NO. COA13-624
NORTH CAROLINA COURT OF APPEALS
Filed: 1 July 2014
WEAVER INVESTMENT COMPANY and
TRAVEL CAMPS, INC., on their own
behalf and on behalf of FOURTH
CREEK LANDING HOUSING LIMITED
PARTNERSHIP and FOURTH CREEK
LANDING ASSOCIATES,
Plaintiffs,
v. Guilford County
No. 09 CVS 15378
PRESSLY DEVELOPMENT ASSOCIATES,
PRESSLY DEVELOPMENT COMPANY, INC.,
DAVID L. PRESSLY, and EDWIN A.
PRESSLY,
Defendants.
Appeal by defendants from judgment entered 18 May 2011 by
Judge John O. Craig, III in Guilford County Superior Court.
Heard in the Court of Appeals 21 October 2013.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by S.
Leigh Rodenbough IV and Charnanda T. Reid, for plaintiff-
appellees.
Eisele Ashburn Greene & Chapman, PA, by Douglas G. Eisele,
for defendant-appellants.
STEELMAN, Judge.
Where alleged misconduct of certain defendants occurred
within a partnership or joint enterprise, it was not “in or
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affecting commerce” for the purposes of an unfair and deceptive
trade practices action. The trial court erred in trebling
damages and awarding attorney’s fees as to those parties
pursuant to the unfair and deceptive trade practices statute.
The trial court had the authority to appoint an accountant to
perform a forensic accounting of the entities and to assess the
fees for the expert. Where defendants sought to introduce
evidence that was outside of the scope of the hearing, the trial
court did not abuse its discretion in excluding this evidence.
Where there was evidence that defendants were responsible for
depreciation in value of certain property, the trial court did
not err in holding defendants liable for the depreciation.
Where defendants offer no legal argument as to why the trial
court could not dissolve the partnership, defendants’ argument
is deemed abandoned. Where defendants do not challenge the
trial court’s findings regarding breach of fiduciary duty and
constructive fraud, the trial court did not err in its
conclusion based upon these findings. Where defendants
concealed their misconduct, and this misconduct was reasonably
discovered within the applicable statute of limitations periods,
the trial court did not err in holding that the statute of
limitations had not expired.
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I. Factual and Procedural Background
Weaver Investment Company (WIC) is one of three limited
partners of Fourth Creek Landing Housing Limited Partnership
(Fourth Creek Limited Partnership), with an 18.75% ownership
interest. The other two limited partners are Travel Camps,
Inc., (Travel) with a 37.5% interest, and Pressly Development
Associates, (PDA) with an 18.75% interest. The general partner
of the Partnership is Fourth Creek Landing Associates (FCLA), a
general partnership, which holds a 25% interest in Fourth Creek
Limited Partnership. WIC and PDA are the two general partners
of FCLA, each with a 50% interest. The business relationship
between WIC and PDA, as general partners of FCLA, is governed by
a partnership agreement dated 16 May 1985. The business
relationship between the general and limited partners of Fourth
Creek Limited Partnership is governed by a limited partnership
agreement, dated 16 May 1985, along with several amendments
thereto.
Fourth Creek Limited Partnership owns the first phase of an
apartment complex known as Fourth Creek Landing Apartments
(Fourth Creek Apartments I) located in Iredell County. Pressly
Development Company, Inc. (PDCI) is a corporation that manages
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and leases the entire Fourth Creek Landing Apartments, which
includes Fourth Creek Apartments I, and an additional 48 units
(Fourth Creek Apartments II) owned by a separate company, Fourth
Creek Landing Associates II, LLC (FCLA II). PDCI conducts the
day to day business of Fourth Creek Apartments I and Fourth
Creek Apartments II. PDCI charges fees to Fourth Creek Limited
Partnership for its services to Fourth Creek Apartments I.
David Pressly (David) and Edwin Pressly (Edwin) are brothers who
are the general partners of Free Nancy Partnership (Free Nancy),
which is the sole member of FCLA II. David and Edwin each hold
a 50% general partnership interest in PDA, and a 50% shareholder
interest in PDCI. David is also the President of PDCI and the
Manager of FCLA II. Edwin is a General Partner of PDA and the
Secretary of PDCI.
On 22 December 2009, WIC and Travel filed this action
against PDA and PDCI. They also brought this action on behalf
of Fourth Creek Limited Partnership and FCLA. FCLA II was not a
party to this action. The complaint alleged that PDA had acted
ultra vires to the partnership agreement of Fourth Creek Limited
Partnership, that PDCI or FCLA II had converted funds related to
cable television services in Fourth Creek Apartments I, and that
PDCI had engaged in inappropriate accounting practices with
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regard to its management services for Fourth Creek Limited
Partnership. Plaintiffs sought monetary damages from
defendants, termination of PDCI as property manager for Fourth
Creek Apartments I, dissolution of FCLA, dissolution of Fourth
Creek Limited Partnership, and monetary damages for breach of
fiduciary duty against PDA.
