McKINNON v. CV INDUS., INC.

McKinnon v. CV Indus., Inc., 2013 NCBC 54.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF
JUSTICE
COUNTY OF CATAWBA SUPERIOR COURT DIVISION
09 CVS 830
BOBBY E. McKINNON,

Plaintiff,

v.
ORDER
CV INDUSTRIES, INC.,

Defendant.

{1} THIS MATTER is now before the court on remand from the North
Carolina Court of Appeals affirming in part and reversing in part this court’s June
11, 2012 Order regarding cross-motions for the award of costs and attorney’s fees.

Wayne O. Clontz, for Plaintiff.

Parker, Poe, Adams & Bernstein LLP by William L. Rikard, Jr. and James C.
Lesnett, Jr. for Defendant.

Gale, Judge.

MATTER BEFORE THE COURT
{2} A statement of the facts and case history as related to the
consideration of an award of attorney’s fees is stated in the decision of the North
Carolina Court of Appeals, ___ N.C. App. ___, 745 S.E.2d 343 (2013) and this court’s
June 11, 2012 Order, 2012 NCBC LEXIS 38 (N.C. Super. Ct. June 11, 2012)
(hereinafter “2012 Order”). The facts and case history related to the underlying
claims is stated in the prior North Carolina Court of Appeals opinion regarding
Judge Tennille’s grant of summary judgment, 213 N.C. App. 328, 713 S.Ed.2d 495
(2011) and Judge Tennille’s June 3, 2010 Order granting summary judgment,
http://www.ncbusinesscourt.net/TCDDotNetPublic/default.aspx?CID=3&caseNumbe
r=09CVS830 (hereinafter “Summary Judgment Order”).
{3} The court incorporates without repeating its findings of fact stated in
its 2012 Order.
{4} The Court of Appeals affirmed the court’s denial of attorney’s fees and
costs to Plaintiff. The matter is then now before the court only on Defendant’s
request for costs and attorney’s fees.
{5} The 2012 Order awarded Defendant attorney’s fees totaling $40,000
and costs in the total amount $16,798.36. It is now apparent that the court
inadvertently doubled the correct amount of $8,399.18 in its order.
{6} Defendant intially requested the award of attorney’s fees pursuant to
N.C. R. Civ. P. 11, N.C. Gen. Stat. § 6-21.5, and N.C. Gen. Stat. § 75-16.1. A request
pursuant to Rule 11 is no longer before the court.
{7} The 2012 Order recited that the court granted its award under Section
6-21.5, although it had merged its analysis of Defendant’s request under Section 6-
21.5 and Section 75-16.1, and would have awarded the same amount of attorney’s
fees if it had instead proceeded under Section 75-16.1. 2012 Order at *35, ¶ 70. The
court limited its award of attorney’s fees to those incurred after the Summary
Judgment Order. 2012 Order at *35, ¶ 69.
{8} The Court of Appeals reversed the award of fees after the Summary
Judgment Order to the extent that the award must rest on Section 6-21.5 which
applies only to attorney’s fees incurred in proceedings in the trial court. 745 S.E.2d
at 349. However, the Court of Appeals further opined that, upon proper findings,
the court could award those attorney’s fees under Section 75-16.1, which extends to
proceedings before an appellate court. The Court of Appeals acknowledged that the
facts of the case could be sufficient to support an award under Section 75-16.1 but
left necessary ultimate findings to support any such award to the court following
remand. 745 S.E.2d at 350.
{9} More specifically, in order to award fees under Section 75-16.1, this
court “must make findings that (1) the plaintiff ‘knew, or should have known, the
action was frivolous and malicious’; and (2) the attorney’s fee awarded is
reasonable.” Id.
{10} The Court of Appeals further correctly noted the court’s inadvertent
doubling of the amount of allowable costs pursuant to N.C. Gen. Stat. § 6-20. 745
S.E.2d at 352.
{11} Plaintiff contends that the Court of Appeals did not reverse the court’s
determination to limit the award of attorney’s fees to after the Summary Judgment
Order and that this precludes any further consideration of an award of attorney’s
fees incurred at an earlier date. Plaintiff further contends no award should be
made under Section 75-16.1 because his claim under Section 75-1.1 was neither
frivolous nor malicious.
{12} Defendant contends that the Court of Appeals leaves open the court’s
ability to revisit an award for proceedings before the trial court under either Section
6-21.5 or Section 75-16.1 and, in fact, invited or directed this court to consider the
claim under Section 75-16.1 at a point earlier that the entry of summary judgment.
