Paradigm Fin. Grp., Inc. v. Church

Paradigm Fin. Grp., Inc. v. Church, 2014 NCBC 33.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF SURRY 12 CVS 357

PARADIGM FINANCIAL GROUP, )
INC., )
)
Plaintiff, )
)
v. )
ORDER
)
CLAUDE T. CHURCH and )
CATHERINE H. CHURCH, )
)
Defendants. )
)

{1} THIS MATTER is before the court on Defendants’ Motion for
Reconsideration of Court’s Summary Judgment Order (“Motion for
Reconsideration”), pursuant to Rule 54 of the North Carolina Rules of Civil
Procedure (“Rule(s)”), and Defendants’ Motion to Amend Answer (“Motion to
Amend”), pursuant to Rule 15. For the reasons stated below, the Motions are
DENIED.

Blanco Tackabery & Matamoros, P.A. by Peter J. Juran and Toni J. Grace for
Plaintiff.

Tuggle Duggins, P.A. by Denis E. Jacobson, Jeffrey S. Southerland, and
Sarah J. Hayward for Defendants.

Gale, Judge.

I. CASE HISTORY

{2} This action arose out of an attempted sale of a business and real
property, for which Plaintiff Paradigm Financial Group, Inc. (“Paradigm” or
“Plaintiff”) was broker. Paradigm now seeks its commission.
{3} In early December 2013, Paradigm and Defendants Claude T. Church
and Catherine H. Church (“the Churches” or “Defendants”) filed cross-motions for
summary judgment on Plaintiff’s breach of contract claim.1 Following full briefing
and a hearing on the summary judgment motions, the court issued a ruling which
construed the contracts between the Parties to provide that Plaintiff is entitled to a
minimum commission unless the contract is unenforceable because Plaintiff was an
undisclosed dual agent. Paradigm Fin. Grp., Inc. v. Church, 2014 NCBC LEXIS 15
(N.C. Super. Ct. May 7, 2014). That issue was reserved for trial.
{4} Defendants have now moved the court to (1) reconsider its ruling, and
(2) allow Defendants to amend their answer to assert an affirmative defense of
mutual mistake. The Motions have been fully briefed and are ripe for disposition.
In accordance with Rule 15.4(a) of the General Rules of Practice and Procedure for
the North Carolina Business Court, the court decides these Motions without
hearing or oral argument.

II. FACTS

{5} The court incorporates its more complete factual summary from its
previous order, Paradigm Fin. Grp., 2014 NCBC LEXIS 15, at *3–9, also available
at http://www.ncbusinesscourt.net/.
{6} Because they are central to the pending Motions, the court again
recites portions of two paragraphs from the Marketing and Service Agreement
(“MSA”) between the Parties, which provide:
10. For services rendered by [Paradigm] under this Agreement, [the
Churches] shall pay to [Paradigm] a commission in cash to a certain
percent or percentage of the Sale Price of said Business or Related
Business: . . . (A) 10% of the first million, 8% of the second million, 6%
of third million, 4% of the fourth million as described in [P]aragraph 13
below[; and] (B) In no event shall the commission payable to
[Paradigm] be less than $125,000 (minimum commission). . . .
11. The commission described in Paragraph 10 shall be earned by
and payable to [Paradigm], in cash, upon the occurrence of any of the
following events: . . . (C) [Paradigm] obtains an offer to purchase the

1 At the same time, the parties filed cross-motions for summary judgment in a separate case between

Defendants and their prospective buyer, Heron Bay Acquisition, LLC. Heron Bay Acquisition, LLC
v. United Metal Finishing, Inc., No. 12 CVS 5505 (Guilford County) (N.C. Super. Ct.) (hereinafter
“the Heron Bay case”). The court refers to the prospective buyer as “Heron Bay.”
Business upon terms and conditions specified in Paragraph 1 or upon
other terms and conditions acceptable to [the Churches] from a ready,
willing and able prospective purchaser[;] (D) [the Churches] accept[] in
writing an offer from a prospective purchaser and [the Churches] then
fail[] to complete the sale of the Business.
(MSA ¶¶ 10–11.)
{7} While ruling in Defendants’ favor in the Heron Bay case as to whether
they had the right to terminate the sales contracts with Heron Bay, in this action,
the court rejected Defendants’ contract construction that Plaintiff was not entitled
to any commission following that termination. First, Defendants argued that no
commission is due because the sale on which it is based did not close, and the MSA
defines “Sale Price” as sales proceeds actually paid. When the sale did not close,
according to Defendants, the Sale Price was zero, and any percentage of zero is zero.
(MSA ¶ 13.) The court found this construction to be inconsistent with Paragraphs
10(B) and 11(D), which together provide for a minimum commission in a stated
amount and expressly trigger a commission where Defendants fail to close a sale
based on an offer they had accepted. Second, Defendants made and the court
rejected the contention that the “ready, willing and able” condition expressly stated
in Paragraph 11(C) also controlled Paragraph 11(D).
{8} When ruling in Plaintiff’s favor on the cross-motions for summary
judgment, the court held that Defendants had failed to develop or forecast evidence
adequate to proceed on their defense of duress and estoppel by misrepresentation,
based on their allegations that Plaintiff’s agent had induced Defendants to believe
that no commission would be owed unless a sale subject to the MSA was actually
completed. Paradigm Fin. Grp., 2014 NCBC LEXIS 15, at *14–15. Defendants
contend that this finding does not preclude them from pursuing a separate defense
based on the Parties’ mutual understanding that no commission would be paid
absent a closing. Defendants now seek to amend their answer to add this defense.
III. ANALYSIS

A. Motion for Reconsideration

{9} Defendants now attack the court’s contract construction with
arguments that they contend could not or need not have been earlier raised in their
summary judgment filings because the court’s contract construction could not have
been anticipated.
{10} Defendants first argue that the court’s construction could not have
been anticipated because Plaintiff never requested a minimum commission, instead
basing its argument for a percentage commission on Defendants’ “wrongful”
termination of its sales contracts with Heron Bay. Plaintiff’s strategy, Defendants
contend, reflects Plaintiff’s belief that a commission was conditioned on the Heron
Bay sales contracts closing. That position is belied by the pleadings. It is true that
Plaintiff did not, in its Amended Complaint, expressly state a claim for $125,000,
the minimum commission specified in Paragraph 10(B), as an alternative to its
claim for $164,000, the amount calculated pursuant to the formula in Paragraph
10(A). The Amended Complaint does, however, include a separately numbered
paragraph expressly requesting a commission pursuant to Paragraph 11(D). (Am.
Compl. ¶ 22.) Defendants were obviously on notice that Plaintiff expected a
commission even though the sales contracts did not close, as they included an
affirmative defense in their original answers that seeks to estop Plaintiff from
recovering on that basis. (Answer, Third Affirmative Defense; Answer to Am.
Compl., Third Affirmative Defense.)
{11} Defendants also attack the court’s contract construction as both
illogical and inconsistent with the Parties’ intent. They argue that allowing
Plaintiff to pursue a minimum commission is inconsistent with a proper
construction of Paragraph 11(D), which requires that each of its two conditions—
that Defendants first accept an offer and second fail to complete the sale—must
each occur during the MSA term. In support, Defendants note that the MSA had an
initial term ending on September 8, 2010, which was, by agreement, extended to
September 8, 2011, but not thereafter. Defendants accepted the written offer from
Heron Bay on June 17, 2011, but did not terminate the sales contracts until
February 17, 2012.
{12} In an attempt to demonstrate that the court’s construction is illogical,
Defendants posit a series of hypotheticals that the court finds inapposite and
unpersuasive. The court construes the contract to contemplate a commission paid
after expiration of the MSA’s listing period under Paragraph 11(D), where
Defendants accepted an offer from a prospective purchaser during the term of the
MSA and thereafter took affirmative action to fail to complete the sale, even if that
action was after the MSA’s term expired. When accepting an offer in accord with
Paragraph 11(D), Defendants were committed to pay either a percentage
commission if the sale was completed or the minimum commission pursuant to
Paragraph 11(D) if Defendants themselves failed to complete the sale. Defendants’
construction, that they could accept an offer consistent with Paragraph 11(D) and
then escape commission by terminating the sale outside the MSA’s exclusive listing
term, is neither fair nor logical.
{13} The Motion for Reconsideration is DENIED.

