Oliver v. Brown & Morrison, Ltd.

Oliver v. Brown & Morrison, Ltd., 2022 NCBC 16.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
MECKLENBURG COUNTY 21 CVS 6678

PERRY L. OLIVER,

Plaintiff,

v.

BROWN & MORRISON, LTD., a North
Carolina Business Corporation, and ORDER AND OPINION ON
TIMOTHY J. MARKS, as President and
Sole Shareholder of BROWN & MOTION TO DISMISS OF
MORRISON, LTD., and individually, DEFENDANTS SARA LYNN
SARA LYNN LITTLE, CPA, PLLC, a LITTLE, CPA, PLLC AND EARLE
North Carolina Professional Limited HILTON “PETE” WARD, CPA
Liability Company, and EARLE
HILTON “PETE” WARD, CPA,
individually,

Defendants.

1. THIS MATTER is before the Court upon the 1 July 2021 filing of the

Motion to Dismiss of Defendants Sara Lynn Little, CPA, PLLC and Earle Hilton

“Pete” Ward, CPA (the “Motion”). (ECF No. 13 [“Mot.”].) The Motion seeks to dismiss

all claims brought against Defendants Sara Lynn Little, CPA, PLLC (“Little”) and

Earle Hilton “Pete” Ward, CPA (“Ward”) (collectively referred to as the “Moving

Defendants”) in Plaintiff Perry L. Oliver’s (“Oliver”) Complaint. (ECF No. 3

[“Compl.”].)

2. For the reasons set forth herein, the Court hereby GRANTS IN PART and

DENIES IN PART the Motion.

Lake Norman Law Firm, by Rick Ruffin, for Plaintiff Perry L. Oliver.

Erwin, Bishop, Capitano & Moss, P.A., by Anthony Todd Capitano and
Erin Christine Huegel, for Defendants Brown & Morrison, Ltd., and
Timothy J. Marks.
Sharpless McClearn Lester Duffy, PA, by Frederick K. Sharpless, for
Defendants Sara Lynn Little, CPA, PLLC, and Earle Hilton “Pete” Ward,
CPA.

Robinson, Judge.

I. INTRODUCTION

3. Moving Defendants seek to have dismissed both claims for relief alleged

against them by Oliver in his Complaint: (1) the Third Claim for Relief (Negligent

Misrepresentation); and (2) the Fifth Claim for Relief (Negligence). 1

II. FACTUAL BACKGROUND

4. The Court does not make findings of fact on the Motion but recites only

those facts that are relevant and necessary to the Court’s determination of the

Motion.

5. B&M is a North Carolina corporation. (Compl. ¶ 2.) B&M operates as a

distributor and manufacturer’s representative providing engineering solutions by

offering process equipment products and services for industrial applications. (Compl.

¶ 17.)

6. Oliver joined B&M on 1 January 2015 pursuant to the terms and conditions

of a Memorandum of Understanding and Stock Offer (the “Memorandum”). (Compl.

¶ 15.)

1 The other various claims for relief in Oliver’s Complaint are not addressed herein as they

relate only to Defendants Timothy J. Marks (“Marks”) and/or Brown & Morrison, Ltd.
(“B&M”). Those other claims were addressed in the Court’s Order and Opinion on Brown &
Morrison, Ltd.’s and Timothy J. Marks’ Rule 12(b)(6) Motion to Dismiss. (ECF No. 49.)
7. The Memorandum, which was allegedly prepared by Defendant Marks,

referred to the B&M Stock Partner Agreement and indicated that a new agreement

would need to be executed effective 1 January 2015, between Doug Jackson

(“Jackson”), the former president of B&M, Oliver, and Marks. (Compl. ¶¶ 15, 18, 19.)

8. However, in the Complaint, Oliver states the Stock Partner Agreement was

actually a stock purchase agreement which outlined B&M’s share ownership, stock

transfer restrictions, terms and conditions for stock transactions, and the formula for

calculating the “Per-Share Purchase Price.” (Compl. ¶¶ 20–21.)

9. B&M utilizes the Accrual-Accounting Method for financial reporting.

(Compl. ¶ 32.)

10. At the time of his dealings with B&M, Oliver also owned all the stock of a

separate North Carolina corporation called Chapman Associates, Inc. (“Chapman”),

which was a manufacturer’s representative like B&M, offering similar products and

services. (Compl. ¶¶ 34, 36.)

