Lunsford v. Viaone Servs., LLC, 2020 Ncbc 78a

Lunsford v. ViaOne Servs., LLC, 2020 NCBC 78A.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
BUNCOMBE COUNTY 19 CVS 3973

J. BROOK LUNSFORD and
LUNSFORD GROUP, INC. f/k/a JBL
COMMUNICATIONS, INC.,

Plaintiffs and
Counterclaim Defendants,

v.

VIAONE SERVICES, LLC; and DAVID
DORWART,

Defendants,

and
AMENDED ORDER AND OPINION
JBL COMMUNICATIONS, LLC, ON DEFENDANTS’ MOTION
TO DISMISS
Defendant and
Counterclaim Plaintiff,

v.

CAMERON GUNTER; CLIFFORD
CHURCHILL; FIBER OPTIC
SOLUTIONS LLC; PIMLICO, INC;
OSPREY COMMUNICATIONS, LLC;
CVO ENTERPRISES INC; and
RUSSELL BROWN,

Counterclaim
Defendants.

1. This action arises from the sale of a telecommunications construction

company. The sellers are the plaintiffs here and have asserted claims against the

buyer and two others for fraud and breach of several contracts related to the sale. In
response, the defendants have moved to dismiss all claims. (ECF No. 58.) For the

following reasons, the Court GRANTS the motion in part and DENIES it in part.

Pearce Law PLLC, by Bradley E. Pearce, for Plaintiffs/Counterclaim
Defendants J. Brook Lunsford and Lunsford Group, Inc.

Parker Poe Adams & Bernstein LLP, by Michael G. Adams, Jami J.
Farris, and Morgan H. Rogers, for Defendants ViaOne Services, LLC and
David Dorwart, and for Defendant/Counterclaim Plaintiff JBL
Communications, LLC.

Law Offices of Jamie A. Stokes, PLLC, by Jamie A. Stokes, for
Counterclaim Defendants Cameron Gunter, Clifford Churchill, Fiber
Optic Solutions LLC, Pimlico, Inc., CVO Enterprises Inc., and Russell
Brown.

O’Hagan Meyer, PLLC, by Wood W. Lay and Aretina K. Samuel-
Priestley, for Counterclaim Defendant Osprey Communications, LLC.

Conrad, Judge.

I.
FACTUAL BACKGROUND

2. The following background is drawn from the allegations of the second

amended complaint and the documents attached to or incorporated within it. (See 2d

Am. Compl., ECF No. 52 [“Compl.”].)

3. JBL Communications, Inc. was a pay-to-build contractor that built and

maintained telecommunications systems and networks in and around North

Carolina. (See Compl. ¶ 18.) The company now goes by the name Lunsford Group,

Inc. but has been dubbed Old JBL by the parties. The “Old” in Old JBL alludes to

the central event in this case—the July 2018 sale of Old JBL’s assets to JBL

Communications, LLC, or New JBL as the parties call it. (See Compl. ¶¶ 15, 19.)
4. The complaint gives few details about how the sale came together or who the

key players were. It seems that New JBL was truly new—a Delaware company

created for the purpose of buying Old JBL’s assets. (See Compl. ¶¶ 6, 22.) New JBL’s

majority member is ViaOne Fiber and Engineering, LLC (not to be confused with

ViaOne Services, LLC, one of the defendants here), but the complaint questions the

existence of that entity and does not mention any negotiations between it and Old

JBL. (See Compl. ¶¶ 172, 175.) The only thing resembling presale discussions is an

alleged conversation between Brook Lunsford (Old JBL’s sole shareholder) and David

Dorwart (the chairman and CEO of Texas-based ViaOne Services). (See Compl. ¶¶ 4,

21, 44.) Dorwart supposedly told Lunsford that New JBL would continue Old JBL’s

business with new capital investment. (See Compl. ¶ 21.) The date of that

conversation is not stated, though.

5. In any event, the centerpiece of the sale was an asset purchase agreement,

(ECF No. 52.1 [“APA”]). That agreement conveyed to New JBL “all of the tangible

and intangible assets and properties of” Old JBL. (APA § 2.1(a).) It also gave New

JBL the right to use Old JBL’s general contractor’s license for a short time. (See

Compl. ¶ 23; APA § 2.1(a)(iv).) In return, Old JBL and Lunsford received cash and

other consideration, including minority membership in New JBL. 1 (See APA § 3.2;

APA p.6 (“Rollover Equity”); Compl. ¶¶ 24, 174, 190.) Lunsford stayed on as a

1 There is some confusion about whether Old JBL or Lunsford owns the membership

interest. (Compare Compl. ¶ 174, with Compl. ¶¶ 186, 190.)
consultant to New JBL, an arrangement governed by a separate consulting

agreement, (ECF No. 52.3 [“Consulting Agrmt.”]).

