Degorter v. Capitol Wealth, Inc.

DeGorter v. Capitol Wealth, Inc., 2016 NCBC 42.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MECKLENBURG 10 CVS 20825

DAVID J. DeGORTER,

Plaintiff,

v.
ORDER AND OPINION ON
CAPITOL WEALTH, INC. d/b/a/ CAPITOL
WEALTH ADVISORS, and CAPITOL DEFENDANT CAPITOL
NATIONAL BANK, N.A., WEALTH’S MOTION FOR
SUMMARY JUDGMENT
Defendants.

{1} THIS MATTER is before the Court upon Defendant Capitol Wealth, Inc.
d/b/a Capitol Wealth Advisors’ (“Capitol Wealth”) Motion for Summary Judgment
pursuant to Rule 56 of the North Carolina Rules of Civil Procedure (the “Motion”) in
the above-captioned case. After considering the Motion, the briefs in support of and
in opposition to the Motion, and the appropriate evidence of record, the Court
GRANTS the Motion and DISMISSES Plaintiff David J. deGorter’s (“deGorter”)
claims with prejudice.
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Jeffery E. Oleynik,
Clint S. Morse, and Benjamin R. Norman, and Jennifer K. Van Zant, for
Plaintiff David J. deGorter.

Smith Moore Leatherwood LLP, by Neale T. Johnson, Jonathan P. Heyl, and
William R. Forstner, for Defendant Capitol Wealth, Inc. d/b/a Capitol Wealth
Advisors.

