ATKINSON v. LACKEY 2015 NCBC 13A (Amended 02-27-2015)

Atkinson v. Lackey, 2015 NCBC 13A (Amended 02-27-2015).

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 12 CVS 7600

WILLIAM M. ATKINSON, JEFF
MITCHELL, and JERROLD O’GRADY,

Plaintiffs,

v.

WILLIAM LACKEY, ROSS SALDARINI;
SCOTT S. MEHLER; BLACKHAWK ORDER AND OPINION
PACIFIC CAPITAL, LLC; and
BLACKHAWK PACIFIC FUND I, LLC,

Defendants.

{1} THIS MATTER is before the Court upon Plaintiffs William M. Atkinson
(“Atkinson”), Jeff Mitchell (“Mitchell”), and Jerrold O’Grady’s (“O’Grady”)
(collectively, “Plaintiffs”) Motion for Partial Summary Judgment and Defendants
William Lackey (“Lackey”), Ross Saldarini (“Saldarini”), BlackHawk Pacific Capital,
LLC (“Pacific Capital”), and BlackHawk Pacific Fund I, LLC’s (the “Pacific Fund”)
(collectively, “Defendants”) Motion for Summary Judgment (collectively, the
“Motions”) in the above-captioned case.
{2} The Court, having considered the Motions, affidavits and supporting briefs,
as well as the arguments of counsel at the September 30, 2014 hearing in this matter,
hereby DENIES Plaintiffs’ Motion and GRANTS in part and DENIES in part
Defendants’ Motion.
Nexsen Pruet, PLLC by William R. Terpening, Matthew S. DeAntonio, Richard S.
Wilson, and Christopher C. Lam for Plaintiffs William M. Atkinson, Jeff Mitchell,
and Jerrold O’Grady.

James, McElroy & Diehl, P.A. by John R. Buric and Jon P. Carroll for Defendants
William Lackey, Ross Saldarini, BlackHawk Pacific Capital, LLC and BlackHawk
Pacific Fund I, LLC.

Bledsoe, Judge.
I.
PROCEDURAL HISTORY
{3} Plaintiffs’ claims arise from their allegations that Defendants fraudulently
induced them to invest in the Pacific Fund by misrepresenting the Pacific Fund’s
ownership of and security interests in several properties in coastal South Carolina.
{4} Plaintiffs, together with Robert Bertram (“Bertram”) and Jack P. Scott
(“Scott”), initiated this action on April 18, 2012, alleging claims against Defendants,
Scott Mehler (“Mehler”), Bill Grier (“Grier”), BlackHawk Talon Fund II, LP (“Talon
Fund”), and BlackHawk Management, LLC (“BHM”) for securities fraud, fraud,
unfair and deceptive trade practices (“UDTP”) under N.C.G.S. § 75-1.1 (“UDTPA”),
breach of fiduciary duty, and constructive fraud. Defendants answered the
Complaint and asserted four counterclaims.
{5} This case was assigned to the Business Court (Murphy, J.) on April 24, 2012
and subsequently assigned to the undersigned on July 2, 2014.
{6} All claims by and against Bertram, Scott, Talon Fund, BHM, and Grier have
been dismissed, as have all claims against all Defendants related to the Talon Fund.
(Joint Stipulation of Partial Dismissal with Prejudice, June 24, 2014.) Defendants
have also dismissed all Counterclaims against Plaintiffs with prejudice. (Id.)
{7} Plaintiffs filed their Motion for Partial Summary Judgment on June 30,
2014, seeking judgment against all Defendants, including Mehler, on Plaintiffs’
claims for securities fraud, UDTP, breach of fiduciary duty, and constructive fraud.
Plaintiffs do not seek summary judgment against any Defendant on their claim for
common law fraud.
{8} Defendants filed their Motion for Summary Judgment on July 1, 2014,
seeking judgment in favor of Defendants Lackey and Saldarini on Plaintiffs’ claims
for securities fraud, common law fraud, UDTP, breach of fiduciary duty, and
constructive fraud, and in favor of Defendants Pacific Capital and the Pacific Fund
on Plaintiffs’ claim under the UDTPA. In addition, Defendants jointly seek summary
judgment dismissing all of Atkinson’s claims, except constructive fraud and UDTPA,
by operation of the applicable statute of limitations.
{9} The Court held a hearing on the Motions on September 30, 2014, at which
all parties, except Mehler, were represented by counsel. Mehler did not respond to
Plaintiffs’ Motion, did not join Defendants’ Motion, and did not appear at the hearing.
The Motions are now ripe for resolution.
II.
FACTUAL BACKGROUND
{10} “Although findings of fact are not necessary on a motion for summary
judgment, it is helpful to the parties and the courts for the trial judge to articulate a
summary of the material facts which he considers are not at issue and which justify
entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62, 693 S.E.2d 250, 252
(2010). Therefore, the Court recites the material and undisputed facts to decide the
Motions and not to resolve issues of material fact.
{11} The Pacific Fund is a North Carolina limited liability company (“LLC”) that
was formed to “build investment returns by actively partnering with and providing
equity financing to experienced developers and builders on select projects in the
Southeast.” (Pls.’ Br. Supp. Mot., p. 2.)
{12} Pacific Capital was a member and the sole manager of the Pacific Fund and
had “sole, full, exclusive and complete power and authority to manage the affairs of
the [Pacific Fund] and to perform any and all acts on behalf of the [Pacific Fund] that
it deem[ed] appropriate and necessary.” (Pls.’ Br. Supp. Mot., p. 3.)
{13} Lackey, Saldarini, and Mehler managed Pacific Capital, and through Pacific
Capital, the Pacific Fund. (Pls.’ Br. Supp. Mot., p. 3.; Ex. M.)
{14} The Pacific Fund investments at issue in this litigation involve a lot in
DeBordieu Colony (“DeBordieu”), “a private, gated, ocean front community outside
Georgetown, South Carolina,” (Compl. ¶ 82), an investment in Mariner’s Walk, “a 308
acre, 343 lot, $56 million residential development with deep water marina on [the]
Sampit River [near] Winyah Bay in Georgetown, South Carolina,” (Id. ¶ 84), and an
investment in Bulls Bay Estates (“Bulls Bay”), “a 195 acre, 390 lot, $50 million
residential development on the Intracoastal Waterway outside of [Charleston, South
Carolina].” (Id.)
{15} The Pacific Fund began soliciting investments from Plaintiffs and other
investors in 2007. Plaintiffs allege that Defendants provided them several documents
and made certain specific representations that induced them to invest in the Pacific
Fund.
{16} In particular, Mitchell contends that Mehler took him to view a lot in
DeBordieu and represented that the Pacific Fund owned the property. (Pls.’ Br. Supp.
Mot., p. 4.; Ex. G.) Similarly, O’Grady contends that Mehler orally represented to
him that the Pacific Fund owned property in DeBordieu. (Pls.’ Br. Supp. Mot., p. 4.;
Ex. H.)
{17} In addition, Atkinson testified that he received a promotional email on
February 8, 2007 from Mehler (the “February 2007 email”) that (1) described the
Pacific Fund’s DeBordieu investment as “a $500,000 land purchase equity in a $2.6
million single family home-site development in DeBordieu Colony”; (2) stated that
the Mariner’s Walk investment “is secured by all of the (deep water) property and
other assets of the developer”; and (3) stated that the Bulls Bay investment was a “$1
million secured debt and deep water land purchase in Bulls Bay Estates.” (Pls.’ Br.
Supp. Mot., Ex. O.) The February 2007 email displayed Lackey and Saldarini’s
names at the bottom of the email as signatories but indicated that the email came
from Mehler’s email account. (See id.)
{18} Plaintiffs also testified that they received a promotional document entitled
“Real Estate Opportunity Fund I: The Coastal Development Fund” (the “Coastal
Development Fund”) from Mehler that described the DeBordieu investment as a
“$600,000 land purchase equity” and stated that the Bulls Bay and Mariner’s Walk
investments were “secured” debt investments. (Pls.’ Br. Supp. Mot., Exs. D, G–H, N.)
{19} Finally, Plaintiffs acknowledge that they received a Private Placement
Memorandum (“PPM”), dated August 15, 2006, before they invested in the Pacific
Fund. The PPM contained various representations related to the Pacific Fund’s
holdings, including the following:
a. “The Fund portfolio holds $2MM worth of investments to date -- $1 MM
in Bulls Bay, a 350 lot residential community on the inter-coastal
waterway outside of Charleston, SC and $1MM in [DeBordieu] Colony,
a private, gated ocean front community outside Georgetown, SC. BHP
projects returns on equity of 54% and 28%, respectively.” (Pls.’ Br. Supp.
Mot., Ex. M);
b. “DeBordieu Development. One of the Company’s Members, P3 One,
LLC, purchased a lot for approximately $1 million and entered into a
development agreement with . . . Principal, Scott Mehler, (the
“Developers”) whereby the Developers will finance and manage the
development of a single family home on the lot for the purpose of selling
the home and lot . . . . P3 One intends to contribute the home, its interest
in the ownership of same, or its profits interest in the sale to Company.
Because of the complexities of the 1031 aspect of the lot ownership,
Company and P3 One are currently working towards a structure that
will allow the Company to realize 100% of P3 One’s gain from the
transaction.” (Id.);
c. “Bulls Bay Development. Company invested $1 million of a total of $5
million equity financing for the development of ‘Bulls Bay Estates’, an
Intracoastal residential community with 390 lots worth $50.1MM in
Awendaw, SC. The equity investors purchased a $2.5MM water front
lot and the remaining investment was in the form of a $2.5MM note.
The developer agreed to purchase the lot from the equity investors for
$3.5 million in 18 months. The principal and interest on the note pay
out in 18 months with a total return of 40%. The Company will also
receive 1% ownership in Bulls Bay project.” (Id.)
{20} The PPM did not reference any investment in Mariner’s Walk. (Id.)
{21} The PPM also included an integration clause that stated “[n]o person has
been authorized in connection with this offering to make any representations other
than as contained in this confidential private placement memorandum” (id.), and
further provided that “[n]othing contained in this confidential [PPM] is, or should be
relied upon as, a promise or representation as to the future performance of the
Company” and that “no representation is made as to the accuracy of any forward
looking statements, estimates or projections contained in this confidential [PPM].”
(Id.) The PPM also included a Subscription Agreement, signed by each Plaintiff, that
provided that the Subscription Agreement “contains the entire agreement of the
parties with respect to the matters covered hereby or thereby, and there are no
representations, warranties, covenants or other agreements except as contained
herein and therein.”
{22} After receiving the documents and representations referenced above, each
Plaintiff invested in the Pacific Fund and also executed the Pacific Fund Operating
Agreement. Atkinson invested $100,000 on April 13, 2007; Mitchell invested
$200,000 on December 14, 2007; and O’Grady invested $200,000 on January 8, 2008.
(Pls.’ Br. Supp. Mot., p. 5; Defs.’ Br. Supp. Mot., p. 2.)1
{23} Plaintiffs’ claims are based on their contention that, contrary to Defendants’
representations, the Pacific Fund never owned property in DeBordieu and never held
secured debt investments in Mariner’s Walk and Bulls Bay. As a result, Plaintiffs
claim they were fraudulently induced into making unprofitable investments and have
thereby suffered the total loss of their investments. (Pls.’ Br. Supp. Mot., p. 8.)
{24} Defendants deny all wrongdoing and contend that the evidence of record is
undisputed that they truthfully represented at all times that the Pacific Fund’s
“primary investments consisted of equity financing for [DeBordieu, Bulls Bay, and
Mariner’s Walk].” (Defs.’ Br. Supp. Mot., p. 3.) Defendants further contend that the
undisputed evidence of record establishes that Lackey and Saldarini did not
participate in any fraudulent conduct, entitling them to summary judgment on all of