6. New JBL financed part of the purchase through a promissory note, (ECF No.

52.2 [“Note”]). The note is “subordinate and junior” to “Senior Debt”—a bank loan—

owed by New JBL. (Note § 13.) Old JBL agreed to defer all principal and interest

payments on the note until after New JBL repays the bank. (Note § 1.) The note also

gives New JBL the right to “set-off and reduce” the principal amount for various

reasons, including some permitted by the asset purchase agreement. (Note § 5.)

7. One potential basis for a set-off would be a reduction of the purchase price

after closing. The purchase price includes a lump sum of $6.7 million to be adjusted

up or down at closing based on Old JBL’s estimate of its working capital. (See APA

§§ 3.2(a), 3.3(a); see also Compl. ¶ 24.) That sum is supposed to be adjusted again

after closing based on a second calculation of working capital, this time prepared by

New JBL and presumably to correct errors in the preclosing estimate. (See APA

§ 3.3(b), (c).) The asset purchase agreement gives New JBL 90 days from closing to

deliver its calculation, followed by a period for Old JBL to lodge objections and for the

two sides to resolve any disputes through binding arbitration. (See APA § 3.3(b);

Compl. ¶¶ 133, 135.) The final figure determines whether New JBL paid too much

or too little at closing. (See APA § 3.3(c).) If too much, then New JBL could set off

whatever Old JBL owed against the amount of the promissory note after giving

written notice. (Note § 5; see also APA §§ 3.4, 9.7.)
8. Despite getting several extensions of the initial 90-day period, New JBL

never delivered its calculation of working capital. (See Compl. ¶¶ 134, 136, 139.)

Even so, nearly a year after the sale, New JBL reported in a financial statement that

it had reduced the note’s principal balance by over $700,000. (See Compl. ¶¶ 109,

121.) Old JBL did not receive written notice of that set-off. (See Compl. ¶¶ 136, 139.)

And the reason New JBL gave for the set-off was poor financial performance—

nothing to do with the working capital tally. (See Compl. ¶ 122.)

9. Old JBL and Lunsford say the set-off was improper. They also say it was an

accounting trick. Soon after acquiring Old JBL’s assets, New JBL went on a spending

spree. It hired new employees, bought more equipment, and entered new markets.

(See Compl. ¶¶ 31, 34.) Overstretched, New JBL became insolvent by the end of 2018.

(See Compl. ¶¶ 118, 156.) Reducing the principal amount of the promissory note gave

the false appearance of solvency. (See Compl. ¶¶ 127, 128.)

10. Indeed, New JBL revealed some of its financial difficulties to Lunsford in

April 2019. (See Compl. ¶ 43.) The next month, New JBL’s management team met

in Asheville, North Carolina. Lunsford was there. So was Dorwart. (See Compl.

¶ 44.) They discussed New JBL’s failure to release nearly $350,000 in retainages that

it had agreed to pay to Old JBL’s subcontractors. (See Compl. ¶¶ 51, 56.) They also

discussed New JBL’s difficulty in obtaining its own general contractor’s license. (See

Compl. ¶¶ 62–64.) At some point, Dorwart “assured Lunsford” that New JBL

“valued” his contributions. (Compl. ¶ 46.)
11. Later that summer, Lunsford discovered that New JBL had used Old JBL’s

credit lines with third-party vendors. (See Compl. ¶ 65.) New JBL never told

Lunsford what it was doing and didn’t ask for permission either. (See Compl. ¶¶ 69,

70, 74, 75.) Likewise, the third parties didn’t know they were dealing with New JBL

rather than Old JBL. (See Compl. ¶ 72.) When some of the bills became overdue,

Lunsford’s credit took a hit. (See Compl. ¶¶ 67, 76, 77.)

12. Other issues cropped up around the same time. New JBL missed four

monthly payments to Lunsford under the consulting agreement. (See Compl. ¶¶ 85,

86, 151, 152.) Short of cash, New JBL also asked Lunsford to buy a lift truck. (See

Compl. ¶¶ 88, 89.) When Lunsford later asked for reimbursement, New JBL issued

a check but then stopped payment. (See Compl. ¶¶ 90–92.)

13. Lunsford filed suit in September 2019 and amended the complaint shortly

after to add Old JBL as a plaintiff. Together, Lunsford and Old JBL (“Plaintiffs”)

accused New JBL of breaching the asset purchase agreement, the promissory note,

and the consulting agreement. They also sought a declaratory judgment that New

JBL’s breaches relieved them of their own obligations under the contracts. And they

sought to hold ViaOne Services liable for New JBL’s acts on a theory of veil piercing.

New JBL and ViaOne Services moved to dismiss all claims. (ECF No. 20.)

