Se. Air Charter, Inc. v. Stroud

Se. Air Charter, Inc. v. Stroud, 2015 NCBC 79.

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, )
FINAL ORDER ON ATTORNEYS’
JENNIFER STROUD, UTILITY )
COSTS AND FEES
HELICOPTERS, LLC, )
RENAISSANCE JET, LLC, RUSSELL )
VIALL, KAREN LEE ROBINSON and )
DONNIE LAUDERDALE, )
)
Defendants. )
)

{1} THIS MATTER is before the Court for the final determination of
attorneys’ fees to be awarded, and against whom, pursuant to its June 30, 2015
Order. The Court determines the matter without further oral argument pursuant
to Rule 15.4 of the General Rules of Practice and Procedure for the Business Court.
After considering the matters of record, briefs of counsel, and authorities cited, the
Court determines that attorneys’ fees in the total amount of $14,680.70 and costs of
$5,182.83 should be taxed solely against Plaintiff Southeast Air Charter, Inc.
(“SEAC”).
Yarborough, Winters & Neville, P.A. by J. Thomas Neville for Plaintiff.
Van Camp, Meacham & Newman, PLLC by Thomas M. Van Camp and
Richard Lee Yelverton, III for Defendants Russell Viall, Kathleen Steiner-
Crowley, and Karen Lee Robinson.
Gale, Chief Judge.

I. BACKGROUND

{2} This Court issued its initial June 30, 2015 Order (“Initial Order”),
determining that sanctions were appropriate in regard to some but not all of
Plaintiff’s claims, leaving open the amount of attorneys’ fees to be awarded and
against whom they should be taxed, pending receipt of supporting documentation.
The Court now enters its Final Order, incorporating findings and conclusions from
the Initial Order, and repeating only those findings necessary to provide context for
this Final Order.
{3} Plaintiff initiated this action on September 22, 2011, and filed an
Amended Complaint on January 30, 2012. Relevant to this Order, the Complaint
and Amended Complaint alleged the following claims against Defendants Kathleen
Steiner-Crowley (“Steiner-Crowley”), Karen Robinson (“Robinson”), and Russell
Viall (“Viall”) (collectively, “the Moving Defendants”): (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; (11) unauthorized appropriation for invasion of privacy; (12) piercing the
corporate veil; (13) reverse piercing the corporate veil; and (14) punitive damages.
{4} The Moving Defendants have been represented by Van Camp,
Meacham & Newman, PLLC (“the Firm”). Service of a summons on Robinson was
delayed for several months, during which period the Firm represented Steiner-
Crowley and Viall, who each agreed to pay one-half of the Firm’s charges. After
service upon Robinson, the three Moving Defendants agreed to share fees on an
equal, one-third basis. After claims against Steiner-Crowley were dismissed on
September 10, 2013, Robinson and Viall assumed responsibility for equal shares of
the Firm’s charges.
{5} All claims against the Moving Defendants were dismissed before the
Court was required to consider them upon motion. None of the Moving Defendants
filed a motion pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil
Procedure (“Rule(s)”). After the litigation had been pending for several months,
Plaintiff dismissed claims against Steiner-Crowley before she had filed any
dispositive motion. Robinson and Viall filed a motion for summary judgment on
November 26, 2013. Prior to oral argument, Plaintiff dismissed the breach of
fiduciary duty and constructive fraud claims against Robinson and Viall on January
27, 2014, but did not dismiss the conspiracy claim. Robinson and Viall filed a
second motion for summary judgment on April 1, 2014, seeking to dismiss the
conspiracy claims. Plaintiff did not file an opposition but voluntarily dismissed all
remaining claims against Robinson and Viall on April 24, 2015.
{6} On August 28, 2014, the Moving Defendants filed their Motion for
Attorneys’ Fees and Costs. In its Initial Order, the Court determined that Rule 11
sanctions were appropriate as to only some claims, including all claims against
Steiner-Crowley and breach of fiduciary duty and constructive fraud claims against
Robinson and Viall. Se. Air Charter, Inc. v. Stroud, 2015 NCBC LEXIS 68, *21–22
(N.C. Super. Ct. June 30, 2015). The Court deferred determination of the amount of
sanctions pending further documentation of attorneys’ fees incurred. Id. at *27.
{7} On July 18, 2015, the Moving Defendants submitted the Affidavit of
Thomas M. Van Camp (“Van Camp”), requesting a total of $35,887.01 in attorneys’
fees, reflecting $19,322.00 of fees charged to Steiner-Crowley, $7,578.12 of fees
charged to Robinson, and $8,986.89 of fees charged to Viall. Van Camp indicates
that the requested sums for Robinson and Viall represent one-third of the total fees
they incurred while the fiduciary duty claims were pending against them, less any
charges that pertained solely to other claims. (Van Camp Aff. ¶ 10, July 8, 2015.)
{8} Plaintiff’s counsel, J. Thomas Neville (“Neville”), submitted affidavits
to support his argument that no sanctions should be imposed against him or his
firm because he conducted a reasonable and adequate investigation to warrant his
belief that there was a valid factual basis for each claim at the time it was filed. In
particular, Neville asserts that he reasonably relied on assurances from his client
that Steiner-Crowley, Robinson, and Viall were each active participants in the
wrongs committed against Plaintiff, and that Plaintiff had vested each with
sufficient trust and confidence to subject them to a proper claim of breach of
fiduciary duty, even though they were employees and not officers or directors.
Moving Defendants contend that sanctions should be jointly imposed on Plaintiff
and Neville.
II. STANDARD OF REVIEW

