NO. COA13-868
NORTH CAROLINA COURT OF APPEALS
Filed: 18 March 2014
CHRISTOPHER BROWN, D.D.S.,
Plaintiff,
v. Mecklenburg County
No. 11 CVS 18370
ARTISAN 2510, INC., ARTISAN 2510,
INCORPORATED, ANTHM DESIGN CO.,
INC., ANTHONY MURPHY, and MICHAEL
FERRONE,
Defendants.
Appeal by Michael Ferrone from order filed 9 March 2012 by
Judge W. Robert Bell, order filed 4 February 2013 by Judge H.
William Constangy, and order filed 16 April 2013 by Judge
Richard D. Boner, each in Mecklenburg County Superior Court.
Heard in the Court of Appeals 10 December 2014.
JAMES, McELROY & DIEHL, P.A., by Preston O. Odom, III, Fred
B. Monroe, and John R. Brickley, for plaintiff.
HIGGINS BENJAMIN PLLC, by Gilbert J. Andia, Jr., for
defendant Michael Ferrone.
ELMORE, Judge.
Michael Ferrone (Ferrone), the sole appellant-defendant in
the instant action, appeals the trial court’s denial of his
motion to dismiss pursuant to Rule 12(b)(2) for lack of personal
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jurisdiction and the entry of the order granting summary
judgment against him on Dr. Chris Brown’s (Dr. Brown) claims of
breach of contract and violations of the North Carolina
Securities Act under Chapter 78A. He also appeals the trial
court’s award of attorney’s fees and costs of $37,981.31. After
careful consideration, we affirm in part, reverse and remand in
part, and vacate in part.
I. Factual Background
The evidence in the record shows that Ferrone and Anthony
Murphy (Murphy) formed, managed, and operated Artisan 2510, Inc.
(Artisan 2510), an apparel company. Murphy was the Chief
Executive Officer whose role was to direct the design/artistic
side of the apparel company, while Ferrone was the President and
Chief Financial Officer whose role was to handle the promotion
of the company. Each were 50 percent owners. There is some
dispute as to whether Artisan 2510 was first formed (perhaps
incorrectly) as a Nevada corporation, and later licensed to do
business in New Jersey.1 Murphy is a New Jersey resident and
Ferrone is a resident of Massachusetts.
1
Ferrone believed that Artisan was originally created as a
Nevada corporation but he was later provided documentation that
Artisan was licensed to do business in New Jersey.
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In early June 2010, Ferrone contacted Dr. Brown, a resident
of North Carolina, to solicit a $100,000 investment in Artisan
2510. Dr. Brown and Ferrone had known each other for
approximately 8 years and had previously engaged in business
dealings together. Ferrone and Murphy represented to Dr. Brown
that Artisan 2510 was a growing clothing company, and
specifically offered to sell him a ten percent shareholder
interest, which amounted to 222,000 shares of stock in Artisan
2510. In addition, Dr. Brown alleges that they offered to pay
him 15 percent interest per year on his investment.
In negotiating the deal, Ferrone communicated with Dr.
Brown via phone, text, and email. On or about 10 June 2010, Dr.
Brown received a PowerPoint presentation, which included
photographs of clothing and information about the company. In
an email dated 23 June 2010, Ferrone informed Dr. Brown that his
investment would be used to defray product development and
production expenses and secure showroom space. At no time
during the negotiations did Ferrone or Murphy maintain a
physical presence in North Carolina.
Based on Murphy and Ferrone’s representations, Dr. Brown
agreed to invest $100,000 in Artisan 2510. Ferrone had a
Purchase Agreement drafted and emailed to Dr. Brown on or about
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22 June 2012. Dr. Brown sent two separate $50,000 checks made
payable to Artisan 2510, Inc. The first check was sent 27 June
2010, and the second was sent on or about 13 July 2010. Dr.
Brown understood that the stock certificates would be issued and
sent to him upon receipt of each check.