1 The Operating Agreement purports to limit the liability of Pacific Fund’s managers. Specifically,
Section 11.03(a) states that “[n]o Manager shall be liable for the obligations of the Company solely by
reason of being a Manager or participating in the management of the Company’s affairs. The liability
of a Manager for any breach of the duties described in Section 11.01 shall be limited or eliminated to
the fullest extent permitted by law. No Manager shall be liable for action taken in such capacity if
such Manager performs the duties of such office in accordance with Section 11.01.” (Pls.’ Br. Supp.
Mot., Ex. M.) Section 11.01 states that “the Manager shall discharge its duties as such in good faith,
with the care of an ordinary prudent person in a like position would exercise under similar
circumstances, and in a manner that such Persons reasonably believe to be in the best interests of the
Company.” (Id.)
Plaintiffs’ claims, and that Pacific Capital and the Pacific Fund are entitled to
dismissal of Plaintiffs’ claim under N.C.G.S. § 75-1.1 because securities transactions
are outside the scope of that statute.
III.
LEGAL STANDARD
{25} Summary judgment is appropriate where “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 judgment as a matter of law.” N.C. R. Civ. P. Rule 56(c) (2014). “A genuine
issue of material fact has been defined as one in which ‘the facts alleged are such as
to constitute a legal defense or are of such nature as to affect the result of the action,
or if the resolution of the issue is so essential that the party against whom it is
resolved may not prevail . . . .” Smith v. Smith, 65 N.C. App. 139, 142, 308 S.E.2d
504, 506 (1983). The Court views the evidence in the light most favorable to the non-
moving party and draws all reasonable inferences in favor of the non-moving party.
Whitley v. Cubberly, 24 N.C. App. 204, 206, 210 S.E.2d 289, 291 (1974); See generally
McKee v. James, 2014 NCBC 73 ¶ 31 (N.C. Super. Ct. Dec. 31, 2014),
www.ncbusinesscourt.net/opinions/2014_NCBC_73.pdf (discussing standard).
IV.
ANALYSIS
A. Standing
{26} As a preliminary matter, Defendants raise challenges to Plaintiffs’ standing
to bring individual claims in this matter. (Defs.’ Br. Resp. Pls.’ Mot., p. 16.) Although
Defendants have not filed a motion under Rule 12(b)(1), standing is a “necessary
prerequisite to the [C]ourt’s proper exercise of subject matter jurisdiction” and the
Court may raise “such defect on its own initiative.” Am. Woodland Indus. v. Tolson,
155 N.C. App. 624, 626–27, 574 S.E.2d 55, 57 (2002); Jackson Cnty. v. Swayney, 75
N.C. App. 629, 630, 331 S.E.2d 145, 146 (1985), rev’d in part on other grounds, 319
N.C. 52, 352 S.E.2d 413 (1987).
{27} Plaintiffs are members of the Pacific Fund and seek to assert direct claims
against all Defendants to enforce rights Plaintiffs claim belong to them personally.
Defendants do not appear to contest Plaintiffs’ standing to bring claims under the
North Carolina Securities Act,2 but do appear to challenge Plaintiffs’ standing to
assert its remaining claims for breach of fiduciary duty, fraud, constructive fraud and
unfair and deceptive trade practices. Plaintiffs’ standing to assert these claims turns
on whether the claims are direct or derivative, which in turn depends on whether
Plaintiffs’ claimed injury is an injury to the Pacific Fund or to Plaintiffs individually.
See, e.g., Aubin v. Susi, 149 N.C. App. 320, 324, 560 S.E.2d 875, 879 (2002) (“[A]
derivative action is one brought by a shareholder ‘in the right of a corporation’” and
“[a]n individual action ‘is one a shareholder brings to enforce a right which belongs
to him personally.’”).
{28} The general rule in North Carolina is that “[s]hareholders, creditors or
guarantors of corporations generally may not bring individual actions to recover what
they consider their share of the damages suffered by the corporation.” Barger v.
McCoy Hillard & Parks, 346 N.C. 650, 660, 488 S.E.2d 215, 220–21 (1997). Further,
“shareholders cannot pursue individual causes of action against third parties for
wrongs or injuries to the corporation that result in the diminution or destruction of
the value of their stock.” Id. at 658, 488 S.E.2d at 219; See Harris v. Wachovia Corp.,
2011 NCBC 3 ¶ 49 (N.C. Super. Ct. Feb. 23, 2011),
www.ncbusinesscourt.net/opinions/2011_NCBC_3.pdf (citing Russell M. Robinson,
II, Robinson on North Carolina Corporation Law § 17.02[1] (7th ed., 2009) (“The theory
behind [this] rule is that ‘a shareholder cannot individually recover the lost value of
his shares by alleging injury to the corporation and nothing more . . . .’”)).
{29} Generally, the proper vehicle for a claim arising from injury to a corporation
or a limited liability company is a derivative action, typically because “[t]he loss of an

