Heron Bay Acquisition, LLC v. United Metal Finishing, Inc.

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA15-652

Filed: 16 February 2016

Guilford County, No. 12 CVS 5505

HERON BAY ACQUISITION, LLC, Plaintiff,

UNITED METAL FINISHING, INC., CLAUDE T. CHURCH, and CATHERINE H.
CHURCH, Defendants.

Appeal by plaintiff from orders entered 7 May 2014 and 30 September 2014,

and judgment entered 10 November 2014, by Judge James L. Gale, Chief Special

Superior Court Judge for Complex Business Cases, in Guilford County Superior

Court. Heard in the Court of Appeals 18 November 2015.

Nancy Schleifer, for plaintiff-appellant.

Tuggle Duggins P.A., by Jeffrey S. Southerland, Denis E. Jacobson, and Sarah
H. Negus, for defendants-appellees.

ZACHARY, Judge.

Heron Bay Acquisitions, Inc., (plaintiff) appeals from judgment entered on

plaintiff’s claims against United Metal Finishing, Inc., Claude Church, and Catherine

Church (defendants). Plaintiff also appeals from pretrial orders granting partial

summary judgment for defendants and granting defendants’ motion in limine to

exclude certain evidence. On appeal plaintiff argues that the trial court erred by

dismissing his claims for unfair or deceptive trade practices, by dismissing plaintiff’s
HERON BAY ACQUISITION, LLC V. UNITED METAL FINISHING, INC.

Opinion of the Court

claims for breach of contract based on violation of the covenant of good faith and fair

dealing and violation of the contract’s provisions regarding environmental

warranties, and by granting defendants’ motion to exclude evidence. We conclude

that plaintiff’s arguments lack merit and that the judgment should be affirmed.

I. Background

Plaintiff is an Ohio-based LLC owned by Scott Lowrie. United Metal Finishing

is a metal plating business based in Greensboro and owned by defendant Claude

Church. On 17 June 2011, the parties entered into an Asset Purchase Agreement

(APA) and an accompanying real estate purchase contract in anticipation of plaintiff’s

purchase of United Metal Finishing and its associated real estate. The APA included

provisions that (1) addressed defendants’ representations about the property’s

environmental condition; (2) gave plaintiff the exclusive right to purchase United

Metal Finishing, by preventing defendants from negotiating with other potential

purchasers, and; (3) gave either buyer or seller the right to terminate the APA after

1 November 2011, if the sale of United Metal Finishing had not taken place by then.

The APA stated that such termination would be without liability to either party,

“provided however, that if such termination shall result from . . . a willful breach by

any party to this Agreement, such party shall be fully liable for any and all losses,

costs, claims, or expenses, incurred or suffered by the other parties as a result of such

failure or breach.”

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Because United Metal Finishing’s metal plating business had caused pollution,

the APA was structured around the “Brownfields” program, sponsored by the North

Carolina Department of Natural Resources (DENR). Under the Brownfields program,

a purchaser of contaminated land who enters into a Brownfields Agreement with

DENR is absolved of liability for historic contamination. The APA made the

acquisition of a Brownfields Agreement a prerequisite to the sale of United Metal

Finishing. It typically takes between eighteen and twenty-four months to obtain a

Brownfields Agreement with DENR. See Paradigm Fin. Group, Inc. v. Church, 2014

NCBC 16, *12 (2014) (companion case) (unpublished). As of 1 November 2011, the

parties had not obtained a Brownfields Agreement or closed on the sale of United

Metal Finishing. Under the terms of the APA, either party was free to terminate the

APA after this date.

Defendants terminated the APA on 17 February 2012, at which time DENR

had yet to prepare a draft Brownfields Agreement. On 16 April 2012, plaintiff filed

suit against defendants, seeking damages for breach of contract, breach of the implied

covenant of good faith and fair dealing, and specific performance of the APA. On 16

April 2012, the case was designated a Complex Business Case and assigned to the

trial court. During discovery, plaintiff obtained information suggesting that after the

parties signed the APA, defendants had discussions with other parties about the

possibility of selling United Metal Finishing to a buyer other than plaintiff. After

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learning this, plaintiff filed an amended complaint which dropped the claim for

specific performance and added a claim for violation of the Unfair or Deceptive Trade

Practices Act (UDTPA claim), based on defendants’ violation of § 4.1.7 of the APA.