On 19 August 2010, plaintiffs moved to join David and Edwin
as defendants. This motion was granted 8 September 2010. On 10
September 2010, plaintiffs filed an amended complaint. The
amended complaint alleged additional causes of action for fraud
against all four defendants; constructive fraud by PDA, David
and Edwin; aiding and abetting fraud and breach of contract by
Edwin; unfair and deceptive trade practices as to all four
defendants; establishment of a constructive trust with regard to
the converted funds; punitive damages; and to pierce the
corporate veil of PDCI under an alter ego theory. Plaintiffs
further alleged that David, having volunteered to locate a real
estate broker in order to sell the property of Fourth Creek
Apartments I, delayed doing so in an attempt to maximize his
profits for FCLA II and PDCI; that David executed and recorded a
cross-easement between Fourth Creek Apartments I and Fourth
Creek Apartments II without authority, and failed to disclose
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that action; and that David executed a management agreement,
ostensibly on behalf of Fourth Creek Limited Partnership,
without authorization.
On 11 October 2010, defendants filed an answer and motion
to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules
of Civil Procedure. On 17 December 2010, plaintiffs voluntarily
dismissed their claim for dissolution of Fourth Creek Limited
Partnership pursuant to Rule 41 of the Rules of Civil Procedure.
All parties waived a jury trial pursuant to Rule 38(d) of the
Rules of Civil Procedure.
On 18 May 2011, following a hearing, the trial court
entered judgment. The trial court found that David, on his own
behalf and on behalf of PDA and PDCI, had misled plaintiffs;
engaged in unauthorized conduct; overcharged Fourth Creek
Limited Partnership; failed to make payments owed to Fourth
Creek Limited Partnership; purposefully delayed in obtaining a
broker to sell the property of Fourth Creek Apartments I in
order to increase revenues for PDCI and FCLA II; converted funds
from Fourth Creek Limited Partnership; used PDA and PDCI as his
alter ego; and engaged in unfair and deceptive trade practices.
The trial court concluded that PDCI, through David, had breached
its fiduciary duty to Fourth Creek Limited Partnership, and had
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engaged in constructive fraud; that PDA, through David, had
breached its fiduciary duty to FCLA and to Fourth Creek Limited
Partnership, and had engaged in constructive fraud; that David,
PDA and PDCI had engaged in fraud; that Edwin did not aid and
abet in the breaches of fiduciary duty of PDA and PDCI; that
David, PDA and PDCI had engaged in unfair and deceptive trade
practices; that David was individually liable for the torts of
PDCI; that David and Edwin, as owners of PDCI, were personally
liable for the liability attributable to PDCI under a piercing
the corporate veil theory; that David and Edwin, as general
partners in PDA, were personally liable for the liability
attributable to PDA; and that Edwin’s conduct was such as to not
merit treble damages, which were assessed against David, PDA and
PDCI. The trial court further concluded that plaintiffs did not
meet their burden of proving damages with regard to David’s
alleged delay in listing the property of Fourth Creek Apartments
I for sale, his recordation of a cross-easement without
authority, and his unauthorized execution of a management
agreement, and that only nominal damages were appropriate for
these claims. The trial court also concluded that David, Edwin,
and Free Nancy reasonably relied on the business judgment rule
with regard to unauthorized loans David had taken out as
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business necessities. The trial court ordered that an
accounting of PDCI’s books and records be conducted, the
dissolution of FCLA, and held that, because defendants’ actions
did not cease three years before the filing of the suit against
them, the continuing wrong doctrine barred defendants from
asserting a statute of limitations defense.
