that Everitt acted
with the requisite intent to defraud, the district court did not
clearly err in crediting Everitt’s testimony to the contrary. I
therefore concur in the majority’s conclusion as to the fraud
claim in Part III.
17
“engages in conduct which amounts to an inequitable assertion of
its power or position.” Johnson v. Phoenix Mut. Life Ins. Co.,
266 S.E.2d 610, 622 (N.C. 1980). Likewise, a defendant’s
subjective belief or intent does not determine whether that
defendant’s conduct is deceptive; rather the effect that conduct
would have on the average person does. Pearce v. American
Defender Life Ins. Co., 343 S.E.2d 174, 180 (N.C. 1986). North
Carolina courts do not require a plaintiff seeking UDTPA
recovery to prove a defendant’s intent to deceive precisely
because the statute was designed to provide redress to
plaintiffs whose fraud claims were not cognizable due to the
difficulty inherent in proving a defendant’s subjective state-
of-mind. Marshall v. Miller, 276 S.E.2d 397, 400 (N.C. 1981).
When a court considers whether the “egregious or aggravating
circumstances,” Dalton v. Camp, 548 S.E.2d 704, 711 (N.C. 2001),
necessary to sustain a UDTPA claim are present, it is clear that
it must do so by evaluating those circumstances objectively.
The North Carolina Supreme Court illustrated this objective
inquiry in Pearce. There, the decedent, an Air Force pilot,
purchased and signed a life insurance policy, which excepted
death in an airplane accident from coverage. Pearce, 343 S.E.2d
at 176. When the decedent later inquired whether his family
would be covered were he to die in a training accident, a
representative responded, in good faith, that his family would
18
be covered by the policy so long as he did not die in an act of
war. Id. The decedent later died in a training accident, and
the insurance company refused to pay, citing the contract’s
express provision. Id. The court in Pearce found that even
though there was no evidence that the insurance company intended
to deceive the decedent, the company could still be liable under
the UDTPA because the effect of the representative’s letter was
to mislead a reasonable person as to the insurance contract’s
meaning. Id. at 181. Thus, while there was clearly an honest
misunderstanding between the insurance representative and the
decedent, that misunderstanding was sufficiently egregious and
the insurance company was sufficiently at fault to trigger UDTPA
liability.
The evidence found by the trial court here surely supports
a stronger UDTPA claim than that found by the court in Pearce.
The district court here found that the Pearsons never agreed to
the contingency clause with Everitt. It found no objective
evidence that Everitt ever mentioned the clause at any of their
meetings. It determined that the clause was not included in the
first two drafts written by Everitt’s lawyer and reviewed by
Pearson and concluded that when the clause was added, it was
buried in an unaltered paragraph, with no indication that any
change had been made.
19
Worse still, the court found that rather than send the
revised agreement to the Pearsons via overnight, Federal Express
delivery — the means by which the parties had previously
communicated — Everitt tried, but failed, to fax the revised
agreement to the Pearsons. The court found that Everitt’s
attempt failed because he dialed the Pearsons’ voice number, not
their fax number, and yet somehow did not realize that the fax
did not go through. 2 And despite all of this, when it came time
to close the sale, Everitt simply said “yes” when asked whether
the contract Curtis Pearson was about to sign was the same one
to which they had previously agreed.
This behavior from a sophisticated businessman falls
squarely within the definition of unfair and deceptive conduct
contemplated by UDTPA. 3 As the purchase agreement’s drafter,
2
As anyone who has mistakenly tried to fax a document to a
voice number can attest, the fax machine’s obnoxious response to
this error makes it nearly impossible for a reasonable person to
believe that the fax was successfully transmitted.
3
These facts clearly distinguish this case from Carcano v.