2 N.C.G.S. § 78A-56(a)(2) provides an individual cause of action for “any person purchasing a security,”

for which rescission and recovery of the consideration paid are the available remedies. The Court
addresses Plaintiffs’ securities fraud claims in Section IV.B.i below.
investment ‘is identical to the injury suffered by’ the corporate entity as a whole.”
Green v. Freeman, 367 N.C. 136, 144, 749 S.E.2d 262, 269 (2013).
{30} The North Carolina Supreme Court has recognized two exceptions to this
general rule, holding that “shareholders, creditors and guarantors may bring an
individual action against a third party for breach of fiduciary duty when (1) ‘the
wrongdoer owed [them] a special duty’ or (2) they suffered a personal injury ‘distinct
from the injury sustained by . . . the corporation itself.’” Id. at 142, 759 S.E.2d at 268
(quoting Barger, 346 N.C. at 659, 488 S.E.2d at 219). “The existence of a special duty
thus would be established by facts showing that defendants owed a duty to plaintiffs
that was personal to plaintiffs as shareholders and was separate and distinct from
the duty defendants owed the corporation.” Barger, 346 N.C. at 659, 488 S.E.2d at
220.
{31} Significantly for this case, our courts have held that a special duty will exist
“when the wrongful actions of a party induced an individual to become a shareholder.”
Id.; see Howell v. Fisher, 49 N.C. App. 488, 498, 272 S.E.2d 19, 26 (1980). Here,
Plaintiffs claim Defendants misrepresented that Pacific Fund owned property in
DeBordieu and that the Mariner’s Walk and Bulls Bay investments were secured,
and, in turn, that Plaintiffs would not have invested in the Pacific Fund absent those
representations. Accordingly, Plaintiffs contend they were induced to become
members of and investors in the Pacific Fund by the wrongful actions of Defendants.
As such, Plaintiffs have standing to assert their claims under Howell. The Court
addresses the legal sufficiency of these claims for summary judgment purposes
below.3

3 The Court notes that Plaintiffs’ claims here arguably do not involve a loss to the Pacific Fund at all

– indeed, the Pacific Fund was the beneficiary recipient of Plaintiffs’ investments, and the actual value
of the Pacific Fund’s investments was constant at all times regardless of Defendants’ representations
about them. Thus, Plaintiffs’ claims arguably could be seen as direct claims on their face and fall
outside the Barger analysis altogether. Nevertheless, in light of the similarity of the relevant operative
facts in this case to those in Howell, the Court finds that the special duty exception has been met,
assuming for these purposes that an injury to the Pacific Fund has been sustained.
B. Securities Fraud
{32} The North Carolina Securities Act (“NCSA”) imposes primary and secondary
liability for fraudulent conduct in the sale of securities.4 Plaintiffs seek summary
judgment against all Defendants on their NCSA claims. Defendants Lackey and
Saldarini have moved for summary judgment seeking dismissal of Plaintiffs’ NCSA
claims against them.
{33} Plaintiffs contend that each Defendant is primarily liable under the NCSA
for Plaintiffs’ losses. Through N.C.G.S. §§ 78A-56(a)(1) and 78A-56(a)(2), the NCSA
“delineates two different pathways to primary liability.” NNN Durham Office
Portfolio 1, LLC v. Highwoods Realty Ltd. P’ship, 2013 NCBC 12 ¶ 51 (N.C. Super.
Ct. Feb. 19, 2013), www.ncbusinesscourt.net/opinions/2013_NCBC_12.pdf (granting
defendants’ motions to dismiss in part). Plaintiffs seek to hold Defendants primarily
liable under § 78A-56(a)(2) here.5
{34} N.C.G.S. § 78A-56(a)(2) imposes primary civil liability upon “an offeror or
seller of a security who (1) makes any untrue statement of a material fact, or (2) fails
to state a material fact necessary for a statement which was made to not be
misleading.” NNN Durham Office Portfolio 1, LLC, 2013 NCBC 12 at ¶ 64. To avoid
primary liability, an offeror or seller must prove “he did not know, and in the exercise
of reasonable care could not have known[] of the truth or omission.” Id.; Latta v.
Rainey, 202 N.C. App. 587, 598, 689 S.E.2d 898, 908 (2010). Section 78A-56(a)(2)
“does not additionally require proof of scienter or justifiable reliance.” NNN Durham
Office Portfolio 1, LLC, 2013 NCBC 12 at ¶ 66.
{35} Plaintiffs further assert that Defendants Lackey and Saldarini are
secondarily liable under the NCSA. If Plaintiffs can prove that an offeror or seller
has primary liability under N.C.G.S. § 78A-56(a)(2), secondary liability will lie for

4 The parties agree that Plaintiffs’ investment in Pacific Fund constituted a sale of securities. (See
Pls.’ Br. Supp. Mot., p. 14; see also Defs.’ Br. Supp. Mot., p. 18.)

5 For purposes of Plaintiffs’ Motion, Atkinson’s primary liability claim under N.C.G.S. § 78A-56(a)(2)

is based on the DeBordieu investment opportunity only. Mitchell and O’Grady’s § 78A-56(a)(2) claims
are based on DeBordieu, as well as on Mariner’s Walk and Bulls Bay. (Pls.’ Br. Supp. Mot., p. 10.)
“[e]very person who directly or indirectly controls [that person], every partner, officer,
or director of the person, every person occupying a similar status or performing
similar functions, and every dealer or salesman who materially aids in the sale,”
unless that person proves that he “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.G.S. § 78A-56(c)(1) (2014).
{36} The Court takes Plaintiffs’ allegations under the NCSA against each
Defendant in turn.
i. Plaintiffs’ NCSA Claims against Mehler, Pacific Fund, and Pacific Capital
{37} Defendants do not dispute that Mehler and the Pacific Fund are offerors or
sellers of securities under the NCSA and therefore primarily liable for any
misrepresentations they made in the solicitation of Plaintiffs’ investments in the
Pacific Fund.
{38} Plaintiffs argue that Pacific Capital is also directly liable as an offeror or
seller because it was vested with “sole, full, exclusive and complete power and
authority to manage the affairs of the [Pacific Fund] and to perform any and all acts
on behalf of the [Pacific Fund] that [Pacific Capital] deem[ed] appropriate and
necessary.” (Pls.’ Br. Supp. Mot., p. 16.)
{39} It is undisputed that Mehler was authorized to manage and solicit
investments on behalf of the Pacific Fund by virtue of his management role in Pacific
Capital. It is also undisputed that Mehler was acting at all times within the scope of
the authority provided to him by Pacific Capital and that Mehler directly solicited
Plaintiffs’ investments in the Pacific Fund. See Overton v. Henderson, 28 N.C. App.
699, 701, 222 S.E.2d 724, 726 (1976) (“The principal is liable for the acts of his agent,
whether malicious or negligent . . . [the] test is whether the act was done within the
scope of his employment and in the prosecution and furtherance of the business which
was given him to do.”); Greensboro Hous. Auth. v. Kirkpatrick & Assocs., 56 N.C.
App. 400, 403, 289 S.E.2d 115, 117 (1982) (“The general rule is that a principal is
chargeable with, and bound by, the knowledge of or notice to his agent received while
the agent is acting as such within the scope of his authority extends, although the
agent does not in fact inform his principal thereof.”). Accordingly, the Court
concludes that Pacific Capital is an offeror or seller under the NCSA on the
undisputed evidence of record.
{40} Turning then to Plaintiffs’ contention that summary judgment is proper in
its favor against these Defendants, Plaintiffs contend that the undisputed evidence
shows that Mehler, Pacific Capital and the Pacific Fund made untrue statements of
material fact and failed to state material facts necessary for those statements to not
be misleading.
{41} In response, Pacific Capital and the Pacific Fund argue first that the
disclaimers and merger clauses contained in the PPM and the Subscription
Agreement preclude Plaintiffs as a matter of law from relying on representations
beyond the PPM as support for their primary liability claims against these
Defendants. The Court disagrees. “Where [as here] there is a claim for fraud in the
inducement, defenses based upon the fraudulently induced contract will not bar the
claim.” Tradewinds Airlines, Inc. v. C-S Aviation Servs., 733 S.E.2d 162, 169 (N.C.
Ct. App. 2012); see, e.g., Laundry Machinery Co. v. Skinner, 225 N.C. 285, 288–89,
34 S.E.2d 190, 192–93 (1945) (holding that parol evidence could be introduced in
contravention of an integration clause in a contract, where there was fraud in the
inducement, which “vitiates the contract”); see also Godfrey v. Res-Care, Inc., 165
N.C. App. 68, 77 fn. 1, 598 S.E.2d 396, 403 (2004) (stating that an alternative rule
“would leave swindlers free to extinguish their victims' remedies simply by sticking
in a bit of boilerplate”) (citations omitted).6 Accordingly, the Court concludes that the
PPM and the Subscription Agreement do not provide Pacific Capital and the Pacific
Fund a complete defense to Plaintiffs’ NCSA primary liability claim.
{42} Pacific Capital and the Pacific Fund next argue that summary judgment is
improper against them because, at the very minimum, there exist genuine issues of