Despite Dr. Brown’s payment, Artisan 2510 failed and
refused to deliver the stock share certificates. Throughout the
remainder of 2010, Dr. Brown contacted Ferrone on numerous
occasions to request the stock certificates—to no avail. Upon
Dr. Brown’s information, he alleges that Ferrone and Murphy
never applied his investment towards Artisan, but instead used
the money to fund Anthm and/or Artisan 2, separate clothing and
design companies, and to cover their personal expenses.
Dr. Brown demanded the return of his investment, and he and
Ferrone began negotiating the terms of a payback settlement (the
settlement agreement). Dr. Brown points to two emails dated 14
April 2011 as evidence of the terms of a mutually agreed upon
settlement agreement. In the first email, Ferrone offered a
total payback sum of $150,000, and stated that as “a gesture of
good faith” Dr. Brown would receive $5,000 towards the
settlement on or before 28 April 2011. In a second email sent
approximately 30 minutes later, Ferrone included a definitive
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repayment schedule, which was to commence on 25 May 2011. Dr.
Brown received the “good faith” payment of $5,000, but no
additional payments were made pursuant to the settlement
agreement.
Dr. Brown filed a complaint against Artisan 2510, Inc.
Artisan 2510, Incorporated, Anthm Design Co., Inc., Anthony
Murphy, and Michael Ferrone for 1) breach of contract,
specifically the settlement agreement; 2) unjust enrichment; 3)
fraud; 4) facilitation of fraud/conspiracy; 5) unfair and
deceptive trade practices; 6) conversion; 7) violations of
Chapter 78A; 8) piercing the corporate veil; and 9) punitive
damages. He alleged that Ferrone and Murphy were the owners,
agents, and alter egos of Artisan, Artisan 2, and Anthm and that
the three corporate entities are indistinguishable. As such,
Ferrone and Murphy are jointly and severally liable for each
cause of action.
The trial court granted Dr. Brown’s motion for entry of
default pursuant to Rule 55 against Artisan 2510, Inc. Artisan
2510, Incorporated, Anthm Design Co., Inc., and Anthony Murphy.
Thereafter, the trial court granted Dr. Brown’s motion for
Summary Judgment against Ferrone on the claims of breach of
contract and violations of Chapter 78A. Ferrone now appeals.
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II. Personal Jurisdiction
Ferrone argues that the trial court erred in finding that
it could exercise in personam jurisdiction over him. We
disagree.
We review a trial court’s order determining personal
jurisdiction to see “whether the findings of fact by the trial
court are supported by competent evidence in the record; if so,
this Court must affirm the order of the trial court.”
Replacements, Ltd. v. MidweSterling, 133 N.C. App. 139, 140-41,
515 S.E.2d 46, 48 (1999). However, under Rule 52(a)(2) “the
trial court is not required to make specific findings of fact
unless requested by a party. When the record contains no
findings of fact, [i]t is presumed . . . that the court on
proper evidence found facts to support its judgment.” Banc of
Am. Secs. LLC v. Evergreen Int'l Aviation, Inc., 169 N.C. App.
690, 694, 611 S.E.2d 179, 183 (2005) (citations and quotations
omitted) (alteration in original).
In the case sub judice, the record does not show that
either party requested the trial court to make specific findings
of fact. We presume that the trial judge made factual findings
sufficient to support his ruling based on the affidavits of the
parties, the pleadings, authorities presented, and arguments of
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counsel. However, we do not have a copy of the transcript as
part of the record on appeal. Accordingly, we review this issue
for sufficiency of the evidence based on the record before us.
Cameron-Brown Co. v. Daves, 83 N.C. App. 281, 285, 350 S.E.2d
111, 114 (1986).
“A two-step test is utilized to resolve a question of in
personam jurisdiction over a non-resident defendant: (1) Does a
basis for jurisdiction exist under the North Carolina ‘long-arm’
statute, [] and (2) If so, will the exercise of this
jurisdiction over the defendant comport with constitutional
standards of due process?” Id. at 283, 350 S.E.2d at 113.