{9} If a trial court concludes that a Rule 11 violation has occurred, it
fashions an appropriate sanction and determines upon whom to impose such
sanction. N.C. R. Civ. P. 11(a). The decision is to be made upon the trial court’s
exercise of sound discretion, which should not be based upon “irrelevant or improper
matters.” Hill v. Hill, 173 N.C. App. 309, 315, 622 S.E.2d 503, 508 (2005) (quoting
Cent. Carolina Nissan, Inc. v. Sturgis, 98 N.C. App. 253, 264, 390 S.E.2d 730, 737
(1990)). The imposition of actual sanctions must not be “manifestly unsupported by
reason or . . . so arbitrary that it could not have been the result of a reasoned
decision.” Couch v. Private Diagnostic Clinic, 146 N.C. App. 658, 667, 554 S.E.2d
356, 363 (2001) (quoting State v. Fowler, 353 N.C. 599, 620, 548 S.E.2d 684, 699
(2001)). When awarding attorneys’ fees, the trial court makes “findings regarding
the time and labor expended, the skill required to perform the services rendered,
the customary fee for like work, and the experience and ability of the attorney.”
McKinnon v. CV Indus., 745 S.E.2d 343, 351 (N.C. Ct. App. 2013) (quoting Shepard
v. Bonita Vista Props., L.P., 191 N.C. App. 614, 626, 664 S.E.2d 388, 396 (2008),
aff’d per curiam, 363 N.C. 252, 675 S.E.2d 332 (2009)); see also Polygenex Int’l, Inc.
v. Polyzen, Inc., 133 N.C. App. 245, 253, 515 S.E.2d 457, 463 (1999). When doing so,
it considers the degree of complexity of the specific case. VSD Commc’ns, Inc. v.
Lone Wolf Publ’g Grp., Inc., 124 N.C. App. 642, 646, 478 S.E.2d 214, 217 (1996).

III. ANALYSIS

{10} To determine whether the claimed fees are reasonable, the Court
considers both the rate at which fees were charged and the total amount of time
expended in representation.
{11} The Firm’s charges were for efforts by three attorneys and one
paralegal. Van Camp, a partner at the Firm who has practiced law in North
Carolina for twenty-five years, was primarily responsible for the defense. From
2011 to 2013, Van Camp billed at the rate of $300 per hour. He increased his billing
rate in 2013 to $325 per hour and in 2014 to $350 per hour. Richard Yelverton, III
and Evelyn Savage were associates with eight years’ experience when they began to
work on the matter. Yelverton worked on the matter from 2011 to 2012 with an
initial billing rate of $230 per hour, which was increased to $250 per hour in 2012.
Savage worked on the matter from 2013 to 2014, with an initial billing rate of $225
per hour, which was increased to $240 per hour in 2014. Lorie Morse, a paralegal
with approximately twenty-five years of legal experience, had an initial billing rate
of $100 per hour, which was increased to $125 per hour in 2013.
{12} The Court is aware of rates charged for similar matters in the Superior
Court, including matters designated to this Court from Moore County and similar
locations. The Court finds that the hourly rates charged were appropriate and
reasonable for this case and other cases of similar complexity. Accordingly, the
hourly rates charged were appropriate and reasonable.
{13} The Court then considers whether the overall amount of time charged
on the matter was also reasonable. “The most useful starting point for determining
the amount of a reasonable fee is the number of hours reasonably expended on the
litigation multiplied by a reasonable hourly rate.” Hensley v. Eckerhart, 461 U.S.
424, 433 (1983), quoted in Out of the Box Devs., LLC v. Doan Law, LLP, 2014
NCBC LEXIS 39, *23–24 (N.C. Super. Ct. Aug. 29, 2014). “[H]ours that are
excessive, redundant, or otherwise unnecessary” are not reasonable and should not
be included in the trial court’s assessment of attorneys’ fees. Hensley, 461 U.S. at
434. That determination is neither easy nor straightforward under the particular
circumstances of this case.
{14} The Court has reviewed the Firm’s invoices and finds that, overall,
responsibility was fairly allocated without unnecessary duplication of effort or other
avoidable inefficiency.
{15} In its Initial Order, the Court concluded that all of the claims made
against Steiner-Crowley are subject to sanctions because there was not a sufficient
factual basis to present them. By her motion, Steiner-Crowley contends that this
was apparent at the time the Complaint was first filed. It follows that it was
apparent to her counsel as well as Plaintiff or its counsel. Yet Steiner-Crowley was
charged an equal share of fees and never moved to dismiss the Complaint or the
Amended Complaint under Rule 12(b)(6). While she remained a defendant, Steiner-
Crowley was charged a proportionate share of the Firm’s fees in discovery, motion
practice, and general defense efforts.
{16} As all claims against her are subject to sanctions, allocation of fees
between various claims against Steiner-Crowley is not required. However, it does
not necessarily follow that she is entitled to recover all attorneys’ fees charged to
her. Her motion asserts there were never any grounds for the claims SEAC alleged
against her. (Defs.’ Mot. Clarification Req. Oral Arg. ¶¶ 14–16.) Steiner-Crowley
should bear some responsibility for not attacking those claims on the pleadings
before incurring significant other expense.
{17} Taking all factors into consideration, the Court, in its discretion,
concludes that Steiner-Crowley’s attorneys’ fees should be discounted by fifty
percent. Plaintiff is then taxed for her attorneys’ fees in the total amount of
$9,661.00.
{18} The Court must determine how to allocate attorneys’ fees for claims
against Robinson and Viall between those claims that are subject to sanctions and
those that are not. The sanctions arise from the Court’s conclusion that there was
not an adequate factual basis to assert a colorable claim that Robinson and Viall, as
employees who were not also officers and directors, owed fiduciary duties to
Plaintiff. The Court determined that other claims, while perhaps not ultimately
meritorious, had a sufficient factual basis so that sanctions are not appropriate for
those claims.
{19} The Court does not accept Van Camp’s suggestion that one-third of
attorneys’ fees charged to Robinson and Viall should be allocated to the breach of
fiduciary duty and constructive fraud claims. In his second affidavit, Van Camp
contends this one-third allocation supports a combined award to Robinson and Viall
totaling $16,656.01. (See Van Camp Aff., July 8, 2015.)
{20} As an initial matter, the Court concludes that the total attorneys’ fees
charged to Robinson and Viall for the defense of all claims were reasonable as to
rate, total number of hours charged, and division of efforts among the Firm’s
lawyers and support staff in light of the claims presented. As to whether claims
against Robinson and Viall should have also been attacked by an early motion on
the pleadings, defense counsel faced different strategic considerations. Even if
counsel believed the motion was strong regarding the claims now subject to
sanctions, the strong possibility that other claims would have survived an early
dispositive motion justified allowing even the weak claims to survive. There is an
obvious factual overlap among the various claims. That same factual overlap
requires that the Court give due regard to the principle that Rule 11 only permits
sanctions in “the amount of the reasonable expenses incurred because of the filing of
the pleading.” N.C. R. Civ. P. 11 (emphasis added).
{21} Even if the Amended Complaint had not included the breach of
fiduciary duty and constructive fraud claims, Robinson and Viall would have
incurred attorneys’ fees in connection with the other claims, including those
resulting from preparing responsive pleadings, attending court proceedings and
depositions, addressing issues with service and default, and other necessary efforts
reflected in the Firm’s invoices during the course of the defense.
{22} Van Camp acknowledges that the attorneys’ fees documented in his
affidavit “reflect work done on all of the claims[,] not just the claims for Breach of
Fiduciary Duty and Constructive Fraud.” (Van Camp. Aff. ¶ 10, July 8, 2015.) The
Court has reviewed the invoices in detail. Having done so, it concludes that
awarding one-third of those total fees would be excessive, as it cannot determine
that this amount was incurred solely because the Complaint and Amended
Complaint included the breach of fiduciary duty and constructive fraud claims.
There is, however, no precise way to determine the appropriate amount to award
from the combined effort. The Court, therefore, concludes that it is appropriate to
allocate the total fees on a percentage basis to take into account an award
consistent with Rule 11.1 See Am. Agri-Brokers v. Phykitt, No. 1:88-cv-00657
(E.D.N.C. Oct 3, 1991), cited with approval in Out of the Box Devs., 2014 NCBC
LEXIS 39, at *26–28, and Noel Allen, North Carolina Business Practice § 11.05, at
11-17 (3d ed. 2014).2
{23} Considering all factors, the Court, in its discretion, determines that an
appropriate sanction is ten percent of the total attorneys’ fees charged to Robinson
and Viall, fairly reflecting the time reasonably expended because factually
insufficient claims were included in the Complaint and Amended Complaint. Those
amounts are $2,296.40 and $2,723.30 respectively, for Robinson and Viall, for a
total of $5,01970. This amount should be taxed against Plaintiff. Combined with
those fees awarded to Steiner-Crowley, the Court imposes a total sanction of
$14,680.70 in attorneys’ fees. The Court also incorporates, from its Initial Order, its
finding of costs other than attorneys’ fees that should be taxed against Plaintiff.
{24} The Court now turns to the question of whether these sanctions and
costs should be taxed jointly against Plaintiff and its counsel. In considering
whether to sanction counsel, the controlling question is whether counsel “acted with
objective reasonableness under the circumstances when [he] signed the pleading in