14. At a hearing on that motion, Plaintiffs’ counsel forecasted a second

amendment. With consent, the Court granted leave to amend and denied the motion

to dismiss as moot. The second amended complaint retains the contract and
declaratory-judgment claims. It adds fraud as a new claim and Dorwart as a new

defendant.

15. New JBL, Dorwart, and ViaOne Services (“Defendants”) contend that the

amendment did not cure the defects identified in the original motion to dismiss and

again move to dismiss all claims under Rule 12(b)(6) of the North Carolina Rules of

Civil Procedure. Dorwart and ViaOne Services also contend that the Court lacks

personal jurisdiction over them. The parties have fully briefed all issues, and the

Court elects to decide the motion without a second hearing. See Business Court

Rule 7.4. The motion is now ripe for resolution.

II.
PERSONAL JURISDICTION

16. The Court begins with challenges to personal jurisdiction raised by Dorwart

(a Pennsylvania resident) and ViaOne Services (a Texas company). This is usually

“a two-step inquiry: does any statute grant jurisdiction over the defendant, and would

exercising jurisdiction violate due process?” JCG & Assocs., LLC v. Disaster Am.

USA, LLC, 2019 NCBC LEXIS 112, at *6 (N.C. Super. Ct. Dec. 19, 2019). Because

Defendants do not challenge the first step, the Court skips to the second.

17. Due process requires that a defendant “have certain minimum contacts”

with this State “such that the maintenance of the suit does not offend ‘traditional

notions of fair play and substantial justice.’ ” Int’l Shoe Co. v. Washington, 326 U.S.

310, 316 (1945) (quoting Miliken v. Meyer, 311 U.S. 457, 463 (1940)). Sometimes, a

nonresident defendant’s contacts “are so ‘continuous and systematic’ as to render

them essentially at home in the forum State.” Goodyear Dunlop Tires Operations,
S. A. v. Brown, 564 U.S. 915, 919 (2011) (quoting Int’l Shoe Co., 326 U.S. at 317).

When that is the case, the courts of the forum State have general jurisdiction “to hear

any and all claims against” the defendant. Id.

18. The more common case is when the nonresident defendant has situational,

rather than systematic, contacts with the forum State. In that context, jurisdiction

depends on the “relationship among the defendant, the forum, and the litigation.”

Daimler AG v. Bauman, 571 U.S. 117, 133 (2014) (citation and quotation marks

omitted); see also Beem USA LLLP v. Grax Consulting LLC, 373 N.C. 297, 303, 838

S.E.2d 158, 162 (2020). There must be some nexus between the forum and the

underlying controversy such that “the cause of action arises from or is related to

defendant’s contacts with the forum.” Skinner v. Preferred Credit, 361 N.C. 114, 122,

638 S.E.2d 203, 210 (2006) (citing Helicopteros Nacionales De Colombia, S. A. v. Hall,

466 U.S. 408, 414 n.8 (1984)). This is known as “specific or case-linked jurisdiction.”

Goodyear, 564 U.S. at 919 (2011) (citation omitted).

19. Plaintiffs bear the burden to establish a prima facie basis for personal

jurisdiction. See Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *8 (N.C.

Super. Ct. Oct. 2, 2017) (citation omitted), aff’d, 371 N.C. 579, 821 S.E.2d 711 (2018).

Both sides have offered evidence: a verified pleading from Plaintiffs opposed by a

responsive affidavit and evidence from Defendants. The Court may, as a result,

“determine the weight and sufficiency of the evidence presented.” Capitala Grp., LLC

v. Columbus Advisory Grp. LTD, 2018 NCBC LEXIS 183, at *3 (N.C. Super. Ct. Dec.

3, 2018) (citation and quotation marks omitted). Here, though, that isn’t necessary.
Plaintiffs have not argued that Dorwart or ViaOne Services have the kind of

continuous and systematic contacts with North Carolina that would support general

jurisdiction. And as to specific jurisdiction, the disputes largely turn on the adequacy

of Plaintiffs’ jurisdictional allegations.

20. ViaOne Services. To establish jurisdiction over ViaOne Services, Plaintiffs

rely on a theory of veil piercing. The few contacts that ViaOne Services is alleged to

have with North Carolina do not appear to relate to the underlying controversy, and

Plaintiffs do not argue otherwise. Instead, Plaintiffs contend that the Court should

pierce the corporate veil and impute the jurisdictional contacts of New JBL to ViaOne

Services.

21. “The general rule is that a corporation’s contacts are not imputed to its

affiliate for the purpose of personal jurisdiction.” Denver Glob. Prods., Inc. v. Hendrix,

2017 NCBC LEXIS 216, at *4 (N.C. Super. Ct. Feb. 9, 2017) (citing Wyatt v. Walt

Disney World, Co., 151 N.C. App. 158, 168, 565 S.E.2d 705, 711 (2002)). Indeed, our

courts do not lightly disregard the corporate form for any purpose. Veil piercing is

reserved for the rare case in which an individual or entity uses a corporation as a

mere instrumentality or alter ego to carry out a fraud or wrong. In that case, the

injured party may seek relief from the individual or entity “who otherwise would have

been shielded by the corporate form.” Green v. Freeman, 367 N.C. 136, 145, 749

S.E.2d 262, 270 (2013).