JBSS, LLC, 684 S.E.2d 41 (N.C. Ct. App. 2009), upon which the
majority relies heavily. In Carcano, the plaintiffs alleged a
UDTPA violation after a joint venture with the plaintiffs
failed, in part, because the business entity was never
incorporated. Id. at 50-51. The court held that the defendants
did not abuse their position, and consequently did not violate
the UDTPA, because they too did not know about the failure to
incorporate and were injured, as well. Id. Carcano therefore
applies to a situation in which a third-party sabotages the
business dealings of a plaintiff and defendant. It does not
apply to a situation like this one, in which it is the defendant
(Continued)
20
Everitt had a duty to inform the Pearsons of any changes he made
to the agreement after they had reviewed and agreed to it. By
not taking the reasonable steps necessary to inform the Pearsons
of the new provision and then subsequently enforcing it, Everitt
unquestionably “engage[d] in conduct which amount[ed] to an
inequitable assertion of [his] power or position.” Johnson, 266
S.E.2d at 622. The myriad ways in which he failed in this area
render his conduct far more egregious than the conduct that led
to the honest misunderstanding between the two parties in
Pearce. See 343 S.E.2d at 176. This, when coupled with the
evidence at trial suggesting that Everitt attempted to cover up
his failures by instructing his consultant and lawyer on how to
describe the incident in subsequent legal proceedings, makes
this case precisely the “near-miss” fraud scenario that the
North Carolina legislature sought to redress through the UDTPA.
Marshall, 276 S.E.2d at 400. In my view, the district court
erred by finding otherwise.
II.
The majority eschews any objective analysis of Everitt’s
behavior. Despite acknowledging at the outset that good faith
who causes the harm and abuses his position by failing to
reasonably disclose material information of which he is aware
and the plaintiff is not.
21
is not a defense under the UDTPA, Maj. Op. at 13, it instead
ultimately concludes that because Everitt did not act
intentionally, his conduct is insufficiently aggravating or
egregious to implicate the UDTPA. See Maj. Op. at 15 (“As Mr.
Everitt was not found to have acted deliberately in this case,
his conduct does not rise to the level of unscrupulousness
observed in South Atlantic.”). In so doing, it accepts
Everitt’s oversimplistic dichotomy of deliberate versus innocent
conduct. Surely this choice is false.
“Aggravating” is defined simply as that which makes
something worse. Webster’s New International Dictionary 41 (3d
ed. 1981). And “egregious” is defined as “extraordinary,”
“extreme,” or “flagrant.” Id. at 727. Neither of these words
suggest, by definition, any requirement that an actor must act
with specific intent in order to engage in aggravated or
egregious conduct. That conduct, like Everitt’s here, need only
be beyond that which a reasonable person would consider to be
acceptable behavior.
Likewise, the pages of the federal and regional reporters
are filled with cases in which a defendant, acting with naïve
and innocent intent, commits a wrong for which that defendant is
held criminally or civilly liable. A child places one bullet in
a gun. He points it at a friend’s side and pulls the trigger
multiple times before shooting and killing that friend. No
22
matter that the child did not intend to kill anyone or believe
that he would; his conduct was still so objectively egregious
and aggravated that he was convicted of murder. See
Pennsylvania v. Malone, 47 A.2d 445, 446-49 (Pa. 1946).
Everitt’s conduct here created a similarly unacceptable
risk that the Pearsons would be harmed and misled, even if
Everitt honestly did not intend to do so. Based on the district
court’s factual findings, it is clear that at every stage of the
negotiations Everitt failed to make clear to the Pearsons that
he intended to, or that he in fact had, inserted the termination
provision into the contract. This was not a case in which
contracting parties misunderstood one another because their
revised agreement got lost in the mail or because each party
ascribed a different meaning to a specific term than did the
other one. No reasonable person in Everitt’s position could
have believed that he had revealed the revised-contract’s
provision to the Pearsons. Viewed objectively, Everitt’s
conduct was so far outside the mainstream of business behavior —
even typical, yet improper business behavior — that his victims
ought to receive redress through the UDTPA.
III.
The North Carolina courts and legislature have seen fit to
impose liability, including treble damages, on individuals or
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corporations that deceive or misrepresent others in the course
of business transactions. It is clear that the law applies
where a party abuses its position relative to another,
notwithstanding the offending party’s innocent intentions or
good faith. Though we may think the law unduly harsh or unwise,
so long as it is not preempted by federal statutory or
constitutional provisions, we are bound to apply it in the same
way that a state court would. We are not free to engraft
additional provisions that have been explicitly rejected by the
state’s highest court.
Consequently, I would find Everitt liable under the UDTPA
and remand to the district court with instructions to enter
judgment in the Pearsons’ favor. I respectfully dissent.
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