This provision, known as a “no-shop clause,” stated that after signing the APA and

until closing or termination of the agreement, defendants would not

directly or indirectly solicit or engage in negotiations or
discussions with, disclose any of the terms of this
Agreement to, accept any offer from, furnish any
information to, or otherwise . . . participate with, any
person or organization . . . regarding any offer or proposal
with respect to the acquisition . . . of the Business . . . [and]
will promptly notify Purchaser of any such discussion,
offer, or proposal. . . .

On 2 December 2013, the parties filed cross-motions for summary judgment.

Following a hearing conducted on 20 February 2014, the trial court entered an order

on 7 May 2014 denying plaintiff’s motion for summary judgment, and granting partial

summary judgment for defendants. The trial court entered summary judgment for

defendants on plaintiff’s claims for UDTPA based on violation of the no-shop clause,

and its claims for breach of contract based on defendants’ alleged violation of

environmental warranties in the APA, undue delay of the Brownfields process, and

breach of the implied covenant of good faith and fair dealing. The trial court denied

defendant’s motion for summary judgment on plaintiff’s claims for breach of contract

based on defendants’ violation of the no-shop clause, failure to report customer

concerns, and unauthorized purchase of equipment, and plaintiff’s UDTPA claim

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based on defendants’ misappropriation of a marketing brochure prepared by plaintiff.

On 30 September 2014 the trial court granted defendants’ motion in limine to exclude

evidence of defendants’ late payments to an environmental consultant, and

defendants’ post-termination discussions with prospective buyers of United Metal

Finishing.

The trial on plaintiff’s remaining claims began on 8 October 2014. On 16

October 2014, the jury returned verdicts finding that (1) defendants United Metal

Finishing and Claude Church, but not Catherine Church, had breached the no-shop

provision of the APA; (2) defendants’ termination of the APA did not result from the

breach of the no-shop provision; (3) defendants had misappropriated marketing

materials created and owned by plaintiff; and (4) plaintiff was entitled to $500.00 in

damages for defendants’ misappropriation of plaintiffs’ marketing materials. On 14

November 2014, the trial court entered judgment in accordance with the jury’s

verdicts. On 4 December 2014, plaintiff appealed from the judgment, the summary

judgment order, and the order on defendants’ motion in limine.

II. UDTPA Claim Based on Violation of the APA’s No-Shop Clause

Plaintiff argues first that the trial court erred by granting summary judgment

for defendants on plaintiffs’ claim seeking damages for UDTPA based on defendants’

violation of the APA’s no-shop clause and defendants’ “deception” about the violation.

We conclude that plaintiff’s argument lacks merit.

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A. Standard of Review

Pursuant to N.C. Gen. Stat. § 1A-1, Rule 56(c) (2013), summary judgment is

properly entered “if the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that any party is entitled to a judgment as a matter

of law.” “According to well-established North Carolina law, summary judgment is

appropriate when ‘a claim or defense is utterly baseless in fact’ or ‘where only a

question of law on the indisputable facts is in controversy.’ ” Williams v. Houses of

Distinction, Inc., 213 N.C. App. 1, 4, 714 S.E.2d 438, 440 (2011) (quoting Kessing v.

Mortgage Corp., 278 N.C. 523, 533, 180 S.E.2d 823, 829 (1971) (internal citations

omitted). “All facts asserted by the [nonmoving] party are taken as true and . . .

viewed in the light most favorable to that party[.]” Dobson v. Harris, 352 N.C. 77, 83,

530 S.E.2d 829, 835 (2000) (citations omitted). “[O]nce the party seeking summary

judgment makes the required showing, the burden shifts to the nonmoving party to

produce a forecast of evidence demonstrating specific facts, as opposed to allegations,

showing that he can at least establish a prima facie case at trial.” Pacheco v. Rogers

& Breece, Inc., 157 N.C. App. 445, 448, 579 S.E.2d 505, 507 (2003) (internal quotation

omitted). “Our standard of review of an appeal from summary judgment is de novo[.]”

In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (citation omitted).

B. Discussion

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Plaintiff appeals from the trial court’s summary judgment order dismissing his

UDTPA claim. On appeal, plaintiff does not argue that there are genuine issues of

material fact, but that the undisputed facts did not entitle defendants to summary

judgment. We disagree.