Bledsoe, Judge.
I.
INTRODUCTION AND PROCEDURAL HISTORY
{2} This Motion is ripe for decision after a lengthy procedural history.
DeGorter initiated this lawsuit in 2010, originally asserting claims for (i) breach of
fiduciary duty against Capitol Bancorp Ltd. (“Capitol Bancorp”) and Capitol Wealth;
(ii) constructive fraud against Capitol Bancorp, Capitol Wealth, and Capitol National
Bank, N.A. (“Capitol National” and, collectively with Capitol Bancorp and Capitol
Wealth, the “Capitol Defendants”); (iii) negligent misrepresentation against all three
Capitol Defendants; and (iv) unfair and deceptive trade practices under N.C. Gen.
Stat. § 75-1.1 also against all three Capitol Defendants. This Court (Murphy, J.)
granted the Capitol Defendants’ Motion to Dismiss deGorter’s section 75-1.1 claim on
July 29, 2011, leaving deGorter’s claims for breach of fiduciary duty, constructive
fraud, and negligent misrepresentation to proceed to discovery.
{3} On January 19, 2012, the Capitol Defendants moved for summary judgment
on deGorter’s remaining claims, and Capitol National moved for summary judgment
on its counterclaim against deGorter.
{4} On August 9, 2012, before the Court ruled on the Capitol Defendants’
motion, Capitol Bancorp filed a Chapter 11 petition in the United States Bankruptcy
Court for the Eastern District of Michigan (the “Bankruptcy Case”). As a result, all
further proceedings in this case against Capitol Bancorp were stayed pursuant to the
automatic stay in bankruptcy under 11 U.S.C. § 362.
{5} On October 15, 2012, deGorter filed Proof of Claim No. 731 in the
Bankruptcy Case in the amount of $1.5 million (the “Proof of Claim”), attaching the
Complaint in this case as evidence of Capitol Bancorp’s alleged indebtedness. On
January 24, 2013, the Bankruptcy Court granted relief from the automatic stay to
allow deGorter to liquidate his Proof of Claim in this action.
{6} On January 17, 2014, the Bankruptcy Court confirmed Capitol Bancorp’s
Chapter 11 Plan (the “Plan”) and, pursuant to the Plan, appointed a liquidating
trustee over all of Capitol Bancorp’s assets. The Plan enjoined all creditors, including
deGorter, from pursuing any claims against Capitol Bancorp; thus, under the terms
of the confirmed Plan, deGorter could not proceed against Capitol Bancorp in this
Court, even though he had previously been granted relief from the automatic stay.
The Plan also established a deadline of July 31, 2014 for creditors and any party in
interest to object to deGorter’s Proof of Claim.
{7} On June 26, 2014, the Court (Murphy, J.) ruled, in part, on the Capitol
Defendants’ outstanding motion for summary judgment. Judge Murphy granted
summary judgment in favor of Capitol National on deGorter’s claims against Capitol
National, dismissing those claims with prejudice, and entered judgment on Capitol
National’s counterclaim against deGorter. Judge Murphy withheld ruling, however,
on deGorter’s claims against Capitol Bancorp and Capitol Wealth pending final
disposition of the Bankruptcy Case.
{8} Neither the liquidating trustee in the Bankruptcy Case, nor any of the
Capitol Defendants, filed an objection to deGorter’s Proof of Claim by the July 31,
2014 deadline for objections.
{9} On November 9, 2015, Capitol Bancorp filed a motion in the Bankruptcy
Case to enforce the Plan injunction, requesting the Bankruptcy Court to enter an
order requiring deGorter to dismiss his claims against Capitol Bancorp in this case
and allowing his claims against Capitol Wealth to proceed before this Court. On
November 16, 2015, deGorter filed a motion for declaration of approved claim and a
request for relief from the post-confirmation injunction in the Bankruptcy Case,
requesting the Bankruptcy Court to enter an order deeming his Proof of Claim as
allowed in the Bankruptcy Case and permitting deGorter to proceed against Capitol
Wealth in this current action.
{10} The matter came on for hearing before the Bankruptcy Court on December
15, 2015. At the hearing, the parties announced their agreement to a consent order.
The consent order, which was entered by the Bankruptcy Court on December 18, 2015
(the “Consent Order”), ordered that: (1) “Proof of Claim No. 731 for $1.5 million is
hereby allowed”; (2) “deGorter shall dismiss his claims against [Capitol Bancorp] in
[the Business Court action]”; (3) “[t]he assets of Capitol Wealth, Inc. are hereby
abandoned by the above bankruptcy estate”; and (4) Capitol Wealth is not covered by
the post-confirmation injunction contained in the confirmed plan.” (Capitol Wealth’s
Suppl. Br. Ex. D.)
{11} Thereafter, on December 22, 2015, this Court held a telephonic status
conference to discuss a plan for proceeding with adjudication of the present Motion
as brought by Capitol Wealth. As discussed at the December 22 status conference,
deGorter filed his Notice of Intent to Raise Res Judicata in connection with Capitol
Wealth’s Motion on January 15, 2016, and the Court permitted the parties to brief
the issue. DeGorter dismissed his claims against Capitol Bancorp on January 25,
2016.
{12} All briefing on the Motion has been completed. The Court held a hearing
on the Motion on March 1, 2016, and the Motion is now ripe for resolution.
II.
FACTUAL BACKGROUND
{13} The Court does not make findings of fact on motions for summary judgment
under Rule 56. See Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C. App. 138,
142, 215 S.E.2d 162, 164–65 (1975). Rather, the Court summarizes facts, noting both
the facts that it believes are undisputed and others that it believes are contested, in
order to provide context for the claims and the motion. Id. In ruling on a motion
under Rule 56, “the trial court must view all evidence in the light most favorable to
the non-movant, accepting the latter's asserted facts as true, and drawing all
