Opinion
No. COA10-1260
Filed 7 June 2011 This case not for publication
Appeal by plaintiff from order entered 12 July 2010 by Judge Shannon R. Joseph in Wake County Superior Court. Heard in the Court of Appeals 10 March 2010.
Armstrong Armstrong, P.A., by L. Lamar Armstrong, Jr., for plaintiff. Poyner Spruill LLP, by Daniel G. Cahill and Caroline B. Payseur, for defendants.
Wake County No. 08 CVS 14338.
Thomas Norris, a certified public accountant, left Pete Fortner, PLLC, ("Fortner") in 2005 to become a partner in the accounting firm Koonce, Wooten Haywood, LLP ("KWH"). Many of Mr. Norris' clients followed him to KWH. Fortner subsequently sued KWH alleging, inter alia, tortious interference with contract and unfair and deceptive trade practices. We must decide whether the trial court erred when it granted summary judgment in favor of KWH. Because we conclude there are no genuine issues of material fact, we affirm the trial court's order.
Mr. Norris was a founding member of Fortner when the firm was formed in 1994. In 2002, Mr. Norris decided to retire as a partner at Fortner, but planned to continue to work at Fortner as an employee. On 1 January 2003, Mr. Norris and Fortner entered into a Reorganization/Recapitalization Agreement ("Reorganization Agreement"). Pursuant to the Reorganization Agreement, Fortner agreed to redeem Mr. Norris' interest in Fortner by providing Mr. Norris with two promissory notes. One promissory note was for a return of capital and was in the principal amount of $62,436.00 ("Capital Note"). The second promissory note in the principal amount of $394,813.00 represented Mr. Norris' interest in Fortner ("Practice Note"). Fortner made payments on the Practice Note from February through October 2003, but subsequently defaulted on the Practice Note. Additionally, although it was not part of the written Reorganization Agreement, Mr. Norris agreed to stay at Fortner for four years as an employee to assist Fortner with retaining Mr. Norris' clients during the transition.
From August 2004 to June 2005, Mr. Norris and Fortner met several times to discuss Mr. Norris again becoming a partner in Fortner in exchange for the elimination of Fortner's obligation to pay the Practice Note. However, as Mr. Norris explained in a memorandum to Fortner dated 30 June 2005, "the details for [Mr. Norris] becoming a partner were never worked out and thus nothing was resolved." Additionally, in the 30 June 2005 memorandum to Fortner, Mr. Norris informed Fortner that he would be leaving Fortner soon and would forgive the Practice Note in exchange for Fortner assigning him "all Non-Fortner Clients of the firm."
In the spring of 2005, Mr. Norris began discussing with several accounting firms the possibility of leaving Fortner and joining another accounting firm. As part of these discussions, Mr. Norris met with KWH and its managing partner, John Clements. In a memorandum to Mr. Clements dated 30 June 2005, Mr. Norris offered to sell his practice to KWH in exchange for 25% of the income stream collected from his clients. In the fall of 2005, Mr. Norris reached a verbal agreement with KWH to become an income partner at KWH. The verbal agreement was eventually drafted into an Income Partner Agreement between Mr. Norris and KWH, which was signed on 25 August 2006, but had an effective date of 1 December 2005.
Mr. Norris left Fortner effective 30 November 2005 and began working at KWH the following day. As part of the transition process, Mr. Norris and Fortner jointly wrote a letter to all Fortner clients to announce that Mr. Norris was leaving the firm effective 30 November 2005, but would continue to practice as a CPA. The letter advised the clients that "you have the opportunity to choose who will be your CPA going forward" and requested that the clients "use the enclosed form to identify your choice" of CPA, so as to help Fortner know "where to direct your files." After Mr. Norris joined KWH, KWH began servicing former Fortner clients.
On 27 January 2006, Mr. Norris sent letters to Fortner seeking payment of the Capital Note and the Practice Note. On 4 August 2006, Mr. Norris filed a lawsuit against Fortner and the personal guarantees of the two promissory notes for non-payment of the notes (the "Norris lawsuit"). On 23 May 2008, the trial court entered an order granting directed verdict for Fortner on the Practice Note and denying directed verdict as to the Capital Note. The trial court found that Mr. Norris repudiated the Practice Note by entering into the partnership agreement with KWH and receiving income under his contract with KWH from former Fortner clients; therefore, the court found the Practice Note "invalid and unenforceable as a matter of law."
On 14 August 2008, Fortner filed a complaint against KWH alleging claims of aiding and abetting breach of contract, conversion, civil conspiracy, tortious interference with contract, and unfair and deceptive trade practices. On 27 October 2008, KWH moved to dismiss Fortner's complaint for failure to state a claim, and, on 9 March 2009, the trial court granted KWH's motion to dismiss as to all claims except tortious interference with contract and unfair and deceptive trade practices. On 11 January 2010, KWH made a motion for summary judgment as to Fortner's remaining claims of tortious interference with contract and unfair and deceptive trade practices. On 21 July 2010, the trial court entered an order granting KWH's motion for summary judgment. Fortner appeals from the 21 July 2010 order.