Defendant points to the Court of Appeals statement that “this case must be
remanded to (a) make an ultimate finding as to whether plaintiff knew or should
have known that the assertion – or continued prosecution after summary judgment
was entered – of his Chapter 75 claim was frivolous and malicious so as to support
the award of attorney’s fees under N.C. Gen. Stat. § 75-16.1[.]” 745 S.E.2d at 351.
{13} For reasons explained below, the court determines in its discretion
that it should limit any award of attorney’s fees to a date after the Summary
Judgment Order. As such, its consideration is limited to determining whether
Plaintiff knew or should have known that his claim under Section 75-1.1 was on and
after that date frivolous and malicious within the meaning of Section 75-16.1, and if
so, the amount of reasonable attorney’s fees that should be awarded.
{14} The court concludes that Plaintiff’ knew or should have known at least
by the date of entry of the Summary Judgment that his action under Section 75-1.1
was frivolous and malicious within the meaning of Section 75-16.1, and that
Defendant is entitled to an award of reasonable attorney’s fees in the amount of
$57,891 and costs of $8,399.18.
ANALYSIS AND FINDINGS OF FACT
{15} Plaintiff’s Section 75-1.1 claim, among other elements, required (1)
that there be an underlying unfair or deceptive act or practice; and (2) that this
practice was “in and affecting commerce.” Section 75-1.1(a). Plaintiff rested his
Section 75-1.1 claim on his assertion that Defendant entered into Part A of
Plaintiff’s Severance Agreement with fraudulent intent. This assertion depends
upon proof that Defendant had no intention of performing Part A at the time the
contract was entered. A subsequent decision not to perform under the contract
might support an action for breach of the contract, but the fraud claim cannot be
proven if the intent not to perform arose only after the contract had been entered
into. Hoyle v. Bagby, 253 N.C. 778, 781, 117 S.E.2d 760, 761 (1961); Williams v.
Williams, 220 N.C. 806, 810-11, 18 S.E.2d 364, 366-67 (1942).
{16} Plaintiff never developed any evidence to support fraudulent intent at
the time the contract was entered into. He has been unable to demonstrate any
such probative evidence even after remand.
{17} At the Case Management Conference held on August 26, 2009, Judge
Tennille further cautioned Plaintiff that he was exposed to the award of attorney’s
fees upon an unsuccessful pursuit of his Chapter 75 claim, and more specifically
that the evidence would likely not show the prerequisite effect on interstate
commerce.
{18} After a full course of discovery, Judge Tennille granted summary
judgment on Plaintiff’s Section 75-1.1 claim on two independent grounds. First,
Judge Tennille concluded that, “[t]he factual record [was] devoid of any evidence
indicating that CVI did not intend to honor the Plan A provisions at the time it
entered into the Agreement.” Summary Judgment Order at ¶¶ 36-38. Second, he
concluded that Plaintiff had failed to produce any evidence that the Severance
Agreement affected interstate commerce. Id. at ¶¶ 40-44.
{19} As to the breach of contract claim, Judge Tennille further found, and
the Court of Appeals affirmed his finding, that there was no competent evidence
that Plaintiff was in “competition” with Defendant at critical times. Following
entry of summary judgment, Plaintiff has consistently and fervently argued that he
had a good faith basis to assert that Plaintiff was in “competition,” and that he had
probative evidence, including Plaintiff’s testimony and supporting affidavits
sufficient to proceed. He claims that it would be particularly egregious for the court
to conclude that his breach of contract claim was frivolous or malicious when the
contract itself did not define the term “competition.” He asserts that to conclude
otherwise would improperly sanction a party for pursuing a good faith claim simply
because he ultimately does not prevail.
{20} Whether or not this argument has force in connection with the breach
of contract claim, it gets no traction in defense of an award based on the Section 75-
1.1 claim. That claim was deficient for reasons beyond the dispute whether
Plaintiff remained in “competition.” This court acknowledges and has at all times
been sensitive to Plaintiff’s argument about an unwarranted chilling effect on a