reasonable inferences in its favor.” Anderson v. Demolition Dynamics, Inc., 136 N.C.
App. 603, 605, 525 S.E.2d 471, 472 (2000).
{14} DeGorter is the sole and managing member of deGorter Capital Partners,
LLC (“DCP”), an investment firm in the business of providing and securing funding
for start-up or purchased businesses. Capitol Wealth is in the business of selling
wealth management services and products and is owned, in part, by Capitol Bancorp.
{15} In August 2007, through a business contact at Forethought Financial
Group, Inc. (“FFG”), deGorter learned that FFG was seeking a buyer for Forethought
Federal Savings Bank (“FFSB”), a national trust savings bank that FFG owned.
(Hogan Dep. 19:7–19:25.) DeGorter contacted his friend and business associate, Bob
Hogan (“Hogan”), who was President and CEO of Capitol Wealth at the time, about
the possibility of a Capitol Bancorp entity acquiring FFSB (the “Proposed
Forethought Acquisition”). (Hogan Dep. 22:3–22:6.)
{16} On November 19, 2007, Capitol Bancorp and Capitol Wealth entered into a
Letter of Intent with FFG and FFSB relating to the Proposed Forethought
Acquisition (the “First LOI”). (Defs.’ Dep. Ex. 126.) The transaction was to be
structured such that Capitol Bancorp, Capitol Wealth, FFG, and certain other
shareholders of FFSB would form a new corporation, which would then acquire and
control FFSB. (Defs.’ Dep. Ex. 126.) Neither deGorter nor DCP was a party to the
First LOI. The closing of the Proposed Forethought Acquisition was subject to several
conditions, including the parties’ obtaining all regulatory approvals required to
consummate the deal. (Defs.’ Dep. Ex. 126.)
{17} On December 18, 2007, Capitol Bancorp and Capitol Wealth executed a
second Letter of Intent with FFG and FFSB; this time DCP was also a party (the
“Second LOI”). The Second LOI set forth conditions whereby DCP would contribute
cash to the proposed new corporation and receive in exchange shares of the proposed
new corporation. (Defs.’ Dep. Ex. 127.) As with the First LOI, the Second LOI
conditioned the consummation of the Proposed Forethought Acquisition on, among
other things, obtaining all necessary regulatory approvals. (Defs.’ Dep. Ex. 127.)
{18} Over the next couple of months, the parties further negotiated the structure
and terms of the Proposed Forethought Acquisition, and deGorter reviewed financial,
legal, and structural information regarding the deal and Capitol Bancorp. (DeGorter
Dep. 32:23–37:3.)
{19} On March 18, 2008, Capitol Wealth, DCP, FFSB, and FFG executed a
Contribution Agreement that set forth the material terms of the Proposed
Forethought Acquisition (the “Contribution Agreement”). Although Capitol Bancorp
was not originally a party to the Contribution Agreement, the parties executed an
Assignment and Assumption Agreement in May 2008 whereby Capitol Bancorp
received all of Capitol Wealth’s rights, interests, obligations, and liabilities under the
Contribution Agreement.
{20} Pursuant to the Contribution Agreement, DCP was to invest approximately
$2 million in exchange for a 24.6 percent interest in the new corporation. (Defs.’ Br.
Supp. Mot. Summ. J. Ex. A., hereafter “Contr. Agmt.”, § 2.3.) DeGorter, acting on
behalf of DCP, submitted an application to the federal Office of Thrift Supervision for
DCP’s proposed acquisition of shares in the new entity. (DeGorter Dep. 50:11–50:17;
Defs.’ Dep. Ex. 129.) Capitol Bancorp also submitted an application to its regulators.
(DeGorter Dep. 53:8–53:10.) According to deGorter, regulatory approval was the final
step needed before the Proposed Forethought Acquisition could be consummated.
(DeGorter Dep. 41:19–42:3.)
{21} On June 2, 2008, Capitol Bancorp responded to a Federal Reserve request
for information relating to the Proposed Forethought Acquisition and other proposed
investments. In this letter, Capitol Bancorp indicated that it had decided, in
December 2007, to suspend future development activity for the time being, but would
complete planned transactions, including the Proposed Forethought Acquisition.
(Pl.’s Br. Opp. Mot. Summ. J. Ex. 7.) Later that month, Capitol Bancorp withdrew
its application to the Federal Reserve, although, on June 19, Hogan advised FFG that
Capitol Bancorp continued to be committed to the Proposed Forethought Acquisition.
{22} DeGorter contends that in late June 2008, while regulatory approvals were
still pending, he learned from Hogan that federal regulators would approve the
Proposed Forethought Acquisition only if Capitol Bancorp successfully raised
additional capital through a securities offering (the “Securities Offering”). (DeGorter
Dep. 56:5–58:2.) DeGorter further alleges that Hogan told him that the Securities
Offering was undersubscribed and asked him to purchase shares in the Securities
Offering (“Trust Preferred Securities” or “Securities”) to help Capitol Bancorp obtain
the requisite regulatory approval for the Proposed Forethought Acquisition.
(DeGorter Dep. 56:5–58:14.) According to deGorter, Hogan offered, on behalf of
Capitol Bancorp, to finance the full purchase price of deGorter’s purchase of
Securities, (deGorter Dep. 87:23–88:5), and to “buy them back” after the Proposed
Forethought Acquisition was completed, (deGorter Dep. 95:2–95:20).
{23} During these discussions, Hogan provided deGorter a copy of the
preliminary prospectus for the offering of Trust Preferred Securities (the
“Prospectus”), which deGorter acknowledged that he reviewed. (DeGorter Dep.
58:15–58:23.) The Prospectus included multiple warnings and risk factors, including
that loan loss allowances may prove inadequate to absorb actual losses, reliance on
commercial real estate for collateral could cause substantial credit losses, loan
origination activities involved collateral evaluations risks, there existed the