On appeal, Fortner argues the trial court erred by granting summary judgment in favor of KWH because there are genuine issues of material fact with respect to Fortner's claims of tortious interference with contract and unfair and deceptive trade practices.
Our standard of review for a trial court's order allowing summary judgment is de novo. Builders Mut. Ins. Co. v. North Main Constr., Ltd., 361 N.C. 85, 88, 637 S.E.2d 528, 530 (2006). Summary judgment is proper 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. Gen. Stat. § 1A-1, Rule 56(c) (2009). "The burden of proof rests with the movant to show that summary judgment is appropriate . . . [and] [w]e review the record in the light most favorable to the non-moving party." Bradley v. Hidden Valley Transp., Inc., 148 N.C. App. 163, 165, 557 S.E.2d 610, 612 (2001) (citations omitted), aff'd, 355 N.C. 485, 562 S.E.2d 422 (2002).
I. Tortious Interference with Contract
Fortner first argues that the trial court erred by granting summary judgment because there are genuine issues of material fact with respect to Fortner's claim of tortious interference with contract. Specifically, Fortner argues that KWH interfered with the "Transition Agreement" between Mr. Norris and Fortner because although KWH knew that Mr. Norris had sold, and did not reacquire, his interest in any future income stream from his clients, KWH offered to pay Mr. Norris a commission from the income received from former Fortner clients, and KWH included an indemnification provision in its Income Partner Agreement with Mr. Norris. In response, KWH argues there is no evidence that KWH intentionally induced Mr. Norris to breach any contractual duties. We agree with KWH.
The "Transition Agreement" as referred to by Fortner consists of the Reorganization Agreement, Practice Note, Capital Note, and agreement for Mr. Norris to remain an employee of Fortner for four years.
The tort of interference with contract has five elements:
(1) a valid contract between the plaintiff and a third person which confers upon the plaintiff a contractual right against a third person; (2) the defendant knows of the contract; (3) the defendant intentionally induces the third person not to perform the contract; (4) and in doing so acts without justification; (5) resulting in actual damage to plaintiff.
United Laboratories, Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988) (citation omitted).
Assuming arguendo that a valid contract existed between Fortner and Mr. Norris, of which KWH had knowledge, there is no evidence to support the third element of tortious interference with contract, that KWH intentionally induced Mr. Norris to leave Fortner. In the instant case, the evidence indicates that Mr. Norris pursued employment with KWH.
Mr. Norris testified that he contacted Mr. Clements when he decided to leave Fortner; KWH did not contact him first. In a memorandum to Mr. Clements dated 30 June 2005, Mr. Norris offered to sell his practice to KWH in exchange for 25% of the income stream collected. Moreover, Mr. Norris stated that at the time he was discussing joining KWH with Mr. Clements, he was also considering joining other accounting firms and had similar discussions with those firms about the sale of his practice. Even Harold H. ("Pete") Fortner, who testified on behalf of Fortner, was unable to point to any specific evidence of inducement:
Q. . . . Did [KWH] induce Mr. Norris to leave your firm?
A. I think I mentioned that before. And I think I said that I don't know who induced but that they certainly made it easier for him to leave the firm by providing a place, a vehicle to service those clients.
Q. Other than giving him a place to go, did they do anything else you're aware of?
A. Not that I'm aware of.
Q. So you're not saying they induced him to leave. You're saying they made it easier for him to leave?
A. I said I was not aware of whether or not they induced him to leave.
Q. Let me word it a different way. As you sit here today, are you aware of any evidence that they induced him to leave?
A. I don't think so.
Additionally, there is no evidence that KWH intentionally induced Mr. Norris' clients to leave Fortner. On 30 November 2005, Mr. Norris and Fortner jointly wrote a letter on Fortner letterhead to Fortner's clients. Pete Fortner testified that he agreed with the letter and the purpose of the letter was "[t]o notify the clients that [Mr. Norris] was leaving the firm. And clients of course control or decide who will service their accounting and tax need[s], and we needed to know of their decision so we could give the records, et cetera, if needed to [Mr. Norris]." Pete Fortner further testified:
Q. Have you ever seen a letter from Mr. Clements soliciting clients of yours away from your firm?
A. No direct solicitation, no.
Q. Have you seen anything — a letter from Mr. Clements demonstrating an indirect solicitation of your clients?
A. I think I have seen a document whereby [Mr. Norris], based on the results of [the 30 November 2005 letter to Fortner's clients], was to transfer the client service to [KWH] and he would serve those as an employee of [KWH] — serve those clients.
. . .
Q. . . . [Y]ou said you weren't aware of any direct solicitation that Mr. Clements may have made to your clients. And I was asking whether you were aware of any indirect solicitation that Mr. Clements may have made to your clients.