11. On 1 January 2015, Oliver purchased a one-third undivided interest in

B&M through the purchase of 100 shares of B&M common, no-par stock. Oliver

agreed to pay for the stock he purchased by: (1) signing a $100,000.00 Promissory

Note payable to B&M; and (2) transferring identified assets of Chapman to B&M.

(Compl. ¶¶ 33, 35.)

12. B&M and Chapman’s sales were either direct sales of products purchased

for resale, or indirect sales through product manufacturers for which commissions

were earned by B&M or Chapman. (Compl. ¶ 38.) At B&M, the commissions earned
from indirect sales through product manufacturers are known as “Open-Rep

Commissions.” (Compl. ¶ 39.)

13. After becoming a shareholder in B&M, Oliver discovered that not all

Accounts Receivables or Commissions Receivables were being included in the accrual-

based accounting records at B&M. (Compl. ¶ 46.)

14. Oliver alleges that the failure to account for Open-Rep Commissions

Receivables by B&M resulted in an understatement of the company’s value. (Compl.

¶ 51.)

15. Oliver alleges that Defendants Little and Ward were aware of and complicit

in these accounting practices. (Compl. ¶¶ 6, 10, 52, 76, 77, 79.)

16. Little provides professional accounting and tax-related services to B&M.

(Compl. ¶ 8.) Ward has been employed by or associated with Little and has served in

a fiduciary capacity as the outside accounting, tax reporting contact, and advisor

between Little and B&M at all times relevant to this matter. (Compl. ¶ 12.)

17. Upon discovering the failure to properly account for Open-Rep

Commissions, Oliver immediately requested the inclusion of Open-Rep Commissions

Receivables in B&M’s reported financial information, particularly because internal

practices were not accurately tracking this information. (Compl. ¶¶ 55, 61.)

18. Oliver claims that “Open-Rep Commissions Receivables were a material

portion of the overall B&M value.” (Compl. ¶ 63.)

19. Oliver alleges that “[t]he absence of Open-Rep Commissions Receivables in

the calculations and tax reporting prepared by Little and Ward on behalf of B&M
clearly reflects Little and Ward’s intentional and/or negligent omission of these

material amounts[.]” (Compl. ¶ 79.)

20. Therefore, the exclusion of the Open-Rep Commissions Receivables in the

financial statements prepared using the Accrual-Accounting Method by B&M

allegedly resulted in both an understatement of company assets, net worth, and Per-

Share Purchase Price of company stock. (Compl. ¶ 87.)

21. On or about 1 January 2019, Jackson sold his 100 shares of B&M stock back

to B&M. (Compl. ¶ 88.)

22. On or about 8 March 2019, Jackson submitted his letter of resignation from

B&M to be effective 30 March 2019. (Compl. ¶ 93.) However, per Oliver’s Complaint,

the “Due On A Specific Date Promissory Note” issued by B&M to Jackson for the

repurchase of Jackson’s stock was backdated to 1 January 2019. (Compl. ¶ 94.)

23. Oliver alleges that the “Per-Share Purchase Price Formula” used for

calculating Jackson’s stock value referenced the use of “Accrual basis Net Worth as

of 12/31/2018” as the starting basis. (Compl. ¶ 96.)

24. This transaction left Marks and Oliver as the only remaining B&M

shareholders as of 1 January 2019. (Compl. ¶ 97.) Marks then assumed the position

of president of B&M. (Compl. ¶ 98.)

25. In August 2019, Oliver emailed his outside CPA, Shannon Earp (“Earp”),

copies of B&M tax returns for her review, as well as possible recommendations to

reduce the amount of taxes being paid by B&M shareholders. (Compl. ¶ 101.) Oliver
copied Marks and Vickie Stamey (“Stamey”), B&M’s Controller, on the email.

(Compl. ¶ 100.)

26. Also during August 2019, Oliver emailed Ward several tax questions

relating to being a B&M shareholder. (Compl. ¶ 102.) As alleged, Ward did not

respond to Oliver’s emails, (Compl. ¶ 103), or return Oliver’s phone calls during this

time, (Compl. ¶ 104).

27. Meanwhile, Earp replied to Oliver on 30 August 2019. (Compl. ¶ 106.) Earp

purportedly indicated that the amount of taxes being paid by the B&M shareholders

was “absurd” and Earp was concerned about B&M not including Open-Rep

Commissions Receivables in the company’s financial statements. (Compl. ¶¶ 106,

108.) According to the Complaint, Earp indicated that Little and Ward’s practices

were not in line with good accounting practices. (Compl. ¶ 108.)