6 To the extent Pacific Capital and the Pacific Fund argue that the disclaimers and merger clauses in

the PPM preclude Plaintiffs from contending that their reliance on any other representations was
justified, the Court notes that Plaintiffs need not prove justifiable reliance to prevail on their claim
under N.C.G.S. §78-56(a)(2). E.g., NNN Durham Office Portfolio 1, LLC, 2013 NCBC 12 at ¶¶ 66–68
(“Section 56(a)(2) does not additionally require proof of scienter or justifiable reliance.”).
material fact concerning whether Mehler, Pacific Capital or the Pacific Fund
misrepresented or concealed facts from Plaintiffs in soliciting their investments,
including facts relating to the nature of the Pacific Fund’s ownership interest in
DeBordieu and the security structure created for the Mariner’s Walk and Bulls Bay
investments. The Court agrees.
{43} First, as to the DeBordieu investment, Mehler denies that he made the oral
representations upon which Plaintiffs rely concerning the Pacific Fund’s ownership
of property in DeBordieu. Moreover, the PPM – which Plaintiffs acknowledge they
received after they received the February 2007 email and the Coastal Development
Fund memorandum – explained in detail the nature of the Pacific Fund’s investment
and the ownership structure of the DeBordieu property at issue and directly
contradicted the representations forming the basis of Plaintiffs’ claim. Accordingly,
the Court finds that there exist genuine issues of material fact concerning whether
Mehler, Pacific Capital and the Pacific Fund made actionable misstatements or
omissions regarding the DeBordieu investment to sustain a claim for primary liability
under N.C.G.S. § 78A-56(a)(2).
{44} Similarly, as to the Mariner’s Walk and Bulls Bay investments, the Court
finds that the various representations relied upon by Plaintiff – including the
statements in the February 2007 email and the Coastal Development Fund
memorandum to the effect that the Mariner’s Walk and Bulls Bay investments were
“secured” – are susceptible to differing interpretations as demonstrated by
Defendants’ evidence7 and do not allow the Court to conclude as a matter of law that
Mehler, Pacific Capital or the Pacific Fund made a misrepresentation or concealed a
material fact in the sale of securities in connection with these two investments.

7 For example, while it is undisputed that the Pacific Fund did not make a secured loan in connection

with either the Mariner’s Walk or Bulls Bay properties, the evidence shows that the Pacific Fund
invested funds in different partnerships that loaned funds to the developers of these projects, secured
on each occasion by the assets of the developer and/or by the developer’s personal guarantees. The
Court concludes that it is for a jury to determine whether Defendants’ statements, in context,
constituted misrepresentations or omissions of material facts.
{45} For each of these reasons, therefore, the Court denies Plaintiffs’ motion for
summary judgment on their claims against Mehler, Pacific Capital and the Pacific
Fund under N.C.G.S. § 78A-56(a)(2).
ii. Plaintiffs’ NCSA Claims against Lackey and Saldarini
a. Primary Liability
{46} Lackey and Saldarini contest primary liability under the NCSA, contending
that Plaintiffs have not shown that Lackey and Saldarini (1) sold or offered to sell
securities to Plaintiffs; (2) made false statements to Plaintiffs; or (3) omitted a
material fact to Plaintiffs.
{47} The NCSA defines “offer” and “offer to sell” to encompass “every attempt or
offer to dispose of, or solicitation of an offer to buy, a security or interest in a security
for value.” N.C.G.S. § 78A-2(8)(b) (2014). Ownership of a security is not required to
qualify as an offeror or seller of the security under the NCSA. See, e.g., Skoog v.
Harbert Private Equity Fund II, LLC, 2013 NCBC 17 ¶ 22 (N.C. Super. Ct. Mar. 25,
2013), www.ncbusinesscourt.net/opinions/2013_NCBC_17.pdf (extending primary
liability to a person who was not the owner of the security sold).
{48} The North Carolina courts “place[] great emphasis on the solicitation of the
buyer as the ‘most critical stage of the selling transaction’” in determining who is an
offeror or seller of securities. Id.; see State v. Williams, 98 N.C. App. 274, 281, 390
S.E.2d 746, 750 (1990) (holding that defendant who did not participate in an offer or
sale was not an offeror or seller under the NCSA).
{49} Based on its review of the undisputed evidence of record here, the Court
finds that neither Lackey nor Saldarini ever sold or offered to sell securities to
Plaintiffs as those terms are defined under N.C.G.S. § 78A-2(8)(b). Not only do
Plaintiffs admit that all of the information they received concerning the Pacific Fund
prior to making their investments was provided by Mehler, but Plaintiffs also
acknowledge that they did not receive any oral representations from, or have direct
contact with, either Lackey or Saldarini until after they made their Pacific Fund
investments and Mehler had departed from Pacific Capital. Plaintiffs point to
various facts – for example, that Plaintiffs received emails from Mehler with Lackey’s
and Saldarini’s names in the signature block with a request to contact “us” – to
support its contentions, but Plaintiffs have not identified any evidence showing that
Lackey or Saldarini took any action to create, distribute or authorize for distribution
any materials that were received by Plaintiffs prior to their investments. (Pls.’ Br.
Supp. Mot., Exs. A–C.)
{50} Indeed, the only evidence that Lackey and Saldarini arguably made any
representations to Plaintiffs arises from Lackey’s and Saldarini’s acknowledgements
that they had an opportunity to review the PPM prior to its dissemination to
Plaintiffs. The Court concludes, however, that Plaintiffs have failed to show that the
PPM contains any false or misleading material information concerning the Pacific
Fund’s actual or anticipated investments and, hence, primary liability under
N.C.G.S. § 78A-56(a)(2) cannot attach to Lackey and Saldarini based on their pre-
dissemination review of that document.8
{51} Accordingly, because Plaintiffs have not brought forward any evidence that
Lackey or Saldarini solicited Plaintiffs’ Pacific Fund investments or misrepresented
or omitted a material fact regarding those investments, the Court concludes that
Lackey and Saldarini do not have primary liability for Plaintiffs’ losses under the
NCSA as a matter of law and that therefore Plaintiffs’ claims against them on this
theory should be dismissed.
b. Secondary Liability
{52} Lackey and Saldarini deny secondary liability under the NCSA and contend
that Plaintiffs’ claims fail because (1) Plaintiffs have not properly alleged a secondary
liability claim under § 78A-56(c)(1); (2) Lackey and Saldarini are not “control persons”
of the Pacific Fund within the meaning of the NCSA; and (3) Lackey and Saldarini
did not know, and in the exercise of reasonable care could not have known, of Mehler’s

8 Plaintiffs put great emphasis on a single statement in the PPM that the Pacific Fund “portfolio holds
$2MM worth of investments to date,” including “$1MM in DeBordieu Colony,” as evidence of
Defendants’ misrepresentations regarding the DeBordieu investment. In light of the expansive and
detailed description of the DeBordieu investment opportunity elsewhere in the PPM (Pls.’ Br. Supp.
Mot., Ex. M, p. 12), however, the Court concludes that Plaintiffs have shown, at most, an inconsistency
within the PPM, not an actionable misrepresentation by any Defendant.
alleged misrepresentations, thus satisfying the affirmative defense permitted under
§ 78A-56(c)(1).
{53} The Business Court (Gale, J.) has set out the standard for pleading a claim
for secondary liability under the NCSA:
In sum, to state a cause of action for secondary liability under § 56(c)(1),
in addition to proof of primary liability, a plaintiff must plead that the
defendant fits within the category of persons specified in § 56(c)(1). In
those actions, the defendant may escape liability through an affirmative
defense based on lack of knowledge.
NNN Durham Office Portfolio 1, LLC, 2013 NCBC 12 at ¶ 80.
{54} In paragraphs 17 and 18 of the Complaint, Plaintiffs allege Lackey and
Saldarini “were listed, and held themselves out as, [Pacific Capital’s] member and
principals,” and that Pacific Capital was the Pacific Fund’s “founder and organizer,
and received management fees from the [Pacific Fund].” (Compl. ¶¶ 17–18.)
Plaintiffs further allege that Lackey and Saldarini were agents of Pacific Capital
and/or the Pacific Fund (Compl. ¶ 117), contend that Pacific Capital and the Pacific
Fund made false representations and concealed material facts with the intent to
deceive Plaintiffs “under the direction” of Lackey and Saldarini (Compl. ¶ 136), allege
claims of primary liability against the corporate Defendants for their alleged
misrepresentations and omissions, and generally allege, as against all Defendants,
including Lackey and Saldarini, and without specifying whether they claim through
primary or secondary liability, that “[Plaintiffs] are entitled to recover the investment
amount paid for the securities, together with interest, costs and attorneys’ fees as
allowed by law under N.C. Gen. Stat. § 78A-56.” (See Compl. ¶¶ 115–22).
{55} When liberally construed in light of controlling North Carolina precedent,
the Court concludes that the Complaint broadly but adequately alleges that Lackey
and Saldarini directly or indirectly controlled Pacific Capital and the Pacific Fund
and put Defendants on notice of Plaintiffs’ claim for secondary liability against
Lackey and Saldarini under N.C.G.S. § 78A-56(c)(1).9 See, e.g., Stanback v. Stanback,