The trial court awarded Fourth Creek Limited Partnership
damages in the amount of $176,000.00 for defendants’ concealment
of revenue, $226,464.00 for defendants’ concealment of losses
resulting from the unauthorized housing of on-site employees at
Fourth Creek Apartments I, $46,872.00 for defendants’
overcharging services to Fourth Creek Limited Partnership, $1.00
nominal damages for defendants’ unauthorized execution and
recordation of the cross-easement, $1.00 nominal damages for
defendants’ unauthorized execution of a management agreement,
and $1.00 nominal damages for defendants’ purposeful delay in
retaining a broker for the purpose of selling the property of
Fourth Creek Apartments I. The trial court held that Edwin
would not be subject to treble damages. The trial court also
determined that Fourth Creek Limited Partnership was entitled to
an award of attorney’s fees from PDA, PDCI and David. The trial
court held that the damages awarded were subject to adjustment
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based upon an accounting of the books and records of PDCI. The
trial court appointed a receiver for Fourth Creek Limited
Partnership and FCLA, terminated PDCI as property manager for
Fourth Creek Apartments I, and ordered a forensic accounting of
PDCI’s books. The trial court also ordered an accounting of the
replacement cost of the amenities and facilities of Fourth Creek
Apartments I, which Fourth Creek Limited Partnership would be
entitled to collect as damages from defendants. The trial court
also ordered that PDA’s share of Fourth Creek Limited
Partnership be redeemed. The trial court ordered the
dissolution of FCLA, but not of Fourth Creek Limited
Partnership, and the termination of the cross-easement between
Fourth Creek Apartments I and Fourth Creek Apartments II.
Finally, the trial court held that the unauthorized satellite
television equipment installed by defendants was the property of
Fourth Creek Limited Partnership, as its value was less than the
unpaid rent that was owed by defendants to Fourth Creek Limited
Partnership. The judgment also provided that these damages
could be modified based upon the future accounting.
On 20 June 2012, the trial court entered its supplemental
judgment as to damages, based upon the accounting of the books
and records of PDCI. It held that the net fair market value of
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Fourth Creek Apartments I was $1,233,295.00; that PDA’s net
interest in Fourth Creek Limited Partnership was worth
$385,405.00; that the total cost for site improvements to FCLA
was $90,000.00; and that the total replacement damages for FCLA
were $160,000.00. The trial court held that Fourth Creek
Limited Partnership was entitled to recover from defendants
$131,599.00 for the conversion of satellite television revenue,
plus $45,249.00 interest. The court further held that the
principal portion of these damages was trebled with respect to
PDA, PDCI, and David, for a total amount of $394,797.00.1
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $13,851.00
for the assessment of management fees relating to the satellite
television revenue, plus $5,015.00 interest. The principal
portion of these damages was trebled with respect to PDA, PDCI,
and David, for a total amount of $41,553.00.
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $41,385.00
for unauthorized housing of employees, plus $13,881.00 interest.
The principal portion of these damages was trebled with respect
to PDA, PDCI, and David, for a total amount of $124,155.00.
1
All damages that were trebled were pursuant to Chapter 75 of
the North Carolina General Statutes.
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The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $162,369.00
for the unauthorized income to Fourth Creek Apartments II based
upon the unauthorized housing of employees, plus $62,926.00
interest. The principal portion of these damages was trebled
with respect to PDA, PDCI, and David, for a total amount of
$487,107.00.
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $32,880.00
based upon defendants’ overcharging of salaries and expenses,
plus $13,999.00 interest. The principal portion of these
damages was trebled with respect to PDA, PDCI, and David, for a
total amount of $98,640.00.
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $105,478.00
for the unauthorized collection of undisclosed bookkeeping fees
beyond those contractually agreed upon by the parties, plus
$53,998.00 interest. The principal portion of these damages was
trebled with respect to PDA, PDCI, and David, for a total amount
of $316,434.00.
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $48,000.00
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for failure to pay its share of the amenities of Fourth Creek
Apartments I, plus $35,531.00 interest. The principal portion
of these damages was trebled with respect to PDA, PDCI, and
David, for a total amount of $144,000.00.
The trial court also held that Fourth Creek Limited
Partnership was entitled to recover from defendants $1.00 in
nominal damages for the unauthorized execution and recordation
of the 2001 Cross-Easement, $1.00 in nominal damages for the
execution of the 1996 Management Agreement, and $1.00 in nominal
damages for purposeful delay in contracting with a real estate
broker.
In total, the trial court held that Fourth Creek Limited
Partnership was entitled to $535,562.00, plus interest of
$230,599.00, for a total of $766,161.00. The principal amounts
were trebled to $1,606,686.00 with respect to PDA, PDCI, and
David. All of the defendants were liable for the total of $3.00
in nominal damages. The trial court credited $385,405.00
against these damages based upon PDA’s redemption of its
interest in Fourth Creek Limited Partnership. The trial court
further held that plaintiffs were entitled to recover from
defendants $306,380.34 in reasonable attorney’s fees, $5,500.00
for the cost of an appraisal of the Fourth Creek Apartments I
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amenities, $68,854.48 for the forensic audit, and $787.50 in
expert witness fees for the testimony of the court-appointed
appraiser.
Defendants appeal.
II. Standard of Review
“The standard of review on appeal from a judgment entered
after a non-jury trial is ‘whether there is competent evidence
to support the trial court’s findings of fact and whether the
findings support the conclusions of law and ensuing judgment.’”