possibility of an additional need for capital raising, and federal regulatory activities
could impact or limit operations. (Defs. Dep. Ex. 134 S-13–S-22.) Moreover, Capitol
Bancorp limited the guarantees associated with the Securities by only guaranteeing
distributions or redemptions under certain circumstances. (Defs.’ Dep. Ex. 134 S-20.)
Capitol Bancorp further disclosed that deferral of interest payments could affect the
market price of the Securities. (Defs.’ Dep. Ex. 134 S-21.)
{24} The Prospectus also stated that “[t]here can be no assurance as to the
market prices for the Trust Preferred Securities . . . ; therefore, the holders of the
Trust Preferred Securities may suffer a loss.” Further, the Prospectus warned that
the secondary market could be illiquid, and that there was no guarantee that a
purchaser would be able to sell the Securities at the price originally paid for them.
(Defs.’ Dep. Ex. 134 S-22.)
{25} In addition to reviewing the Prospectus, deGorter discussed the Securities
Offering with his personal investment advisor. (Defs.’ Br. Supp. Mot. Summ. J. Ex.
B.)
{26} On July 8, 2008, deGorter purchased 150,000 shares of Trust Preferred
Securities for a total investment of $1.5 million. (DeGorter Dep. 87:20–87:22; Defs.’
Dep. Ex. 135.) DeGorter used existing funds in his brokerage account to purchase
the Securities. (DeGorter Dep. 92:8–92:14.)
{27} The week before, on July 2, 2008, Capitol National had approved two
separate lines of credit for deGorter: (i) a $1,050,000 line of credit to be secured by
deGorter’s 150,000 shares of Trust Preferred Securities, and (ii) a $450,000 unsecured
line of credit. (Defs.’ Dep. Ex. 141.) The loan documents were signed by deGorter
and dated July 3, 2008. (Defs.’ Dep. Exs. 142, 144.) It is undisputed, however, that
deGorter did not draw on either line of credit until September 5, 2008, two months
after his purchase of Securities. (Defs.’ Dep. Ex. 148.) At the time deGorter drew on
the lines of credit, the Proposed Forethought Acquisition had not been finalized, and
deGorter had no obligation to contribute any capital to the Proposed Forethought
Acquisition. (DeGorter Dep. 134:7–134:11.)
{28} Ultimately, federal regulators did not approve the Proposed Forethought
Acquisition.
{29} Under the terms of the loan agreements, each line of credit was to mature
on July 3, 2009. (Defs.’ Dep. Exs. 142, 144.) It is undisputed that deGorter renewed
each line of credit, and, at the time deGorter renewed the lines of credit, the Proposed
Forethought Acquisition had been terminated, (deGorter Dep. 80:17–80:24), and
deGorter had not asked Capitol Bancorp to buy back his Securities, (deGorter Dep.
97:7–97:19).
{30} FFG formally terminated the Second LOI on January 9, 2009. DeGorter
did not ask Capitol Bancorp to “buy back” his Trust Preferred Securities at the time
the transaction was terminated and only first inquired about a possible buy back of
his now substantially devalued Securities in late 2009 or early 2010.
{31} Under the terms of the renewals for each loan, the $1,050,000 line of credit
matured on April 3, 2010, and the $450,000 line of credit matured on January 3, 2010.
(Defs.’ Dep. Exs. 134, 155.) DeGorter eventually fully satisfied the $450,000
obligation to Capitol National; he never repaid the $1,050,000 loan.
III.
LEGAL STANDARD
{32} Summary judgment is appropriate when 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.” N.C. R. Civ. P. 56(c). The moving party
has “the burden of showing there is no triable issue of material fact.” Farrelly v.
Hamilton Square, 199 N.C. App 541, 543, 459 S.E.2d 23, 25–26 (1995). The movant
may meet this burden “by showing either that: (1) an essential element of the non-
movant’s case is nonexistent; or (2) based upon discovery, the non-movant cannot
produce evidence to support an essential element of its claim; or (3) the movant
cannot surmount an affirmative defense which would bar the claim.” McKinnon v.
CV Indus., 213 N.C. App. 328, 332, 713 S.E.2d 495, 499 (2011) (citation omitted.) In
determining whether this burden has been met, the Court must view the evidence in
the light most favorable to the non-moving party and draw all reasonable inferences
in its favor. Whitley v. Cubberly, 24 N.C. App. 204, 206–07, 210 S.E.2d 289, 291
(1974). Our Supreme Court has observed that “summary judgment is particularly
inappropriate where issues such as motive, intent, and other subjective feelings and
reactions are material and where the evidence is subject to conflicting
interpretations.” Creech v. Melnik, 347 N.C. 520, 530, 495 S.E.2d 907, 913 (1998);
see generally McKee v. James, 2014 NCBC LEXIS 74, at *13–14 (N.C. Super. Ct. Dec.
31, 2014) (discussing standard).
IV.
ANALYSIS
A. Issue Preclusion
{33} The Court first addresses deGorter’s argument, raised in supplemental
briefing, that the Bankruptcy Court’s Consent Order allowing deGorter’s Proof of
Claim against Capitol Bancorp bars Capitol Wealth from re-litigating issues that
were decided by the Bankruptcy Court.
{34} Issue preclusion, or collateral estoppel, bars “successive litigation of an
issue of fact or law actually litigated and resolved in a valid court determination
essential to the prior judgment, even if the issue recurs in the context of a different
claim.” Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (internal quotation marks and
citation omitted).1 The party invoking issue preclusion must, under federal common
law, establish the following elements:
(1) the issue to be precluded is identical to the issue already litigated,
(2) the issue was actually determined in the prior proceeding, (3) the
determination of the issue was an essential part of the decision in the
prior proceeding, (4) the prior judgment was final and valid, and (5) the
party against whom estoppel is asserted had a full and fair opportunity
to litigate the issue.