B. Motion to Amend

{14} Under Rule 15, leave to amend “shall be freely given where justice so
requires.” N.C. R. Civ. P. 15. However, a court may deny a motion for leave to
amend a pleading based on the movant’s “undue delay, bad faith, dilatory motive,
repeated failure to cure deficiencies, undue prejudice and futility of the
amendment.” Bartlett Milling Co. v. Walnut Grove Auction & Realty Co., 192 N.C.
App. 74, 89, 665 S.E.2d 478, 490 (2008) (quoting Nationsbank of N.C., N.A. v.
Baines, 116 N.C. App. 263, 268, 447 S.E.2d 812, 815 (1994)).
{15} The Motion to Amend seeks to add a defense of mutual mistake based
on the assertion that Paragraph 10(B) and Paragraph 11(D), as the court has
construed them, do not conform to the Parties’ mutual understanding. Although
additional affidavits have been submitted, the evidence offered in support of the
Motion to Amend is essentially the same evidence the court earlier determined was
not sufficient to support a defense of duress and estoppel based on
misrepresentation.
{16} “[B]ecause mutual mistake is one that is common to all the parties to a
written instrument, the party raising the defense must state with particularity the
circumstances constituting mistake as to all of the parties to the written
instrument.” Inland Harbor Homeowners Ass’n v. St. Josephs Marina, LLC, ___
N.C. App. ___, 741 S.E.2d 392, 394, (quoting Van Keuren v. Little, 165 N.C. App.
244, 247, 598 S.E.2d 168, 170 (2004) (internal quotations and emphasis in original)),
petition for disc. rev. denied, 366 N.C. 595, 743 S.E.2d 187 (2013). “The evidence
presented to prove mutual mistake must be clear, cogent and convincing . . . .” Id.
(quoting Smith v. First Choice Servs., 158 N.C. App. 244, 250, 580 S.E.2d 743, 748
(2003) (internal quotations omitted)).
{17} In opposing summary adjudication against their defense of duress and
misrepresentation, Defendants catalogued evidence which they contend reflects
their understanding that no commission would be paid unless a sale actually closed.
After the court rejected an argument that Plaintiff induced this understanding
through misrepresentation or duress, Defendants now argue that the evidence also
shows that Plaintiff shared a mutual understanding.
{18} In support of their argument, Defendants point to the following
deposition testimony by Plaintiff’s agent, Mr. Scott2:
Q. So if Mr. Church had sold the business for a million dollars,
Paradigm would still get $125,000, right?
A. Correct. That is based on – in the event the business is sold and the
real estate is retained by the owner.
Q. Okay. Show me where in [P]aragraph 10 it says that?
A. Well, just – well, I’m just saying as to how I came up with that
figure.

2 Mr. Scott testified as Paradigm’s Rule 30(b)(6) deponent for this case.
Q. Oh, okay. Did you tell Mr. Church how you came up with that
figure?
A. I believe I did.
Q. Do you recall telling him that?
A. I believe I did tell him that because I said the real estate might not
sell.
(Paradigm 30(b)(6) Dep. 100:17–101:7.)
{19} While this testimony may reflect Mr. Scott’s understanding that a
lesser commission would be owed if the business was sold without the real estate,
the court does not believe it further constitutes clear, cogent, and convincing
evidence of Mr. Scott’s understanding that no commission would be paid if there
were no sale at all, and that Paragraph 11(D) applies only if a sale actually closes.
The fact that Plaintiff has consistently pursued its claim where there has been no
closing suggests otherwise. Mr. Scott’s recent affidavit is also to the contrary.
Defendants’ strongest evidence to support Plaintiff’s understanding is that Mr.
Church testified that he and Mr. Scott had a “[v]erbal conversation that . . . when
this company was sold, not before . . . then [Mr. Scott] would be entitled to his
commission.” (Church Dep. vol. II 201:25–202:9, July 24, 2013.) This may be clear
evidence of Mr. Church’s understanding, but a unilateral misunderstanding is not
enough, and the testimony is not clear, cogent, and convincing evidence that Mr.
Scott had the same understanding.
{20} Clearly, Defendants have been aware that Plaintiff seeks to secure a
commission under either Paragraph 11(C) or Paragraph 11(D), knowing that the
Heron Bay sales contracts have not and will not close. Defendants included a
defense that Plaintiff should be estopped from any such recovery because it induced
Defendants to believe no commission would be owed without a completed sale.
Those conflicting contentions were clear during the course of discovery. They were
apparent when the Parties extensively briefed and argued their cross-motions for
summary judgment.
{21} The court concludes, in its discretion and upon its review of the fully
developed record, that Defendants have not forecasted evidence adequate to sustain
their burden of proving a clear, cogent, and convincing mutual mistake of fact.
Thus, an amendment adding that defense would be futile. The court further
concludes, in its discretion and upon its review of the fully developed record, that
allowing an amendment would be unfairly prejudicial at this late stage of the case,
where summary judgment Motions have been briefed, argued and ruled upon, the
matter has been set for trial, and certain pretrial submissions, such as jury
instructions, have already been submitted. Defendants had a clear opportunity to
raise the issue of mutual mistake at an earlier time but did not do so.
{22} Accordingly, in its discretion, and based on its review and construction
of the record, the court DENIES the Motion to Amend.

IT IS SO ORDERED, this the 24th day of July, 2014.