22. Plaintiffs have not adequately alleged that New JBL is a mere

instrumentality of ViaOne Services. The second amended complaint does not even
specify a legal relationship between the two. All it says is that ViaOne Services has

some unexplained role in handling payroll deductions for New JBL’s employees, (see

Compl. ¶¶ 96, 103, 104), and that ViaOne Services “dominated and controlled New

JBL by, among other things, controlling which of New JBL’s creditors got paid and

when such creditors got paid,” (Compl. ¶ 161). Even if true, these allegations do not

suggest that ViaOne Services controlled New JBL through the use of the corporate

form. Nor does the alleged control over payment matters amount to the kind of

“complete domination, not only of finances, but of policy and business practice”

typically required to pierce the veil. Green, 367 N.C. at 145, 749 S.E.2d at 270

(quoting Glenn v. Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)).

23. Furthermore, ViaOne Services offered an affidavit from Dorwart, who is

New JBL’s manager. (See Dorwart Aff., ECF No. 8.) This evidence shows that

ViaOne Services is not a member or manager of New JBL and has no authority to

direct the company’s affairs. (See Dorwart Aff. ¶¶ 7, 11, 13–19.) ViaOne Services has

a contract with New JBL to provide accounting, human resources, and related

services. (See Dorwart Aff. ¶ 35.) The contract stresses that ViaOne Services “shall

neither exercise control nor direction over” New JBL’s business. (Dorwart Aff. ¶ 38.)

No evidence suggests that this contractual relationship made New JBL a mere

instrumentality of ViaOne Services.
24. In short, Plaintiffs have not offered any sound reason to impute New JBL’s

contacts with this State to ViaOne Services. 2 The Court concludes that it may not

exercise jurisdiction over ViaOne Services and therefore dismisses all claims against

it. See Price v. Hagar Fin. Corp., No. COA03-280, 2004 N.C. App. LEXIS 316, at *9–

10 (N.C. Ct. App. Mar. 2, 2004); Weisman v. Blue Mountain Organics Distrib., LLC,

2014 NCBC LEXIS 41, at *17–18 (N.C. Super. Ct. Sept. 5, 2014).

25. Dorwart. Plaintiffs advance a more traditional theory of personal

jurisdiction for Dorwart. They allege that he traveled to Asheville, North Carolina in

May 2019 to meet with Lunsford and others about New JBL’s affairs. (See Compl.

¶ 44.) That contact, they contend, is enough to support personal jurisdiction,

particularly given that Dorwart is New JBL’s manager. (See Opp’n 17, ECF No. 65.)

26. Dorwart responds that the allegations related to the meeting in Asheville do

not “actually support any of Plaintiffs [sic] claims” and therefore cannot establish

specific jurisdiction. (Br. in Supp. 22, ECF No. 59.) The Court disagrees. The second

amended complaint alleges that the meeting between Dorwart and Lunsford related

to the substance of this dispute—namely, New JBL’s financial struggles, its failures

to meet contractual obligations, and its lack of transparency. (See Compl. ¶¶ 51, 62.)

At that meeting, Dorwart allegedly “assured Lunsford that his input and

contributions were valued” in an attempt “to deceive Lunsford as to the true state of

affairs of New JBL.” (Compl. ¶¶ 46, 47.) Plaintiffs’ fraud claim, which is the only

2 Plaintiffs have not argued that the Court should attribute Dorwart’s jurisdictional contacts

to ViaOne Services in his role as its CEO. Nor have they pointed to any relationship between
ViaOne Services and ViaOne Fiber and Engineering, which is New JBL’s majority member.
claim against Dorwart, partly arises from or at least relates to this in-person meeting

in North Carolina.

27. This does not mean that Plaintiffs have adequately stated a claim for fraud;

Dorwart and his codefendants also challenge the merits of that claim. But it does

mean that exercising jurisdiction over Dorwart would not offend due process. The

uncontroverted allegations show that Dorwart physically entered North Carolina for

the purpose of addressing disagreements about New JBL’s affairs. Dorwart should

have reasonably anticipated being called into court here in North Carolina to answer

claims related to that contact. See Beem USA, 373 N.C. at 306, 838 S.E.2d at 164

(reversing dismissal for lack of personal jurisdiction); see also Walden v. Fiore, 571

U.S. 277, 285 (2014) (“[A]lthough physical presence in the forum is not a prerequisite

to jurisdiction, physical entry into the State . . . is certainly a relevant contact.”