Coleman v. Cmty. Trust Bank (In re Coleman), 426 F.3d 719, 729 (4th Cir. 2005).
{35} DeGorter has not met his burden to establish that the Proof of Claim was
“actually litigated” in the Bankruptcy Case. “In the case of a judgment entered by

1 Federal common law determines the preclusive effect of prior federal bankruptcy court orders in

North Carolina state court proceedings. See United States ex rel. May v. Purdue Pharma L.P. , 737
F.3d 908, 912 (4th Cir. 2013) (“The preclusive effect of a judgment issued by a federal court is a legal
question governed by federal common law[.]”).
confession, consent, or default, none of the issues is actually litigated.” Arizona v.
California, 530 U.S. 392, 414 (2000) (quoting Restatement (Second) of Judgments §
27 cmt. e (1982)). Indeed, “consent agreements ordinarily are intended to preclude
any further litigation on the claim presented but are not intended to preclude further
litigation on any of the issues presented.” Id. (emphasis added) (quoting 18 C. Wright,
A. Miller, & E. Cooper, Federal Practice and Procedure § 4443 (1981)). The reason
for such a rule is that “a party may choose not to litigate issues for reasons that have
nothing to do with the merits of the case.” In re O’Quinn, 401 B.R. 739, 743 (Bankr.
M.D.N.C. 2009). Here, the Consent Order entered by the Bankruptcy Court was
stipulated to by both deGorter and Capitol Wealth and contemplated continuation of
the action against Capitol Wealth in this Court. Accordingly, the Court concludes
that Capitol Wealth’s liability in this action was not “actually litigated” in the
Bankruptcy Court and thus that collateral estoppel does not apply to bar Capitol
Wealth’s defense.
B. Breach of Fiduciary Duty and Constructive Fraud
{36} DeGorter’s claims for breach of fiduciary duty and constructive fraud both
require the existence of a fiduciary duty. See, e.g., Dalton v. Camp, 353 N.C. 647,
651, 548 S.E.2d 704, 707 (2001) (“For a breach of fiduciary duty to exist, there must
first be a fiduciary relationship between the parties.”); Keener Lumber Co. v. Perry,
149 N.C. App. 19, 28, 560 S.E.2d 817, 823 (2002) (stating that to prove a constructive
fraud claim, “a plaintiff must show (1) the existence of a fiduciary duty”). A fiduciary
duty arises 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 interests
of the one reposing confidence.” Curl v. Key, 311 N.C. 259, 264, 316 S.E.2d 272, 275
(1984) (citation omitted).
{37} DeGorter argues that Capitol Wealth owed fiduciary duties to deGorter
because the execution of the Contribution Agreement allegedly created a joint
venture between them. Capitol Wealth contends in opposition that no fiduciary duty
runs from Capitol Wealth to deGorter because (i) deGorter was not one of the alleged
joint venturers, (ii) the Contribution Agreement created no fiduciary duty, and (iii) in
any event, no joint venture was ever consummated because the transaction
contemplated by the Contribution Agreement never closed.
{38} DeGorter’s breach of fiduciary duty and constructive fraud claims hinge on
his claim that a joint venture existed between deGorter and Capitol Wealth arising
out of the Contribution Agreement. DeGorter, however, did not enter the
Contribution Agreement in his individual capacity, but rather on behalf of DCP.
Given that deGorter has not offered any evidence suggesting that DCP’s corporate
form should be disregarded for any reason, to the extent that Capitol Wealth owed
any duties under the Contribution Agreement, those duties were owed to DCP, not to
deGorter individually, and deGorter’s fiduciary duty-based claims should be
dismissed as a result. See Silverman v. Miller, 155 B.R. 362, 375 (Bankr. E.D.N.C.
1993) (applying North Carolina law and holding that individuals who are not actual
partners in a partnership do not owe fiduciary duties based on their agreement to
enter into a partnership in the future).
{39} Moreover, our Court of Appeals has explained that:
the essential elements of a joint venture are (1) an agreement to engage
in a single business venture with the joint sharing of profits, Edwards
v. Bank, 39 N.C. App. 261, 275, 250 S.E.2d 651, 661 (1979), (2) with each
party to the joint venture having a right in some measure to direct the
conduct of the other “through a necessary fiduciary relationship.”
Cheape v. Town of Chapel Hill, 320 N.C. 549, 562, 359 S.E.2d 792, 799
(1987) (emphasis in original). The second element requires that the
parties to the agreement stand in the relation of principal, as well as
agent, as to one another. Id. at 562, 359 S.E.2d 799–800.

