Se. Air Charter, Inc. v. Stroud

Se. Air Charter, Inc. v. Stroud, 2015 NCBC 66.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF LEE 11 CVS 946

SOUTHEAST AIR CHARTER, INC., )
)
Plaintiff, )
)
v. )
)
ROBERT BARRY STROUD, and wife, )
JENNIFER STROUD, UTILITY ) ORDER
HELICOPTERS, LLC, )
RENAISSANCE JET, LLC, RUSSELL )
VIALL, KAREN LEE ROBINSON and )
DONNIE LAUDERDALE, )
)
Defendants. )
)

{1} THIS MATTER is before the Court on Defendants Russell Viall, Karen
Lee Robinson and Kathleen Steiner-Crowley’s Motion for Attorney’s Fees and Costs,
made pursuant to Rules 11 and 41 of the North Carolina Rules of Civil Procedure
(“Rule(s)”) and sections 6-20, 6-21.5, 7A-305, and 75-16.1 of the North Carolina
General Statutes (“Motion for Sanctions”) and Defendants Viall, Robinson &
Steiner-Crowley’s Motion to Strike Affidavit of Gary Joseph Chandler and Request
for Oral Argument (“Motion to Strike”). For the reasons stated below, the Motion to
Strike is DENIED and the Motion for Sanctions is DENIED in part and GRANTED
in part, subject to further documentation.
Yarborough, Winters & Neville, P.A. by J. Thomas Neville for Plaintiff.
Van Camp, Meacham & Newman, PLLC by Thomas Van Camp and Richard
Lee Yelverton, III for Defendants Russell Viall, Kathleen Steiner-Crowley,
and Karen Lee Robinson.
Gale, Chief Judge.
I. STATEMENT OF THE CASE

{2} Plaintiff Southeast Air Charter, Inc. (“SEAC”) initiated this action on
September 22, 2011, bringing claims against Defendants Robert Barry Stroud
(“Stroud”), Jennifer Stroud, Utility Helicopters, LLC (“Utility Helicopters”),
Renaissance Jet, LLC (“Renaissance Jet”), Russell Viall (“Viall”), Karen Lee
Robinson (“Robinson”), Kathleen Steiner-Crowley (“Steiner-Crowley”), Donnie
Lauderdale (“Lauderdale”), Luxury Butler, LLC (“Luxury Butler”), Christopher
David Frushone (“Frushone”), and Scott Moore (“Moore”). For purposes of these
motions, the relevant claims from the original Complaint are those against Viall,
Robinson, and Steiner-Crowley (collectively, “the Moving Defendants”), which are
(1) breach of fiduciary duty (2) constructive fraud, (3) conversion, (4) trespass to
personalty, (5) unjust enrichment, (6) unfair and deceptive trade practices
(“UDTP”), (7) fraud, (8) tortious interference with contract, (9) tortious interference
with prospective contract, (10) conspiracy to commit fraud, (11) unauthorized
appropriation for invasion of privacy, (12) piercing the corporate veil, and (13)
punitive damages. Plaintiff alleges an additional claim for reverse piercing the
corporate veil against only Viall and Robinson.
{3} The case was designated as a mandatory complex business case on
October 31, 2011 and assigned to the undersigned on November 1, 2011.
{4} Plaintiff filed its Amended Complaint on January 30, 2012, adding
Raleigh Heliport, LLC (“Raleigh Heliport”) as a Defendant and alleging two
additional conspiracy claims against, inter alia, the Moving Defendants. More
specifically, Plaintiff alleged that the Moving Defendants and others conspired:
(a) to breach Defendants [sic] fiduciary duty owed to Plaintiff; (b) to
commit constructive fraud; (c) to convert property of the Plaintiff; (d) to
commit trespass to personalty of the Plaintiff; (e) to be unjustly
enriched by the Plaintiff; (f) to commit unfair and deceptive trade
practices; (g) to commit fraud; (h) to tortiously interfere with contracts
of the Plaintiff; (i) to tortiously interfere with prospective contracts of
the Plaintiff; and/or (j) to commit unauthorized appropriation of the
Plaintiff’s name/likeness in furtherance of the overall conspiracy.
(Am. Compl. ¶ 321; see also Am. Compl. ¶¶ 287, 326.)
{5} During the course of the lawsuit and before the final dismissal of all
claims, Plaintiff dismissed all claims against Scott Moore, Luxury Butler, Frushone,
Raleigh Heliport, and Lauderdale.
{6} The Moving Defendants’ counsel asserts that he repeatedly requested
that claims against his clients be dismissed for lack of a factual basis and made his
clients available for interview regarding any inquiry Plaintiff needed to make to
confirm that the claims against them had no merit. (Van Camp. Aff. ¶¶ 3, 4, 6.)
{7} On September 10, 2013, Plaintiff dismissed all claims alleged against
Steiner-Crowley without prejudice.
{8} On November 26, 2013, Viall and Robinson filed a motion for summary
judgment on the breach of fiduciary duty, constructive fraud, UDTP, and civil
conspiracy claims. Among other assertions, Viall and Robinson challenged that
Plaintiff had no basis to assert that they owed SEAC fiduciary duties, as they were
mere employees without domination or control over Plaintiff’s affairs, and that any
claims related to the employment relationship could not support a UDTP claim.
{9} On January 27, 2014, prior to the hearing on the motion for summary
judgment, Plaintiff dismissed all claims against Viall and Robinson with prejudice,
except for the conspiracy claim.
{10} On April 1, 2014, Viall and Robinson filed a second motion for
summary judgment on the remaining claims of civil conspiracy, asserting a total
lack of evidence to support the claims. Plaintiff dismissed those claims with
prejudice before further briefing and argument on the motion.
{11} On July 25, 2014, Plaintiff voluntarily dismissed all remaining claims
against all other Defendants.
{12} On August 28, 2014, the Moving Defendants filed their motion for
attorney’s fees and costs, citing that Plaintiff failed to present credible evidence to
support the claims alleged against the Moving Defendants. (Defs.’ Br. Supp. Mot.
Att’y’s Fees and Costs (“Defs. Supp. Br.”) 16.)
{13} In opposition to this motion, Plaintiff submitted an affidavit from Gary
Joseph Chandler (“Chandler Affidavit”), a former employee of SEAC and co-worker
of the alleged co-conspirators, to demonstrate that Plaintiff had a basis for asserting
its allegations.
{14} The Moving Defendants moved to strike the Chandler Affidavit on the
basis that any information from Chandler should have been disclosed in response to
the motions for summary judgment and should be stricken because of the clear
prejudice to the Moving Defendants, who had not been given the opportunity to
cross-examine Chandler.

