Slattery v. Appycity, LLC

Slattery v. AppyCity, LLC, 2021 NCBC 17.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 19 CVS 12382

JOHN SLATTERY,

Plaintiff,

v. ORDER AND OPINION ON MOTION
FOR SUMMARY JUDGMENT
APPYCITY, LLC; TIMOTHY S.
FIELDS; MELISSA CRETE; and
DAISY MAE FOWLER a/k/a DAISY
MAE BARBER,

Defendants.

1. THIS MATTER is before the Court on plaintiff John Slattery’s (“Slattery”)

Motion for Summary Judgment (the “Motion”) filed on 24 September 2020. (Mot. for

Summ. J., ECF No. 29.) Through the Motion and pursuant to Rule 56 of the North

Carolina Rules of Civil Procedure (the “Rule(s)”), Slattery moves for summary

judgment on all his claims against defendants AppyCity, LLC (“AppyCity”), Timothy

S. Fields (“Fields”), Melissa Crete (“Crete”), and Daisy Mae Fowler a/k/a Daisy Mae

Barber (“Fowler”) (collectively, “Defendants”). (Mot. for Summ. J. 1.) Slattery

initially also moved for summary judgment on his claims against Pamela Bowman

(“Bowman”), (Mot. for Summ. J. 1), who was a defendant in this action until Slattery

voluntarily dismissed without prejudice all his claims against her on 20 November

2020, (V. Dismissal, ECF No. 34), thus rendering the Motion moot as to Bowman.

2. For the reasons set forth in this Order and Opinion, the Court GRANTS in

part and DENIES in part the Motion as to AppyCity, Fields, Crete, and Fowler and

DENIES as MOOT the Motion as to Bowman.
Tuggle Duggins P.A., by Jeffrey S. Southerland and Benjamin P. Hintze,
for plaintiff John Slattery.

No counsel appeared for defendants AppyCity, LLC, Timothy S. Fields,
Melissa Crete, Daisy Mae Fowler a/k/a Daisy Mae Barber, or Pamela
Bowman

Robinson, Judge.

I. INTRODUCTION

3. This action arises out of Defendants’ alleged wrongful conduct, including

alleged false promises of unique and valuable technology and misrepresentations

concerning potential profits, which Slattery contends induced him to invest in

AppyCity, a sham technology company. Slattery alleges that Fields and Crete, acting

on their own behalf and on behalf of AppyCity as its agents, convinced Slattery to

invest $500,000.00 in AppyCity. Those funds were then allegedly diverted out of

AppyCity, with Fowler and Bowman’s assistance, for the benefit of Fields and Crete.

These alleged acts form the basis for Slattery’s claims for fraud and negligent

misrepresentation against Fields, Crete, and AppyCity, breach of fiduciary duty and

constructive fraud against Fields and Crete, and unfair and deceptive trade practices

and civil conspiracy against all Defendants.

II. PROCEDURAL HISTORY

4. Slattery initiated this lawsuit on 11 September 2019 upon filing his

Complaint against AppyCity, Fields, and Crete. (ECF No. 3.) This case was

designated to the Business Court by Order of the Chief Justice of the Supreme Court

of North Carolina that same day, (ECF No. 1), and then assigned to the undersigned

by Order of the Chief Business Court Judge on 12 September 2019, (ECF No. 2).
5. On 7 February 2020, Slattery filed his Amended Complaint, adding Fowler

and Bowman as defendants to this action. (Am. Compl., ECF No. 11.)

6. On 28 July 2020, the Court entered default pursuant to Rule 55(a) against

AppyCity, Fields, Crete, Fowler, and Bowman based on their failure to timely answer

or otherwise respond to Slattery’s Amended Complaint. (ECF No. 26.)

7. Along with the Motion, Slattery filed a supporting brief and affidavits from

Slattery and his wife, Susan Slattery, on 24 September 2020. (Mot. for Summ. J.; Aff.

of John Slattery, ECF No. 29.2 [“J. Slattery Aff.”]; Aff. of Susan Slattery, ECF No.

29.3 [“S. Slattery Aff.”]; Br. in Supp., ECF No. 30.)

8. Although permitted to do so under Business Court Rule 7, AppyCity, Fields,

Crete, Fowler, and Bowman did not file a responsive brief or any other document in

opposition to the Motion.

9. On 17 November 2020, the Court held a video conference hearing on the

Motion, at which Slattery was represented by his counsel. AppyCity, Fields, Crete,

Fowler, and Bowman did not appear, either individually or through counsel, at the

17 November 2020 hearing. 1

10. Following the 17 November 2020 hearing, Slattery voluntarily dismissed

without prejudice his claims against Bowman. (V. Dismissal.)

11. The Motion is ripe for resolution.

1 In the Notice of Hearing for the 17 November 2020 hearing, the Court directed Slattery’s
counsel to serve upon AppyCity, Fields, Crete, Fowler, and Bowman a copy of the Notice of
Hearing by certified mail and to file an affidavit attesting to such service. (ECF No. 31.)
Slattery’s counsel filed an affidavit of service on 9 November 2020, confirming that counsel
served Defendants with a copy of the Notice of Hearing by certified mail addressed to their
last known addresses. (ECF No. 33.)
III. FACTUAL BCKGROUND

12. The Court does not make findings of fact when ruling on motions for

summary judgment. See In re Estate of Pope, 192 N.C. App. 321, 329 (2008). Instead,

the Court will recite the relevant facts, taken from Slattery’s Amended Complaint

and the evidence submitted in support of the Motion, that are undisputed as a result

of the entry of default against Defendants and their failure to respond to the Motion.