N.C. Gen. Stat. § 75-1.1(a) (2013) provides that “unfair or deceptive acts or

practices in or affecting commerce, are declared unlawful.” The elements of an unfair

or deceptive trade practice are: “(1) an unfair or deceptive act or practice by [the]

defendant, (2) in or affecting commerce, (3) which proximately caused actual injury

to [the] plaintiff.” Wilson v. Blue Ridge Elec. Membership Corp., 157 N.C. App. 355,

357, 578 S.E.2d 692, 694 (2003). “It is well recognized that actions for unfair or

deceptive trade practices are distinct from actions for breach of contract. Our

Supreme Court has also determined that, as to these elements, ‘some type of

egregious or aggravating circumstances must be alleged and proved before the [Act’s]

provisions may [take effect].’ ” Carcano v. JBSS, LLC, 200 N.C. App. 162, 171, 684

S.E.2d 41, 49 (2009) (quoting Business Cabling, Inc. v. Yokeley, 182 N.C. App. 657,

663, 643 S.E.2d 63, 68, disc. rev. denied, 361 N.C. 567, 650 S.E.2d 599 (2007) (internal

quotation omitted)) (other citation omitted). Moreover, “[r]ecovery will not be had . .

. where the complaint fails to demonstrate that the act of deception proximately

resulted in some adverse impact or actual injury to the plaintiffs.” Walker v. Sloan,

137 N.C. App. 387, 399, 529 S.E.2d 236, 245 (2000) (citing Miller v. Ensley, 88 N.C.

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App. 686, 365 S.E.2d 11 (1988)). For example, in Melton v. Family First Mortgage

Corp., 156 N.C. App. 129, 135, 576 S.E.2d 365, 370, aff'd per curiam, 357 N.C. 573,

597 S.E.2d 672 (2003), the plaintiff filed an UDTPA claim against the defendant

based on a contention that the defendant had improperly backdated loan application

documents. This Court upheld summary judgment for the defendant:

Assuming that the loan application documents were
backdated, however, plaintiff has failed to present any
evidence of harm. As stated previously, a necessary
element for a claim under N.C. Gen. Stat. § 75-1.1 is that
the unfair or deceptive act or practice proximately caused
actual injury to the claimant.

(citation omitted). Our review of the record indicates that plaintiff did not produce

evidence that defendants engaged in an unfair or deceptive act or practice, or that

plaintiff suffered damages from defendants’ alleged wrongdoing. Plaintiff’s UDTPA

claim is based upon defendant’s violation of the no-shop clause of the APA.1 Absent

this contractual provision, however, defendants would have been free to discuss

possible business dealings with others as they saw fit and without any obligation to

disclose such discussions to plaintiff. In addition, plaintiff identifies no aggravating

circumstances that might elevate this breach of contract to a UDTPA claim.

“ ‘Substantial aggravating circumstances’ must attend the breach in order to recover

under the Act. A violation of Chapter 75 is unlikely to occur during the course of

1 Plaintiff contends on appeal that its “UDTPA claim is based on deception and not on the
contractual claim.” Plaintiff’s allegations of deception, however, relate solely to defendants’ failure to
disclose violations of the no-shop clause.

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contractual performance, as these types of claims are best resolved by simply

determining whether the parties properly fulfilled their contractual duties.” Mitchell

v. Linville, 148 N.C. App. 71, 75, 557 S.E.2d 620, 623-24 (2001) (quoting Branch

Banking and Trust Co. v. Thompson, 107 N.C. App. 53, 62, 418 S.E.2d 694, 700, disc.

review denied, 332 N.C. 482, 421 S.E.2d 350 (1992) (internal quotation omitted)), and

citing Eastover Ridge, L.L.C. v. Metric Constructors, Inc., 139 N.C. App. 360, 368, 533

S.E.2d 827, 833, disc. review denied, 353 N.C. 262, 546 S.E.2d 93 (2000)). Plaintiff

has failed to produce evidence of anything more than a simple breach of contract.

In addition, plaintiff produced no evidence that defendants’ breach of the APA’s

no-shop clause caused any harm to plaintiff. There is no evidence that defendants’

contacts with other parties led to an agreement between defendants and another

business entity, and plaintiff does not allege that, for example, defendants tried to

renegotiate the APA with plaintiff, demanded a higher purchase price from plaintiff,

or attempted to use the possible interest of other parties as leverage to obtain

concessions from plaintiff. Indeed, it is undisputed that plaintiff was unaware of

defendants’ conversations with other possible buyers until after plaintiff had filed

suit against defendants. Moreover, the jury found that defendants’ termination of

the APA did not result from defendants’ violation of the no-shop clause, barring

relitigation of this issue in the context of an UDTPA claim:

Under the . . . doctrine of collateral estoppel, also known as
‘estoppel by judgment’ or ‘issue preclusion,’ the

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determination of an issue in a prior judicial or
administrative proceeding precludes the relitigation of that
issue in a later action, provided the party against whom the
estoppel is asserted enjoyed a full and fair opportunity to
litigate that issue in the earlier proceeding.