party’s ability to present a colorable claim. The court’s limitation of fees to those
incurred after the Summary Judgment Order reflects such a sensitivity, and
perhaps an oversensitivity which, in fact, unfairly punishes Defendant. But the
dispute about whether or not there was “competition” only animates the argument
as to whether a claim was stated sufficiently to proceed to trial for breach of
contract. The Chapter 75 claim required more. Plaintiff has never, even now, been
able to articulate a reasonable evidentiary basis on which one could conclude that
Defendant had no intent to perform Part A of the Severance Agreement when it
entered the contract. Evidence that it later decided not to perform under that
agreement does not prove the essential element of fraudulent intent.
{21} Judge Tennille, the Court of Appeals, and this court have given
Plaintiff adequate opportunity to point to evidence supporting a finding that
Defendant entered the Severance Agreement with no intent to perform. Plaintiff
has failed to do so at every turn. Consistently, Plaintiff points only to conduct after
the contract formation, with his greatest emphasis on the fact that Defendant, on
accountant’s advice, later removed a contingent liability off its books without notice
to Plaintiff. It is clear that Plaintiff did not, at the time of entry of the Summary
Judgment Order, have any colorable basis to assert that Defendant had a
fraudulent intent when entering the Severance Agreement. Plaintiff knew or
should have known that there was no basis for the further pursuit of that claim.
{22} While the court believes that the record could support a finding that
Plaintiff knew that claim was without basis when the claim was first initiated, thus
supporting a much more significant award of attorney’s fees, after careful
consideration, and with some reluctance, the court adheres to its decision to limit
the award of attorney’s fees after the entry of the Summary Judgment Order. The
court does not read the Court of Appeals opinion to mandate otherwise. While the
court has been duly sensitive in the potential to chill the pursuit of legitimate
claims, the court should likewise be diligent in guarding against an abusive use of
the breadth and exposure of Section 75-1.1. Balancing those interests to confine the
award of attorney’s fees to after entry of the Summary Judgment Order was a close
call just as was the court’s earlier decision not to grant relief under Rule 11.
{23} But the question of whether Plaintiff should have abandoned his
Section 75-1.1 claim after the Summary Judgment Order is not a close call.
Plaintiff did not just fail to prevail on that claim. He was unable after being given a
full course of discovery to point to any evidence at all upon which a claim based on
fraudulent intent could have been submitted to the jury. Whether or not Plaintiff
continued to believe he had an objective or subjective basis to assert he had been in
“competition” at relevant times, he had no such reasonable basis, objective or
subjective, to assert that he could prove Defendant entered the Severance
Agreement with fraudulent intent.
{24} Having pursued the Section 75-1.1 claim beyond that point, with its
threat of treble damages, Plaintiff is fairly charged with the consequences of his
having done so. Clearly, Plaintiff cannot claim surprise. Defendant has sought an
award of fees under Section 75-16.1 since the beginning of the litigation. Judge
Tennille warned him of that potential at the early Case Management Conference
before discovery began.
{25} Plaintiff’s pursuit of his Section 75-1.1 claim after the Summary
Judgment Order was frivolous and malicious. Plaintiff knew or should have known
that it was frivolous and malicious. This conclusion does not depend on whether
Defendant’s conduct complained of was in or affecting interstate commerce,
although Judge Tennille found that this was a separate and independent reason
why Plaintiff’s Section 75-1.1 claim should be dismissed. Summary Judgment
Order ¶ 40.
{26} Plaintiff’s pursuit of his Section 75-1.1 unnecessarily complicated the
case and increased the scope, necessity and expense of Defendant’s defense.
Defendant should recover its entire reasonable attorney’s fees incurred after the
Summary Judgment Order, with no allocation of those fees to any other claim. In
order to defend the Section 75-1.1 claim, Defendant was obligated to defend the