Ferrone concedes that a basis for jurisdiction exists under
North Carolina’s “long-arm” statute, and, therefore, we need not
address the first step of the test.
“To satisfy the due process prong of the personal
jurisdiction analysis, there must be sufficient ‘minimum
contacts’ between the nonresident defendant and our state such
that the maintenance of the suit does not offend ‘traditional
notions of fair play and substantial justice.’” Skinner v.
Preferred Credit, 361 N.C. 114, 122, 638 S.E.2d 203, 210 (2006)
(citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.
Ct. 154, 158, 90 L. Ed. 95, 102 (1945) (quoting Milliken v.
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Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343, 85 L. Ed. 278, 283
(1940)). The United States Supreme Court has recognized two
bases for finding sufficient minimum contacts: (1) general
jurisdiction and (2) specific jurisdiction. Evergreen, 169 N.C.
App. at 696, 611 S.E.2d at 184. General jurisdiction may be
maintained “even if the cause of action is unrelated to
defendant’s activities in the forum as long as there are
sufficient ‘continuous and systematic’ contacts between
defendant and the forum state.” Id. (quotation omitted).
“Specific jurisdiction exists when the controversy arises out of
the defendant’s contacts with the forum state[,]” making the
cause of the action the basis for the exercise of in personam
jurisdiction. Id. (quotation omitted).
In determining whether minimum contacts exist, the
following factors are to be considered in relation to the
circumstances of the case: “(1) quantity of the contacts, (2)
nature and quality of the contacts, (3) the source and
connection of the cause of action to the contacts, (4) the
interest of the forum state, and (5) convenience to the
parties.” New Bern Pool & Supply Co. v. Graubart, 94 N.C. App.
619, 624, 381 S.E.2d 156, 159 (1989), aff'd, 326 N.C. 480, 390
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S.E.2d 137 (1990) (quotation omitted). All factors are to be
considered.
“A contractual relationship between a North Carolina
resident and an out-of-state party alone does not automatically
establish the necessary minimum contacts with this State;”
however, a single contract “may establish the necessary minimum
contacts where it is shown that the contract was voluntarily
entered into and has a ‘substantial connection’ with this
State.” Evergreen, 169 N.C. App. at 696, 611 S.E.2d at 184
(citation and quotation omitted). The parties’ prior
negotiations and actual course of dealing, along with the terms
of the contract, are relevant factors in a ‘minimum contacts’
analysis. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 85
L. Ed. 528 (1985). Further, “[w]hich party initiates the
contact is taken to be a critical factor in assessing whether a
nonresident defendant has made ‘purposeful availment’ [of the
privilege of conducting activities within the forum State].”
Evergreen, 169 N.C. App. at 698, 611 S.E.2d at 185 (citation and
quotation omitted) (alteration in original). “[W]here a
defendant is an officer and principal shareholder of a
corporation, . . . we consider his corporate actions in
determining personal jurisdiction[.]” Saft Am., Inc. v.
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Plainview Batteries, Inc., 189 N.C. App. 579, 598, 659 S.E.2d
39, 51 (2008), rev'd in part, 363 N.C. 5, 673 S.E.2d 864 (2009).
A. Quantity, Nature, and Quality of the Contacts & Due Process
In the present case, Dr. Brown offered the following
evidence to support a finding of specific jurisdiction. In his
affidavit, Dr. Brown alleged that Ferrone “systematically and
repeatedly” contacted him in North Carolina via email and
telephone to convince him to invest in Artisan 2510. At that
time, Dr. Brown and Ferrone had been acquaintances for
approximately 8 years, had previously invested together, and had
sat on the same board of directors.
Additionally, Ferrone sent an offer via email on 21 June
2010, wherein he promised to provide Dr. Brown with 220,000
shares of stock in Artisan 2510 in exchange for a $100,000
investment. Ferrone then emailed Artisan’s business plan and a
PowerPoint presentation regarding the financials of the company
to Dr. Brown. Once Dr. Brown decided to invest, Ferrone had a
Purchase Agreement drafted and sent electronically to Dr. Brown.