Cartin v. Harrison, 151 N.C. App. 697, 699, 567 S.E.2d 174, 176
(quoting Sessler v. Marsh, 144 N.C. App. 623, 628, 551 S.E.2d
160, 163 (2001)), disc. review denied, 356 N.C. 434, 572 S.E.2d
428 (2002).
Defendants have not challenged the trial court’s findings
of fact.2 These findings are therefore binding upon this court.
Koufman v. Koufman, 330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991).
Our review is therefore limited to whether the trial court’s
findings support its conclusions of law.
III. Unfair and Deceptive Trade Practices
2
Defendants mischaracterize the court’s conclusions of law that
defendants breached their fiduciary duty and engaged in
constructive fraud as findings of fact; they are not findings of
fact, but conclusions of law.
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In their first argument, defendants contend that the trial
court erred in concluding that defendants’ acts were “in or
affecting commerce” in North Carolina. We agree in part.
Pursuant to N.C. Gen. Stat. § 75-1.1, “[i]n order to
establish a prima facie claim for unfair trade practices, a
plaintiff must show: (1) defendant committed an unfair or
deceptive act or practice, (2) the action in question was in or
affecting commerce, and (3) the act proximately caused injury to
the plaintiff.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d
704, 711 (2001).
Our Supreme Court has held that N.C. Gen. Stat. § 75-1.1
does not apply within the confines of a partnership. See White
v. Thompson, 364 N.C. 47, 691 S.E.2d 676 (2010). In White, the
defendant, a partner in the Ace Fabrication and Welding entity,
diverted work from the partnership prior to his departure from
the business, and improperly maintained accounts. Plaintiffs
brought action against defendant, alleging breach of fiduciary
duty. The trial court ruled in favor of plaintiffs, and granted
plaintiffs treble damages. Id. at 47-51, 691 S.E.2d at 676-78.
On appeal, a majority of this Court reversed the treble damages,
holding that defendant’s usurpation of partnership opportunities
was not “in or affecting commerce” under our Unfair and
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Deceptive Trade Practices statute. The majority otherwise
affirmed the trial court’s decision. Id. at 51, 691 S.E.2d at
678-79. The Supreme Court held that “[o]ur prior decisions have
determined that the General Assembly did not intend for the
Act's protections to extend to a business's internal
operations.” Id. at 53, 691 S.E.2d at 680. It affirmed the
decision of the Court of Appeals, concluding that defendant’s
conduct within the partnership was not “in or affecting
commerce.”
The facts of the instant case show that PDA was a member of
Fourth Creek Limited Partnership; that David and Edwin were the
general partners of PDA; that defendants, through PDCI, were
engaged by Fourth Creek Limited Partnership to operate Fourth
Creek Apartments I; and that defendants engaged in various acts
inconsistent with their obligations to Fourth Creek Limited
Partnership.
We hold that, while the evidence in the record supports the
trial court’s findings that defendants committed fraud, delayed
in the sale of real property, and had a duty to provide an
accounting to plaintiffs, it also clearly shows the status of
David, Edwin, and PDA as partners within the Fourth Creek
Limited Partnership joint enterprise. Pursuant to the Supreme
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Court’s decision in White v. Thompson, defendants’ misconduct
within the confines of the partnership was not “in or affecting
commerce,” and therefore does not invoke N.C. Gen. Stat. § 75-
1.1 or its trebling provisions. We hold that, while the trial
court did not err in imposing damages against David, Edwin, and
PDA for their misconduct, it erred in trebling the damages
against David and PDA with regard to satellite revenue, employee
housing, bookkeeping, salaries and expenses, and failure to
maintain amenities, pursuant to North Carolina’s Unfair and
Deceptive Trade Practices statute, specifically N.C. Gen. Stat.
§ 75-16. Additionally, because the award of attorney’s fees was
made pursuant to N.C. Gen. Stat. § 75-16.1, based upon
defendants’ alleged violations of the Unfair and Deceptive Trade
Practices statute, we hold that the trial court erred in
awarding attorney’s fees to plaintiffs, with regard to David,
Edwin and PDA.
PDCI, however, was not a member of the Fourth Creek Limited
Partnership. The trial court found that PDCI “has served as the
property manager and leasing manager . . . for the entire Fourth
Creek Landing Apartments . . . [and] controls the day to day
affairs of the Fourth Creek Landing Apartments[.]” Although the
conduct of David, Edwin, and PDA was within the partnership
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context, and thus was not “in or affecting commerce,” PDCI was a
separate entity hired by Fourth Creek Limited Partnership.