(citations omitted)).

III.
FAILURE TO STATE A CLAIM

28. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the

complaint.” Isenhour v. Hutto, 350 N.C. 601, 604, 517 S.E.2d 121, 124 (1999) (citation

and quotation marks omitted). The motion should be granted only when “(1) the

complaint on its face reveals that no law supports the plaintiff’s claim; (2) the

complaint on its face reveals the absence of facts sufficient to make a good claim; or

(3) the complaint discloses some fact that necessarily defeats the plaintiff’s claim.”

Corwin v. Brit. Am. Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729, 736–37 (2018)

(citation and quotation marks omitted).
29. In deciding the motion, the Court must treat the well-pleaded allegations of

the complaint as true and view the facts and permissible inferences “in the light most

favorable to” the nonmoving party. Sykes v. Health Network Sols., Inc., 372 N.C. 326,

332, 828 S.E.2d 467, 471 (2019) (citation and quotation marks omitted). But the

Court need not accept as true any “conclusions of law or unwarranted deductions of

fact.” Wray v. City of Greensboro, 370 N.C. 41, 46, 802 S.E.2d 894, 898 (2017). The

Court also may consider documents “attached to and incorporated within [the]

complaint” but may not consider matters outside the complaint. Bucci v. Burns, 2018

NCBC LEXIS 37, at *7–8 (N.C. Super. Ct. Apr. 25, 2018).

A. Breach of Contract

30. Plaintiffs assert a claim against New JBL for breach of the asset purchase

agreement and the promissory note, and Lunsford asserts a claim for breach of the

consulting agreement. New JBL seeks to dismiss both. (See Br. in Supp. 4–5.)

31. “The elements of a claim for breach of contract are (1) existence of a valid

contract and (2) breach of the terms of that contract.” Poor v. Hill, 138 N.C. App. 19,

26, 530 S.E.2d 838, 843 (2000). If the contract “contains some condition precedent to

defendant’s liability,” the plaintiff must also allege that the condition has been met.

Beachboard v. S. Ry. Co., 16 N.C. App. 671, 681, 193 S.E.2d 577, 584 (1972) (citation

omitted); see also N.C. R. Civ. P. 9(c).

32. Asset Purchase Agreement and Note. The first claim for relief centers

on New JBL’s reduction of the principal amount of the promissory note. According to

Plaintiffs, the set-off right hinges on the amount and direction (up or down) of any
purchase price adjustment allowed by the asset purchase agreement. But there was

no adjustment, Plaintiffs say, because New JBL did not do its part to begin the

process after closing. (See Compl. ¶¶ 125, 133, 139, 140.) Yet New JBL reduced the

amount of the note anyway due to the company’s poor “financial performance.”

(Compl. ¶¶ 122, 124.) Plaintiffs claim that New JBL breached the asset purchase

agreement by impeding the purchase price adjustment process and by reducing the

note’s amount without notice and for a baseless reason. (See Compl. ¶¶ 125, 133, 139,

140.) They also claim that the reduction is a breach of the note, entitling them to

recover the full principal balance plus interest. (See Compl. ¶¶ 125, 140.)

33. New JBL argues that Plaintiffs have jumped the gun. The promissory note

is subordinated to “Senior Debt” in the form of a bank loan. (Note § 13.) The note

states that payments become due only “following the repayment in full of the Senior

Debt.” (Note § 1; see also Note § 13 (“Notwithstanding anything in this Note to the

contrary, the obligations of [New JBL] in respect of any payment of interest or

principal on this Note shall be subordinate and junior in right of payment to the

Senior Debt.”).) New JBL contends that repayment of the loan is a condition

precedent to its performance under the note, that Plaintiffs have not alleged that the

condition has been met, and that the claim should be dismissed as a result. (See Br.

in Supp. 4.)

34. Plaintiffs do not dispute that repayment of the bank loan is a condition

precedent. See Craftique, Inc. v. Stevens & Co., Inc., 321 N.C. 564, 567, 364 S.E.2d

129, 131 (1988) (“The use of language such as ‘when,’ ‘after,’ and ‘as soon as’ clearly
indicates that a promise will not be performed except upon the happening of a stated

event, i.e., a condition precedent.”). Instead, in their opposition to the original motion

to dismiss, they argue it is unnecessary to plead that a contractual condition

precedent has been met. (See ECF No. 25 at 8–9.) This is not correct. Our appellate

courts require—and our Rules of Civil Procedure envisage—that a plaintiff must

plead performance of any condition precedent to a defendant’s liability, even though

particularity isn’t required. See Beachboard, 16 N.C. App. at 681, 193 S.E.2d at 584;

N.C. R. Civ. P. 9(c) (“[I]it is sufficient to aver generally that all conditions precedent

have been performed or have occurred.”). Plaintiffs haven’t done so and therefore

haven’t stated a claim for breach of the promissory note. See Upchurch v. Sapp, 2020

NCBC LEXIS 118, at *6 (N.C. Super. Ct. Oct. 8, 2020) (dismissing contract claim for

failure to plead performance of condition precedent).