9 Indeed, Lackey and Saldarini appear to have been sufficiently on notice of Plaintiffs’ secondary

liability claim to advance the statutory affirmative defense to that claim in moving for summary
judgment, asserting that “[t]here is no evidence that the Individual Defendants knew, or in the
297 N.C. 181, 202, 254 S.E.2d 611, 625 (1979) (“when the allegations in the complaint
give sufficient notice of the wrong complained of an incorrect choice of legal theory
should not result in dismissal of the claim if the allegations are sufficient to state a
claim under some legal theory”); North Carolina State Ports Authority v. Lloyd A.
Fry Roofing Co., 32 N.C. App. 400, 232 S.E.2d 846 (1977) (holding court may grant
any relief to which a party is entitled, regardless of whether it has been demanded in
the pleadings; “it is not a crucial error to demand the wrong relief”), affirmed, 294
N.C. 73, 240 S.E.2d 345 (1978); Dixon v. Stuart, 85 N.C. App. 338, 340, 354 S.E.2d
757, 758 (1987) (“In analyzing the sufficiency of the complaint, the complaint must
be liberally construed.”); see also, e.g., Ellison v. Ramos, 130 N.C. App. 389, 395, 502
S.E.2d 891, 895 (1998) (“[T]he policy behind notice pleading is to resolve controversies
on the merits, after an opportunity for discovery, instead of resolving them based on
the technicalities of pleading.”); Haynie v. Cobb, 207 N.C. App. 143, 148–49, 698
S.E.2d 194, 198 (2010) (“Pleadings should be construed liberally and are sufficient if
they give notice of the events and transactions and allow the adverse party to
understand the nature of the claim and to prepare for trial.”) (quotations and citations
omitted).
{56} Having concluded that Plaintiffs put Defendants on notice of their claim for
secondary liability, the Court next addresses whether secondary liability has either
been established as a matter of law as Plaintiffs contend, or defeated as a matter of
law as Lackey and Saldarini contend.
{57} For secondary liability to obtain, Plaintiffs must first show that Lackey and
Saldarini (1) directly or indirectly controlled a person or entity (2) who has made a
misrepresentation or concealed a material fact in the sale of securities (i.e., were
“control persons”). See N.C.G.S. § 78A-56(c)(1). Once Plaintiffs make this showing,
Lackey and Saldarini may prevail under N.C.G.S. § 78A-56(c)(1) if they can establish
that they did not know, and in the exercise of reasonable care could not have known,
of Mehler’s alleged misrepresentations.

exercise of reasonable care could have known that Mehler made private oral misrepresentations to
Plaintiffs about anything.” (Defs.’ Br. Supp. Mot., p. 13–14 (citing N.C.G.S. § 78A-56(c)(1)).)
{58} As to the issue of control, Lackey and Saldarini maintain that they are not
control persons within the meaning of the NCSA because Pacific Capital – not Lackey
or Saldarini in their individual capacities – is the manager of Pacific Fund and thus
the person or entity that “controlled” Pacific Fund for purposes of secondary liability
analysis under N.C.G.S. § 78A-56(c).
{59} Because there are few North Carolina state court decisions interpreting the
“control person” standard under the NCSA, the Court looks to the “analogous federal
control person liability statutes, such as 15 U.S.C. § 77o, when interpreting § 78A-
56(c).” NNN Durham Office Portfolio 1, LLC, 2013 NCBC 12 at ¶ 70 (citing Hunt v.
Miller, 908 F.2d 1210, 1214 fn.5 (4th Cir. 1990)).
{60} Federal courts often invoke a two-part test to determine control person
liability under Section 77o. Under this test, “[f]irst, the ‘control person’ needs to have
actually exercised general control over the operations of the wrongdoer, and second,
the control person must have had the power or ability – even if not exercised – to
control the specific transaction or activity that is alleged to give rise to liability.”
Donohoe v. Consolidated Operating & Prod. Corp., 30 F.3d 907, 911–912 (7th Cir.
1994); see, e.g., In re Microstrategy Securities Litigation, 115 F. Supp. 2d 620, 661
(E.D. Va. 2000) (“A plaintiff satisfies the control requirement . . . by pleading facts
showing that the controlling defendant ‘had the power to control the general affairs
of the entity primarily liable at the time the entity violated the securities laws . . .
[and] had the requisite power to directly or indirectly control or influence the specific
corporate policy which resulted in the primary liability.’”). As one federal court has
noted, “[i]n the securities context, control means ‘the possession, direct or indirect, of
the power to direct or to cause the direction of the management and policies of [an
entity], whether through the ownership of voting securities, by contract, or
otherwise.’” Sheinkopf v. Stone, 927 F.2d 1259, 1270 (1st Cir. 1991); see also Index
Fund, Inc. v. Hagopian, 609 F. Supp. 499, 511 (S.D.N.Y. 1985) (“Congress enacted the
control provisions in order to impose liability on parties ‘who are in some meaningful
sense culpable participants in the fraud perpetrated by controlled persons.’”) (quoting
Lanza v. Drexel, 479 F.2d 1277, 1299 (2nd Cir. 1973)).
{61} The Fourth Circuit has adopted a nearly identical test to analyze control
person liability under another federal statute governing sellers of securities, 15
U.S.C. § 78t(a). See, e.g., Waterford Inv. Servs. v. Bosco, 682 F.3d 348, 354 (4th Cir.
2012) (“In determining ‘whether a defendant possessed the requisite control,’ in that
context, a court gives ‘heavy consideration to the power or potential power to
influence and control the activities of a person, as opposed to the actual exercise
thereof.’”). The Fourth Circuit has also observed that “[t]he controlling persons
provisions contain a state-of-mind condition that requires a showing of something
more than negligence to establish liability.” Carpenter v. Harris, Upham & Co., 594
F.2d 388, 394 (4th Cir. 1979) (discussing 15 U.S.C. § 77o and 20 U.S.C. § 78t(a)).
{62} Relying upon these principles from federal law to interpret N.C.G.S. § 78A-
56(c) here, the Court concludes that there exist genuine issues of material fact
concerning whether Lackey and Saldarini directly or indirectly controlled the Pacific
Fund for purposes of secondary liability analysis. Although Lackey and Saldarini
point to evidence that prior to Mehler’s departure in 2009, he had nearly sole
responsibility for monitoring investor communications and managing the day-to-day
operations of the Pacific Fund, all with little or no input from Lackey and Saldarini
(Pls.’ Br. Supp. Mot., Ex. E; Defs.’ Br. Supp. Mot., p. 3), and further that they did not
solicit Plaintiffs to induce their investments, Plaintiffs advance contrary evidence
suggesting, inter alia, that Lackey and Saldarini actively promoted the Pacific Fund
to other investors, held meetings with Mehler concerning the Pacific Fund and its
investments, reviewed and approved the PPM before it was finalized, were listed as
two of the “principal members” of the Pacific Fund’s manager (i.e., Pacific Capital) in
the Pacific Fund’s Operating Agreement (Pls.’ Br. Supp. Mot., Ex. M),10 and retained
authority to, and allegedly took actions from time to time to, control and direct Pacific
Capital in its activities as manager of the Pacific Fund. (Pls.’ Br. Supp. Mot., Ex. F.)
As such, the Court cannot determine on the current record that Lackey and Saldarini