Se. Shelter Corp. v. Btu, Inc., 154 N.C. App. 321, 327, 572 S.E.2d 200, 204–05 (2002).
{40} Although in his effort to satisfy the second element deGorter argues in
conclusory fashion that “each party [to the Contribution Agreement] ha[d] a right in
some measure to direct the conduct of the other,” (Pl.’s Br. Opp. Mot. Summ. J. 16),
deGorter has not brought forward any evidence showing that he and Capitol Wealth
stood in the relation of principal and agent to one another at any time. As a result,
because deGorter has failed to offer evidence on the second element necessary to
create a joint venture, the Court concludes that a joint venture was never formed
between deGorter and Capitol Wealth as a matter of North Carolina law, providing a
further basis for dismissal of deGorter’s breach of fiduciary duty and constructive
fraud claims. Se. Shelter Corp., 154 N.C. App. at 327, 572 S.E.2d at 204–05
(dismissing breach of fiduciary duty claim where plaintiff failed to show agency
relationship, and hence a joint venture, between plaintiff and defendant); see also
Cheape, 320 N.C. at 562, 359 S.E.2d at 299 (finding joint venture did not exist because
plaintiff failed to show agency relationship).
{41} Last, it is undisputed that the transactions contemplated by the
Contribution Agreement did not occur because the required regulatory approvals
were never obtained. As a result, by the Contribution Agreement’s own express
terms, the parties’ obligations to each other under the Agreement never became
effective. (Contr. Agmt. § 9.1) (“[t]he respective obligations of each Party under this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of . . . all
Regulatory Approvals”). Accordingly, even if the Contribution Agreement somehow
could be read to create a joint venture between Capitol Wealth and non-party
deGorter, that joint venture never came to fruition. Again, deGorter’s lack of evidence
of a joint venture is fatal to his breach of fiduciary duty and constructive fraud claims.
See, e.g., Crockett Capital Corp. v. Inland Am. Winston Hotels, Inc., 2011 NCBC
LEXIS 7, at *59–61 (N.C. Super. Ct. Feb. 28, 2011) (dismissing constructive fraud
claim for failure to show fiduciary duty where implementing documents required to
form joint venture under parties’ agreement were never executed).
{42} The fact that it was represented in two industry publications that Capitol
Wealth and Capitol Bancorp described the proposed transaction as a “joint venture”
does not alter the Court’s analysis. Indeed, both publications identified DCP, not
deGorter individually, as the contracting party with Capitol Bancorp, and neither
article suggests in any way that Capitol Wealth and deGorter were in an agency
relationship with one another at any time.
{43} Accordingly, for the reasons set forth above, the Court concludes that
deGorter’s claims for breach of fiduciary duty and constructive fraud should be
dismissed with prejudice.
C. Negligent Misrepresentation
{44} A claim for negligent misrepresentation is stated as follows:
One who in the course of his business or profession supplies information
for the guidance of others in their business transactions is subject to
liability for harm caused to them by their reliance upon information if

(a) he fails to exercise that care and competence in obtaining and
communicating the information which its recipient is justified in
expecting, and

(b) the harm is suffered

(i) by the person or one of the class of persons for whose guidance
the information was supplied, and

(ii) because of his justifiable reliance upon it in a transaction in
which it was intended to influence his conduct or in a transaction
substantially identical therewith.