Dr. Brown signed and returned the Purchase Agreement to Ferrone
and subsequently mailed two $50,000 checks from North Carolina.
Ferrone’s affidavit also describes systematic and repeated
contact with Dr. Brown in North Carolina: “On March 11, 2011, I
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sent an email to [p]laintiff with a proposed Promissory Note for
$150,000;” “I emailed a revised copy of the Purchase Agreement
to [pl]aintiff;” “[a] series of emails are attached []
demonstrating a string of communication” with plaintiff; “[a]s I
mentioned in our chat last night, we are in the process of
accounting and figuring how to return your funds and profit.”
Additionally, the record contains evidence that Dr. Brown
and Ferrone negotiated a settlement agreement, and Dr. Brown
received the first $5,000 repayment in North Carolina per its
terms. Importantly, the record also shows that Ferrone
initiated contact with Dr. Brown, which, again, is considered a
critical factor in assessing ‘purposeful availment.’ See
Evergreen, supra. Upon review, we conclude that the
relationship between Ferrone and the forum was such that he
should reasonably have anticipated being haled into court. The
contact between Ferrone and Dr. Brown had substantial
connections to North Carolina, and, therefore, Dr. Brown
purposefully availed himself of the protection and benefit of
our laws.
B. The Interest of the Forum State & the Convenience to the
Parties
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When the trial court “concludes that a defendant has
purposefully established minimum contacts within the forum
State, the court must also consider those contacts in light of
other factors to determine whether the assertion of personal
jurisdiction would comport with fair play and substantial
justice.” Evergreen, 169 N.C. App. at 699, 611 S.E.2d at 186
(quotation and ciation omitted). In doing so, we consider “(1)
the interest of North Carolina and (2) the convenience of the
forum to the parties.” Id.
In regards to North Carolina's interest, Ferrone argues
that it is New Jersey, not North Carolina, that is the
appropriate forum for litigation as the Purchase Agreement
contained a choice-of-law provision favoring New Jersey law.
However, we have held that “[w]hile choice of law clauses are
not determinative of personal jurisdiction, they express the
intention of the parties and are a factor in determining whether
minimum contacts exist and due process was met. This factor
does not, therefore, favor one party over the other.” Id. at
700, 611 S.E.2d at 186. (quotation and citation omitted)
(alteration in original). Here, the record reflects that
neither Ferrone nor Murphy signed the Purchase Agreement, and we
give little weight to its terms. More importantly, Dr. Brown
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has sued to enforce the parties’ settlement agreement, not the
original investment contract.
With respect to the convenience to the parties, North
Carolina is certainly the more convenient forum for Dr. Brown,
and this State has a “manifest interest in providing its
residents with a convenient forum for redressing injuries
inflicted by out-of-state actors.” Baker v. Lanier Marine
Liquidators, Inc., 187 N.C. App. 711, 716, 654 S.E.2d 41, 45
(2007) (citation and quotation omitted). As Ferrone has failed
to convince us otherwise, we hold that North Carolina is a
convenient forum to determine the rights of the parties.
III. Standard of Review
“Our standard of review of an appeal from summary judgment
is de novo; such judgment is appropriate only when the record
shows 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.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,
576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649
S.E.2d 382, 385 (2007)). “The burden on the moving party to
show that no genuine issues of fact exist may be met by proving
that an essential element of the opposing party’s claim is
nonexistent or by showing through discovery that the opposing
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party cannot produce enough evidence to support an essential
element of his claim.” Miller v. Rose, 138 N.C. App. 582, 585-
86, 532 S.E.2d 228, 231 (2000) (citation and quotation omitted).