A. Only in accepting those clients from Mr. Norris.
Fortner argues that the evidence in the instant case "is even stronger evidence of intentional inducement" than the evidence in United Laboratories, Inc. v. Kuykendall, 322 N.C. at 662-63, 370 S.E.2d at 387-88 (finding that the defendant competitor hired the plaintiff's former employee even though it knew about covenants not to compete, agreed to pay all legal expenses incurred as a result of the employee breaching the covenants, and solicited the plaintiff's customers). However, we find this case more analogous to Griffith v. Glen Wood Co., Inc., 184 N.C. App. 206, 646 S.E.2d 550 (2007), in which this Court affirmed the trial court's grant of summary judgment in favor of the defendant because "there is no evidence in the record that defendant Tryson induced defendant Wood Brothers not to perform the lease contract." Id. at 212, 646 S.E.2d at 556. Because Fortner has not presented evidence that KWH intentionally induced Mr. Norris not to perform on the contract, an essential element of its claim for tortious interference with contract, the trial court did not err in granting summary judgment in favor of KWH on the claim of tortious interference with contract.
II. Unfair and Deceptive Trade Practices
In its second argument on appeal, Fortner contends the trial court erred by granting summary judgment because Fortner presented a genuine question of material fact as to its claim of unfair and deceptive trade practices. Specifically, Fortner argues that "the same facts and legal argument that establish Forter's tortious interference claim also make out a claim under the UDTPA." We disagree.
In order to establish a claim under North Carolina's Unfair and Deceptive Trade Practices Act ("UDTPA"), N.C. Gen. Stat. § 75-1.1 (2009), et seq., a plaintiff must show that: "(1) defendant committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to the plaintiff." Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001) (citation omitted). "A practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers[,] . . . [and] is deceptive if it has the capacity or tendency to deceive; proof of actual deception is not required." Marshall v. Miller, 302 N.C. 539, 548, 276 S.E.2d 397, 403 (1981) (citation omitted). Moreover, "some type of egregious or aggravating circumstances must be alleged and proved before the Act's provisions may take effect." Dalton, 353 N.C. at 657, 548 S.E.2d at 711 (citations and quotations marks omitted).
When asked to explain what KWH did to Fortner that was illegal, unethical, or immoral, Pete Fortner testified as follows:
A. I think that they were certainly aware of some potential problems between Mr. Norris and myself as evidenced by their including some reference to that in I believe Mr. Norris's employment agreement that they wouldn't be held — I can't remember exactly what it said. But they were certainly aware of it because of the mention [in the employment agreement], I believe.
. . .
Q. Other than including the indemnification provision in the employment agreement with Tom Norris, what else did [KWH] do that was illegal, unethical, or immoral to you?
A. I don't know of anything.
The fact that KWH hired Mr. Norris and included an indemnification agreement in the Income Partner Agreement does not constitute an unfair and deceptive trade practice under the facts of this case. As previously discussed, there was no evidence that KWH solicited Mr. Norris to work for its firm. Compare Sunbelt Rentals, Inc. v. Head Engquist Equipment, L.L.C., 174 N.C. App. 49, 60, 620 S.E.2d 222, 230 (2005) (holding that the defendant company's acts were unfair and unscrupulous when the defendant solicited its competitor's employees en masse, lured the employees with sign-on bonuses and high compensation packages, and used its competitor's former employees and confidential information "to tailor rental fleets at its branches without spending the time, money and effort necessary to develop such information"), review dismissed, 360 N.C. 296, 629 S.E.2d 289 (2006). Furthermore, Fortner did not have a non-compete agreement or a restrictive covenant with Mr. Norris. Compare United Laboratories, Inc. v. Kuykendall, 102 N.C. App. 484, 491-92, 403 S.E.2d 104, 109 (1991) (holding that it constituted unfair methods of competition for the defendant company to offer to pay legal fees and costs to induce a competitor's employee to breach his covenant not to compete and to attempt to unfairly divert the competitor's accounts to the defendant), aff'd, 335 N.C. 183, 437 S.E.2d 374 (1993). Finally, Mr. Norris testified that he, not KWH, suggested the inclusion of an indemnification provision in the Income Partnership Agreement because:
Pete Fortner had said that he would bring suit against [KHW] if I sued [Fortner]. And it was my feeling and belief that I should be responsible for any legal fees that [KWH] incurred to defend that when they were not party to my leaving [Fortner]. I mean, they were just innocent bystanders that agreed to let me bring my practice over there. And if I had to incur legal litigation or if they were incurred in litigation because of my coming, that was my responsibility.
Because Fortner has not shown that KWH committed an unfair or deceptive act or practice, the trial court did not err in granting summary judgment in favor of KWH on the claim of unfair and deceptive trade practices. Accordingly, we affirm.
AFFIRMED.
Judges STROUD and HUNTER, JR. concur.
Report per Rule 30(e).