1 It is significant that Rule 11’s purpose is to sanction an inappropriate pleading. The policy
underlying the imposition of sanctions is easily distinguished from the policy underlying the statute
that allows for the recovery of attorneys’ fees upon the successful pursuit of a claim for which there is
a statutory basis for recovering attorneys’ fees. In the latter case, deducting a percentage of
attorneys’ fees would potentially defeat a plaintiff’s ability to receive a full recovery. Even though
there may have been a factual nexus among claims on which plaintiff succeeded and those on which
she did not, it might be unfair to deduct attorneys’ fees where the plaintiff was required to develop a
common factual record in order to recover on any claim. See Okwara v. Dillard Dep’t Stores, Inc.,
136 N.C. App. 587, 596, 525 S.E.2d 481, 487 (2000) (assessing fees under an award statute and
noting that “plaintiff’s claims arose from a common nucleus of operative facts” and that
apportionment of fees relating to unsuccessful claims was not necessary). But, the purpose of
imposing Rule 11 sanctions is not to assure a full recovery on claims arising from a common factual
nucleus. Rather, the purpose is to sanction conduct and the statutory direction is to sanction only
that portion of efforts that would not have been required but for the improper claims. When it
enacted Rule 11, the legislature “never intend[ed] to constrain or discourage counsel from the
appropriate, well-reasoned pursuit of a just result for their client.” Grover v. Norris, 137 N.C. App.
487, 495, 529 S.E.2d 231, 235 (2000).
2 These sources addressed the award of fees to a successful plaintiff bringing an action under a