10 The Operating Agreement states that “The principal members of the Manager, Scott Mehler, Mac

Lackey and Ross Saldarini (“Principals”) shall constitute the individuals with management authority
for all purposes under the Act and other applicable law.” (Pls.’ Br. Supp. Mot., Ex. M, p. 61.)
either controlled, or did not control, the Pacific Fund as a matter of law under
N.C.G.S. § 78A-56(c).
{63} In addition, even if Lackey and Saldarini “controlled” Pacific Capital and
the Pacific Fund for purposes of the NCSA, the Court’s earlier conclusion that
genuine issues of material fact exist concerning whether Pacific Capital or the Pacific
Fund misrepresented or concealed material facts from Plaintiffs concerning
DeBordieu, Mariner’s Walk and Bulls Bay in soliciting their investments precludes
summary judgment for Plaintiffs on a secondary liability theory.
{64} Regardless of the foregoing, however, Lackey and Saldarini can avoid
secondary liability under § 78A-56(c) if they can establish as a matter of law that they
did not know, and in the exercise of reasonable care could not have known, of Mehler’s
alleged misrepresentations. In support, Lackey and Saldarini argue that they did
not prepare, review or disseminate any of the written materials about which
Plaintiffs complain and were not aware and did not approve Mehler’s alleged oral
misrepresentations and omissions concerning DeBordieu. Plaintiffs contend for their
part that because Lackey and Saldarini, as managers of Pacific Capital, had the
power to cause Pacific Capital to demand inspection of “[i]nformation from which the
status of the business and the financial condition of the LLC may be ascertained”
under N.C.G.S. § 57D-3-04, Lackey and Saldarini could have known of Mehler’s
misrepresentations in the exercise of reasonable care as a matter of law, thus
defeating the affirmative defense. Plaintiffs also argue that Lackey and Saldarini had
regular and frequent contact with Mehler concerning the Pacific Fund investments
and emphasize that their names appeared on various Pacific Fund investment
documents, all of which Plaintiffs contend establish that these Defendants should
have known of the alleged misrepresentations and omissions that form the basis of
Plaintiffs’ claim.
{65} Based upon its review of the conflicting evidence of record, the Court finds
that there exists a genuine issue of material fact as to whether Lackey and Saldarini
knew, or in the exercise of reasonable care could have known, of Mehler’s alleged
misrepresentations concerning the DeBordieu, Mariner’s Walk and Bulls Bay
investments. See, e.g., Ballenger v. Crowell, 38 N.C. App. 50, 60, 247 S.E.2d 287,
294-295, (1978) (holding that where there is “conflicting evidence relating to whether
[a party] knew or should have known” of a material fact was “a question for the jury
to decide”).
{66} Accordingly, based on the above, the Court concludes that summary
judgment, either for Plaintiffs or for Lackey and Saldarini, is not proper on Plaintiffs’
secondary liability claim against these Defendants.
C. Breach of Fiduciary Duty
{67} Plaintiffs seek entry of judgment against all Defendants on their breach of
fiduciary duty claim. At the same time, Defendants Lackey and Saldarini seek
summary judgment dismissing Plaintiffs’ breach of fiduciary duty claim against
them.
{68} To establish a claim for breach of fiduciary duty, “there must first exist a
fiduciary relationship between the parties.” Dalton v. Camp, 353 N.C. 647, 651, 548
S.E.2d 704, 707 (2001) (citations omitted). A fiduciary duty is “generally described
as arising when ‘there has been a special confidence reposed in one who in equity and
good conscience is bound to act in good faith and with due regard to the interest of
the one reposing confidence.’” Dallaire v. Bank of Am., N.A., 367 N.C. 363, 367, 760
S.E.2d 263, 266 (2014). A fiduciary duty exists where “a fiduciary relationship exists
in fact, and in which there is confidence reposed on one side, and resulting domination
and influence on the other.” Dalton, 353 N.C. at 651–52, 548 S.E.2d at 707–08
(citation omitted) (internal quotation marks and emphasis omitted).
{69} Under the North Carolina Limited Liability Company Act, N.C. Gen. Stat.
§ 57C-1-01 et seq., members of an LLC are treated like corporate shareholders and
do not owe fiduciary duties to other members or the company. Kaplan v. O.K. Techs.,
LLC, 196 N.C. App. 469, 473, 675 S.E.2d 133, 137 (2009). A manager of an LLC,
however, shall “discharge his duties as manager in good faith, with the care an
ordinary prudent person in a like position would exercise under similar
circumstances, and in the manner the manager reasonably believes to be in the best
interests of the [LLC].” BOGNC, LLC v. Cornelius NC Self-Storage, LLC, 2013 NCBC
26 ¶ 104 (N.C. Super. Ct. May 1, 2013),
http://www.ncbusinesscourt.net/opinions/2013_NCBC_26.pdf. These fiduciary duties
“are owed by the manager to the company, rather than to other managers.” Kaplan,
196 N.C. App. at 474, 675 S.E.2d at 137.
{70} Plaintiffs contend that Defendants breached their fiduciary duty to
Plaintiffs by failing to advise them of the true nature of the Pacific Fund’s DeBordieu,
Mariner’s Walk and Bulls Bay investments, thereby causing Plaintiffs to invest in
the Pacific Fund and lose the value of their investments.
{71} Turning first to Mehler, Pacific Capital, and the Pacific Fund, the Court
concludes that summary judgment is improper in light of the Court’s earlier
conclusion that a genuine issue of material fact exists concerning whether Mehler
made a material misstatement or omission that induced Plaintiffs to make their
investments in the Pacific Fund. Accordingly, Plaintiffs’ Motion on this claim is
denied as to Mehler, Pacific Capital, and the Pacific Fund.
{72} As to Lackey and Saldarini, however, the Court concludes that there is no
evidence of record that suggests that either of these Defendants owed a fiduciary duty
to Plaintiffs. These Defendants did not owe Plaintiffs a fiduciary duty due to their
status as managers of Pacific Capital. See, e.g., Kaplan, 196 N.C. App. at 474, 675
S.E.2d at 137 (LLC manager’s fiduciary duties “owed to the company, rather than to
other managers”). None of the contractual documents Plaintiffs entered with any of
the Defendants created a fiduciary duty running from these Defendants; to the
contrary, these documents expressly disavowed the creation of any fiduciary duty.11
Plaintiffs point to no other source for the existence of a fiduciary duty under the law.
See, e.g., Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906–07 (1931). (“A
fiduciary relationship can be either de jure, in which the fiduciary relationship arises
as a matter of law from the legal nature of the relationship, or de facto, where the
fiduciary relationship arises from the particular circumstances of the relationship
between the parties.”). Further, there is no evidence of a pre-investment

11 See supra, fn. 1.
misrepresentation by either Lackey or Saldarini that could create a “special duty” to
Plaintiffs as found in Howell. Accordingly, the Court determines that Lackey and
Saldarini did not owe Plaintiffs a fiduciary duty on the undisputed facts of record
here.12 For each of these reasons, therefore, the Court concludes that summary
judgment dismissing Plaintiffs’ breach of fiduciary duty claims against Lackey and
Saldarini is proper.
D. Common Law Fraud
{73} Lackey and Saldarini seek summary judgment on Plaintiffs’ fraud claim.13
{74} “‘The essential elements of fraud [in the inducement] are: (1) [f]alse
representation or concealment of a material fact, (2) reasonably calculated to deceive,
(3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage
to the injured party.’” Tradewinds Airlines, Inc., 733 S.E.2d at 168 (N.C. Ct. App.
2012) (citation omitted). A misrepresentation or omission is “material” if, had it been
known to the party, it would have influenced the party’s judgment or decision to
act. Godfrey, 165 N.C. App. at 75–76, 598 S.E.2d at 402. In addition, “[j]ustifiable
reliance is an essential element of . . . fraud . . . .” Helms v. Holland, 124 N.C. App.
629, 635, 478 S.E.2d 513, 517 (1996).
{75} For the reasons set forth above in connection with Plaintiffs’ NCSA claim
against these Defendants, the Court finds that Plaintiffs have not brought forward
any evidence that Lackey or Saldarini fraudulently solicited Plaintiffs’ Pacific Fund
investments. To the contrary, there is no evidence of record that Lackey and
Saldarini actively solicited Plaintiffs’ investments in the Pacific Fund, and the Court
has previously concluded that the PPM, the only document arguably disseminated by
Lackey and Saldarini prior to Plaintiffs’ investments were made, is not false or
misleading.