35. The same cannot be said for the alleged breach of the asset purchase

agreement. Although Plaintiffs lump that agreement together with the note, the

alleged breaches are distinct. Section 3.3 of the asset purchase agreement, which

contains no condition precedent, requires New JBL to deliver a calculation of working

capital so the parties can determine the amount of any postclosing adjustment to the

purchase price. (See APA § 3.3(b), (c).) Plaintiffs allege New JBL never delivered its

calculation (leaving the adjustment process in limbo) yet set off the note under section

3.4 anyway for an impermissible reason. (See, e.g., Compl. ¶¶ 122, 124, 139.) That

is enough to state a claim for breach of contract. See Bennett v. Bennett, 2019 NCBC

LEXIS 47, at *4 (N.C. Super. Ct. Aug. 6, 2019) (denying motion to dismiss and noting
that “our appellate courts routinely reverse trial court orders that require anything

more” than an allegation of a valid contract and its breach (citations omitted));

Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *10 (N.C. Super. Ct.

June 19, 2019) (same).

36. The Court therefore grants the motion to dismiss the claim for breach of the

promissory note but denies the motion to dismiss the claim for breach of the asset

purchase agreement. 3

37. Consulting Agreement. Lunsford claims that New JBL breached the

consulting agreement by failing to pay his monthly consulting fee. (See Compl.

¶¶ 145–54.) New JBL moves to dismiss the claim because the second amended

complaint does not specifically allege that any amount was due or past due at the

time Lunsford filed suit. It also argues that Lunsford may not be entitled to all the

relief he seeks because the consulting agreement does not have an acceleration

clause. (See Br. in Supp. 5.)

38. As alleged, New JBL agreed to pay Lunsford more than $8,000 per month

but did not pay “the consulting fee as and when due.” (Compl. ¶¶ 151, 152; see also

Compl. ¶¶ 82, 87, 146.) By August 2019, New JBL had missed four payments. (See

Compl. ¶ 86.) These allegations suffice to put New JBL on notice of the events giving

3 Defendants also contend that all claims, including the claim for breach of the asset purchase

agreement, are barred by a covenant not to sue contained in a subordination agreement that
Old JBL and New JBL were parties to. The second amended complaint does not attach or
cite that agreement, and Defendants do not clearly explain how the covenant bars any claim
other than the claim for breach of the note. The Court concludes that it would be more
appropriate to assess the effect of the subordination agreement at summary judgment, rather
than under the Rule 12(b)(6) standard.
rise to the claim. Lunsford was not required to plead greater detail or to prove his

right to full relief. The Court therefore denies the motion to dismiss the claim for

breach of the consulting agreement. See Bennett, 2019 NCBC LEXIS 47, at *4;

Vanguard Pai Lung, 2019 NCBC LEXIS 39, at *10.

B. Fraud and Punitive Damages

39. Plaintiffs base their fraud claim on an assortment of unrelated

representations and omissions. (See, e.g., Compl. ¶¶ 72, 89, 182, 185, 193, 195–96,

202.) Defendants argue that the allegations are not stated with particularity and

lack key elements. (See Br. in Supp. 10–14.)

40. Fraud has five “essential elements”: (a) a false representation or

concealment of a material fact, (b) calculated to deceive, (c) made with intent to

deceive, (d) that did in fact deceive, and (e) that resulted in damage to the injured

party. Rowan Cnty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 17, 418 S.E.2d 648,

658 (1992) (citations omitted). For claims of fraudulent concealment or omission,

“Plaintiffs also must allege that all or some of the Defendants had a duty to disclose

material information to them, as silence is fraudulent only when there is a duty to

speak.” Lawrence v. UMLIC-Five Corp., 2007 NCBC LEXIS 20, at *8 (N.C. Super.

Ct. June 18, 2007) (citing Griffin v. Wheeler-Leonard & Co., Inc., 290 N.C. 185, 198,

225 S.E.2d 557, 565 (1976)); see also Brewer v. Grue, 2020 NCBC LEXIS 96, at *8

(N.C. Super. Ct. Aug. 28, 2020).

41. Unlike contract claims, fraud claims must be pleaded with particularity. See

N.C. R. Civ. P. 9(b). “Plaintiffs must allege the ‘time, place and content’ of the
misrepresentation, the ‘identity of the person making the representation,’ and ‘what

was obtained as a result.’ ” Bucci v. Burns, 2017 NCBC LEXIS 83, at *8 (N.C. Super.