statute allowing for the recovery of fees, such as section 75-16.1. The Court has noted that this type
of award presents different policy considerations when determining whether to allocate fees. The
sources are useful and instructive, however, in considering possible allocation methods.
question.” Lincoln v. Bueche, 166 N.C. App. 150, 156, 601 S.E.2d 237, 243 (2004)
(internal quotation marks omitted) (quoting Turner v. Duke Univ., 325 N.C. 152,
164, 381 S.E.2d 706, 713 (1989)). The Complaint was filed in close proximity to the
expiration of the statute of limitations for many of the asserted claims. Time
pressures alone do not excuse a reasonable inquiry before filing claims, but those
time pressures may limit the ability to subject client statements to searching
independent scrutiny. Here, Neville testified that he relied on express statements
from his clients that Plaintiff’s owners had reposed trust and confidence in Steiner-
Crowley, Robinson, and Viall of a degree sufficient for the law to impose upon them
special fiduciary duties commensurate with that trust.
{25} The Court determined that these client representations were without
an adequate factual basis. That finding does not necessarily equate to a conclusion
that it was unreasonable for Neville to accept and rely on his client’s assertions and
proceed to file claims based on them. Clearly, even accepting those client
representations as true, the assertion of a fiduciary duty against the Moving
Defendants was, at best, at the edge of case law that might arguably support a
fiduciary duty arising from the employment responsibilities of an employee who was
not also an officer or director. That was particularly so with regard to Steiner-
Crowley, and the Court has struggled most with whether Neville had a sufficiently
reasoned basis to assert a breach of fiduciary duty claim against her. The
Complaint and Amended Complaint allege that Steiner-Crowley served as SEAC’s
Assistant Charter Sales Manager from November 1, 2005, to February 8, 2008, and
in that position was responsible for assisting Robinson with all day-to-day activities
of the sales team, assisting Robinson with the maintenance and control of the entry
of client contact information into a data system, providing daily support to sales
staff in response to client inquiries, assisting with the generation of new business
through telemarketing, and assisting to ensure follow-up on lead sales to staff.
(Compl. ¶¶ 20, 43–44; Am. Compl. ¶¶ 20, 45–46.) At least during discovery, it
became clear that she was subordinate to Defendant Barry Stroud (“Stroud”),
SEAC’s president. Additionally, Steiner-Crowley ceased working at SEAC before
the occurrence of most of the alleged acts giving rise to claims for conversion,
trespass, unjust enrichment, UDTP, fraud, tortious interference, and unauthorized
appropriation.
{26} Where an employee is neither an officer nor a director, extraordinary
circumstances are necessary to impose a fiduciary duty arising out of the
employment relationship. See Dalton v. Camp, 353 N.C. 647, 652, 548 S.E.2d 704,
708 (2001) (“Under the general rule, the relation of employer and employee is not
one of those regarded as confidential.” (internal quotations and citations omitted));
Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC, 2002 NCBC LEXIS 2, *15
(N.C. Super. Ct. July 10, 2002) (noting that management over an entity’s day-to-day
operation does not, itself, give rise to a fiduciary duty claim). Absent extraordinary
circumstances of special relationships of trust and confidence leading to dominion
and control, employees who are not also officers and directors should not be put to
the burden of defending fiduciary duty claims. Here, it is a close question whether
Plaintiff’s representations to Neville regarding the nature and character of Steiner-
Crowley’s position were adequate to form a sufficient factual basis for asserting a
fiduciary duty.
{27} The factual allegations concerning Robinson’s and Viall’s respective
duties come closer to describing a position akin to that of a de facto officer. Where
an employee exercises sufficient discretionary authority and dominion over her
employer, such that the employer becomes “subjugated” to that employee, it is
possible that a fiduciary relationship lies. Tai Sports, Inc. v. Hall, 2012 NCBC
LEXIS 64, *48–49 (N.C. Super. Ct. Dec. 28, 2012).
{28} Based on his client’s assertions, Neville filed a Complaint and
Amended Complaint asserting that Viall was Plaintiff’s Director of Operations and
was responsible for developing policies concerning flight operations; complying with
all laws, rules, and regulations governing flight; overseeing and implementing
training required by the Federal Aviation Regulations; safely operating all aircraft
owned or managed by Plaintiff; ensuring that all aircraft were in compliance with
Federal Aviation Administration and company regulations; and ensuring that each
satellite base had a qualified Chief Pilot. (Compl. ¶ 39; Am. Compl. ¶ 41.) Plaintiff
pled that Robinson served as Charter Sales Manager and Bookkeeper, responsible
for managing “all day to day [sic] activities,” maintaining and controlling client
contact information, providing daily support to sales staff, generating new business,
and ensuring follow-up on leads to sales staff. (Compl. ¶¶ 40–41; Am. Compl. ¶¶
42–43.) Pursuant to her employment responsibilities, Robinson was privy to
confidential client information. (Compl. ¶ 42; Am. Compl. ¶ 44.) These duties and
responsibilities provided Neville a stronger basis from which to conclude that
Robinson’s and Viall’s duties were sufficiently expansive to allow a fiduciary duty
claim to survive early dismissal. See Sunbelt Rentals, 2002 NCBC LEXIS 2, at
*17–20.
{29} As noted in its Initial Order, later deposition testimony from
Plaintiff’s deposition designee to the effect that Robinson and Viall were “run of the
mill” employees who took direction from Stroud (Southeast Air Charter, Inc.
30(b)(6) Dep. Vol. I 226:5–:7) weakened the factual premise on which claims had
been asserted. But, for purposes of considering sanctions against counsel, the
inquiry concerns Neville’s reasonable and good-faith belief at the time the claims
were filed based on adequate investigation that facts supporting the claims existed.
{30} Earlier in the litigation, as part of case management, the Court
expressed its concern about the reach of the claims in the Complaint and Amended
Complaint, in particular that the claims extended beyond those centrally involved
in the underlying alleged factual events. The Court cautioned against proceeding
with such claims without an adequate factual basis. Plaintiff proceeded, cognizant
of the risk that an award of attorneys’ fees may follow. Although the Court does not
take imposing sanctions lightly, after a considered and comprehensive review, the
Court concludes that limited sanctions are appropriate. However, in its discretion,
after considering the entire record, briefs, arguments of counsel, and the policies
underlying Rule 11, the Court concludes that these sanctions should be taxed solely
against Plaintiff and not against its counsel.
IV. CONCLUSION

{31} For the foregoing reasons, as its Final Order, the Court orders that
Plaintiff Southeast Air Charter, Inc. shall pay:
1. Defendant Kathleen Steiner-Crowley attorneys’ fees in the amount of
$9,661.00;
2. Defendant Karen Lee Robinson attorneys’ fees in the amount of
$2,296.40;
3. Defendant Russell Viall attorneys’ fees in the amount of $2,723.30;
4. The Moving Defendants, collectively, taxable costs in the amount of
$ 5,182.83.
These amounts shall be paid within thirty days of the date of this Final Order.

IT IS SO ORDERED this the 17th day of August, 2015.

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