28. Oliver discussed Earp’s findings and recommendations with Stamey and

informed Stamey of Oliver’s possible departure from B&M in light of Earp’s findings

and recommendations. (Compl. ¶ 111.) Oliver asked Stamey to relay Oliver’s

concerns to Marks. (Compl. ¶ 112.)

29. On 30 August 2019, Earp and Marks discussed Earp’s findings and

recommendations. (Compl. ¶ 113.)

30. On 16 September 2019, Oliver, Marks, and Stamey held an off-site meeting

to discuss Oliver’s correspondence with Earp, Marks’s telephone discussion with

Earp, and Oliver’s potential resignation from B&M. (Compl. ¶ 114.)
31. On 24 September 2019, Marks followed up with Oliver by email for the

purpose of outlining Oliver’s resignation plan; Oliver allegedly reminded Marks that

his resignation was not officially tendered. (Compl. ¶¶ 115–16.)

32. On 10 December 2019, Oliver emailed Marks, Little, Ward, Stamey, and

Earp a copy of a Per-Share Purchase Price calculation that he computed for his sale

of stock back to B&M based on the reported November 2019 financial statements.

(Compl. ¶ 118.) At that time, Oliver had failed to include the Open-Rep Commissions

Receivables in his Per-Share Purchase Price calculation by mistake, but this

oversight was later disclosed. (Compl. ¶ 120.) According to the Complaint, the

inclusion of the Open-Rep Commissions Receivables would significantly increase the

Per-Share Purchase Price to be paid to Oliver. (Compl. ¶ 122.)

33. The B&M “Weekly Financial Information” spreadsheet for the week of 22

December 2019 indicated Open-Rep Commissions Receivables in the amount of

$1,217,516.38 that were not included on the B&M financial statements prepared

according to the Accrual-Accounting Method. (Compl. ¶ 123.)

34. Given that Oliver held 100 shares of the 200 total outstanding shares of

B&M stock, Oliver alleged that the inclusion of the Open-Rep Commissions

Receivables would have resulted in a Per-Share Purchase Price increase of $6,087.58

(for a total increase of $608,758.00 for Oliver’s shares). (Compl. ¶ 124.)

35. In December 2019, Oliver attended several cardiologist appointments due

to personal health issues. (Compl. ¶ 125.) He was ultimately advised to undergo

coronary bypass surgery. (Compl. ¶ 126.)
36. After allegedly receiving no response from Little or Ward to a 16 December

2019 follow-up email seeking a response regarding the accounting irregularities,

Oliver emailed his letter of resignation to Marks on 18 December 2019 including an

effective date of resignation of 1 January 2020. (Compl. ¶¶ 127–29.)

37. On 27 December 2019, Oliver had coronary bypass surgery. (Compl. ¶ 130.)

38. On 21 February 2020, Marks emailed the Per-Share Purchase Price buyout

calculation prepared by Little and Ward for Oliver’s shares at $3,950.15 per share as

of the close of business 31 December 2019, which did not include Open-Rep

Commission Receivables. (Compl. ¶¶ 134–35.)

39. During this time, Oliver recovered from surgery, and internal email

communications between Oliver and Marks confirm continued debate and

disagreement between them regarding the Per-Share Purchase Price calculation.

(Compl. ¶¶ 138–39.)

40. Oliver also pointed out to B&M, Little, and Ward that they failed to

properly calculate and account for the Promissory Note payable to Jackson for the

purchase of Jackson’s stock in 2019. (Compl. ¶ 140.) Oliver alleges that the

subsequent inclusion of this long-term debt reduced the net worth of B&M for the like

amount of the outstanding debt and further reduced the Per-Share Purchase Price.

(Compl. ¶ 142.)

41. On 21 January 2020, the first case of COVID-19 was confirmed in the U.S.,

and the unknowns about the coronavirus pandemic caused Oliver great concern due

to his health and business affairs facing dramatic changes. (Compl. ¶¶ 146–47.)
42. Oliver contacted Chemineer, Inc. (“Chemineer”), which manufactured

“Oliver’s largest and best performing product prior to and during his employment

with B&M,” to inform them he was leaving B&M. (Compl. ¶¶ 133, 151.) Chemineer

originally asked if Oliver was interested in representing it after his B&M departure;

however, this “offer” was later revoked due to the pandemic’s impact on the business

environment. (Compl. ¶¶ 151–53.)