II. MOTION TO STRIKE

{15} The Court first determines whether it should allow the Chandler
Affidavit as a part of the record on which the Court considers the Motion for
Sanctions. The Court need not determine whether Chandler’s assertions are true.
Rather, the Court must limit its consideration to those matters of which Chandler
had personal knowledge, and then ask whether any such facts, combined with other
competent evidence, gave Plaintiff a reasonable basis to believe that its claims had
an adequate factual and legal basis.1 Plaintiff rejects the Moving Defendants’
argument that they were prejudiced by an inability to interview or depose
Chandler, countering that it fully cooperated with the Moving Defendants in
seeking to locate Chandler.
{16} In its discretion, the Court concludes that it should limit its
consideration to those matters on which Chandler asserts the requisite personal
knowledge, and then only to the extent it informs Plaintiff’s reasonable belief that
its claims had a legal and factual basis. So limiting its consideration, the Motion to
Strike is DENIED.

III. RELEVANT FACTUAL BACKGROUND

{17} The Court is required to make findings of fact upon which it bases its
decision on whether or not to allow fees pursuant to Rule 11, section 6-21.5, and

1 The Court has considered the Motion to Strike on its merits in the Court’s discretion even though it

was not accompanied by a separate brief as required by Rule 15.2 of the General Rules of Practice
and Procedure for the North Carolina Business Court.
section 75-16.1. N.C. Gen. Stat. § 6-21.5 (2014); McKinnon v. CV Indus., Inc., ___
N.C. App. ___, 745 S.E.2d 343, 350 (2013) (holding that to award attorney’s fees
under section 75-16.1, findings of fact are required); Tucker v. The Blvd. at Piper
Glen LLC, 150 N.C. App. 150, 155–56, 564 S.E.2d 248, 251–52 (2002). The Court’s
findings are limited to the Motion for Sanctions and for discerning Plaintiff’s
reasonable basis, if any, to believe evidence supported claims against the Moving
Defendants, whether or not the ultimate finder of fact would find them to be true.
{18} Plaintiff SEAC is in the business of air charters, air leases, and
aircraft sales, maintenance, and repair. At all times relevant to this dispute,
William J. Henderson (“Henderson”) and William C. Powell (“Powell”) were its sole
owners and directors. At different points in time, Powell served as SEAC’s vice
president, treasurer, and secretary, and Henderson served as SEAC’s president,
treasurer, and assistant secretary. As secretary, Powell was charged with keeping
accurate records of director meetings and corporate books. (Dep. Ex. 19 § V(11);
SEAC 30(b)(6) Dep. Vol. I, 190:25–191:7, 194:10–:20.) As treasurer, Henderson and
Powell were given power over the corporation’s assets. (Dep. Ex. 19 § V(9); SEAC
30(b)(6) Dep. Vol. I, 190:25–191:7, 194:10–:20.)
{19} Stroud replaced Henderson as president of SEAC around September
2006, and remained an officer of SEAC until September 5, 2008. (Stroud Dep. Vol. II
61:4–:9; 62:12. But see Dep. Ex. 19, at 24 (noting that Stroud’s formal resignation
occurred on October 1, 2008).)
{20} Viall began working at SEAC as its Director of Operations under
Stroud’s supervision (Am. Compl. ¶ 40), with duties including developing flight