Helms v. Holland, 124 N.C. App. 629, 635, 478 S.E.2d 513, 517 (1996) (citing Powell
v. Wold, 88 N.C. App. 61, 67, 362 S.E.2d 796, 799 (1987)). In sum, “the action lies
where pecuniary loss results from the supplying of false information to others for the
purpose of guiding them in their business transactions.” Howard v. Cnty. of Durham,
227 N.C. App. 46, 55, 748 S.E.2d 1, 7 (2013) (citation omitted).
{45} DeGorter relies on three alleged misrepresentations to support his claim
against Capitol Wealth: (i) that a “successful Trust Preferred Securities offering was
required—and sufficient—for Federal Reserve approval of the [Proposed Forethought
Acquisition],” (Compl. ¶ 82); (ii) that “if Mr. deGorter just wanted [to] own the Trust
Preferred Securities for a short while, [Capitol Bancorp] would buy the shares back
from Mr. deGorter after the [Proposed Forethought Acquisition] was completed,”
(Compl. ¶ 32); and (iii) that Capitol Bancorp was a viable, strong entity. (See, e.g.,
deGorter Dep. 68:17–69:16.)
{46} Capitol Wealth first contends that deGorter’s reliance on each alleged
misrepresentation was unreasonable as a matter of law because he had access to the
Prospectus and failed to conduct his own reasonable due diligence. The Court agrees
in these circumstances.
{47} “[R]easonable reliance is . . . a required element of negligent
misrepresentation.” L’Heureux Enters. v. Port City Java, Inc., 2009 NCBC LEXIS
26, at *15 (N.C. Super. Ct. Sep. 4, 2009) (citing MacFadden v. Louf, 182 N.C. App.
745, 749, 643 S.E.2d 432 (2007)). “Reliance is reasonable if the plaintiff has made an
independent investigation . . . . Reliance is not reasonable where the plaintiff could
have discovered the truth of the matter through reasonable diligence, but failed to
investigate[.]” Id. at *12 (citing Calloway v. Wyatt, 246 N.C. 129, 97 S.E.2d 881
(1957)). “The reasonableness of a party’s reliance is a question for the jury, unless
the facts are so clear that they support only one conclusion.” Id. (citing Marcus Bros.
Textiles, Inc. v. Price Waterhouse, LLP, 350 N.C. 214, 513 S.E.2d 320 (1999) and
State Props., LLC v. Ray, 155 N.C. App. 65, 73, 574 S.E.2d 180 (2002)) (concluding
that plaintiff’s reliance on alleged misrepresentations was unreasonable as a matter
of law); see also Angell v. Kelly, No. 1:01CV00435, 2006 U.S. Dist. LEXIS 87567, at
*27 n.7 (M.D.N.C. Nov. 30, 2006) (applying North Carolina law and holding that
“[r]easonableness is usually a jury question, except when ‘the facts are so clear that
they support only one conclusion,’ which is usually the case when a ‘plaintiff fails to
make any independent investigation’”) (quoting State Props., 155 N.C. App. at 73,
574 S.E.2d at 186).
{48} It is undisputed that Capitol Wealth provided the Prospectus to deGorter
in connection with the Securities Offering. It is also undisputed that deGorter
reviewed the Prospectus prior to purchasing the Securities. (DeGorter Dep. 58:18–
58:23.) The Prospectus did not contain any provision suggesting that the successful
placement of the Securities Offering was a requirement for Federal Reserve approval
of the Proposed Forethought Acquisition or that Capitol Bancorp would buy back
deGorter’s Securities at any time or at any specific price.
{49} Moreover, the Prospectus contained plain warnings that deGorter “should
rely only on the information contained in or incorporated by reference in this
[Prospectus],” that “[n]o one is authorized to give information other than that
contained in this [Prospectus],” and that “[i]f anyone provides you with different or
inconsistent information, you should not rely on it.” (Defs.’ Dep. Ex. 134.) The
Prospectus also identified specific risk factors, including that “[d]eferral of interest
payments could adversely affect the market price of the [Securities],” “[c]laims would
be limited upon bankruptcy, insolvency or receivership,” “[t]here can be no assurance
as to the market prices for the [Securities] . . . ; therefore, the holders of the
[Securities] may suffer a loss,” and “[t]he secondary market for the [Securities] may
be illiquid.” (Defs.’ Dep. Ex. 134.)
{50} Numerous Business Court decisions have found a plaintiff’s purported
reliance to be unreasonable as a matter of law in similar circumstances. See, e.g.,
L’Heureux, 2009 NCBC LEXIS 26, at *13 (“Plaintiffs’ reliance on any alleged
misrepresentations [contrary to offering and contract documents] . . . as a matter of
law was unreasonable.”); JDH Capital, LLC v. Flowers, 2009 NCBC LEXIS 8, at *32–
33 (N.C. Super. Ct. Mar. 13, 2009) (plaintiff’s reliance on oral representations
contrary to letter of intent the parties executed was unreasonable as a matter of law);
Crockett, 2011 NCBC LEXIS 7, at *74 (plaintiff’s reliance unreasonable as a matter
of law where plaintiff failed to inspect documents in its possession that would have
cured alleged omission); Nelson v. Alliance Hospitality Mgmt., LLC, 2011 NCBC
LEXIS 43, at *30–31 (N.C. Super. Ct. Nov. 22, 2011) (expressing doubt at the Rule
12(b)(6) stage that plaintiff could prove reasonable reliance where clear language of
disclosed document provided accurate information).
{51} In addition, although deGorter alleges that Hogan represented that a
successful Securities Offering was necessary to obtain Federal Reserve approval of
the Proposed Forethought Acquisition, he also has acknowledged that Joe Reid, not
Hogan, was the executive who directed Capitol Wealth’s communications with federal
regulators, including the Federal Reserve, (deGorter Dep. 37:2–37:16), and further
that he never contacted Reid to confirm or explain Hogan’s alleged misrepresentation.
{52} It is also undisputed that none of the loan documents executed by deGorter
included any representation that Capitol Bancorp or Capitol Wealth was obligated to
buy back the Securities that served as collateral for the loans, (Defs.’ Dep. Exs. 142,
143, 144, 154, 155). Similarly, deGorter has offered no evidence that Capitol Wealth
made any representations about the price at which Capitol Bancorp would
purportedly “buy back” deGorter’s Securities. (DeGorter Dep. 95:14–95:16.)
{53} Finally, as to Capitol Bancorp’s financial health, deGorter has offered no
evidence that deGorter sought any information about Capitol Bancorp from any
source, and Capitol Worth has proffered undisputed evidence from the public record
reflecting Capitol Wealth’s declining financial performance as of January 2008,
information the Court concludes was readily available to deGorter through the
exercise of reasonable diligence. Furthermore, deGorter admitted that he had no
evidence that Hogan knew of any specific financial trouble at Capitol Bancorp prior
to the Securities Offering. (DeGorter Dep. 65:11–65:15.)
{54} Accordingly, based on the above, the Court concludes that deGorter has
failed to offer evidence that he reasonably relied on any alleged misrepresentations,
and therefore that Capitol Wealth’s Motion seeking dismissal of deGorter’s claim for
negligent misrepresentation should be granted.2
V.
CONCLUSION
{55} For the foregoing reasons, the Court hereby GRANTS Capitol Wealth’s
Motion and DISMISSES all of deGorter’s remaining claims in this action with
prejudice.