breach of contract claim. Defendant’s appellate argument and briefing would have
been substantially the same and would have required substantially the same effort
if the appeal had been confined to the Section 75-1.1.
{27} It is particularly appropriate that Defendant recover the full amount of
fees incurred after the Summary Judgment Order where the court has elected not to
award attorney’s fees incurred for proceedings at the trial court, even though the
record includes a basis adequate to support the court’s discretion to such award
under either Section 6-21.5 and Section 75-16. The court has taken this into
consideration in its discretionary determination to limit the award of fees under
Section 75-16.1 to a date after the Summary Judgment Order.
{28} Defendant has provided support indicating that its fees were
reasonable, including affidavits of its lead counsel William Rikard filed November
22, 2011 and November 18, 2013 and the affidavit of Douglas W. Ey, Jr., a leading
litigator in Mecklenburg County. The court is familiar with Mr. Rikard and Mr. Ey,
their skill and experience, and the respect and standing they maintain in the Bar.
Both regularly engage in complex civil litigation, including substantial matters
before this court.
{29} The services performed by Parker Poe on behalf of Defendant in this
litigation were highly skilled, reasonable and necessary.
{30} As Mr. Ey opined, and as the court is aware based on its own
knowledge of billing rates in comparable litigation, the rates charged for the Parker
Poe attorneys and legal assistants in their defense of the Chapter 75 claim were
reasonable and well within if not below the range of such billing rates for
comparable litigation.
{31} The efforts undertaken in the defense were appropriately allocated to
and handled by appropriate personnel matched to the task at hand.
{32} Parker Poe attorneys and paralegals worked a total of 1,093.80 hours
and billed $322,151.07 during the defense of the litigation. The requested fees do
not include the further amount Defendant has incurred in seeking the recovery of
its attorney’s fees and costs.
{33} Parker Poe billed a total of $57,981 in defense after the Summary
Judgment Order. This amount was appropriate, reasonable and necessary.
{34} Plaintiff unreasonably and without warrant refused to resolve and
dismiss his Section 75-1.1 claim after having been given adequate opportunity to do
so.
{35} Defendant incurred the following costs: court reporter fees of $7,321.80
for deposition transcripts, $377.38 for oral argument transcripts, and mediator fees
of $700.00.
CONCLUSIONS OF LAW
{36} Plaintiff instituted an action under N.C. Gen. Stat. § 75-1.1 which
Plaintiff knew or should have known no later than the entry of the Summary
Judgment Order was frivolous and malicious. There was no colorable or justiciable
basis to pursue that claim after that point in time.
{37} Defendant is the prevailing party on Plaintiff’s Section 75-1.1 claim.
{38} The court has discretion to award attorney’s fees to the prevailing
party pursuant to N.C. Gen. Stat. § 75-16.1, which fees may include efforts both at
the trial level and at the appellate level.
{39} Defendant is entitled to an award of attorney’s fees in the amount of
$57,891, which amount is reasonable, and represent billings for work that was
necessary and appropriate and matched to the nature and complexity of the matters
at issue.
{40} The court has discretion to award costs to the prevailing party
pursuant to N.C. Gen. Stat. §§ 6-1, 6-20, which costs may include fees for expenses
related to the taking of depositions, mediator fees, and transcript fees as provided
by N.C. Gen. Stat. § 7A-305(d). Defendant is entitled to recover costs in the total
amount of $8,399.18, representing court reporter fees of $7,321.80 for deposition
transcripts, $377.38 for oral argument transcripts, and mediator fees of $700.00.

THEREFORE, based upon such Findings of Fact and Conclusions of Law, it
is ORDERED that:
1. Pursuant to N.C. Gen. Stat. § 75-16.1 and in the court’s discretion,
CVI shall have and recover of Plaintiff attorney’s fees in the total
amount of $57,891;
2. Pursuant to N.C. Gen. Stat. § 6-20, Defendant shall have and
recover of Plaintiff taxable costs of $8,399.18; and
3. Plaintiff shall therefore pay Defendant the total sum of $66,290.18
within thirty (30) days of the date of this Order.

IT IS SO ORDERED this 26th day of November, 2013.