operation policies, maintaining the safe operation of all aircraft owned or managed
by SEAC, and insuring all dispatched aircraft were in compliance with the Federal
Aviation Administration (“FAA”) and company regulations (Am. Compl. ¶ 41 (a),
(d)–(e); Viall Ans. ¶ 41(a), (d)–(e).) Viall reported to Stroud and was expected to
comply with the duties and tasks Stroud assigned to him. (SEAC 30(b)(6) Dep. Vol.
I 198:5–:16.)
{21} Robinson worked under Stroud’s supervision as SEAC’s Charter Sales
Manager and Bookkeeper (Am. Compl. ¶ 42; Robinson Aff. ¶ 2(g), Jan. 14, 2014;
SEAC 30(b)(6) Dep. Vol. I 198:5–:16), with responsibilities including managing day-
to-day activities, maintaining client contact information on a data system, providing
daily support in response to client inquiries, generating new business with direct
clients, and following up on leads for potential sales (Am. Compl. ¶ 43 (a)–(e);
Robinson Ans. ¶ 43 (a)–(e).) Robinson, in conjunction with Stroud, handled the
money for SEAC, and maintained the corporation’s checking account. (SEAC
30(b)(6) Dep. Vol. I 49:9–:11; 87:17–:18; 145:11–146:4.) Incident to that duty,
Robinson was responsible for billing SEAC customers and had authority to write
checks on behalf of SEAC. (SEAC 30(b)(6) Dep. Vol. II 443:18–:19, 457:16–458:15.)
{22} Steiner-Crowley served as SEAC’s Assistant Sales Manager, assisting
Robinson in her duties. (Am. Compl. ¶¶ 45, 46.) Steiner-Crowley ceased working
for SEAC in early 2008, although the basis for her termination is disputed. (See
Am. Compl. ¶ 20.) The Moving Defendants assert that she was terminated as a
result of supporting Henderson’s wife during a criminal-domestic case. (Defs. Supp.
Br. 19.)
{23} During a February 27, 2013, deposition, Powell, appearing as
Plaintiff’s Rule 30(b)(6) designee, agreed that the Moving Defendants were all “run
of the mill” employees taking direction from Stroud. (SEAC 30(b)(6) Dep. Vol. I
226:5–:7.) As noted below, the Court concludes that Plaintiff has not developed or
offered competent evidence that, as employees rather than directors or officers, the
Moving Defendants exerted an adequate degree of dominion or control over SEAC to
create a fiduciary relationship.
{24} In April 2008, Stroud incorporated Renaissance Jet. (Stroud Dep. Vol.
I 104:19–:22.) He intended to either start his own aircraft maintenance, charter,
and leasing company or eventually purchase all of SEAC’s assets on behalf of
Renaissance Jet. (Stroud Dep. Vol. I 104:19–106:10.) While employed as its
president, Stroud considered purchasing SEAC and had discussed the prospect with
Powell and Henderson. (Barnum Aff. ¶ 13; Stroud Dep. Vol. I 54:1–:18.)
{25} On or around September 5, 2008, Powell and Henderson met with
Stroud concerning SEAC’s corporate books. Henderson offered to sell SEAC or its
assets to Stroud at that time, but Stroud declined. (Stroud Dep. Vol. II 66:8–:11.)
He did not believe that SEAC was “worth saving,” and resigned his position with
SEAC. (Stroud. Dep. Vol. II 62:10–:12.)
{26} Renaissance Jet subsequently employed Viall and Robinson. (Stroud
Dep. Vol. I 113:25–116:19.) SEAC contends that Robinson helped Stroud set up
Renaissance Jet’s offices while still employed by SEAC. (SEAC 30(b)(6) Dep. Vol. II
341:12–:17.)