2 Capitol Wealth also contends that the alleged misrepresentations deGorter relies upon to support
his claim are in fact negligent omissions, a basis for a negligent misrepresentation claim not recognized
in North Carolina. For clarity, the Court concludes that deGorter’s claim for negligent
misrepresentation is likewise dismissed with prejudice to the extent the claim is based on negligent
omissions. See, e.g., Bonham v. Wolf Creek Acad., 767 F. Supp. 2d 558, 570 (W.D.N.C. 2011)
(“[N]egligent omissions . . . as opposed to negligent misrepresentations cannot form the basis of a claim
for negligent misrepresentation under North Carolina law.”); see also Volumetrics Med. Imaging, Inc.
v. ATL Ultrasound, Inc., 243 F. Supp. 2d 386, 415 n.13 (M.D.N.C. 2003) (“[U]nder North Carolina law,
omissions cannot form the basis for the tort of negligent misrepresentation.”). Based on the Court’s
conclusions concerning deGorter’s negligent misrepresentation claim, the Court declines to specifically
address Capitol Wealth’s additional contention that deGorter’s losses in connection with any alleged
misrepresentation were proximately caused by his own investment strategy, and not by Capitol
Wealth, and thus that his claim is subject to dismissal on this additional, independent basis.
SO ORDERED, this the 31st day of May, 2016.

/s/ Louis A. Bledsoe, III
Louis A. Bledsoe, III
Special Superior Court Judge
for Complex Business Cases