Our Supreme Court has held that an employee’s fraudulent
self-dealing misconduct “[did] not preclude applicability of
N.C.G.S. § 75–1.1 to [his] case.” Sara Lee Corp. v. Carter, 351
N.C. 27, 34, 519 S.E.2d 308, 312 (1999). In Sara Lee, plaintiff
Sara Lee hired defendant to “develop[] and maintain[]
relationships with vendors to provide [Sara Lee Knit Products]
with the best possible pricing, availability, and support of
hardware and services.” Id. at 29, 519 S.E.2d at 309.
Defendant was “authorized and entrusted to order and purchase
computer parts at the lowest possible prices[,]” and was
“responsible for the maintenance and repair of personal
computers.” Id. During his employment with Sara Lee, defendant
“developed four separate businesses . . . through which he
engaged in self-dealing by supplying Sara Lee with computer
parts and services at allegedly excessive cost while concealing
his interest in these businesses. Sara Lee paid a total of
$495,431.54 to defendant's businesses for parts and services.”
Id.
When Sara Lee brought action against defendant for this
fraud, the trial court ruled in favor of Sara Lee, holding that
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“[t]he transactions between Sara Lee and the Carter Enterprises
were not open, fair and honest. In fact, the clear, cogent, and
convincing evidence is, to the contrary, that [defendant] used
his position of trust at Sara Lee to make profits on
transactions involving the Carter Enterprises without disclosing
his financial interest in the Carter Enterprises to his
superiors at Sara Lee.” Id. at 30, 519 S.E.2d at 310. This
Court agreed, holding that “[d]efendant breached his fiduciary
duty by selling computer parts to Sara Lee without disclosing
his interest in the companies supplying these parts.” Id.
(quoting Sara Lee Corp. v. Carter, 129 N.C. App. 464, 471, 500
S.E.2d 732, 737 (1998)). However, this Court then held that
the defendant did not violate § 75-1.1, because he was employed
by Sara Lee at the time of the fraud.
Our Supreme Court reversed, concluding that defendant’s
conduct was “in or affecting commerce,” and that,
having already characterized defendant's
conduct as buyer-seller transactions that
fall squarely within the Act's intended
reach, we conclude that defendant's
relationship to plaintiff as an employee,
under these facts, does not preclude
applicability of N.C.G.S. § 75–1.1 to this
case. Even though defendant was an employee,
he nevertheless engaged in self-dealing
conduct and “business activities.” N.C.G.S.
§ 75–1.1(b). On these facts, defendant's
mere employee status at the time he
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committed these acts does not safeguard him
from liability under the Act.
Id. at 34, 519 S.E.2d at 312.
If an employee can be held liable under § 75-1.1, it seems
clear that an independent contractor, such as PDCI, may also be
held liable. Accordingly, we hold that the trial court did not
err in trebling damages and awarding attorney’s fees with regard
to PDCI. Further, because the trial court concluded that David
was individually liable for the torts committed by PDCI under a
veil-piercing theory, David is subject to the same trebling of
damages and attorney’s fees to which PDCI is subject.
We vacate the portions of the trial court’s order trebling
damages and awarding attorney’s fees against David, Edwin and
PDA, as members of Fourth Creek Limited Partnership, pursuant to
the Unfair and Deceptive Trade Practices statute, and remand for
an order reducing damages accordingly. We affirm the judgment
of the trial court trebling damages and awarding attorney’s fees
with regard to PDCI, and David individually based upon a
piercing the corporate veil theory through PDCI.
IV. Awards of Fees, Costs and Damages
In their second, third, fourth, fifth, sixth, seventh,
eighth, ninth, and tenth arguments, defendants contend that the
trial court erred in awarding attorney’s fees and bookkeeping
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fees, in basing its damages upon the testimony of an expert
witness and denying defendants the opportunity to rebut that
testimony, in awarding as costs the fees of expert witnesses, in
awarding damages for the depreciation in value of Fourth Creek
Apartments I, in basing damages upon the fair market value of
Fourth Creek Apartments I, and in removing PDCI from the
Partnership.3
A. Attorney’s Fees
Defendants first contend that the trial court erred in
awarding attorney’s fees. We agree in part.
The trial court awarded attorney’s fees pursuant to N.C.
Gen. Stat. § 75-16.1. This statute provides:
In any suit instituted by a person who
alleges that the defendant violated G.S. 75-
1.1, the presiding judge may, in his
discretion, allow a reasonable attorney fee
to the duly licensed attorney representing
the prevailing party, such attorney fee to
be taxed as a part of the court costs and
payable by the losing party, upon a finding
by the presiding judge that:
(1) The party charged with the violation
has willfully engaged in the act or
practice, and there was an unwarranted
3
Defendants contend that the trial court erred in removing PDCI
as a member of the partnership. However, the trial court did
not remove PDCI; it removed FCLA, and its half-owner PDA, from
the partnership.