A. Alleged Attempts to Devalue SEAC

{27} Plaintiff asserts that it has evidence of an agreement between the
Moving Defendants and Stroud to devalue SEAC in furtherance of Stroud’s plan to
eliminate competition for Renaissance Jet. That evidence primarily consists of an
FAA fine against SEAC, two instances of improper crediting to SEAC accounts, and
use of aircraft for personal flights.
{28} SEAC was required to have a qualified individual serving as its Chief
Pilot. 14 C.F.R. § 119.69(a)(2) (2014). To serve as a Chief Pilot, “a person must hold
an airline transport pilot certificate with appropriate ratings and be qualified to
serve as pilot in command in at least one aircraft used in the certificate holder’s
operation,” which meant, among other things, that the pilot must pass an
instrument proficiency check every six months. Id. §§ 119.71(c), 135.297. Plaintiff
asserts that, because SEAC’s new Chief Pilot, whom Stroud had hired, was not
qualified, Stroud and Viall caused SEAC to continue to register Matt Woodruff
(“Woodruff”) as its Chief Pilot after Woodruff had stopped working for SEAC. (Am.
Compl. ¶¶ 65, 67, 68.)
{29} The FAA consequently fined SEAC $30,000 for failure to register a
qualified Chief Pilot, as Woodruff had not undergone an instrument proficiency
check in six months. (Compl. Ex. 2; Am. Compl. Ex. 2.) Based on their respective
duties, it is likely that Robinson and Viall both knew of the fine.
{30} Plaintiff has also developed evidence upon which a conclusion could be
made that, at some point, Robinson and Stroud caused SEAC to improperly credit
Luxury Butler $190,000 in connection with a sale and refurbishment of a helicopter
(Stroud Dep. Vol. I 148:20–149:10, 156:14–17, 225:11–227:19) and to improperly
credit Villa Katherine, in excess of $200,000 (SEAC 30(b)(6) Dep. Vol. II 361:12–
364:19.) Plaintiff was aware of the alleged improper credits to Luxury Butler at the
outset of litigation and learned of the credits to Villa Katherine during the course of
discovery.
{31} The Chandler Affidavit supports information Plaintiff indicates it
learned from a 2012 interview with Chandler: that the Moving Defendants also
authorized and charged improper expenses to SEAC, such as personal flights.
(Chandler Aff. ¶¶ 18(a)–(k).)

B. Alleged Diversion of SEAC Property and Business

{32} Plaintiff also contends that it had competent evidence that the Moving
Defendants conspired to divert SEAC property to Stroud’s companies.
{33} SEAC maintained a contract with Progress Energy to fly over power
line corridors and “look for anything that could cause [the power lines] to go down.”
(SEAC 30(b)(6) Dep. Vol. I 39:1–:5.) While SEAC was still operating, Stroud
transferred the contract to his company, Utility Helicopters, and continued to
service the contract, flying aircraft that SEAC owned. (Stroud Dep. Vol I. 45:9–:23,
48:1–:7; Chandler Aff. ¶ 20(b).) During his deposition, Stroud confirmed that
Robinson knew that he had taken the Progress Energy contract from SEAC.
(Stroud Dep. Vol. I 50:2–:7.) However, there is no concrete record evidence that the
Moving Defendants assisted Stroud in transferring the contract pursuant to any
agreement or common plan.
{34} Chandler informed Plaintiff that SEAC property, including a
refrigerator, grill, golf cart, and avionic equipment, was removed from SEAC’s
hangar and later surfaced in Renaissance Jet’s possession. (Chandler Aff. ¶ 18(i).)
David Lomax, Director of Maintenance for SEAC, corroborated this claim and
informed SEAC’s counsel that he witnessed Stroud and Viall removing this property
and that Robinson was aware of their actions based on her position as Office
Manager and discussions that Lomax had with her. (Neville Aff. ¶ 27(b).) Chandler
also informed Plaintiff that Robinson was turning down organ-harvest flights on the
basis that SEAC did not have an available aircraft when aircraft actually were
available. (Chandler Aff. ¶ 23(a)–(c).)
{35} Plaintiff contends that this evidence of business and personal property
diversion supports its theory that the Moving Defendants and Stroud conspired to
enrich Stroud’s companies at SEAC’s expense.