12 In addition, even if Lackey and Saldarini were deemed to owe Plaintiffs a fiduciary duty, the Court’s

earlier conclusion that Plaintiffs have not brought forward evidence to show that either of these
Defendants made any misrepresentations to Plaintiffs would likewise defeat Plaintiffs’ claim for
breach of fiduciary duty against these Defendants as a matter of law.

13 Plaintiffs do not seek summary judgment on their fraud claim against any Defendant.
{76} Moreover, Plaintiffs have failed to show that they justifiably relied on any
alleged misrepresentations or omissions by Lackey and Saldarini. See, e.g., Forbis v.
Neal, 361 N.C. 519, 527, 649 S.E.2d 382, 387 (2007) (“[A]ny reliance on the allegedly
false representations must be reasonable”). Indeed, the information disclosed in the
PPM concerning the Pacific Fund investments, which Plaintiffs received after the
alleged misconduct and before they made their investments, plainly contradicted the
alleged misrepresentations and omissions about which Plaintiffs complain. Yet the
evidence is undisputed that Plaintiffs failed to make further inquiry, despite the
expansive, all caps, bold disclaimers in the PPM advising Plaintiffs that no person
had been authorized to make any representations other than as contained in the
PPM.14
{77} Our courts have concluded that “[r]eliance is not reasonable where the
plaintiff could have discovered the truth of the matter through reasonable diligence,
but failed to investigate; or if the plaintiff was informed of the true condition of the

14 Among other provisions, the PPM stated:

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO
MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM. STATEMENTS IN THIS
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM ARE MADE AS OF THE DATE
OF THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, UNLESS STATED
OTHERWISE HEREIN, AND NEITHER THE DELIVERY OF THIS CONFIDENTIAL
PRIVATE PLACEMENT MEMORANDUM AT ANY TIME, NOR ANY SALE HEREUNDER,
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
SUCH DATE . . . . PRIOR TO THE FINAL CLOSING OF THE COMPANY, THE
MANAGERRESERVES (sic) THE RIGHT TO MODIFY THE TERMS OF THE OFFERING
AND THE LIMITED LIABILITY COMPANYINTERESTS (sic) DESCRIBED HEREIN.
***
IN THE SUBSCRIPTION DOCUMENTS, PROSPECTIVE INVESTORS WILL BE
REQUIRED TO REPRESENT AND WARRANT THAT IN MAKING THEIR INVESTMENT
DECISION, THEY HAVE RELIED SOLELY UPON THE INFORMATION CONTAINED IN
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, INCLUDING THE
INFORMATION IN THE AGREEMENT OF LIMITED LIABILITY COMPANYAND (sic) THE
SUBSCRIPTION DOCUMENTS AND NOT ON ANY ADDITIONAL OR DIFFERING
INFORMATION THAT SUCH PROSPECTIVE INVESTOR MAY HAVE DEVELOPED IN
UNDERTAKING THEIR OWN DUE DILIGENCE.

(Def. Br. Supp. Mot., p. 3–4; Pls.’ Br. Supp. Mot., Ex. M.) (emphasis in original).
subject matter.” L’Heureux Enters., Inc. v. Port City Java, Inc., 2009 NCBC 24 ¶ 37
(N.C. Super. Ct. Sept. 4, 2009),
www.ncbusinesscourt.net/opinions/2009_NCBC_24.pdf (granting summary
judgment); see also Calloway v. Wyatt, 246 N.C. 129, 134–35, 97 S.E.2d 881, 885–86
(1957); Sullivan v. Mebane Packaging Grp., Inc., 158 N.C. App., 19, 26, 581 S.E.2d
452, 458 (2003).
{78} As a result, the Court concludes that Plaintiffs have failed to bring forward
evidence from which a jury could reasonably conclude that this essential element of
Plaintiffs’ fraud claim has been established. See, e.g., Hit Prods. Corp. v. Anchor Fin.
Corp., 2000 U.S. App. LEXIS 11982, *6–*8 (4th Cir., May 31, 2000) (dismissing fraud
claim where plaintiff knew of discrepancies and relied without further investigation);
Foremost Guaranty Corp. v. Meritor Sav. Bank, 910 F.2d 118, 126 (4th Cir. 1990)
(“[T]here could be no reasonable reliance on . . . oral statements in the face of plainly
contradictory contractual language.”); Myers v. Finkle, 950 F.2d 165, 167 (4th Cir.
1991) (“Investors are charged with constructive knowledge of the risks and warnings
contained in the private placement memoranda.”); Caper Corp v. Wells Fargo Bank,
N.A., 578 Fed. Appx. 276, 281 (4th Cir., July 17, 2014) (unpublished) (citing Dallaire,
367 N.C. at 369, 760 S.E.2d at 267 (“A plaintiff . . . ‘cannot establish justified reliance
. . . if [it] fails to make reasonable inquiry regarding the alleged statement.’”)).
{79} For each of these reasons, the Court concludes that Plaintiffs’ fraud claim
against Lackey and Saldarini should be dismissed.15