IV. Discussion
We next address whether the trial court erred in finding
that Mr. Ferrone was personally liable to Dr. Brown for breach
of contract. Dr. Brown alleges: “There are two independent
bases under which this Court can affirm Mr. Ferrone’s personal
liability under the aforementioned agreement: piercing the
corporate veil and Mr. Ferrone’s personal guaranty.”
A. Personal Liability and Piercing the Corporate Veil
In Dr. Brown’s 5 October 2011 complaint, the eighth claim
for relief is “Piercing the Corporate Veil/Alter Ego.” However,
in a document entitled “Voluntary Dismissal Without Prejudice,”
filed 12 April 2013, Dr. Brown stated that he “hereby dismissed,
without prejudice, the claims against Defendant Michael Ferrone
for which Plaintiff was not granted summary judgment.
Specifically, Plaintiff hereby dismisses . . . piercing the
corporate veil/alter ego[.]” Accordingly, we decline to address
Dr. Brown’s argument as to piercing the corporate veil/alter ego
on appeal.
B. Guaranty Contract
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The only remaining theory that Dr. Brown offers to hold
Ferrone personally liable for the breach of the settlement
agreement is due to a guaranty contract.
Generally, a promise to answer for another’s debt falls
within the statute of frauds and must be in writing to be
enforceable. N.C. Gen. Stat. § 22-1 (2013) mandates that “[n]o
action shall be brought . . . to charge any defendant upon a
special promise to answer the debt . . . of another person,
unless the agreement upon which such action shall be brought, or
some memorandum or note thereof, shall be in writing, and signed
by the party charged therewith[.]” In addition, a promise to
personally repay the debt of another must be supported by
sufficient consideration. “A guaranty contract is supported by
sufficient consideration if it is based on a benefit passing to
the guarantor or a detriment to the guarantee. When the
guaranty, as in this case, involves a preexisting debt, it must
be supported by some new consideration other than the original
debt.” Carolina E., Inc. v. Benson Agri Supply, Inc., 66 N.C.
App. 180, 182, 310 S.E.2d 393, 395 (1984) (citations omitted).
However, there exists an exception to the general rule.
Under the “main purpose rule” a promise to pay the debt of
another falls outside the statute of frauds “if it is concluded
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that the promisor has the requisite personal, immediate, and
pecuniary interest in the transaction in which a third party is
the primary obligor[.]” Terrell v. Kaplan, 170 N.C. App. 667,
670, 613 S.E.2d 526, 528 (2005) (quotation and citation
omitted). In such cases, “the promise is said to be original
rather than collateral and therefore need not be in writing to
be binding.” Id.; see also, e.g., Stuart Studio, Inc. v. Nat'l
School of Heavy Equip., Inc., 25 N.C. App. 544, 546, 214 S.E.2d
192, 193 (1975) (Where “the main purpose and object of the
promisor is not to answer for another, but to subserve some
pecuniary or business purpose of his own, . . . his promise is
not within the statute [of frauds][.]” (quotation omitted).).
In the case sub judice, Dr. Brown contends that the main
purpose rule is applicable to these facts. Specifically, Dr.
Brown argues that Ferrone had the requisite personal, immediate,
and pecuniary interest in the transaction: “Ferrone certainly
had a personal interest in Dr. Brown investing in Artisan 2510
as an officer and/or shareholder, and because he had similarly
invested in the business.” However, after carefully reviewing
the record, we find a genuine issue of material fact exists as
to (1) whether an oral guaranty was given, and (2) whether an
application of the main purpose rule is warranted on the facts
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of this case. Accordingly, we find summary judgment was
improperly granted on Dr. Brown’s claim for breach of the
settlement agreement.
C. Violation of Chapter 78A
Ferrone argues that the trial court erred in granting Dr.
Brown’s motion for summary judgment on his claim for violations
of the North Carolina Securities Act under Chapter 78A. We
agree.
Because Dr. Brown alleges that Ferrone and Murphy were the
owners, agents, and alter egos of Artisan, he brought this claim
against Ferrone under the theory of joint and several liability.
As such, we look to Ferrone’s primary liability under N.C. Gen.
Stat. § 78A. From the face of the order, we presume that the
trial court found that Ferrone violated N.C. Gen. Stat. § 78A-
56(a)(2), which imposes civil liability upon any person who:
Offers or sells a security by means of any
untrue statement of a material fact or any
omission to state a material fact necessary
in order to make the statements made, in
light of the circumstances under which they
were made, not misleading (the purchaser not
knowing of the untruth or omission), and who
does not sustain the burden of proof that he
did not know, and in the exercise of
reasonable care could not have known of the
untruth or omission[.]
N.C. Gen. Stat. § 78A-56 (a)(2) (2013).
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We further note that any person who directly or indirectly
controls a person liable under N.C. Gen. Stat. § 78A-56(a) “is
also liable jointly and severally . . . unless able to sustain
the burden of proof that the person did not know, and in the
exercise of reasonable care could not have known, of the
existence of the facts by reason of which the liability is
alleged to exist.” N.C. Gen. Stat. § 78A-56(c)(1) (2013).
A statement is material if “there is a substantial
likelihood that a reasonable [purchaser] would consider it
important in deciding [whether or not to purchase]. State v.
Williams, 98 N.C. App. 274, 280, 390 S.E.2d 746, 749 (1990), or
if a reasonable purchaser “would have viewed the total mix of
information made available to be significantly altered by
disclosure of the fact.” Dunn v. Borta, 369 F.3d 421, 427 (4th
Cir. 2004)). A question of materiality is generally fact based
and for the jury to decide. Tharrington v. Sturdivant Life Ins.
Co., 115 N.C. App. 123, 127, 443 S.E.2d 797, 800 (1994).
In the present case, Dr. Brown alleged in his complaint
that “[d]efendants represented that they would pay [Dr. Brown]
15% interest per year on his investment.” Ferrone denied this
allegation in his answer. Additionally, Dr. Brown alleged that
“[b]ased on [d]efendants’ representations, [Dr. Brown] agreed to
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invest $100,000 in Artisan[.]” Ferrone also denied this
allegation in his answer. Dr. Brown further alleged in his
complaint that “[d]efendants also represented that [Dr. Brown’s]
investment was sound because the clothing product line doubles
the company’s net profit each clothing season, and that there
are eight seasons per year.” Ferrone denied this allegation in
his answer. The record indicates that there remains a genuine
issue of material fact as to whether Ferrone made any misleading
statements to Dr. Brown in violation of N.C. Gen. Stat § 78A-
56(a)(2). This issue involves a genuine issue of material fact
and is for a jury to decide. See id. As such, we cannot sustain
the trial court’s decision to grant summary judgment on this
issue.
Finally, we recognize that Judge Richard D. Boner granted
Dr. Brown’s motion for attorney’s fees and costs pursuant to
N.C. Gen. Stat. § 78A-56(a) based on Judge H. William
Constangy’s order. However, as we determined that the trial
court erred in granting summary judgment against Ferrone for
violating Chapter 78A, we vacate the order which grants Dr.
Brown’s motion for attorney’s fees and costs.
V. Conclusion
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In sum, the trial court did not err in denying Ferrone’s
pre-answer motion to dismiss for lack of personal jurisdiction.
The exercise of in personam jurisdiction over Ferrone does not
violate his due process rights. However, the trial court erred
in granting summary judgment on Dr. Brown’s claims for breach of
contract and violations of Chapter 78A. The issue of whether
Ferrone is personally liable for the breach of the settlement
agreement is best placed before a jury. Further, the record is
insufficient to support the trial court’s determination that
Ferrone is liable for violations of Chapter 78A. Accordingly,
the trial court’s order granting Dr. Brown’s motion for
attorney’s fees and costs is vacated. We reverse and remand to
the trial court for further action consistent with this opinion.
Affirmed in part; reversed and remanded in part; vacated in
part.
Judges McGEE and HUNTER, Robert, C., concur.
Report per Rule 30(e).