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refusal by such party to fully resolve the
matter which constitutes the basis of such
suit; or
(2) The party instituting the action knew,
or should have known, the action was
frivolous and malicious.
N.C. Gen. Stat. § 75-16.1 (2013). As we held above, the trial
court erred in concluding that certain defendants violated N.C.
Gen. Stat. § 75-1.1. Accordingly, the trial court erred in
awarding attorney’s fees pursuant to N.C. Gen. Stat. § 75-16.1
against David, Edwin, and PDA, as members of Fourth Creek
Limited Partnership; the trial court did not err in awarding
attorney’s fees against PDCI, or against David who was
individually liable for the actions of PDCI under a veil-
piercing theory. As described in Section III of this opinion,
we vacate the award of attorney’s fees with respect to David,
Edwin and PDA, and find no error with respect to PDCI, and David
through PDCI. As discussed in Section III of this opinion,
above, we remand with instructions for the trial court to award
fees only against PDCI, and David through PDCI.
B. Bookkeeping Fees
Defendants next contend that the trial court erred by
awarding bookkeeping fees, by relying on the testimony of Eric
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Lioy in setting those fees, and by denying defendants the
opportunity to rebut Lioy’s testimony. We disagree.
Eric Lioy is a Grant Thornton accountant who was charged by
the court to provide an accounting of PDCI’s expenses for
“things such as satellite television revenue, employee housing,
affects [sic] of the management fee and a couple other
matters[.]” The trial court’s judgment does not cite to his
testimony, because Lioy did not testify at trial, but testified
instead at a separate hearing, on 10 October 2011. Regarding
Lioy’s testimony, the trial court held that:
Now, this is really just designed -- I'm not
-- I'm not going to treat it as an
evidentiary hearing, but I'm going to treat
it as a way of this witness helping me and
Mr. Eisele go through the book[s] and -- or
the documents and sort of just take me
through it step by step as to what it -- how
it's comprised and how -- what findings were
made and just sort of take me through it as
kind of a guideline or road map.
At this hearing, Lioy testified under oath that he and his
team performed the services requested by the court, which also
included forensic accounting, searches of computer documents,
and double-checking of accounting calculations between “January
1, 2002 through March 31, 2011.” Lioy went on to testify to the
contents of his report, which had been previously submitted to
the trial court. At no point did defendants object to Lioy’s
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testimony. Defendants did object, however, to “this $159,000
item[,]” referring to a $159,176.00 item in the report, which
was bookkeeping fees paid by Fourth Creek Apartments I to PDCI
in 1999, plus interest. Defendants contended at the hearing
that this item
was not raised in the pleadings, it was
never suggested during the trial, there was
no mention of it made in oral argument at
any time, it was not the subject of any
amendment to the pleadings made at the
conclusion of the trial. I didn't know
anything about it until the Grant Thornton
report came down and I'm sure Mr. Rodenbough
didn't know about it until the Grant
Thornton report came down.
The trial court noted defendants’ objection, but held that
“that's something we're going to need to take up at a subsequent
hearing.”
The hearing was recessed, and subsequently reconvened on 2
December, 2011. At this hearing, defendants once again objected
to the bookkeeping fees, asserting that “[t]he word bookkeeping
fees never came up.” The trial court responded, however, that
“Mr. Eisele, my recollection of things and my concept of things
are different from yours.” The trial court overruled
defendants’ objection, and considered the evidence.
The trial court’s order did not refer to Lioy’s testimony.
Instead, as defendants concede,
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there is nothing in the record except the
Grant Thornton report (presented at a
hearing deemed not to be "evidentiary")
pertaining to bookkeeping fees, save and
except (1) par. 8.7(c) of the Limited
Partnership Agreement (Ps' Ex 3) allowing as
Expenses "(c) legal, audit, accounting,
brokerage and other fees", and (2)
Defendants' Exhibit H-2, which reveals
bookkeeping fees in addition to PDC's 6%
commission dating back to 1999.
Defendants acknowledge the existence of evidence to support
the trial court’s finding that PDCI charged bookkeeping fees;
the fact that the trial court may or may not have additionally
relied upon Mr. Lioy’s testimony is irrelevant. This evidence
supports a finding that PDCI charged fees for bookkeeping, which
as stated above supports an order awarding those fees as damages
to plaintiffs.
The trial court found that PDCI had charged plaintiffs for
bookkeeping, while PDCI used its own formulae on Fourth Creek
Limited Partnership’s books to conceal the treatment of
particular expenses. As a result of the commingling of assets
between defendants and Fourth Creek Limited Partnership, the
trial court ordered that forensic investigators “inquire into .
. . failures by [PDCI] to properly calculate, allocate and/or
charge to [Fourth Creek Limited Partnership] any management
fees, bookkeeping fees, employee reimbursements or other expense
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reimbursements,” which the Partnership would be entitled to
receive as damages. PDCI charged plaintiffs for bookkeeping
services, and then fraudulently concealed expenses from
plaintiffs on those books. We therefore hold that, where PDCI
used its authority as bookkeeper to fraudulently conceal
expenses, the trial court did not err in awarding damages to
plaintiffs based upon the bookkeeping fees charged by PDCI.
This argument is without merit.
C. Defendants’ Evidence on Bookkeeping Fees
At the hearings before the trial court to address the
amount of damages, attorney’s fees and costs to be awarded to
plaintiffs, defendants sought to introduce evidence that
defendants were entitled to charge fees for the bookkeeping
defendants performed. Defendants intended to use this evidence
to rebut plaintiffs’ claims that defendants’ fees were
fraudulent, and sought to make an offer of proof before the
trial court. The trial court excluded this evidence.
Defendants contend that this exclusion was error. We disagree.
We note first that the trial court’s decisions to admit or
exclude evidence are reviewed for abuse of discretion. State v.
Whaley, 362 N.C. 156, 160, 655 S.E.2d 388, 390 (2008).
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In its 18 May 2011 order, the trial court found that
defendants used accounting procedures to improperly allocate
expenses to Fourth Creek Landing Partnership. Preliminary
damages were awarded to plaintiffs, subject to being increased
or decreased based upon a forensic accounting ordered by the
court. At the hearings on the amount of damages, defendants
sought to introduce evidence as to “the propriety of charging
bookkeeping expenses as a project cost to the project and not to
be included in the six percent management fee . . .”
The trial court held that it had already ruled on the
liability issue in its 18 May 2011 order, and that the current
hearing was limited to damages. Since the evidence offered by
defendants went to liability rather than damages, the trial
court excluded the evidence. We discern no abuse of discretion
on the part of the trial court in the exclusion of this
evidence.
This argument is without merit.
D. Court-Ordered Accounting
In a supplemental order and judgment on damages dated 12
June 2012, the trial court ruled that the fees of the forensic
accountants ordered to examine the books of Fourth Creek Limited
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Partnership and PDCI were costs recoverable by plaintiffs.
Defendants contend that the trial court erred in awarding these
fees as costs against defendants. We disagree.
Pursuant to the North Carolina Rules of Evidence, an expert
appointed by the court is “entitled to reasonable compensation
in whatever sum the court may allow. . . . In other civil
actions and proceedings the compensation shall be paid by the
parties in such proportion and at such time as the court
directs, and thereafter charged in like manner as other costs.”
N.C. R. Evid. 706.
Defendants contend that the forensic accountants were not
court-appointed experts, but plaintiffs’ experts, and thus that
these fees should not have been taxed as costs. Defendants
argue that the accountants never provided defendants with a copy
of their findings. The testimony cited by defendants shows that
the accountant, Lioy, did not provide defendants with a copy of
his report. However, this same testimony indicates that
defendants never sought this report, and that Lioy had discussed
the contents of the report at length with defendants.
Defendants further contend that another court-appointed
accountant, Nancy Tritt, engaged in extensive ex parte
communications with plaintiffs. However, defendants merely
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assert that there were contacts between plaintiffs and the
expert; defendants present no evidence that such contacts were
improper. Defendants further concede that there are times when
ex parte contact with a court-appointed expert is not improper.
See Point Intrepid, LLC v. Farley, ___ N.C. App. ___, ___, 714
S.E.2d 797, 802-03 (2011). In the instant case, the record
demonstrates that the trial court ordered that forensic
accountants perform “a complete accounting of the books and
records maintained by [PDCI] for [Fourth Creek Limited
Partnership] and [Fourth Creek Apartments I][.]” There is no
evidence that these experts were deposed by either party. There
is no evidence that the accountants were not court-appointed
experts, nor that any improper contact occurred. There is
evidence to show that these were court-appointed experts, and we
therefore hold that the trial court did not err in awarding
their fees as costs.
This argument is without merit.
F. Damages
Defendants next contend that the trial court erred in
awarding damages for the depreciated value of the amenities on
Fourth Creek Apartments I as a result of PDCI’s management, and
awarding damages based upon the value of the property itself.