C. Allegations Regarding the “Eraser” Program

{36} Plaintiff asserts that the installation and use of an “eraser” program to
delete incriminating evidence on SEAC’s computers further supports its claim of
concerted wrongful conduct.
{37} Chandler informed Plaintiff’s counsel that he observed Viall and
Robinson installing an eraser program on SEAC computers in the SEAC office on
the same day that Powell and Henderson met with Stroud regarding SEAC’s
financial distress. (Chandler Aff. ¶ 22(a); Stroud Dep. Vol. II 60:25–61:19.) Nolan
Williams (“Williams”), SEAC’s accountant, corroborated this information in his
deposition. Williams testified that, upon enlisting an individual to examine SEAC
computers, he and Powell learned that certain documents were missing and were
not recoverable. (Williams Dep. 19:23–20:9.) Robinson denies that she had any
involvement in installing an eraser program on SEAC computers. (Robinson Aff. ¶
3(c), Oct. 17, 2014).
{38} Again, Moving Defendants vigorously challenge each of these factual
assertions. The Court need not decide whether a jury would likely find the evidence
to be as Plaintiff contends. Rather, the question is whether Plaintiff should be
sanctioned because it had no adequate basis from which to conclude that its claims
had potential merit and should be prosecuted.
IV. LEGAL AUTHORITY AND CONCLUSIONS

{39} The Court should also make conclusions of law when considering a
motion for sanctions. N.C. Gen. Stat. § 6-21.5; The Blvd. at Piper Glen, 150 N.C.
App. at 155–56, 564 S.E.2d at 251–52; see generally Friday v. United Dominion
Realty Trust, 155 N.C. App. 671, 575 S.E.2d 532 (2002) (holding an award of
attorney’s fees under section 75-16.1 requires that the trial court must make
conclusions of law).

A. Recovery of Costs under N.C. Gen. Stat. § 6-20 and Rule 41

{40} Rule 41 provides that “[a] plaintiff who [voluntarily] dismisses an
action or claim . . . shall be taxed with the costs of the action.” N.C. R. Civ. P. 41(d).
In such cases, the trial court is required to assess all costs permitted under section
7A-305. Lord v. Customized Consulting Specialty, Inc., 164 N.C. App. 730, 734, 596
S.E.2d 891, 894–95 (2004). This includes “[r]easonable and necessary expenses . . .
for the cost of deposition transcripts.” N.C. Gen. Stat. § 7A-305(d)(10) (2014).
Plaintiff objects to any award on this basis because, “[i]f not for the actions of the
Movants, there would have not been any depositions.” (Pl.’s Br. Opp’n Defs.’ Mot.
Att’y’s Fees and Costs and Req. Oral Arg. 37.)
{41} On September 10, 2013, Plaintiff dismissed all claims against Steiner-
Crowley. On January 27, 2014, Plaintiff dismissed all claims against Robinson and
Viall except the conspiracy claims, which claims it dismissed on April 24, 2014.
The three Moving Defendants agreed to share costs on an equal basis. Prior to
these dismissals, the Moving Defendants each incurred $1,727.61 in acquiring
deposition transcripts for Williams, Hugh Bingham,2 SEAC, Frushone,3 and Stroud.
(Van Camp Aff. Ex. B.) Each deponent’s testimony related to the alleged conspiracy
between the Moving Defendants, Stroud, Jennifer Stroud, Renaissance Jet, Utility
Helicopters, Raleigh Heliport, Luxury Butler, and Frushone. Therefore, it was

2 Hugh Bingham testified on behalf of First Bank regarding an allegedly improper transaction

between Luxury Butler and SEAC.
3 Christopher Frushone, a member-manager of Luxury Butler, testified regarding an allegedly

improper transaction between his company and SEAC.
reasonable and necessary that the Moving Defendants’ attorney acquire a copy of
each deposition transcript and attempt to use the testimony to defend claims
against his clients.
{42} Accordingly, the Moving Defendants are entitled to recover and
Plaintiff shall pay the Moving Defendants the requested costs, totaling $5,182.83,
pursuant to Rule 41(d).
{43} Having made this award pursuant to Rule 41, the Court need not
award further costs under section 6-20, which provides that, “where allowance of
costs is not otherwise provided by [law], costs may be allowed in the discretion of
the court.” N.C. Gen. Stat. § 6-20 (2014). But for the award under Rule 41, the
Moving Defendants would be entitled to those costs pursuant to section 6-20.

B. Award of Attorneys’ Fees Pursuant to Rule 11

{44} Every pleading must be signed by an attorney, or if the filing party is
unrepresented, the party himself. N.C. Civ. P. Rule 11(a).
The signature of an attorney or party constitutes a certificate by him
that he has read the pleading, motion, or other paper; that to the best
of his knowledge, information, and belief formed after reasonable
inquiry it is well grounded in fact and is warranted by existing law or a
good faith argument for the extension, modification, or reversal of
existing law, and that it is not interposed for any improper purpose,
such as to harass or to cause unnecessary delay or needless increase in
the cost of litigation.
Id.
If, given the knowledge and information which can be imputed to a
party, a reasonable person under the same or similar circumstances
would have terminated his or her inquiry and formed the belief that
the claim was warranted under existing law, then the party’s inquiry
will be deemed objectively reasonable.
Bryson v. Sullivan, 330 N.C. 644, 661–62, 412 S.E.2d 327, 336 (1992) (“Bryson II”).
{45} If a pleading is signed in violation of Rule 11, the court must impose
sanctions upon the signing attorney, the represented party, or both. N.C. R. Civ. P.
11. These sanctions “may include an order to pay to the other party or parties the
amount of the reasonable expenses incurred because of the filing of the pleading, . . .
including a reasonable attorney’s fee.” Id. “[I]n determining compliance with Rule
11, courts should avoid hindsight and resolve all doubts in favor of the signer.”
Johnson v. Harris, 149 N.C. App. 928, 938, 563 S.E.2d 224, 230 (2002) (internal
quotations and citations omitted). A pleading is measured by its factual sufficiency
and its legal sufficiency.

i. Factual Sufficiency

{46} For a pleading to be factually sufficient under Rule 11, the signatory
must have undertaken a reasonable inquiry into the facts and, based upon that
inquiry, reasonably believed that his position was well grounded in fact. McClerin
v. R-M Indus., 118 N.C. App. 640, 644, 456 S.E.2d 352, 355 (1995) (citing Higgins v.
Patton, 102 N.C. App. 301, 306, 401 S.E.2d 854, 857 (1991)).
{47} Although not necessary to its conclusions below, the Court notes that,
early in the litigation, it observed the sweeping breadth of Plaintiff’s claims against
the array of defendants, with few specific factual allegations directed at them. At
the initial case management conference and thereafter, the Court has cautioned
Plaintiff that it was likely that it would face a motion for sanctions if it failed to
develop supporting factual evidence, and that it should proceed with awareness of
this likelihood.
{48} After careful review, without needing to conclude whether such facts
are true, the Court finds that Plaintiff made a reasonable inquiry before
determining that allegations were well grounded in fact and “susceptible of proof”
that Viall and Robinson converted and trespassed upon SEAC’s personal property,
unjustly enriched themselves and Stroud’s companies at SEAC’s expense, concealed
material facts from SEAC, tortiously interfered with SEAC’s existing and
prospective contracts, and did so pursuant to a common agreement or plan for the
Stroud companies’ benefit and at SEAC’s expense, which conduct might rise to an
actionable UDTP claim. See Page v. Roscoe, LLC, 128 N.C. App. 678, 686, 497
S.E.2d 422, 427 (1998). Before initiating the action, Plaintiff had evidence, which it
believed to be true, that Stroud misappropriated SEAC’s contract with Progress
Energy and that Robinson and Viall likely knew about this misappropriation.
Plaintiff had also learned directly from Chandler that Robinson and Viall removed
personal property from SEAC’s premises and authorized personal air charter
services without charging clients. Based on reports from Chandler regarding organ-
harvest flights, Plaintiff formed a reasoned suspicion that Robinson was turning
down potential business for SEAC. Finally, Plaintiff had a reasoned suspicion that
Robinson, Viall, or both, ran an eraser program on SEAC computers to destroy
certain documents. When viewed together, these facts form a factually sufficient
basis to allege the above claims against Robinson and Viall in compliance with Rule
11.
{49} However, after review of the complete record, the Court finds no actual
or proffered evidentiary basis for the assertion that Steiner-Crowley was involved in
any of the above acts, had knowledge of them, or explicitly or implicitly joined in
any conspiracy. The Court concludes that Plaintiff had no reasonable, factual basis
to believe it had adequate support for any claim against Steiner-Crowley at the time
of filing the Complaint.
{50} The Court likewise concludes that, at the time of filing the Complaint,
Plaintiff’ had no reasoned basis to believe that Robinson or Viall owed Plaintiff
fiduciary duties as a result of their employment. “For a breach of fiduciary duty to
exist, there must first be a fiduciary relationship between the parties.” Dalton v.
Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001). Similarly, Plaintiff’s
constructive fraud claim requires a fiduciary relationship. Ward v. Fogel, ___ N.C.
App. ___, 768 S.E.2d 292, 300 (2014), review denied, 771 S.E.2d 302 (N.C. 2015).
Plaintiff was well aware that Robinson and Viall were not officers with
corresponding fiduciary duties. Nevertheless, Plaintiff asserted that their duties
gave them dominion over the company and its employees, making them “de facto
officers.” (Pl.’s Br. Opp’n Russell Viall and Karen Robinson’s Mot. Partial Summ. J.
13 (citing Tai Sports v. Hall, 2012 NCBC LEXIS 64, at *48 (N.C. Super. Ct. Dec. 28,
2012).) There is not now and has not been a factual basis for Plaintiff to so
conclude. Plaintiff admitted as much when its Rule 30(b)(6) designee confirmed
that the Moving Defendants were “run of the mill” employees who took direction
from Stroud. (SEAC 30(b)(6) Dep. Vol. I 226:5–:7.)
{51} In sum, Plaintiff was aware when first filing the action and again
when amending its Complaint that it had no factual basis to assert its claims
against Steiner-Crowley or its claims for breach of fiduciary duty and constructive
fraud against Viall and Robinson.
{52} The Court then concludes that limited Rule 11 sanctions are
appropriate for having filed the claims for which Plaintiff had no reasonable basis to
believe were factually supported.

ii. Legal Sufficiency

{53} The Court must separately examine whether there was a reasoned
basis to conclude that there was support in existing law, as it might reasonably be
expanded, for Plaintiff’s claims that lack an adequate factual basis. Polygenex Int’l,
Inc. v. Polyzen, Inc., 133 N.C. App. 245, 249, 515 S.E.2d 457, 460 (1999). On this
question, the movant bears the burden of persuasion. Bryson v. Sullivan, 102 N.C.
App. 1, 12, 401 S.E.2d 645, 654 (1991), aff’d in part, rev’d in part on other grounds,
330 N.C. 644, 412 S.E.2d 327 (1992) (“Bryson I”). If the court determines that the
pleading is implausible under existing law, the court will examine “whether to the
best of the signer’s knowledge, information, and belief formed after reasonable
inquiry, the complaint was warranted by the existing law.” Id. (internal quotations
and citations omitted). The reasonableness of the belief that the complaint is
warranted by existing law should be judged as of the time the document was signed.
Lincoln v. Bueche, 166 N.C. App. 150, 156, 601 S.E.2d 237, 243 (2004).
{54} As to claims against Robinson and Viall, other than for breach of
fiduciary duty and constructive fraud, the Court concludes that Plaintiff “undertook
a reasonable inquiry into the law and formed a reasonable belief that the complaint
was warranted by existing law.” See Page, 128 N.C. App. at 686, 497 S.E.2d at 427.
While the UDTP claim may not have been supported solely by reason of the
employment relationship between Plaintiff and the Moving Defendants, it was
reasonable to pursue a UDTP claim assuming the success of the other underlying
claims.

iii. Improper Purpose

{55} “The improper purpose prong of Rule 11 is separate and distinct from
the factual and legal sufficiency requirements.” Bryson II, 330 N.C. at 663, 412
S.E.2d at 337. An improper purpose is any purpose other than to vindicate one’s
rights and may be inferred from the individual’s behavior. Ward v. Jett Props.,
LLC, 191 N.C. App. 605, 609, 663 S.E.2d 862, 865 (2008). “There must be a strong
inference of improper purpose to support imposition of sanctions.” Bass v. Sides,
120 N.C. App. 485, 488, 462 S.E.2d 838, 840 (1995).
{56} The Court finds there is not an adequate record to support a finding
that Plaintiff brought its claims for an improper purpose.

C. Award of Attorneys’ Fees Pursuant to N.C. Gen. Stat. § 6-21.5

{57} Defendants also move for recovery of attorneys’ fees and costs under
section 6-21.5, which provides the trial court with authority to award reasonable
attorneys’ fees to the prevailing party “if the court finds that there was a complete
absence of a justiciable issue of either law or fact raised by the losing party in any
pleading.” N.C. Gen. Stat. § 6-21.5.4
{58} In ruling on a motion for sanctions brought under section 6-21.5, the
trial court must “evaluate whether the losing party persisted in litigating the case
after a point where he should reasonably have become aware that the pleading he