Whitacre P’ship v. BioSignia, Inc., 358 N.C. 1, 15, 591 S.E.2d 870, 880 (2004) (citing

Thomas M. McInnis & Assocs. v. Hall, 318 N.C. 421, 434, 349 S.E.2d 552, 560 (1986))

(other citation omitted). Defendants’ discussions with other possible buyers, while a

technical violation of the no-shop clause, do not appear to have resulted in any change

in the parties’ relationship. We conclude that plaintiff has failed to articulate any

damages resulting from defendants’ breach of the no-shop clause. Because plaintiff

failed to produce evidence that defendants engaged in an unfair or deceptive act or

practice, that defendants’ violation of the no-shop clause was accompanied by

aggravating circumstances, or that plaintiff was harmed by defendants’ breach of

contract, the trial court did not err by granting summary judgment for defendants on

plaintiff’s UDTPA claim based on defendants’ violation of the no-shop clause.

In reaching this conclusion, we have carefully considered plaintiff’s arguments

for a contrary result. Plaintiff argues that it produced evidence of damages consisting

of (1) the business expenses plaintiff incurred in pursuing the APA and trying to

obtain a Brownfields Agreement, and (2) the “lost profits” that plaintiff might have

made if defendants had not terminated the APA. “ ‘The word ‘damages’ is defined as

compensation which the law awards for an injury[;] ‘injury’ meaning a wrongful act

which causes loss or harm to another.’ ” Tyll v. Berry, __ N.C. App. __, __, 758 S.E.2d

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411, 420 (quoting Cherry v. Gilliam, 195 N.C. 233, 235, 141 S.E. 594, 595 (1928)),

disc. review denied, 367 N.C. 532, 762 S.E.2d 207 (2014). Plaintiff fails to advance a

persuasive argument to explain why its ordinary expenses or hypothetical lost profits

were “damages” resulting from a wrongful act of defendants, given that the jury found

that defendants’ termination of the APA did not result from defendants’ breach of

contract. Plaintiff’s assertion that it suffered damages lacks merit.

We have also reviewed the cases cited by plaintiff and conclude that they are

easily distinguishable and do not require reversal of the trial court’s dismissal of

plaintiff’s UDTPA claim based on violation of the no-shop clause. In Atlantic Mgmt.

Corp. v. Dunlea Realty Co., 131 N.C. App. 242, 507 S.E.2d 56 (1998), the plaintiff

purchased accounts “consisting of the right to receive payment from owners of rental

property in exchange for management services.” Atlantic, 131 N.C. App. at 244, 507

S.E.2d at 59. The defendant learned prior to closing that certain clients planned to

hire a different management company, but failed to reveal this to plaintiff until after

the closing. There was no dispute over the existence of damages, and the defendant

intentionally concealed a fact that was material to the plaintiff’s decision to proceed

with the purchase. In Walker v. Sloan, the defendants engaged in a variety of

dishonest and, in some cases, illegal acts. Significantly, in Walker, this Court upheld

summary judgment in favor of one of the defendants on the grounds that because the

proposed transaction failed to occur, “[plaintiffs] cannot show any actual injury

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resulting from the [defendant’s] alleged omission [of material facts].” Walker, 137

N.C. App. at 400, 529 S.E.2d at 246. In this case, defendants’ conversations with other

possible buyers did not lead to an agreement between defendants and another party,

or result in a change in plaintiff’s status. We conclude that the trial court did not err

by granting summary judgment for defendants on plaintiff’s claim for UDTPA based

on defendants’ breach of the no-shop clause or its failure to disclose its discussions

with others.

III. Breach of Contract

Plaintiff argues next that the trial court erred by granting summary judgment

for defendants on plaintiff’s claims for breach of contract predicated on defendants’

alleged breach of the implied covenant of good faith and fair dealing, and breach of

the APA’s provisions regarding defendants’ warranties as to the environmental

status of United Metal Finishing and its associated real estate. We disagree.

A. Breach of the Implied Covenant of Good Faith and Fair Dealing

“ ‘In every contract there is an implied covenant of good faith and fair dealing

that neither party will do anything which injures the right of the other to receive the

benefits of the agreement.’ ” Bicycle Transit Authority v. Bell, 314 N.C. 219, 228, 333

S.E.2d 299, 305 (1985) (quoting Brown v. Superior Court, 34 Cal. 2d 559, 564, 212

P.2d 878, 881 (1949)). In this case, plaintiff’s claim for breach of the implied covenant

of good faith and fair dealing is based on the following: (1) in October 2011 the

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environmental consultant hired by defendants was ready to file required documents

with DENR as part of the parties’ pursuit of a Brownfields Agreement, but (2) the

consultant delayed filing the documents for several days, until defendants had paid

a past due bill owed to the consultant. We conclude that these circumstances do not

establish a prima facie case of violation of the covenant of good faith and fair dealing.