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Defendants contend that the only parties which caused the
depreciation were FCLA II and Free Nancy, neither of which was a
party to this lawsuit, and that this award was simply a means of
bypassing issues of joinder. However, the trial court held that
it was defendants, acting through FCLA II and Free Nancy, that
caused the actions which led to the depreciation of the
amenities. Accordingly, the trial court did not err in holding
defendants liable for the depreciation in value caused by their
actions.
This argument is without merit.
G. Dissolution
Defendants also contend that the trial court erred in
removing PDCI from Fourth Creek Limited Partnership. Defendants
contend that, absent total dissolution of Fourth Creek Limited
Partnership, there is no legal basis for the removal of PDCI.
We first note that PDCI was not removed from the partnership;
FCLA, and its half-owner PDA, were removed from the partnership.
Even assuming that defendants were contending that the
trial court erred in removing PDA, however, defendants do not
cite this Court to any authority indicating that the trial court
lacked the authority to remove FCLA and PDA. Accordingly,
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defendants’ argument on this point is deemed abandoned. See
N.C. R. App. P. 28(b)(6).
This argument is without merit.
V. Breach of Duty and Constructive Fraud
In their eleventh argument, defendants contend that the
trial court erred in finding that PDCI and PDA breached
fiduciary duty to Fourth Creek Limited Partnership and FCLA and
engaged in constructive fraud. We disagree.
The trial court found as fact that defendants had converted
funds, had engaged in unauthorized and ultra vires conduct, had
profited without informing Fourth Creek Limited Partnership, and
had delayed in taking actions beneficial to Fourth Creek Limited
Partnership in order to maximize their own profits. Defendants
do not challenge these findings; rather, they assert that their
conduct was entirely legal. The trial court’s findings support
the conclusion that defendants breached their fiduciary duty and
engaged in constructive fraud.
This argument is without merit.
VI. Statute of Limitations
In their twelfth argument, defendants contend that the
trial court erred in concluding that plaintiffs’ claims were not
barred by the statute of limitations. We disagree.
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The trial court examined defendants’ affirmative defense of
the statute of limitations extensively. It concluded that (1)
because defendants engaged in continuing conduct that had not
ceased prior to three years before the filing of the instant
lawsuit, the continuing wrong doctrine prevented the statute of
limitations from running; (2) because defendants actively
concealed their wrong from plaintiffs, the doctrine of equitable
estoppel prevented them from relying upon their concealment to
cause the statute of limitations to expire; (3) plaintiffs’
claims for dissolution are not subject to the statute of
limitations, since the statute would only begin to run from the
time of discovery of defendants’ wrongdoing; (4) plaintiffs’
claim for unfair and deceptive trade practices is governed by a
four-year statute of limitations, N.C. Gen. Stat. § 75-16.2,
which begins to run when the fraud is discovered or should have
been discovered, rather than when the act is committed, see Nash
v. Motorola Communications and Electronics. Inc., 96 N.C. App.
329, 331-32, 385 S.E.2d 537, 538 (1989); and (5) plaintiffs’
remaining claims were governed by a ten-year statute of
limitations, N.C. Gen. Stat. § 1-56, which had not expired at
the time the lawsuit was filed. The trial court based these
conclusions on its findings that this action was filed in 2009;
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that operation of the satellite television system was disclosed
to Fourth Creek Limited Partnership in a meeting in 2009; that
plaintiffs could not have reasonably discovered defendants’ on-
site housing of employees until this information was revealed in
2009; that defendants were assessing disproportionate costs to
Fourth Creek Limited Partnership as recently as October 2009;
and that these costs were not revealed until late 2009.
Defendants do not challenge these findings; instead, defendants
contend that plaintiffs’ negligence, not defendants’
concealment, was the cause of plaintiffs’ late discovery of
defendants’ conduct, and that the statute of limitations should
bar plaintiffs’ claims. As defendants do not challenge the
trial court’s findings, they are binding upon this Court on
appeal. Koufman 330 N.C. at 97, 408 S.E.2d at 731. These
findings support the trial court’s conclusion that the statute
of limitations did not bar plaintiffs’ claims.
This argument is without merit.
VII. Conclusion
The portions of the trial court’s judgment awarding trebled
damages and attorney’s fees pursuant to N.C. Gen. Stat. § 75-1.1
et seq. against David, Edwin, and PDA, are vacated. The trial
court, upon remand, shall award damages for these claims,
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without trebling. The portions trebling damages and awarding
attorney’s fees against PDCI, and David through PDCI, are
affirmed. All other aspects of the trial court’s order are
affirmed.
VACATED AND REMANDED IN PART, AFFIRMED IN PART.
Chief Judge MARTIN and Judge DILLON concur.