4 The Court notes its uncertainty as to whether the Moving Defendants can first properly be

considered “prevailing parties” within section 6-21.5’s and section 75-16.1’s meaning. Compare
Bryson v. Sullivan, 220 N.C. 644, 664, 412 S.E.2d 327, 338 (1992) (noting that a defendant who was
voluntarily dismissed with or without prejudice could be considered a prevailing party, but omitting
criteria), with H.B.S. Contractors v. Cumberland Cty., 122 N.C. App. 49, 57–58, 468 S.E.2d 517, 523
(1996) (applying a merits test to determine whether the plaintiff was the prevailing party, which
requires that the party “succeed on any significant issue in the litigation which achieves some of the
benefit the parties sought in bringing the suit”). In any case, excepting the claims for which the
Court has found inadequate factual support at the time they were alleged, the Court determines that
justiciable issues remained and that the claims were not frivolous. Therefore, it need not decide the
prevailing party question.
filed no longer contained a justiciable issue.” Sunamerica Fin. Corp. v. Bonham,
328 N.C. 254, 258, 400 S.E.2d 435, 438 (1991).
{59} Justiciable issues are those that are “real and present as opposed to
the imagined or fanciful.” Id. at 257, 400 S.E.2d at 437 (internal quotation omitted).
Appellate case law indicates that, on examining whether a justiciable issue is
absent, a trial court must give the losing party’s pleadings “the indulgent treatment
which they receive on motions for summary judgment or to dismiss.” Sprouse v. N.
River Ins. Co., 81 N.C. App. 311, 326, 344 S.E.2d 555, 565 (1986). In other words,
the Court will view the facts in the light most favorable to Plaintiff.
{60} Upon review of the record, the Court finds that real and present issues
remained throughout the litigation as to whether Viall and Robinson converted and
trespassed upon SEAC’s personal property, were unjustly enriched at SEAC’s
expense, committed unfair and deceptive trade practices, concealed material facts
from SEAC, tortiously interfered with SEAC’s existing and prospective contracts,
and did so pursuant to an agreement or common plan to benefit themselves, Stroud,
or his companies at SEAC’s expense.
{61} Plaintiff’s prosecution of the claims for breach of fiduciary duty and
constructive fraud, brought in violation of Rule 11, would also support imposition of
fees under section 6-21.5.

D. N.C. Gen. Stat. § 75-16.1

{62} In any lawsuit where a UDTP violation is alleged, the presiding judge
may, in his discretion, “allow a reasonable attorney fee to the duly licensed attorney
representing the prevailing party.” N.C. Gen. Stat. § 75-16.1 (2014). For a
defendant to recover attorney’s fees under section 75-16.1, he must establish that
“he is the prevailing party, that [the p]laintiff knew, or should have known the
claim was frivolous and malicious, and that the requested fee is reasonable.”
Basnight v. Diamond Devs., Inc, 178 F. Supp. 2d 589, 592 (M.D.N.C. 2001) (citing
N.C. Gen. Stat. § 75-16.1). Such an award is within “the sound discretion of the
trial judge.” Media Network, Inc. v. Long Haymes Carr, Inc., 197 N.C. App. 433,
460, 678 S.E.2d 671, 688 (2009) (quoting Castle v. McCullogh, Inc. v. Freedman, 169
N.C. App. 497, 504, 610 S.E.2d 416, 421–22 (2005)).
{63} On reviewing the record, the Court finds no basis for determining that
Plaintiff’s UDTP claim against Robinson and Viall was either malicious or frivolous.
Claims are not “frivolous” simply because they are weak. Cincinnati Ins. Co. v.
Dynamic Dev. Grp., LLC, 336 F. Supp. 2d 552, 566–67 (M.D.N.C. 2004). The Court
does not find Plaintiff’s UDTP claim so frivolous as to justify the imposition of fees.

V. CONCLUSION

{64} For the foregoing reasons:
1. Defendants’ Motion to Strike Affidavit of Gary Joseph Chandler is
DENIED.
2. Defendants’ Motion for Attorney’s Fees and Costs is DENIED in part
and GRANTED in part.
3. Defendant Steiner-Crowley is entitled to an award of reasonable
attorneys’ fees, but only for the fees she incurred defending claims
asserted against her.
4. Defendants Robinson and Viall are entitled to an award of reasonable
attorneys’ fees, but only for defense of the claims for breach of fiduciary
duty and corresponding constructive fraud.
5. Defendants Steiner-Crowley, Robinson, and Viall are entitled
collectively to recover as costs the total sum of $5,182.83.
6. Moving Defendants’ counsel shall, on or before thirty days from the
date of this Order, submit a further affidavit attesting to attorneys’
fees incurred, specific to the claims for which the Court has determined
sanctions should be entered for lack of factual support. If counsel
contends the Court should apportion fees incurred for efforts that were
devoted to the defense of both those claims and claims for which the
Court has determined that sanctions are not appropriate, counsel shall
provide support for this claim and the requested method of
apportionment.

IT IS SO ORDERED this the 30th day of June, 2015.

/s/ James L. Gale
James L. Gale
Chief Special Superior Court Judge
for Complex Business Cases