See id. (“While it is true that a trial court may not, on summary judgment, make

findings of fact resolving disputed issues of fact, when . . . the material facts are

undisputed, an order may include a recitation of those undisputed facts.”); Spartan

Leasing, Inc. v. Pollard, 101 N.C. App. 450, 460 (1991) (“The effect of an entry of

default is that the defendant against whom entry of default is made is deemed to have

admitted the allegations in [the] complaint.” (citing N.C.G.S. § 1A-1, Rule 8(d))).

A. The Parties

13. Slattery is a resident of Florida. (Am. Compl. ¶ 1.)

14. AppyCity is a limited liability company (“LLC”) organized under the laws

of North Carolina with its principal place of business located in Rocky Point, North

Carolina. (Am. Compl. ¶ 2.)

15. Fields is a resident of Wilmington, North Carolina. (Am. Compl. ¶ 4.) At

all relevant times, Fields was an owner, manager, and agent of AppyCity. (Am.

Compl. ¶¶ 4, 17; J. Slattery Aff. ¶ 14.)
16. Crete is a resident of Wilmington, North Carolina. (Am. Compl. ¶ 5.) At

all relevant times, Crete was an owner and agent of AppyCity. (Am. Compl. ¶¶ 5, 17;

J. Slattery Aff. ¶ 14.)

17. Fields and Crete collectively owned a majority interest in AppyCity during

the time period relevant to the Amended Complaint, and by virtue of their collective

majority interest, they exercised complete control over all aspects of AppyCity,

including AppyCity’s business operations and financial information. (Am. Compl.

¶¶ 17–19; J. Slattery Aff. ¶ 14.)

18. Fowler is a resident of Aberdeen, North Carolina. (Am. Compl. ¶ 6.) Fowler

is Fields’ mother. (J. Slattery Aff. ¶ 30.)

B. Fields and Crete Solicit Slattery’s Investment

19. In 2015, Slattery met Fields and Crete through Jonathan Weiss (“Weiss”),

a longtime friend of Slattery. (Am. Compl. ¶ 13; J. Slattery Aff. ¶ 3.) Fields and Crete

introduced themselves to Slattery as owners of various technology businesses that

developed and designed software applications, including North Carolina-based The

Education App, LLC (“The Education App”) and AppyCity. (Am. Compl. ¶ 3; J.

Slattery Aff. ¶ 3.) Fields and Crete invited Slattery, who had no professional

experience in the technology industry, to invest in The Education App and AppyCity.

(J. Slattery Aff. ¶¶ 5, 8.)

20. Fields and Crete represented to Slattery that they had developed

breakthrough, unique, and valuable technology (i.e., applications), making The

Education App and AppyCity valuable companies that were likely to be very
profitable. (J. Slattery Aff. ¶¶ 4, 6.) Fields and Crete also represented to Slattery

that AppyCity was an extremely valuable company by virtue of being a party to

numerous existing and expected contracts, that AppyCity would soon be realizing

substantial revenues, and that AppyCity may ultimately be sold for a significant

profit. (J. Slattery Aff. ¶ 7.) These representations by Fields and Crete were false

and were known by Fields and Crete to be false at the time they were made. (Am.

Compl. ¶¶ 15, 35.) In reality, Fields and Crete’s technology had no value whatsoever.

(Am. Compl. ¶ 15.)

21. Fields and Crete were aware of Slattery’s lack of experience in the

technology industry and that he was relying on their false statements regarding the

value and performance of their technology to make a decision about investing in The

Education App and AppyCity. (J. Slattery Aff. ¶ 8.)

22. Based on Fields and Crete’s false representations, Slattery decided to invest

in the companies owned by Fields and Crete. (Am. Compl. ¶¶ 20, 35; J. Slattery Aff.

¶ 9.) First, beginning on or around 10 May 2015, Slattery acquired a 10% ownership

interest in The Education App by paying Fields, The Education App, and Weiss (a

part owner of The Education App) three separate amounts that together totaled

$250,000.00. (Am. Compl. ¶ 21; J. Slattery Aff. ¶ 10.)

23. Then, in or around September 2016, Fields and Crete contacted Slattery

and told him that, though The Education App was performing adequately, AppyCity’s

business was “exploding” and “billion-dollar companies” were courting AppyCity for

a potential acquisition. (J. Slattery Aff. ¶ 11.) Fields and Crete informed Slattery
that AppyCity needed additional funds for necessary short-term operations and

growth prior to the anticipated sale of AppyCity to a major technology company. (J.

Slattery Aff. ¶ 12.) These representations by Fields and Crete were false and were

known by Fields and Crete to be false at the time they were made. (Am. Compl.

¶¶ 24, 26.) Fields and Crete intended for Slattery to rely on these false

representations when deciding whether to invest in AppyCity. (Am. Compl. ¶ 26.)

24. Based on Fields and Crete’s false representations, Slattery invested a total

of $500,000.00 into AppyCity. (Am. Compl. ¶¶ 25–28, 35; J. Slattery Aff. ¶ 13.) He

acquired a 5% ownership interest in AppyCity by (1) transferring his 10% interest in

The Education App (which he had purchased for a total sum of $250,000.00) to Fields

and (2) paying Fields an additional $250,000.00. (Am. Compl. ¶¶ 25, 35; J. Slattery

Aff. ¶ 13.)

25. Had Slattery known the truth about Fields and Crete’s false

representations, he would not have invested in any of their companies. (Am. Compl.

¶¶ 35–36.)

26. Furthermore, Slattery had no means to verify or refute Fields and Crete’s

false representations. (Am. Compl. ¶ 27.) Fields and Crete had substantial expertise

and knowledge regarding the technology industry. (Am. Compl. ¶ 27.) Slattery, in

contrast, had no technical expertise (as he told Fields and Crete) in computer

technology, computer coding, application development, or application valuations.

(Am. Compl. ¶ 27.) Also, at the time Fields and Crete solicited Slattery’s investment,

the applications associated with AppyCity were fairly new and untested, and there
was no established or objective evaluation criteria for such technology in the relevant

marketplace. (Am. Compl. ¶ 27.) And when Slattery specifically questioned Fields

and Crete about the applications, they provided concrete assurances and statements

regarding the applications’ value, as well as AppyCity’s supposed value and ongoing

negotiations with other companies, which Fields and Crete claimed they could not

discuss in detail due to their confidential nature. (Am. Compl. ¶ 27.)

C. The Netflix Deal

27. In February 2017, Slattery contacted Fields and Crete seeking an update

on AppyCity. (J. Slattery Aff. ¶ 15.) Fields and Crete informed Slattery that

AppyCity was in serious negotiations with Netflix and that Netflix was interested in

acquiring AppyCity’s technology in connection with Netflix launching a mobile

gaming platform. (J. Slattery Aff. ¶ 15.) Fields and Crete also informed Slattery that

Chris Christenson (“Christenson”), an attorney representing AppyCity, had

negotiated a deal for the sale of AppyCity’s technology to Netflix for $1.2 billion. (J.

Slattery Aff. ¶ 16.) These representations by Fields and Crete were false and were

known by Fields and Crete to be false at the time they were made. (Am. Compl. ¶ 29.)

Fields and Crete made these false representations to conceal the sham nature of

AppyCity. (Am. Compl. ¶ 29.)

28. Concerned with the potential tax consequences of the anticipated deal with

Netflix, Slattery retained a tax attorney named Brian Kennedy (“Kennedy”). (J.

Slattery Aff. ¶ 17.) On 8 February 2017, Slattery, Kennedy, and Fields had a

conference call, during which Slattery offered to personally pay for Kennedy’s time to
review the proposed Netflix contract and to consult and collaborate with Christenson

regarding the proposed Netflix contract. (J. Slattery Aff. ¶ 18.) Fields agreed to

Slattery’s proposal and said he would provide Slattery with Christenson’s contact

information. (J. Slattery Aff. ¶ 18.) Following this conference call, Slattery

repeatedly requested that Fields and Crete provide the contact information for

Christenson, but all these requests were ignored. (J. Slattery Aff. ¶ 19.)

29. Around this same time, Fields told Slattery that Slattery should consider

the possibility of converting the proceeds from the proposed Netflix contract to Bitcoin

or other cryptocurrency, because, according to Fields, cryptocurrency is untraceable,

has no central bank, and could aid in avoiding tax liability. (J. Slattery Aff. ¶ 20.)

Fields repeatedly discussed Bitcoin and cryptocurrency with Slattery, including the

fact that Fields had set up Bitcoin wallets for himself, Crete, Fowler, and Bowman

(Crete’s mother). (J. Slattery Aff. ¶¶ 20, 31.)

30. Fields and Crete became increasingly evasive regarding the purported

Netflix deal. (J. Slattery Aff. ¶ 21.) On or around 21 August 2017, Fields told Slattery

that Fields was with Christenson meeting with Apple at its headquarters in

Cupertino, California in connection with the Netflix deal. (J. Slattery Aff. ¶ 21.)

Unbeknownst to Fields, Slattery and his wife were visiting California at the time and

were near Cupertino. (J. Slattery Aff. ¶ 21; S. Slattery Aff. ¶ 2.) Slattery texted

Fields that he was in the area and requested a meeting with Fields and Christenson.

(J. Slattery Aff. ¶ 21.) Fields, however, did not respond to this request and instead
turned off his phone or otherwise made himself unreachable by phone. (J. Slattery

Aff. ¶ 21.)

D. Slattery Discovers the Truth Surrounding His Investment

31. The Netflix contract never materialized, Fields and Crete never provided

Slattery with contact information for Christenson, and Slattery never received any

funds following his investment in AppyCity. (J. Slattery Aff. ¶ 22.) Moreover,

Slattery discovered that Fields, Crete, and AppyCity were never in contract

negotiations with Netflix or any other company, that AppyCity never had any unique

technology or any proprietary technology that functioned as represented by Fields

and Crete, and that AppyCity was entirely without value. (J. Slattery Aff. ¶ 22.)

Slattery also discovered that Christenson did not exist. (J. Slattery Aff. ¶ 22.)

32. Slattery demanded financial records from AppyCity, including K-1 forms

for tax reporting, but he never received this information from AppyCity. (J. Slattery

Aff. ¶ 23.) Slattery also demanded that Fields and Crete account for the operations

of AppyCity, the financial condition of AppyCity, and the assets of AppyCity, and to

demonstrate that AppyCity was anything other than a sham entity intended to

defraud Slattery of his invested funds. (J. Slattery Aff. ¶ 24.) Fields and Crete never

responded to Slattery’s demands and have since been evading Slattery. (J. Slattery

Aff. ¶ 24.)

33. Ultimately, it became clear to Slattery that the $500,000.00 sum he

invested in AppyCity was not used to fund the operations of AppyCity or for any other
appropriate or legitimate purpose and that those funds were instead diverted out of

AppyCity for the benefit of Fields and Crete. (J. Slattery Aff. ¶ 25.)

34. Slattery’s wife spoke with Bowman on the telephone on 16 September 2019,

during which she told Bowman that Fields and Crete had stolen from Slattery and

that she believed Bowman was actively helping Fields and Crete conceal their

wrongful conduct and evade the consequences of their actions. (S. Slattery Aff. ¶ 3.)

Bowman responded by stating that “we’ve hidden the money where you will never

find it,” ending the call thereafter. (S. Slattery Aff. ¶ 3.)

35. Less than two hours after this telephone call, Fields called Slattery’s wife

and admitted to her that Bowman had received and concealed funds stolen from

Slattery. (S. Slattery Aff. ¶ 4.) Fields also stated “that he didn’t care if [Slattery’s

wife] knew” and ended the call. (S. Slattery Aff. ¶ 4.)

36. On 2 March 2020, Slattery received a telephone call from Fields. (J.

Slattery Aff. ¶¶ 30, 31.) Slattery informed Fields during the call that Slattery knew

AppyCity was a sham business and that Fields and Crete had lied to Slattery about

AppyCity, its technology, and its business prospects in order to defraud Slattery of

$500,000.00. (J. Slattery Aff. ¶ 31.) Fields, in turn, informed Slattery that Fields

and Crete had transferred the money invested by Slattery and other AppyCity

investors to Fowler and Bowman and that Fowler and Bowman were aware that these

funds had been wrongfully taken from AppyCity investors. (J. Slattery Aff. ¶ 31.)

Fields also revealed to Slattery that much of Slattery’s money had been converted to
cryptocurrency, such as Bitcoin, which, according to Fields, could not be attached as

part of a lawsuit or judgment. (J. Slattery Aff. ¶ 31.)

37. Slattery’s phone call with Fields confirmed that Fields and Crete knew that

Slattery had sued them, that Fields and Crete had taken Slattery’s investment out of

AppyCity for themselves, and that Fields and Crete, with the aid of their mothers,

had converted a significant sum of money in their possession into cryptocurrency in

an attempt to hide assets and prevent creditors from finding and attaching their

fraudulently obtained assets. (J. Slattery Aff. ¶ 31.) According to Slattery, North

Carolina arrest warrants have been issued for Fields and Crete related to fraud

against other persons. (J. Slattery Aff. ¶ 31.)

IV. LEGAL STANDARD

38. Summary judgment is appropriate “if the pleadings, depositions, answers

to interrogatories, and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that any party is entitled

to a judgment as a matter of law.” N.C.G.S. § 1A-1, Rule 56(c). “An issue is ‘genuine’

if it can be proven by substantial evidence and a fact is ‘material’ if it would constitute

or irrevocably establish any material element of a claim or a defense.” Fullwood v.

Barnes, 250 N.C. App. 31, 36 (2016) (quoting Lowe v. Bradford, 305 N.C. 366, 369

(1982)).

39. The moving party bears the burden of showing that there is no genuine

issue of material fact and that the movant is entitled to judgment as a matter of law.

Hensley v. Nat’l Freight Transp., Inc., 193 N.C. App. 561, 563 (2008). The Court must
view the evidence in the light most favorable to the nonmovant. Dobson v. Harris,

352 N.C. 77, 83 (2000). However, the nonmovant “may not rest upon the mere

allegations or denials of his pleading, but his response, by affidavits or as otherwise

provided in [Rule 56], must set forth specific facts showing that there is a genuine

issue for trial. If [the nonmovant] does not so respond, summary judgment, if

appropriate, shall be entered against [the nonmovant].” N.C.G.S. § 1A-1, Rule 56(e).

40. In addition, “Rule 56(c) allows the trial court to grant summary judgment

to the non-moving party.” Elliott v. Enka-Candler Fire & Rescue Dep’t, Inc., 213 N.C.

App. 160, 170 (2011). “Summary judgment in favor of the non-movant is appropriate

when the evidence presented demonstrates that no material issues of fact are in

dispute, and the non-movant is entitled to entry of judgment as a matter of law.”

Sullivan v. Pender Cty., 196 N.C. App. 726, 731 (2009) (quoting A-S-P Assocs. v. City

of Raleigh, 298 N.C. 207, 212 (1979)); see also Elliott, 213 N.C. App. at 170 (noting

that “under Rule 56(c), the trial court could have granted plaintiff summary judgment

based on the materials presented by defendant, even without plaintiff’s motion”).

V. LIABILITY ANALYSIS

41. Having reviewed all appropriate matters of record, the Court will evaluate

whether Slattery is entitled to summary judgment on the claims asserted in his

Amended Complaint and will also consider whether summary judgment in favor of

Defendants is appropriate on any of those claims.
A. Fraud in the Inducement

42. The Court begins with Slattery’s fraud claim against Fields, Crete, and

AppyCity. (Am. Compl. ¶¶ 34–38.)

43. “The essential elements of fraud are: (1) False representation or

concealment of a material fact, (2) reasonably calculated to deceive, (3) made with

intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured

party.” Rowan Cnty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 17 (1992) (cleaned

up). “Additionally, reliance on alleged false representations must be reasonable.”

Sullivan v. Mebane Packaging Grp., Inc., 158 N.C. App. 19, 26 (2003) (citation

omitted). Each of these requirements is met here.

44. First, Fields and Crete—acting on their own behalf and on behalf of

AppyCity as its agents—made the following false representations to Slattery when

soliciting his investment.

a. AppyCity possessed breakthrough, unique, and valuable technology

developed by Fields and Crete, which functioned as described by Fields

and Crete.

b. AppyCity was a party to numerous existing and expected contracts,

which made AppyCity a valuable company.

c. AppyCity would soon be generating substantial revenues and would

ultimately be sold for a significant profit.
d. AppyCity needed funds for the operations and growth of the business in

connection with an expected acquisition of AppyCity by a larger

technology company.

e. The funds invested by Slattery would, in fact, be used for the operations

and growth of AppyCity.

45. These false representations by Fields and Crete were material to Slattery’s

decision to invest in AppyCity, as he would not have provided funds to AppyCity if he

had known the truth about these false representations. See Godfrey v. Res-Care, Inc.,

165 N.C. App. 68, 75–76 (2004) (stating that a fact is “material” if, when made known

to a party, the fact “would have influenced [that party’s] judgment or decision”

(quoting White Sewing Mach. Co. v. Bullock, 161 N.C. 1, 7 (N.C. 1912))).

46. As to the second and third elements, Fields and Crete knew that their

representations were false when they made them to Slattery, and they made these

false representations for the purpose of deceiving Slattery into investing in a sham

company. See Carcano v. JBSS, LLC, 200 N.C. App. 162, 177 (2009).

47. Regarding the fourth element, Slattery made the decision to invest in

AppyCity in reliance on Fields and Crete’s false representations. To satisfy the

reasonable reliance requirement, a plaintiff must ordinarily show “that he was denied

the opportunity to investigate or that he could not have learned the true facts by

exercise of reasonable diligence.” Hudson-Cole Dev. Corp. v. Beemer, 132 N.C. App.

341, 346 (1999). But where, as here, the parties are not on equal footing, and a

defendant possessing superior knowledge and/or experience makes a representation
without giving the plaintiff reason to suspect the representation is false, the plaintiff

may rely upon that representation. See Walker v. Town of Stoneville, 211 N.C. App.

24, 34–35 (2011); see also Little v. Stogner, 162 N.C. App. 25, 30 (2004); Higgins v.

Synergy Coverage Sols., LLC, 2020 NCBC LEXIS 6, at *31–34 (N.C. Super. Ct. Jan.

15, 2020). Moreover, as alleged in the Amended Complaint and now admitted due to

the entry of default against Defendants, Slattery’s reliance on Fields and Crete’s false

representations was reasonable. (See Am. Compl. ¶¶ 28, 35.)

48. Lastly, Slattery was damaged in the amount of $500,000.00 as a result of

the fraudulent scheme that Fields and Crete perpetrated on their own behalf and on

behalf of AppyCity as its agents.

49. Having considered the undisputed facts supporting Slattery’s fraud claim

against Fields, Crete, and AppyCity, the Court concludes that there is no genuine

issue as to any material fact for this claim and that Slattery is entitled to summary

judgment on this claim as a matter of law. The Court will thus grant the Motion as

to this claim.

B. Negligent Misrepresentation

50. Slattery has also brought a claim for negligent misrepresentation against

Fields, Crete, and AppyCity. (Am. Compl. ¶¶ 39–42.)

51. Our appellate courts have described the tort of negligent misrepresentation

as follows:

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, [and thus] 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.

Rountree v. Chowan Cty., 252 N.C. App. 155, 160 (2017) (alteration in original)

(quoting Simms v. Prudential Life Ins. Co. of Am., 140 N.C. App. 529, 534 (2000)).

“Such a duty commonly arises within professional relationships.” Id.

52. The undisputed facts before the Court show that Fields and Crete—acting

on their own behalf and on behalf of AppyCity as its agents—had a pecuniary interest

in obtaining funds from Slattery and that Fields and Crete supplied false information

to Slattery when providing guidance to him regarding Slattery’s business decision to

invest in AppyCity. The undisputed facts also show that Fields and Crete failed to

exercise reasonable care or competence as to this business transaction by falsely

representing, among other things, that they were in possession of unique and

valuable technology that made AppyCity a valuable company when, in fact, Fields,

Crete, and AppyCity had no valuable technology and the company was entirely

without value.

53. As to justifiable reliance, this requirement is “analogous” to the reasonable

reliance requirement for a fraud claim. Marcus Bros. Textiles, Inc. v. Price

Waterhouse, L.L.P., 350 N.C. 214, 224 (1999) (citation omitted); see also Bucci v.

Burns, 2018 NCBC LEXIS 93, at *4 (N.C. Super. Ct. Sept. 4, 2018) (“Justifiable

reliance is an essential element of claims for fraud . . . and negligent

misrepresentation.”). Therefore, based on the same considerations discussed above

in the Court’s analysis of reasonable reliance, as well as the undisputed facts
supporting Slattery’s negligent misrepresentation claim, the Court concludes that

Slattery justifiably relied on Fields and Crete’s false representations to his detriment.

To the extent a more specific determination is necessary, the Court further concludes,

on the undisputed facts before it, that Slattery could not have discovered the true

facts regarding AppyCity and was prevented from finding such facts based on Fields,

Crete, and AppyCity’s conduct.

54. Furthermore, Slattery experienced pecuniary loss in the form of providing

$500,000.00 to a sham company as a result of his justifiable reliance on the

misrepresentations of Fields and Crete, who were acting on their own behalf and on

behalf of AppyCity as its agents.

55. Thus, for these reasons, the Court concludes that that there is no genuine

issue as to any material fact for Slattery’s negligent misrepresentation claim against

Fields, Crete, and AppyCity and that Slattery is entitled to summary judgment on

this claim as a matter of law, thereby warranting the granting of the Motion as to

this claim.

C. Unfair and Deceptive Trade Practices

56. Slattery contends that all Defendants violated N.C.G.S. § 75-1.1 by

engaging in unfair and deceptive trade practices (“UDTP”). (Am. Compl. ¶¶ 43–45;

Br. in Supp. 13.)

57. To prevail on a UDTP claim brought under section 75-1.1, “a plaintiff must

show: (1) an unfair or deceptive act or practice, (2) in or affecting commerce, and (3)
which proximately caused injury to plaintiffs.” Walker v. Fleetwood Homes of N.C.,

Inc., 362 N.C. 63, 71–72 (2007) (citation omitted).

58. Notwithstanding the broad statutory definition of commerce, see N.C.G.S.

§ 75-1.1(b), “securities transactions are beyond the scope of N.C.G.S. § 75-1.1,”

HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593 (1991) (quoting

Skinner v. E. F. Hutton & Co., 314 N.C. 267, 275 (1985)). “Our legislature did not

intend for section 75-1.1, ‘with its treble damages provision, to apply to securities

transactions which were already subject to pervasive and intricate regulation’ under

state and federal statutes.” Bucci v. Burns, 2018 NCBC LEXIS 37, at *26 (N.C.

Super. Ct. Apr. 25, 2018) (quoting Skinner, 314 N.C. at 275).

59. At bottom, Slattery’s UDTP claim arises from his purchase of an ownership

interest in an LLC, AppyCity—a transaction which Slattery repeatedly characterizes

in the Amended Complaint as an investment. And even though Slattery became a

member of AppyCity through this transaction, Slattery did not exercise any control

over any aspect of the company, since Fields and Crete completely controlled

AppyCity and its affairs. Therefore, the basis for Slattery’s UDTP claim is, in effect,

the type of securities transaction that falls outside the scope of section 75-1.1. See,

e.g., Bickley v. Fordin, 258 N.C. App. 1, 4–5 (2018) (holding that a plaintiff selling his

membership interest in an LLC back to the LLC was “analogous” to a securities

transaction and therefore fell outside the scope of section 75-1.1); Saw Plastic, LLC

v. Sturrus, 2017 NCBC LEXIS 76, at *14–16 (N.C. Super. Ct. Aug. 25, 2017) (noting

that there is a presumption under the North Carolina Securities Act that a
membership interest in an LLC is a security, which can be rebutted, by among

another things, evidence that the member retained the right to control the LLC); see

also 18 NCAC 06A.1510.

60. Thus, in accordance with controlling North Carolina law on the interplay

between section 75-1.1 and securities transactions, as well as the absence of a genuine

issue as to any material fact, the Court will deny the Motion as to Slattery’s UDTP

claim and instead grant summary judgment to Defendants on this claim.

D. Breach of Fiduciary Duty and Constructive Fraud

61. The Court next turns to Slattery’s breach of fiduciary duty and constructive

fraud claims against Fields and Crete. (Am. Compl. ¶¶ 46–62.)

62. Although breach of fiduciary duty and constructive fraud are legally

distinct claims, see White v. Consol. Planning, Inc., 166 N.C. App. 283, 293–95 (2004),

both claims here, as asserted in the Amended Complaint, rest on an alleged fiduciary

relationship between Slattery, on the one hand, and Fields and Crete, on the other.

(See Am. Compl. ¶¶ 47, 50–51, 57–58.)

63. A fiduciary relationship “exists in all cases where there has been a special

confidence reposed in one who in equity and good conscience is bound to act in good

faith and with due regard to the interests of the one reposing confidence.” Lockerman

v. S. River Elec. Membership Corp., 250 N.C. App. 631, 635 (2016) (quoting Abbitt v.

Gregory, 201 N.C. 577, 598 (1931)). As explained by our Court of Appeals, the North

Carolina Limited Liability Company Act “does not create fiduciary duties among

members” of an LLC. Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469, 473 (2009).
Nonetheless, Slattery contends that Fields and Crete owed a fiduciary duty to

Slattery, a minority member of AppyCity, based on Fields and Crete collectively

holding a majority interest in AppyCity and exercising complete control over the

company. (See Am. Compl. ¶¶ 47, 57; Br. in Supp. 16–17.)

64. Relying on the well-settled principle that a corporation’s “controlling

shareholder owes a fiduciary duty to minority shareholders,” Kaplan, 196 N.C. App.

at 473, this Court has previously stated that “a holder of a majority interest who

exercises control over the LLC owes a fiduciary duty to minority interest members,”

Fiske v. Kieffer, 2016 NCBC LEXIS 22, at *9 (N.C. Super. Ct. Mar. 9, 2016) (citing

Kaplan, 196 N.C. App. at 473). The Court, however, has also “cautioned against a

broad application [of this borrowed exception] because of the fundamental differences

between LLCs and corporations.” Strategic Mgmt. Decisions v. Sales Performance

Int’l, 2017 NCBC LEXIS 69, at *10 (N.C. Super. Ct. Aug. 7, 2017).

65. For this reason, notwithstanding the fact that courts have held that a group

of shareholders, with an aggregated majority interest in the corporation, may owe a

fiduciary duty to a minority shareholder under the controlling shareholder exception,

this Court has consistently declined to impose a similar fiduciary duty upon two or

more members of an LLC, who collectively, but not individually, own a majority

interest in the LLC. See, e.g., Bennett v. Bennett, 2019 NCBC LEXIS 19, at *19–20

(N.C. Super. Ct. March 15, 2019); Fiske, 2016 NCBC LEXIS 22, at *9–10; HCW Ret.

& Fin. Servs., LLC v. HCW Employee Benefit Servs., LLC, 2015 NCBC LEXIS 73, at
*47 n.102 (N.C. Super. Ct. July 14, 2015); Blythe v. Bell, 2013 NCBC LEXIS 17, at

*13–14 (N.C. Super. Ct. Apr. 8, 2013).

66. Slattery does not address or distinguish these decisions, and the Court sees

no reason to depart from them in this case. As a result, because Slattery has not

alleged or presented any evidence, at this stage of the litigation, that either Fields or

Crete individually owned a majority interest in AppyCity, there is a genuine issue of

material fact as to whether Fields and Crete owed him a fiduciary duty based on their

respective ownership interests in AppyCity. (Cf. Am. Compl. ¶ 17 (“Upon information

and belief, FIELDS and CRETE collectively own a controlling majority interest in . . .

APPYCITY.”); J. Slattery Aff. ¶ 14 (“Fields and Crete jointly controlled a majority

interest in AppyCity and exercised complete control over all aspects of AppyCity.”).)

67. Thus, the Court will deny Slattery’s Motion as to his breach of fiduciary

duty and constructive frauds claims against Fields and Crete.

E. Civil Conspiracy

68. Lastly, the Court considers Slattery’s claim for civil conspiracy against all

Defendants. (Am. Compl. ¶¶ 63–65.)

69. North Carolina does not recognize a separate cause of action for civil

conspiracy. Strickland v. Hedrick, 194 N.C. App. 1, 19 (2008). A plaintiff has a claim

for civil conspiracy “only where there is an underlying claim for unlawful conduct.”

Sellers v. Morton, 191 N.C. App. 75, 83 (2008) (quoting Toomer v. Garrett, 155 N.C.

App. 462, 483 (2002)). Accordingly, Slattery may base his civil conspiracy claim on

his underlying fraud in the inducement claim. See Nye v. Oates, 96 N.C. App. 343,
346–47 (1989) (noting that North Carolina “permits one defrauded to recover from

anyone who facilitated the fraud by agreeing for it to be accomplished”).

70. To establish a civil conspiracy theory of liability, the plaintiff must first

offer “proof of an agreement between two or more persons.” Sellers, 191 N.C. App. at

83. Second, the plaintiff “must present evidence of an ‘overt act’ committed by at least

one conspirator in furtherance of the ‘common objective.’ ” Holt v. Williamson, 125

N.C. App. 305, 319 (1997) (citation omitted). Third, the plaintiff must prove that the

overt act committed in furtherance of the conspiracy resulted in damages to the

plaintiff. See id. at 318–19. “[A]ll of the conspirators are liable, jointly and severally,

for the act of any one of them done in furtherance of the agreement.” Neugent v.

Beroth Oil Co., 149 N.C. App. 38, 53 (2002) (citation omitted).

71. The undisputed facts before the Court show the existence of an agreement

between all Defendants to defraud Slattery. The undisputed facts also show that

each Defendant committed overt acts in furtherance of this agreement. Fields and

Crete, acting on their own behalf and on behalf of AppyCity as it agents, made false

representations to Slattery, while Fowler knowingly received and concealed

Slattery’s stolen funds and helped Fields and Crete convert those funds into

cryptocurrency in an effort to prevent the tracing and attachment of those funds.

72. Finally, it is undisputed that Slattery was damaged by Defendants’ overt

acts when he was induced to provide $500,000.00 to AppyCity, an investment for

which he received nothing of value in return and which was then stolen and concealed

by Fields, Crete, and Fowler.
73. Accordingly, the Court will grant the Motion as to Slattery’s civil conspiracy

claim and hold all Defendants liable, jointly and severally, for all damages to Slattery

resulting from their conspiracy to defraud Slattery.

VI. DAMAGES ANALYSIS

74. Having granted summary judgment in Slattery’s favor with respect to

liability for some of Slattery’s legal claims as set forth above in section V, the Court

now turns to the issue of damages. See Frank H. Conner Co. v. Spanish Inns

Charlotte, Ltd., 294 N.C. 661, 676 (1978) (stating that “summary judgment may be

granted, not only as to an issue of liability, but also as to ‘the amount of damages or

other relief’ where such issues are not in controversy” pursuant to Rule 56(d)).

A. Compensatory Damages

75. Slattery seeks to recover compensatory damages from all Defendants

(except Bowman as a result of the voluntary dismissal). (Am. Compl. 14.)

76. “The objective of compensatory damages is to restore the plaintiff to his

original condition or to make the plaintiff whole.” Watson v. Dixon, 352 N.C. 343, 347

(2000). An award of damages is intended to give back to a successful plaintiff “that

which was lost as far as it may be done by compensation in money.” Shera v. N.C.

State Univ. Veterinary Teaching Hosp., 219 N.C. App. 117, 126 (2012) (emphasis

omitted) (citation omitted).

77. Here, Slattery is entitled to compensatory damages in the total amount of

$500,000.00 as a proximate result of Defendants’ liability on the fraud, negligent
misrepresentation, and civil conspiracy claims. This damages award applies to all

Defendants (but not Bowman) jointly and severally.

78. Slattery is further entitled to recover damages in the form of prejudgment

interest on the compensatory damages award of $500,000.00, at the legal rate, from

the date this action was commenced until the judgment is satisfied. See N.C.G.S.

§ 24-5(b).

B. Punitive Damages

79. Slattery also seeks to recover punitive damages from all Defendants (except

Bowman as a result of the voluntary dismissal). (Am. Compl. 14.)

80. Punitive damages may be appropriate “to punish a defendant for

egregiously wrongful acts and to deter the defendant and others from committing

similar wrongful acts.” N.C.G.S. § 1D–1. However, such damages may only be

awarded if the plaintiff, in addition to proving that the defendant is liable for

compensatory damages, also proves by clear and convincing evidence that one of the

statutorily enumerated aggravating factors—fraud, malice, or willful or wanton

conduct—was present. Id. § 1D–15(a)–(b). “Punitive damages may be awarded

against a person only if that person participated in the conduct constituting the

aggravating factor giving rise to the punitive damages, or if, in the case of a

corporation, the officers, directors, or managers of the corporation participated in or

condoned the conduct constituting the aggravating factor giving rise to punitive

damages.” Id. § 1D–15(c).
81. Based on the undisputed facts and the unrebutted evidence submitted by

Slattery, the Court determines that there is no genuine issue of material fact as to

there being clear and convincing evidence of the existence of fraud, one of the

aggravating factors that justifies punitive damages. As discussed above, Slattery has

proven that Fields and Crete defrauded Slattery of his invested funds in AppyCity, a

sham company controlled by Fields and Crete. In addition, the undisputed facts show

that both Fowler and the manager of AppyCity (Fields) actively participated in this

fraud. Accordingly, the Court concludes that Slattery has met his burden of showing

that a punitive damages award against all Defendants (but not Bowman) is

warranted here based on the conduct and liability of Defendants, in addition to

establishing Defendants’ liability for compensatory damages.

82. In the exercise of its discretion, see id. § 1D-35, the Court determines that

the punitive damages award to Slattery should be three times the compensatory

damages awarded to Slattery, for a total punitive damages award of $1,500,000.00.

The Court further concludes that this amount bears a rational relationship to the

sum necessary to punish Defendants for their egregiously wrongful acts and to deter

Defendants and others from committing similar wrongful acts. See Nunn v. Allen,

154 N.C. App. 523, 542 (2002). This amount represents the maximum award of

punitive damages permitted by statute, which is limited to three times the amount

of compensatory damages or $250,000.00, whichever is greater. N.C.G.S. § 1D-25.
C. Total Damages

83. The total damages award in favor of Slattery and against Defendants,

jointly and severally, taking into account compensatory damages of $500,000.00 and

punitive damages of $1,500,000.00, is $2,000,000.00. Further, prejudgment interest

shall accrue on the compensatory damages award, at the legal rate, from the date the

action was initiated until the judgment is satisfied, as calculated by the Clerk of

Superior Court. 2

VII. CONCLUSION

84. For the foregoing reasons, the Court hereby ORDERS as follows.

a. The Court GRANTS the Motion as to Slattery’s fraud in the inducement

claim against AppyCity, Fields, and Crete and GRANTS summary

judgment in favor of Slattery on this claim.

b. The Court GRANTS the Motion as to Slattery’s negligent

misrepresentation claim against AppyCity, Fields, and Crete and

GRANTS summary judgment in favor of Slattery on this claim.

c. The Court DENIES the Motion as to Slattery’s UDTP claim against all

Defendants and GRANTS summary judgment in favor of Defendants

on this claim.

d. The Court DENIES the Motion as to Slattery’s breach of fiduciary duty

claim against Fields and Crete.

2Slattery’s counsel expressly indicated, during the 17 November 2020 hearing, that Slattery
will not seek an award of costs or attorneys’ fees, and therefore, none are awarded here.
e. The Court DENIES the Motion as to Slattery’s constructive fraud claim

against Fields and Crete.

f. The Court GRANTS the Motion as to Slattery’s civil conspiracy claim

against all Defendants and GRANTS summary judgment in favor of

Slattery on this claim.

g. The Court AWARDS total damages in favor of Slattery and against all

Defendants, jointly and severally, in the amount of $2,000,000.00

($500,000.00 in compensatory damages and $1,500,000.00 in punitive

damages). FURTHER, prejudgment interest shall accrue on the

compensatory damages award, at the legal rate, from the date the action

was initiated until the date the judgment is satisfied, in an amount to

be calculated by the Clerk of Superior Court.

h. As a result of Slattery voluntarily dismissing without prejudice his

claims against Bowman, the Motion is DENIED as MOOT as to

Bowman.

SO ORDERED, this the 24th day of March, 2021.

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