15 Plaintiffs have not pled but contend for the first time in their motion for summary judgment that

Lackey and Saldarini committed fraud by disseminating inaccurate investor updates after Plaintiffs
made their investments. (Pls.’ Br. Supp. Mot., Exs. K–L.) The Court declines to consider these late-
asserted arguments, particularly given that Plaintiffs did not plead any factual allegations regarding
the investor updates and have not sought to amend the Complaint to assert this new theory of fraud.
See, e.g., Isenhour v. Universal Underwriters Ins. Co., 345 N.C. 151, 154, 478 S.E.2d 197, 199 (1996)
(“Undue delay is a proper reason for denying a motion to amend a pleading.”); Wall v. Fry, 162 N.C.
App. 73, 80, 590 S.E.2d 283, 287 (2004) (“A ruling on a motion to amend a pleading following the time
allowed for amending pleadings as a matter of course is left to the sound discretion of the trial court.”).
E. Constructive Fraud
{80} Plaintiffs seek summary judgment against all Defendants on their claim for
constructive fraud. Lackey and Saldarini seek summary judgment dismissing
Plaintiffs’ claim against them for constructive fraud.
{81} Constructive fraud “arises where a confidential or fiduciary relationship
exists, which has led up to and surrounded the consummation of the transaction in
which [a] defendant is alleged to have taken advantage of his position of trust to the
hurt of the plaintiff.” Forbis v. Neal, 361 N.C. 519, 528, 649 S.E.2d 382, 388 (2007).
Further, “[w]hen . . . [a] superior party obtains a possible benefit through the alleged
abuse of [a] confidential or fiduciary relationship, the aggrieved party is entitled to a
presumption that constructive fraud occurred.” Id. at 529, 649 S.E.2d at 388. The
superior party can rebut this presumption by showing that no fraud occurred.
Hajmm Co. v. House of Raeford Farms, Inc., 94 N.C. App. 1, 12, 379 S.E.3d 868, 874
(1989), reversed in part on other grounds, 328 N.C. 578, 403 S.E.2d 483 (1991);
Gerringer v. Pfaff, 738 S.E.2d 453, *6 (N.C. Ct. App., Feb. 19, 2013) (unpublished)
(“Thus, when a plaintiff alleges constructive fraud and a defendant files a motion for
summary judgment, the defendant, as the moving party, bears the burden of
establishing, as an affirmative defense, that he dealt fairly with the plaintiff.”).
{82} Accordingly, because the Court has found that Lackey and Saldarini did not
owe Plaintiffs a fiduciary duty, Plaintiffs’ claim for constructive fraud against these
Defendants necessarily fails.
{83} In addition, North Carolina courts have consistently held that payment of a
fee for work cannot serve as the basis for a claim of constructive fraud. See
NationsBank of N.C. v. Parker, 140 N.C. App. 106, 114, 535 S.E.2d 597, 602 (2000)
(holding that “payment of a fee to a defendant for work done by that defendant does
not by itself constitute sufficient evidence that the defendant sought his own
advantage”); see also Clay v. Monroe, 189 N.C. App. 482, 488, 658 S.E.2d 532, 537
(2008) (requiring the plaintiff to allege “that the benefit sought was more than . . .
payment of a fee to a defendant for work it actually performed”).
{84} It is undisputed that the only benefit Plaintiffs claim Lackey and Saldarini
received from their alleged fraud is Pacific Capital’s receipt (and through Pacific
Capital, Lackey and Saldarini’s receipt) of management fees for the work performed
in managing the Pacific Fund. As such, Plaintiffs have not brought forward evidence
of a legally cognizable benefit to these Defendants under North Carolina law to
support their claim for constructive fraud. The Court therefore concludes that, for
this additional reason, Plaintiffs’ constructive fraud claim fails as a matter of law
against Lackey and Saldarini.
F. UDTPA
{85} Plaintiffs seek summary judgment against all Defendants on Plaintiffs’
claim for unfair and deceptive trade practices under N.C.G.S. § 75-1.1. Defendants
Lackey, Saldarini, Pacific Capital and the Pacific Fund seek summary judgment
dismissing Plaintiffs’ UDTPA claim against them.
{86} “A claim of unfair and deceptive trade practices under N.C.G.S. § 75-1.1 of
the North Carolina General Statutes requires proof of three elements: (1) an unfair
or deceptive act or practice, (2) in or affecting commerce, which (3) proximately caused
actual injury to the claimant.” Nucor Corp. v. Prudential Equity Grp., LLC, 189 N.C.
App. 731, 738, 659 S.E.2d 483, 488 (2008) (citation omitted). “‘A practice is unfair
when it offends established public policy as well as when the practice is immoral,
unethical, oppressive, unscrupulous, or substantially injurious to consumers,’ and a
‘practice is deceptive if it has the capacity or tendency to deceive.’” Bumpers v. Cmty.
Bank of Va., 367 N.C. 81, 91, 747 S.E.2d 220, 228 (2013). Securities transactions
arising under the NCSA are beyond the scope of N.C.G.S. § 75-1.1. Hajmm Co., 328
N.C. at 593, 403 S.E.2d at 492 (1991).
{87} Plaintiffs attempt to overcome the securities exception to the UDTPA by
arguing that their UDTPA claim is based solely on the facts supporting their
constructive fraud claim and not on their underlying purchase of securities. (Compl.
¶ 153.) Plaintiffs’ argument fails, however, for two reasons. First, the Court’s
dismissal of Plaintiffs’ constructive fraud claim necessitates, under Plaintiffs’ theory,
the dismissal of Plaintiffs’ UDTPA claim. And second, because the gravamen of
Plaintiffs’ constructive fraud claim, like their other claims, is that Defendants
fraudulently induced Plaintiffs to invest in securities, Plaintiffs’ UDTPA claim must
be dismissed. Hajmm Co., 328 N.C. at 593, 403 S.E.2d at 492. For each of these
reasons, therefore, Plaintiffs’ UDTPA claim fails as a matter of law against all
Defendants.
G. Statute of Limitations (Atkinson’s Remaining Claims)
{88} In addition to their other arguments, Defendants Lackey, Saldarini, Pacific
Capital and the Pacific Fund seek summary judgment on Atkinson’s claims for
securities fraud, fraud and breach of fiduciary duty based on the expiration of the
applicable statutes of limitations.16
{89} The statute of limitations for a securities fraud claim under the NCSA is
three years. Latta v. Rainey, 202 N.C. App. at 596, 689 S.E.2d at 906 (citing N.C.G.S.
§ 78A-56(f)). The NCSA provides that the three year statute of limitations runs from
the date “the person discovers facts constituting the violation.” Latta, 202 N.C. App.
at 596, 689 S.E.2d at 906.
{90} “An action for fraud accrues when the aggrieved party discovers the facts
constituting the fraud, or when, in the exercise of due diligence, such facts should
have been discovered.” Shepherd v. Shepherd, 57 N.C. App. 680, 682, 292 S.E.2d
169, 170 (1982) (citing Wilson v. Development Co., 276 N.C. 198, 171 S.E. 2d 873
(1970)). “[Where] the evidence is clear and shows without conflict that the claimant
had both the capacity and opportunity to discover the mistake or discrepancy but
failed to do so, the absence of reasonable diligence is established as a matter of law.”
Grubb Props., Inc. v. Simms Inv. Co., 101 N.C. App. 498, 501, 400 S.E.2d 85, 88
(1991).
{91} “Allegations of breach of fiduciary duty that do not rise to the level of
constructive fraud are governed by the three-year statute of limitations . . . .” Toomer
v. Branch Banking & Trust Co., 171 N.C. App. 58, 66, 614 S.E.2d 328, 335 (2005).

16 Defendants do not move to dismiss Atkinson’s claims for constructive fraud and violation of N.C.G.S.

§ 75-1.1 on statute of limitations grounds.
{92} The Court is required to calculate the running of the statutes of limitations
from the date Atkinson discovered facts that were materially different from the
alleged representations made to him.
{93} It is undisputed that in September 2008, Atkinson attended a meeting
convened by Mehler. (Pls.’ Br. Supp. Mot., Ex. G; Defs.’ Br. Supp. Mot., Ex. 3.)
Atkinson testified that he learned at that meeting that the Bulls Bay and Mariner’s
Walk investments were not secured or not adequately secured. Atkinson also
testified, however, that he did not, at that time, realize that the structures of the
Bulls Bay and Mariner’s Walk deals were inconsistent with the documents he had
reviewed prior to his investment. (Id.; Pls.’ Resp. Defs.’ Mot., p. 6.) Neither Mitchell
nor O’Grady attended the September 2008 meeting.
{94} “Whether a plaintiff has exercised due diligence is ordinarily an issue of
fact for the jury absent dispositive or conclusive evidence indicating neglect by the
plaintiff as a matter of law.” Ward v. Fogel, 2014 N.C. App. LEXIS 1248, *17–*19
(N.C. Ct. App., Dec. 2, 2014). Based on Atkinson’s admission that he discovered the
true security structure of Mariner’s Walk and Bulls Bay at the September 2008
meeting, however, the Court concludes that Atkinson was on notice at that time that
Defendants allegedly misrepresented or omitted material facts as to these
investments and should have then discovered the alleged fraud. Accordingly, the
Court concludes that the statute of limitations on Atkinson’s claims for securities
fraud, common law fraud and breach of fiduciary duty began to run at that time.
Given that there is no evidence that the DeBordieu investment was discussed at the
September 2008 meeting, however, the Court cannot conclude as a matter of law that
the new information about Mariner’s Walk and Bulls Bay was sufficient to put
Atkinson on notice that Defendants had allegedly misrepresented the true nature of
the Pacific Fund’s DeBordieu investment prior to that time.
{95} As a result, the Court concludes that the statute of limitations has run on
Atkinson’s claims for securities fraud, fraud and breach of fiduciary duty to the extent
those claims are based on alleged representations made in connection with the
Mariner’s Walk and Bulls Bay investments.17
V.
CONCLUSION
{96} Based on the foregoing, the Court DENIES Plaintiffs’ Motion for Partial
Summary Judgment and GRANTS in part and DENIES in part Defendants’ Motion
for Summary Judgment as set forth herein;
{97} Plaintiffs’ claims against Lackey, Saldarini, Mehler, the Pacific Fund, and
Pacific Capital under N.C.G.S. § 75-1.1 are hereby dismissed with prejudice;
{98} Plaintiffs’ claims against Lackey and Saldarini for fraud, breach of fiduciary
duty, constructive fraud, and primary liability for securities fraud under N.C.G.S. §
78A-56(a)(2) are hereby dismissed with prejudice;
{99} Atkinson’s claim for securities fraud against Mehler, the Pacific Fund, and
Pacific Capital for primary liability under N.C.G.S. § 78A-56(a)(2) based on the
Pacific Fund’s investments in Mariner’s Walk and Bulls Bay is hereby dismissed with
prejudice;
{100} Atkinson’s claim for securities fraud against Lackey and Saldarini for
secondary liability under N.C.G.S. § 78A-56(c)(1) based on the Pacific Fund’s
investments in Mariner’s Walk and Bulls Bay is hereby dismissed with prejudice;
{101} Atkinson’s claims for fraud and breach of fiduciary duty against Mehler, the
Pacific Fund, and Pacific Capital based on the Pacific Fund’s investments in
Mariner’s Walk and Bulls Bay are hereby dismissed with prejudice; and
{102} All other requested relief is DENIED.

SO ORDERED, this the 27th day of February 2015.

17 For the reasons set forth previously in this Order and Opinion, the Court dismisses Atkinson’s claims

against Lackey and Saldarini for fraud, breach of fiduciary duty, constructive fraud, and primary
liability under N.C.G.S. § 78A-56(a)(2).