Ct. Sept. 14, 2017) (quoting Terry v. Terry, 302 N.C. 77, 85, 273 S.E.2d 674, 678

(1981)). For fraudulent concealment, Plaintiffs must allege:

(1) the relationship between plaintiff and defendant giving rise to the duty to
speak; (2) the event or events triggering the duty to speak and/or the general
time period over which the relationship arose and the fraudulent conduct
occurred; (3) the general content of the information that was withheld and
the reason for its materiality; (4) the identity of those under a duty who failed
to make such disclosures; (5) what the defendant gained by withholding
information; (6) why plaintiff’s reliance on the omission was both reasonable
and detrimental; and (7) the damages proximately flowing from such reliance.

Lawrence, 2007 NCBC LEXIS 20, at *9 (citation and alterations omitted). “Reliance

is not reasonable where the plaintiff could have discovered the truth of the matter

through reasonable diligence, but failed to investigate.” Cobb v. Pa. Life Ins. Co., 215

N.C. App. 268, 277, 715 S.E.2d 541, 549 (2011).

42. Plaintiffs’ allegations fall short across the board. They allege, for example,

that New JBL asked Lunsford to buy a lift truck, issued a check to reimburse him,

and then stopped payment on the check. (See Compl. ¶¶ 88–93, 186.) It’s not clear

what the misrepresentation was, but even if it were possible to intuit one, Plaintiffs

do not allege who made the representation beyond a general reference to New JBL.

“It is not sufficient to conclusorily allege that a corporation made fraudulent

misrepresentations; the pleader in such a situation must allege specifically the

individuals who made the misrepresentations of material fact . . . .” Coley v. N.C.

Nat’l Bank, 41 N.C. App. 121, 125, 254 S.E.2d 217, 220 (1979); see also USA Trouser,

S.A. de C.V. v. Williams, 258 N.C. App. 192, 202–03, 812 S.E.2d 373, 380 (2018)
(affirming dismissal of fraud claim that did not allege the “identity of any specific

person” making any misrepresentation).

43. Likewise, Plaintiffs allege that Dorwart falsely represented to Lunsford that

millions of dollars would be invested in New JBL. (See Compl. ¶¶ 187, 188.) But

Plaintiffs do not allege when or where this took place. Nor is it clear what Dorwart

or New JBL obtained as a result. See, e.g., S.N.R. Mgmt. Corp. v. Danube Partners

141, LLC, 189 N.C. App. 601, 611, 659 S.E.2d 442, 450 (2008) (affirming dismissal of

fraud claim that did not allege time or place of misrepresentation); Bob Timberlake

Collection, Inc. v. Edwards, 176 N.C. App. 33, 39, 626 S.E.2d 315, 321 (2006) (same).

44. These allegations all fall short for a second reason. At best, the purported

misrepresentations were promises that Dorwart or New JBL didn’t keep—one to

invest money in New JBL and another (poorly defined) to reimburse the cost of the

lift truck. Unfulfilled promises “generally do not give rise to an action for fraud.”

Potts v. KEL, LLC, 2018 NCBC LEXIS 24, at *8 (N.C. Super. Ct. Mar. 27, 2018).

There must be some allegation “from which a court and jury may reasonably infer

that the defendant did not intend to carry out [the promissory] representations when

they were made.” Whitley v. O’Neal, 5 N.C. App. 136, 139, 168 S.E.2d 6, 8 (1969); see

also Braun v. Glade Valley Sch., Inc., 77 N.C. App. 83, 87, 334 S.E.2d 404, 407 (1985).

Plaintiffs have not come close to alleging facts of that sort.

45. Next, Plaintiffs allege that New JBL hid its financial difficulties, including

that it became insolvent by the end of 2018. (See Compl. ¶¶ 118, 156, 157 185.)

Although not entirely clear, they also appear to allege that New JBL affirmatively
misrepresented its financial position by reducing the principal balance of the

promissory note and reporting the reduction on its balance sheet and financial

statements. (See Compl. ¶¶ 120, 121, 127, 128, 181.b.) Again, Plaintiffs do not

identify “any specific person” who made the alleged misrepresentations. USA

Trouser, 258 N.C. App. at 202–03, 812 S.E.2d at 380. And apart from a cursory

reference to reliance, (see Compl. ¶ 195), Plaintiffs do not allege with particularity

“why their reliance on the Defendants’ silence was both reasonable and detrimental.”