43. Oliver’s personal tax liability for the 2019 tax year purportedly required a

tax payment in excess of $66,000.00. (Compl. ¶ 155.)

44. Per the Complaint, Oliver approached Marks regarding the possibility of

withdrawing his resignation and remaining with B&M, and Marks declined Oliver’s

offer. (Compl. ¶¶ 156–57.)

45. The stock buyout for Oliver included an initial payment of $100,000.00

upon execution of the Buyout Agreement with the balance of the calculated buyout

amount being secured by a four-year note from B&M to Oliver. (Compl. ¶ 158.)

46. Oliver continued to argue his position regarding the proper calculation of

the Per-Share Purchase Price, including particularly arguing to include the Open-

Rep Commissions Receivables. (Compl. ¶ 160.) B&M and Marks continued to oppose

Oliver’s contentions regarding the necessity of accounting for Open-Rep Commissions

Receivables and continued to claim that the calculations provided by Little and Ward,

which excluded Open-Rep Commissions Receivables, were accurate. (Compl. ¶ 161.)
47. Despite his disagreement with the calculations of his Per-Share Purchase

Price, due to his desperate financial situation, Oliver executed the Redemption

Agreement as proposed by B&M and Marks on 22 April 2020. (Compl. ¶ 164.)

48. The Redemption Agreement provided for a total buyout price of

$395,015.00. (Compl. ¶ 165.)

49. Oliver indicated that his treatment at the time of his resignation and stock

sale differed dramatically from the treatment Jackson received from B&M in 2019

when Jackson sold his shares to the company. (Compl. ¶¶ 167–78.)

50. The Complaint alleges that, in addition to the other errors and omissions

committed by Defendants regarding accounting for Open-Rep Commissions and

calculating his buy-out amount, an incorrect interest rate was applied to the

promissory note for his stock and his subsequent challenges to the incorrect interest

rate were summarily dismissed by B&M, Marks, Little, and Ward as being incorrect.

(Compl. ¶ 179.)

III. PROCEDURAL BACKGROUND

51. The Court sets forth here only those portions of the procedural history

relevant to its determination of the Motion.

52. Oliver filed the Complaint in this action on 22 April 2021.

53. Moving Defendants filed the Motion pursuant to Rule 12(b)(6) on 1 July

2021.

54. The Motion has been fully briefed, (Br. Defs. Little and Ward Supp. Mots.

Dismiss, ECF No. 14 [“Br. Supp.”]; Pl.’s Br. Resp. Defs. Little and Ward Mots.
Dismiss, ECF No. 21 [“Br. Resp.”]; and Reply Br. Little and Ward Defs. Mots. Dismiss,

ECF No. 27 [“Reply Br.”]), and the Court has conducted a hearing on the Motion and

heard arguments from counsel for the parties, (See Not. Hearing, ECF No. 30).

55. The Motion is ripe for resolution.

IV. LEGAL STANDARD

RULE 12(b)(6)

56. In ruling on a motion to dismiss pursuant to North Carolina Rule of Civil

Procedure (the “Rules”) 12(b)(6), the Court reviews the allegations in the Complaint

in the light most favorable to the plaintiff. See Christenbury Eye Ctr., P.A. v. Medflow,

Inc., 370 N.C. 1, 5 (2017). The Court’s inquiry is “whether, as a matter of law, the

allegations of the complaint, treated as true, are sufficient to state a claim upon which

relief may be granted under some legal theory[.]” Harris v. NCNB Nat’l Bank, 85

N.C. App. 669, 670 (1987). The Court accepts all well-pleaded factual allegations in

the relevant pleading as true. See Krawiec v. Manly, 370 N.C. 602, 606 (2018). The

Court is therefore not required “to accept as true allegations that are merely

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope

Hosp., Inc. v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274 (2005)

(quoting Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002)).

57. Furthermore, the Court “can reject allegations that are contradicted by the

documents attached, specifically referred to, or incorporated by reference in the

complaint.” Moch v. A.M. Pappas & Assocs., LLC, 251 N.C. App. 198, 206 (2016)

(quoting Laster v. Francis, 199 N.C. App. 572, 577 (2009)). The Court may consider
these attached or incorporated documents without converting the Rule 12(b)(6)

motion to dismiss into a Rule 56 motion for summary judgment. Id. (citing Schlieper

v. Johnson, 195 N.C. App. 257, 261 (2009)). Moreover, the Court “may properly

consider documents which are the subject of a plaintiff’s complaint and to which the

complaint specifically refers even though they are presented by the defendant.”

Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60 (2001) (citing Robertson v. Boyd,

88 N.C. App. 437, 441 (1988)).

58. Our Supreme Court has noted that “[i]t is well-established that dismissal

pursuant to Rule 12(b)(6) is proper when ‘(1) the complaint on its face reveals that no

law supports the plaintiff’s claim; (2) the complaint on its face reveals the absence of

facts sufficient to make a good claim; or (3) the complaint discloses some fact that

necessarily defeats the plaintiff’s claim.’ ” Corwin v. British Am. Tobacco PLC, 371

N.C. 605, 615 (2018) (quoting Wood v. Guilford Cty., 355 N.C. 161, 166 (2002)). This

standard of review for Rule 12(b)(6) is the standard our Supreme Court “routinely

uses . . . in assessing the sufficiency of complaints in the context of complex

commercial litigation.” Id. at n.7 (citing Krawiec, 370 N.C. at 606 and Christenbury

Eye Ctr., 370 N.C. at 5).

RULE 8

59. In addition to their argument that the claims against them should be

dismissed pursuant to Rule 12(b)(6), Moving Defendants make a secondary argument

that the Complaint should be dismissed pursuant to Rule 8(a). (Br. Supp. 8–10.)
Moving Defendants’ argument is that Plaintiff’s allegations are prolix, unnecessarily

long, and verbose.

60. Rule 8(a)(1) requires an effective pleading to set out “[a] short and plain

statement of the claim sufficiently particular to give the court and the parties notice

of the transactions, occurrences, or series of transactions or occurrences, intended to

be proved showing that the pleader is entitled to relief[.]” Rule 8(a)(2) further

requires the pleading to contain “[a] demand for judgment for the relief to which he

deems himself entitled.”

61. “By enacting . . . Rule 8(a)[ ] our General Assembly adopted the concept of

notice pleading.” Wake County v. Hotels.com, L.P., 235 N.C. App. 633, 646 (2014).

Under this notice pleading rule, “a statement of claim is adequate if it gives sufficient

notice of the claim asserted to enable the adverse party to answer and prepare for

trial, to allow for the application of the doctrine of res judicata, and to show the type

of case brought.” Sutton v. Duke, 277 N.C. 94, 102 (1970) (cleaned up). “Such

simplified notice pleading is made possible by the liberal opportunity for discovery

and the other pretrial procedures established by the Rules to disclose more precisely

the basis of both claim and defense and to define more narrowly the disputed facts

and issues.” Pyco Supply Co., Inc. v. Am. Centennial Ins. Co., 321 N.C. 435, 442–43

(1988) (citing Sutton, 277 N.C. 94).
V. ANALYSIS

A. NEGLIGENT MISREPRESENTATION

62. Moving Defendants first seek dismissal of Oliver’s negligent

misrepresentation claim against them.

63. “It has long been held in North Carolina that ‘the tort of negligent

misrepresentation occurs when (1) a party justifiably relies (2) to his detriment (3) on

information prepared without reasonable care (4) by one who owed the relying party

a duty of care.’ ” Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 532

(2000) (quoting Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200,

206 (1988) (cleaned up)). When alleging negligent misrepresentation, a plaintiff must

satisfy the heightened pleading standard for fraud found in Rule 9. N.C.G.S § 1A-1,

Rule 9(b); see also Deluca v. River Bluff Holdings II, LLC, 2015 NCBC LEXIS 12, at

**20–21 (N.C. Super. Ct. Jan. 28, 2015); BDM Invs. v. Lenhil, Inc., 2012 NCBC LEXIS

7, at **56 (N.C. Super. Ct. Jan. 18, 2012); Breedon v. Richmond Cmty. Coll., 171

F.R.D. 189, 198–99 (M.D.N.C. 1997).

64. Moving Defendants submit—similarly to B&M’s arguments for dismissal of

the negligent misrepresentation claim as fleshed out in the Court’s Order and

Opinion on B&M and Marks’s Rule 12(b)(6) Motion to Dismiss, (ECF No. 49)—that

Oliver cannot satisfy the “justifiable reliance” element of a negligent

misrepresentation claim because he admits that he knew the true facts underlying

the alleged “misrepresentation.” (Br. Supp. 6–7.) The Court agrees for the same

reasons stated in its Opinion on B&M and Marks’s Motion to Dismiss.
65. Raritan stands for the proposition that, to survive a Rule 12(b)(6) motion,

a plaintiff’s complaint must allege facts supporting justifiable reliance to his

detriment on information prepared without reasonable care by someone who owed a

duty of care to the relying party. 322 N.C. at 206. To properly plead justifiable

reliance, “a plaintiff must sufficiently allege that he made a reasonable inquiry into

the misrepresentation and [ ] that he was denied the opportunity to investigate or

that he could not have learned the true facts by exercise of reasonable diligence.”

Austin v. Regal Inv. Advisors, LLC, 2018 NCBC LEXIS 3, at *31 (N.C. Super. Ct. Jan.

8, 2018) (quoting Rountree v. Chowan Cty., 252 N.C. App. 155, 163 (2017) (emphasis

added) (cleaned up)).

66. Here, Oliver admits repeatedly in the Complaint, and in fact affirmatively

alleges, that he knew the true facts underlying the alleged “misrepresentation.” (See,

e.g., Compl. ¶ 164 (“Despite Oliver’s disagreement with the content and manner in

which his Per-Share Purchase Price had been calculated, he executed his Redemption

Agreement on April 22, 2020, in order to secure the One Hundred Thousand Dollar

($100,000.00) initial stock sale payment.”).) As Moving Defendants put it, “[Oliver]

affirmatively alleges that he engaged in this negotiation, resignation, and sale of his

stock back to [B&M] with full knowledge of the disagreement between his version of

what ought to be included in accrual accounting, and that adopted by [ ] Marks[.]”

(Br. Supp. 6.)

67. Oliver cannot properly allege that he justifiably relied on representations

made by the Moving Defendants while also alleging that he knew the true facts
underlying those alleged “misrepresentations,” and that he believed at the time that

Defendants’ statements were untrue.

68. Alternatively, the Complaint fails to allege how Oliver, with reasonable

diligence, could not have discovered the true facts prior to executing the agreements

in question. This failing, too, is fatal to Oliver’s claim.

69. Therefore, because Oliver cannot satisfy the justifiable reliance element,

the Motion is granted as to the third claim for negligent misrepresentation, and that

claim is dismissed with prejudice.

B. NEGLIGENCE

70. Next, Moving Defendants seek to have the negligence claim against them

dismissed. Oliver alleges that Moving Defendants, as certified public accountants for

B&M, breached a duty owed to him as an officer and shareholder of B&M when they

utilized the Accrual-Accounting Method “in processing various accounting tasks on

behalf of B&M[.]” (Compl. ¶¶ 228, 236.)

71. Oliver alleges that Moving Defendants’ use of the Accrual-Accounting

Method led to the omission of significant material assets of B&M from financial

documents that Oliver relied on to his detriment in his capacity as officer and

shareholder. (Compl. ¶¶ 232, 236, 237.) Further, Oliver alleges that he “has openly

and continuously challenged the Accrual-Accounting Method reporting” utilized by

Moving Defendants, as well as the content and manner in which his Per-Share

Purchase Price had been calculated. (Compl. ¶¶ 164, 233.)
72. Moving Defendants first argue that, under the facts as alleged by Oliver,

Oliver was not owed a legal duty of care by Moving Defendants. (Br. Supp. 7.) The

Court disagrees.

73. Moving Defendants rely on Raritan River Steel Co., 322 N.C. 200 (1988), for

the proposition that no duty was owed by them as accountants for B&M to Oliver as

an officer and shareholder of B&M. (Br. Supp. 7.) In Raritan, the North Carolina

Supreme Court adopted the approach of § 552 of the Restatement (Second) of Torts

(the “Second Restatement”) to determine an accountant’s liability for negligence in

preparing financial reports provided to third parties (the “Second Restatement

Approach”). 322 N.C. at 209–10.

74. Section 552 of the Second Restatement provides that:

(1) One who, in the course of his business, profession or employment, or
in any other transaction in which he has a pecuniary interest, supplies
false information for the guidance of others in their business
transactions, is subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if he fails to exercise
reasonable care or competence in obtaining or communicating the
information.

(2) Except as stated in Subsection (3), the liability stated in Subsection
(1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose
benefit and guidance he intends to supply the information or knows
that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the
information to influence or knows that the recipient so intends or in
a substantially similar transaction.

Restatement (Second) of Torts § 552 (1977).
75. The Second Restatement Approach supports the assertion that accountants

for a business will ordinarily owe a duty of care to officers and shareholders of that

business. § 552(2). “Our Supreme Court in Raritan praised the [Second] Restatement

approach because it recognizes that liability should extend not only to those with

whom the accountant is in privity . . . but also to those persons . . . whom he knows

and intends will rely on his opinion, or whom he knows his client intends will so rely.”

Lamb v. Styles, 263 N.C. App. 633, 641–42 (2019). “Therefore, ‘[i]f [an accountant]

knows at the time he prepares his report that specific persons, or a limited group of

persons, will rely on his work, and intends or knows that his client intends such

reliance, his duty of care should extend to them.’ ” Id. at 642 (quoting Raritan, 322

N.C. at 215).

76. North Carolina continues to follow the Second Restatement Approach. See

Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C. 440, 453 (2015) (“In

[Raritan], we reviewed in depth the duty an accountant owes to nonclients who make

use of an accountant’s prepared financial reports, and we find that case instructive

here.”); see also Lamb, 263 N.C. App. at 641–42 (reaffirming the use of Raritan).

Therefore, Moving Defendants cannot rely on a lack of duty as the basis for dismissal

of Oliver’s negligence claim.

77. Moving Defendants’ second argument for dismissal is based on the

proposition that Oliver cannot satisfy the “justifiable reliance” requirement of a

negligence claim because Oliver claims to have “openly and continuously challenged”
Moving Defendants’ methods and representations, upon which Oliver also claims to

have relied. (Br. Supp. 6–7.)

78. “Even if a plaintiff can show circumstances giving rise to a duty[,] . . . absent

a sufficient allegation and showing of justifiable reliance, a

plaintiff’s negligence claims fail.” Arnesen, 368 N.C. at 449 (citing Dallaire v. Bank

of Am., N.A., 367 N.C. 363, 369 (2014)).

79. The Court agrees with this argument for the same reasons stated in the

discussion of the negligent misrepresentation claim above. In Raritan, the Court

stated that “[a]n accountant who prepares financial reports for his client clearly owes

a duty of care to his client” and “the duty may extend to ‘persons . . . whom [the

accountant] knows and intends will rely on his opinion, or whom [the accountant]

knows his client intends will so rely[.]” Raritan, 322 N.C. at 210, 214. Importantly,

however, the Supreme Court also made clear that “liability will only extend if there

is justifiable reliance.” Raritan, 322 N.C. at 209–10.

80. Justifiable reliance requires actual reliance. Id. at 206. The “question

of justifiable reliance is analogous to that of reasonable reliance in fraud actions,

where it is generally for the jury to decide whether plaintiff reasonably relied upon

the representations made by defendant.” Stanford v. Owens, 46 N.C. App. 388, 395

(1980). In the event that “the facts are so clear as to permit only one conclusion[,]”

the question may be decided by the Court. Marcus Bros. Textiles v. Price Waterhouse,

LLP, 350 N.C. 214, 224–25 (1999) (citing Restatement (Second) of Torts § 552 cmt. e).
81. This is a case where the facts are clear. The Court finds that Oliver has not

sufficiently alleged that he justifiably relied on Moving Defendants’ representations

to his detriment. As previously discussed in the analysis regarding the negligent

misrepresentation claim, Oliver repeatedly contends that he disagreed with the

content considered in determining his Per-Share Purchase Price and the manner in

which his Per-Share Purchase Price had been calculated. (Compl. ¶ 164.) Oliver also

claims to have “openly and continuously challenged” Moving Defendants’ accounting

methods. (Compl. ¶ 232.)

82. Oliver cannot properly allege that he justifiably relied on representations

made by the Moving Defendants while also alleging that he believed at the time they

were made that Defendants’ statements were untrue. As such, Oliver’s negligence

claim must fail. 2

83. Therefore, the Motion is granted as to the fifth claim for relief for negligence

against Moving Defendants, and that claim is dismissed with prejudice.

C. RULE 8

84. Finally, Moving Defendants seek to have Oliver’s Complaint dismissed due

to the inclusion of excessive and unnecessary information which Moving Defendants

claim is so egregious that it violates Rule 8’s requirement that a Complaint include a

“short and plan statement.” (Br. Supp. 8–10.) While Oliver’s Complaint is hardly a

2 Moving Defendants additionally argue that the “economic loss rule” prevents Oliver’s
negligence claim against them. The Court needn’t decide this issue because the Court finds
that there was a lack of justifiable reliance necessary to support the negligence claim in this
matter.
lesson in brevity or clarity, in the Court’s discretion it will not dismiss Oliver’s

Complaint for violation of Rule 8.

85. In support of their argument relating to Rule 8, Moving Defendants argue

that “[Oliver’s] sprawling, 247-paragraph Complaint, largely padded by needless

detail such as Black’s Law Dictionary definitions and recitations of the course of the

United States economy and the pandemic, constitutes, at best, a confused narrative

and ‘circuitous diatribe’ bearing no relation to any claim[,]” and that “[t]he Complaint,

in an apparent attempt to bolster its far-fetched allegations, impermissibly requires

the reader to wade through a ‘morass of superfluous detail.’ ” (Br. Supp. 8 (internal

citations omitted).) Moving Defendants primarily cite to federal caselaw in support

of their argument in this regard and seek to bolster their argument given the

similarities between the federal companion rule and North Carolina’s Rule 8. (See

Br. Supp. 8–10.)

86. The Business Court has not often grappled with this type of Rule 8 motion

seeking to dismiss a complaint for containing too much detail; however, when it has

done so, it did not dismiss a pleading containing arguably superfluous detail. See,

e.g., Mecklenburg Cty. Buckley LLP v. Series 1 of Oxford Ins. Co. NC LLC, 2020 NCBC

LEXIS 36, at *5–9 (N.C. Super. Ct. Mar. 23, 2020) (where the Business Court refused

to strike a pleading for violation of Rule 8 finding that “[g]iven Rule 8’s preference for

broad freedom in pleading and Rule 12(f)’s limited and infrequent application, the

Court concludes that Buckley's five-page, introduction in the context of its 47-page,
118-paragraph Complaint, is at the outer limits of—but within—the bounds of

acceptable pleading and should not be stricken.”).

87. The Business Court also dealt with a Rule 8 motion in Kingsdown, Inc. v.

Hinshaw, 2015 NCBC LEXIS 30, at *13 (N.C. Super. Ct. Mar. 25, 2015), and stated

in pertinent part as follows:

The Court initially notes that most challenges to the sufficiency of a
complaint under Rule 8 are based on the lack of specific detail in the
complaint, not because the complaint is too detailed and voluminous.
While the Court has not located a North Carolina decision upholding a
Rule 8 dismissal because the complaint was too voluminous, the Court
nevertheless recognizes that federal courts have held, in certain
circumstances, that dismissal of voluminous complaints may be proper
under Rule 8. Based on the Court's review of [the pleading at issue]
here, however, the Court cannot conclude that [the] allegations are so
voluminous or incomprehensible to prevent [the opposing party] from
discerning the nature and basis for [the claims] or otherwise formulating
an answer to the [claims]. Accordingly, the Court does not find that [the
pleading] violates the requirements of Rule 8.

88. The Court in this instance agrees with its predecessors that, while federal

caselaw exists supporting the dismissal of an excessively prolix complaint for being

in violation of Rule 8, the Court does not believe Oliver’s Complaint here is

sufficiently egregious to warrant such a harsh penalty. 3 Therefore, the Motion under

Rule 8 is denied.

VI. CONCLUSION

89. For the foregoing reasons, the Court hereby GRANTS IN PART and

DENIES IN PART the Motion as follows:

3 The Court does not suggest that such a penalty would never be warranted, only that the

Court does not impose it under the circumstances appearing here.
A. the Motion is GRANTED as to the claim for negligent misrepresentation

and that claim is hereby DISMISSED WITH PREJUDICE;

B. the Motion is GRANTED as to the claim for negligence and that claim

is hereby DISMISSED WITH PREJUDICE; and

C. except as herein granted, the Motion is DENIED.

IT IS SO ORDERED, this the 7th day of April, 2022.

/s/ Michael L. Robinson
Michael L. Robinson
Special Superior Court Judge
for Complex Business Cases