Plaintiff cites Quantum Communs. Corp. v. Star Broad., Inc., 473 F. Supp. 2d

1249 (S.D. Fla. 2007), aff'd, 290 Fed. Appx. 324 (11th Cir. Fla. 2008), in support of its

argument. Quantum is not binding on this Court and we conclude that it is not

persuasive, given that it involves a very different factual and legal situation. The

parties in Quantum executed an APA with a no-shop clause and a clause allowing

termination of the APA if the relevant transaction had not closed by a certain date.

Unlike the APA in this case, however, the termination clause in Quantum provided

that a party could not terminate the APA if it was in breach of its terms. After the

defendant terminated the APA, the plaintiff sought specific performance and argued

that, because the defendant had violated the no-shop clause before it terminated the

APA, the purported termination was invalid. In this context, determination of

whether the defendant had violated the no-shop clause was essential to establishing

plaintiff’s entitlement to specific performance. In addition, correspondence between

the defendant and another party indicated defendant’s intention to deliberately

sabotage the APA in order to contract with the other party. In the present case,

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however, defendants’ breach of the no-shop clause did not invalidate defendants’

termination of the APA, absent proof that the termination resulted from the breach.

Moreover, plaintiff does not seek specific performance, and there is no evidence that

defendants had an agreement with another party. We conclude that the Quantum

case does not persuade us to reverse the trial court.

Plaintiff speculates that defendants had an improper motive for this brief

delay, but does not support this conjecture with evidence. Plaintiff also fails to

articulate any way in which this brief delay affected the sequence of events, inasmuch

as DENR did not begin reviewing the documents for several weeks after they were

submitted, and had not yet drafted a Brownfields Agreement when defendants

terminated the APA three months later. Plaintiff identifies no evidence that

defendants gained an advantage or that plaintiff suffered damages as a result of the

delay in submitting documents to DENR. The trial court did not err by granting

summary judgment for defendants on plaintiff’s claim for breach of the implied

covenant of good faith and fair dealing.

B. Breach of the APA’s Environmental Warranties

The trial court stated in its summary judgment order that:

. . . [United Metal Finishing] and the Churches made
representations and undertook indemnity obligations in
the [APA] to protect Heron Bay’s post-acquisition
liabilities. . . . [United Metal Finishing] represented that:
(1) no hazardous materials were used in the business; (2)
no hazardous materials were released on the Property; (3)

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[United Metal Finishing] was in compliance with all
relevant environmental laws; (4) Defendants would comply
with all relevant environmental laws going forward [and];
(5) Defendants knew of no liabilities resulting from
environmental violations[.] . . . Defendants promised to
indemnify Plaintiff for any liability resulting from
Defendants’ failures to comply with these representations.

Any remedy for inaccurate representations was limited by
the “Environmental Exceptions” listed in the APA and
RPA, which provide that Defendants would indemnify
Heron Bay for any liability it incurred as a result of
environmental breaches for which Heron Bay would not
receive Brownfield immunity.

Plaintiff argues that defendants breached the APA’s provisions concerning

environmental warranties. However, because the sale of United Metal Finishing did

not take place, plaintiff was never exposed to potential liability based on defendants’

alleged breach of these contractual provisions. This argument lacks merit.

IV. Motion in Limine

Plaintiff’s final argument is that the trial court erred by granting defendants’

motion in limine to exclude evidence that submission of the Brownfields materials

was delayed until defendants had paid their consultant. Plaintiff contends that this

evidence was part of plaintiff’s proof for both the UDTPA claim and the claim for

breach of the implied covenant of good faith and fair dealing. As discussed above, we

conclude that the trial court did not err by granting summary judgment for

defendants on plaintiff’s claim for breach of the implied covenant of good faith and

fair dealing, based on defendants’ delay in paying the consultant. We have also held

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that the trial court did not err by granting summary judgment for defendants on

plaintiff’s UDTPA claim; consideration of the evidence regarding defendants’ late

payments does not persuade us to reach a different conclusion. In addition, plaintiff

advances no argument regarding the standard for admissibility of such evidence. We

conclude that this argument lacks merit.

For the reasons discussed above, we conclude that the trial court did not err

and that its judgment and orders should be

AFFIRMED.

Judges CALABRIA and ELMORE concur.

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