Lawrence, 2007 NCBC LEXIS 20, at *12; see also Beam v. Sunset Fin. Servs., Inc.,

2019 NCBC LEXIS 56, at *17–18 (N.C. Super. Ct. Sept. 3, 2019) (granting motion to

dismiss fraudulent concealment claim); Island Beyond, LLC v. Prime Cap. Grp., LLC,

2013 NCBC LEXIS 48, at *21 (N.C. Super. Ct. Oct. 30, 2013) (same).

46. The same is true for the allegation that New JBL concealed its use of Old

JBL’s credit lines with third parties. (See Compl. ¶¶ 65, 182.) There are no

allegations identifying the individuals who supposedly had a duty to disclose the use

of the credit lines. Nor are there any allegations that Plaintiffs actually relied on the

omission or that their reliance was reasonable and detrimental. See Lawrence, 2007

NCBC LEXIS 20, at *12.

47. The Court therefore grants the motion to dismiss the fraud claim. That in

turn necessitates dismissal of Plaintiffs’ demand for punitive damages, which wholly

depends on the fraud claim. See N.C.G.S. § 1D-15(a); Sullivan v. Mebane Packaging

Grp., Inc., 158 N.C App. 19, 35, 581 S.E.2d 452, 463 (2003).
C. Declaratory Judgment

48. Plaintiffs’ final claim for relief is for a declaratory judgment. They seek a

declaration that they “are relieved from all obligations to New JBL under” the

contracts at issue due to New JBL’s various breaches of the contracts. (Compl. ¶ 203.)

49. New JBL’s arguments are scattershot. It begins by arguing that the

declaratory-judgment claim is derivative of Plaintiffs’ other claims and should be

dismissed for the same reasons. (See Br. in Supp. 18–19.) Had New JBL made a

clean sweep, it might have a point. Some claims remain, though.

50. Second, New JBL argues that a declaratory judgment would serve no useful

purpose because the claim duplicates other claims. (See Br. in Supp. 18.) Not so.

Plaintiffs have not asked the Court to declare merely that New JBL breached the

asset purchase agreement and the consulting agreement. Rather, they seek a

declaration that New JBL’s breaches relieve them of their own contractual

obligations. (See Compl. ¶ 203.) A declaration of that sort—or a ruling that Plaintiffs

are not entitled to one—would clarify the parties’ past and future relationship.

51. The third argument is that the claim fails on the merits. New JBL points to

case law holding that a breach of an independent promise by one contracting party

does not excuse nonperformance by the other. (See Br. in Supp. 19.) But our Supreme

Court has cautioned that a motion to dismiss a declaratory-judgment claim should

“not be allowed simply because the plaintiff may not be able to prevail.” N.C.

Consumers Power, Inc. v. Duke Power Co., 285 N.C. 434, 439, 206 S.E.2d 178, 182

(1974). The question is whether the complaint alleges “an actual, genuine existing
controversy.” Id. Here, it does. See Johnson’s Landing Homeowners Ass’n v. Hotwire

Commc’ns, LLC, 2018 NCBC LEXIS 113, at *10–11 (N.C. Super. Ct. Oct. 29, 2018)

(denying motion to dismiss when complaint alleged an actual controversy even

though “[w]hether [plaintiff] is entitled to such a declaration is uncertain”).

52. Fourth is a puzzling argument. Plaintiffs have alleged a past breach of the

consulting agreement but have not alleged that New JBL will continue to miss

payments into the future. New JBL contends that there is no actual controversy as

a result and that a declaratory judgment is not proper. (See Br. in Supp. 20–21.) But

the question is whether New JBL’s past breach had the effect of excusing Plaintiffs’

future performance. Whether New JBL will repeat the breach is not material to the

controversy Plaintiffs have alleged.

53. Last, New JBL argues that Lunsford lacks standing but only in part. The

argument is that Old JBL, not Lunsford, has the right to receive notice of the exercise

of the set-off right under the asset purchase agreement, meaning that a breach of the

notice requirement could not give Lunsford standing to seek declaratory relief. (See

Br. in Supp. 21; see also ECF No. 21 at 11–13.) There is no dispute, though, that

Lunsford has standing to pursue declaratory relief based on a breach of the consulting

agreement. This “partial” standing, if that is what Lunsford has, is enough to avoid

dismissal of his claim. It also bears noting that Lunsford is a party to the asset

purchase agreement and has rights and duties under that agreement. Whether he is

entitled to the clarification of those rights and duties that he seeks may depend on

further developments at summary judgment or trial.
54. The Court denies the motion to dismiss the claim for a declaratory judgment.

IV.
CONCLUSION

55. For these reasons, the Court GRANTS in part and DENIES in part

Defendants’ motion to dismiss as follows:

a. The Court GRANTS the motion to dismiss all claims against ViaOne

Services for lack of personal jurisdiction. The claims are dismissed without

prejudice.

b. The Court GRANTS the motion to dismiss the claims for breach of the

promissory note and for fraud, as well as the prayer for punitive damages.

The claims are dismissed with prejudice.

c. In all other respects, the Court DENIES the motion.

SO ORDERED, this the 28th day of October, 2020.

/s/ Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases