Genuine Parts Company v. Southeastern Automotive, Inc. et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM; MOTION to Stay with Brief In Support

N.D. Ga.July 31, 2016

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA GENUINE PARTS COMPANY, Plaintiff, v. SOUTHEASTERN AUTOMOTIVE, INC., CHARLES J. HARRELL, BRANDON W. HARRELL, AND ERIC K. PREVATTE, Defendants. Case No. 1:16-cv-00955-LMM DEFENDANTS’ MOTION TO DISMISS OR STAY Pursuant to the Court’s Order of July 21, 2016 [Doc. 18], Defendants Southeastern Automotive, Inc. (“Southeastern”), Charles J. Harrell (“Charles Harrell”), Brandon W. Harrell (“Brandon Harrell”), and Eric K. Prevatte (“Prevatte”) (Charles Harrell, Brandon Harrell, and Prevatte are collectively “Individual Defendants”) move for dismissal of the Amended Complaint filed by Plaintiff Genuine Parts Company (“Plaintiff” or “GPC”), or in the alternative, a stay of this case until parallel litigation has concluded. As discussed in Defendants’ Brief in support of this motion, filed herewith, this case should be dismissed or stayed under the abstention doctrine announced by the United States Supreme Court in Colorado River Water Conservation Dist. v. Case 1:16-cv-00955-LMM Document 19 Filed 07/31/16 Page 1 of 3 2 United States, 424 U.S. 800 (1976). A case involving substantially the same parties and issues as this case is currently pending in the Superior Court of Cumberland County, North Carolina. Plaintiff’s claims are dependent on determination of the issues in that case, and dismissal or stay is appropriate to avoid inconsistent rulings. Should this Court decline to dismiss or stay this case based on the Colorado River abstention doctrine, Plaintiff’s claims against the Individual Defendants pursuant to the Guaranty Agreement must be dismissed for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Respectfully submitted, this 1st day of August, 2016. /s/Rachel F. Gage Richard L. Robbins Georgia Bar No. 608030 Rachel F. Gage Georgia Bar No. 547982 ROBBINS ROSS ALLOY BELINFANTE LITTLEFIELD LLC 999 Peachtree Street, NE Suite 1120 Atlanta, Georgia 30309 (678) 701-9381 (404) 856-3250 (fax) Attorneys for Defendants Case 1:16-cv-00955-LMM Document 19 Filed 07/31/16 Page 2 of 3 CERTIFICATE OF SERVICE I hereby certify that I have this day filed the within and foregoing DEFENDANTS’ MOTION TO DISMISS OR STAY with the Clerk of Court using the CM/ECF system, which automatically sent counsel of record e-mail notification of such filing. This 1st day of August, 2016. /s/ Rachel F. Gage Rachel F. Gage Case 1:16-cv-00955-LMM Document 19 Filed 07/31/16 Page 3 of 3 IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA GENUINE PARTS COMPANY, Plaintiff, v. SOUTHEASTERN AUTOMOTIVE, INC., CHARLES J. HARRELL, BRANDON W. HARRELL, AND ERIC K. PREVATTE, Defendants. Case No. 1:16-cv-00955-LMM BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS OR STAY Pursuant to the Court’s Order of July 21, 2016 [Doc. 18], Defendants Southeastern Automotive, Inc. (“Southeastern”), Charles J. Harrell (“Charles Harrell”), Brandon W. Harrell (“Brandon Harrell”), and Eric K. Prevatte (“Prevatte”) (Charles Harrell, Brandon Harrell, and Prevatte are collectively “Individual Defendants”) move for dismissal of the Amended Complaint filed by Plaintiff Genuine Parts Company (“Plaintiff” or “GPC”), or in the alternative, a stay of this case until parallel litigation in state court in North Carolina has concluded. Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 1 of 20 2 This case should be dismissed or stayed under the abstention doctrine announced by the United States Supreme Court in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). A case involving substantially the same parties and issues as this case is currently pending in the Superior Court of Cumberland County, North Carolina (the “North Carolina Action”).1 Plaintiff’s claims are dependent on determination of the issues in that case, and inconsistent results and duplication of effort by the parties and the courts are likely if the cases proceed at the same time. Accordingly, in the interest of “wise judicial administration,” Colorado River abstention is appropriate here. Colorado River, 424 U.S. at 818–20. Should this Court decline to dismiss or stay this case based on Colorado River abstention, Plaintiff’s claims against the Individual Defendants pursuant to the Guaranty Agreement must be dismissed for failure to state a claim. There is no 1 Defendants previously moved to dismiss the Amended Complaint based on the federal first-filed rule, as the North Carolina Action was then pending in the Eastern District of North Carolina. Since that motion was filed, the North Carolina Action has been transferred to this Court, and remanded to North Carolina state court due to the presence of a non-diverse defendant. See Se. Auto., Inc. v. Genuine Parts Co., No. 16-cv-2442-LLM (N.D. Ga.), Doc. 44 at 13. This Court denied Defendants’ initial motion to dismiss without prejudice, allowing “new briefs addressing the current posture of the case.” (See Doc. 18.) Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 2 of 20 3 allegation that the Individual Defendants were provided with the required notice of default and opportunity to cure under the Guaranty Agreement. FACTUAL BACKGROUND A. The Change-Over Agreement. Plaintiff’s claims purportedly arise out of various agreements memorializing a financing arrangement between the parties in connection with a separate contract between Southeastern and GPC known as the Change-Over Agreement. (Am. Compl. ¶ 14.) The purpose of the Change-Over Agreement was to create a supplier/customer relationship between Southeastern (referred to as “Store Owner” in the Change-Over Agreement) and the North Carolina segment of GPC, doing business as the NAPA High Point and Napa Charlotte Distribution Center (referred to as “NAPA” in the Change-Over Agreement). (Am. Compl., Ex. L, pp. 1, 5.) The Change-Over Agreement came about after discussions between Southeastern and GPC during 2011, 2012, and early 2013. (Am. Compl. ¶ 14.) Southeastern, which operated eight auto parts stores in North Carolina prior to the transaction at issue, agreed to change over their existing stores into NAPA Auto Parts stores (GPC contracts with NAPA Auto Parts stores to supply products and control certain aspects of operations), and to purchase three NAPA Auto Parts stores owned directly by GPC (the “Change-Over Transaction”). (Id. at 12-14.) Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 3 of 20 4 The Change-Over Agreement was signed between Southeastern and GPC, doing business as the NAPA High Point and Napa Charlotte Distribution Center, on February 13, 2013, two weeks before the agreements on which Plaintiff bases its claims were executed. (Am. Compl., Ex. L.) As is clear from the face of the Change-Over Agreement, it is the primary document governing the Change-Over Transaction. (See Id. at 1 (“Store Owner wishes to convert or ‘change-over’ the Store(s) to NAPA AUTO PARTS store(s), and NAPA is willing to change-over the Store(s) on the terms set forth in this Agreement.”) The Change-Over Agreement includes the following provisions: • Designated NAPA employees will physically inspect and count the existing automotive parts inventory at each of Plaintiff’s locations; • All inventory counts will be entered into a NAPA TAMS computer system for record-keeping purposes; • Upon completion of the inspection and inventory count, a listing and extension of the Store Owner’s existing inventory at the agreed-upon pricing will be printed, and Store Owner’s authorized representative will sign the inventory listing to confirm that the inspection and inventory counts were performed in an accurate and correct manner; Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 4 of 20 5 • Immediately following the inspection and inventory count, all of the Store Owner’s existing inventory would thereafter be either re-boxed as NAPA parts and returned to Plaintiff’s inventory or removed from the Store location(s) for return to the manufacturers/suppliers of NAPA; • Store Owner agrees that for a minimum continuous period of five years after the Change-over Date, Store Owner will purchase a minimum of $8,000,000 or 90% of their COGS in product, net of returns, from NAPA on an annual basis (the "Minimum Purchase Requirement'') and will stock NAP A product in accordance with the NAP A Classification Program. (Am. Compl., Ex. L, pp. 1-2.) Whether GPC breached the terms of the Change- Over Agreement is at issue in the North Carolina Action, described below. B. The Financing Documents. Approximately two weeks after executing the Change-Over Agreement, on February 28, 2013, GPC and Defendants allegedly entered into the Guaranty Support Agreement, the Guaranty Agreement signed by the Individual Defendants, and the Security Agreement (collectively, “Financing Documents”). (Am. Compl., ¶¶ 15, 23, 27.) Defendants also allegedly entered into a loan agreement with Bank of America to finance various aspects of the Change-Over Transaction. (Am. Compl., ¶ 17.) Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 5 of 20 6 The Guaranty Agreement includes a provision for notice of default: In the event that the Debtor shall fail to pay or otherwise discharge any of its indebtedness or obligations to GPC as contemplated herein GPC shall at once give notice to the Guarantor of such default, and the undersigned, upon such notice, shall have the right and obligation to cure such default in the same manner and as fully as the Debtor might do; provided failure by GPC to give any such notice shall not discharge any of the Guarantor’s obligations hereunder. (Am. Compl., Ex. M.) There is no allegation that the required notice was provided to the Individual Defendants. On December 9, 2015, Southeastern and Brandon Harrell allegedly executed a promissory note in favor of GPC in the principal sum of $500,000. (Am. Compl., ¶ 32.) Plaintiff alleges that Southeastern and Brandon Harrell are in breach of the promissory note. C. The North Carolina Action. Southeastern filed a Complaint against GPC and one of its principals, John Michael Riess, II (“Riess”), on February 12, 2016 in in the Superior Court of Cumberland County, North Carolina. (See Ex. A, Complaint in North Carolina Action (“N.C. Compl.”).) That case was removed to the Eastern District of North Carolina by GPC and Riess, transferred to this Court, and then remanded to the Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 6 of 20 7 North Carolina state court. See Se. Auto., Inc. v. Genuine Parts Co., No. 16-cv- 2442-LLM (N.D. Ga.). The North Carolina Action alleges claims for breach of the Change-Over Agreement, fraud, and unfair and deceptive trade practices under North Carolina law. In this case, Plaintiff alleges that Defendants have failed to pay over $1.86 million in “unpaid invoices” (Am. Compl. ¶ 44), and that they owe another $500,000 “in connection with past due inventory payments.” (Id. at ¶ 32.). In the North Carolina Action, Southeastern has alleged that GPC failed to properly inventory Southeastern’s stores and provide credit for such inventory during the change-over; failed to provide promised discounts on inventory purchased from GPC, and failed to properly implement a computer system to track inventory at Southeastern’s stores. (See Ex. A, ¶¶ 32-49.) Thus, the determination of whether Southeastern owes GPC over $2 million under the Financing Documents, as Plaintiff claims in this case, is totally dependent on the resolution of the issues raised in the North Carolina Action. The Change-Over Transaction is at the heart of both cases. Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 7 of 20 8 LEGAL STANDARD In Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976), the Supreme Court held that a federal court should abstain from a case if (1) a parallel lawsuit is proceeding in state court, and (2) the interests of wise judicial administration demand abstention. 424 U.S. at 818–20. To determine whether abstention is merited under Colorado River, a court must decide as a threshold matter whether there is a parallel state action “involving substantially the same parties and substantially the same issues.” Jackson–Platts v. Gen. Elec. Capital Corp., 727 F.3d 1127, 1140 (11th Cir. 2013) (citing Ambrosia Coal & Const. Co. v. Pages Morales, 368 F.3d 1320, 1330 (11th Cir. 2004)). If the court determines that the two actions are parallel, the federal court must then weigh six factors in determining whether abstention is appropriate: (1) the order in which the courts assumed jurisdiction over property; (2) the relative inconvenience of the fora; (3) the order in which jurisdiction was obtained and the relative progress of the two actions; (4) the desire to avoid piecemeal litigation; (5) whether federal law provides the rule of decision; and (6) whether the state court will adequately protect the rights of all parties. Jackson–Platts, 727 F.3d at 1141 (citing TranSouth Fin. Corp. v. Bell, 149 F.3d 1292, 1294 (11th Cir. 1998)). Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 8 of 20 9 No single factor is dispositive, id., and application of the factors should be flexible: The decision whether to dismiss a federal action because of parallel state-court litigation does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction. The weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983). When considering Colorado River abstention, a district court should also be mindful of the potentially “vexatious or reactive nature of either the federal or the state litigation.” Id. at 17 n. 20. While the Supreme Court cautioned in Colorado River that dismissal of a federal suit in favor of a concurrent state proceeding should only take place under limited circumstances, those “circumstances, though exceptional, do nevertheless exist.” Colorado River, 424 U.S. at 818. Circumstances calling for dismissal of the Amended Complaint exist in this case. Should this Court decline to dismiss the Amended Complaint pursuant to Colorado River, Plaintiff’s claims against the Individual Defendants based on the Guaranty Agreement must be dismissed under Federal Rule of Civil Procedure 12(b)(6). A complaint must be dismissed unless it “contain[s] sufficient factual Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 9 of 20 10 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To be plausible on its face, a complaint must set forth enough facts to “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. At a minimum, a complaint should “contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some, viable legal theory.” Fin. Sec. Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276, 1282–83 (11th Cir.2007). ARGUMENT I. This Case And The North Carolina Action Are Parallel. Abstention is called for here because this case and the North Carolina Action involve “substantially the same parties and substantially the same issues.” Ambrosia Coal & Const. Co. v. Pages Morales, 368 F.3d 1320, 1330 (11th Cir. 2004); see also Jackson–Platts, 727 F.3d at 1140. In Ambrosia Coal, the Eleventh Circuit rejected the argument that parties and issues must be identical in order for cases to be considered parallel. The Ambrosia Coal Court found the cases at issue to be parallel even though, like here, some of the defendants in the federal case were not parties to the state case, and the claims were not identical, but closely related and involving the same issues. Id. Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 10 of 20 11 Both this case and the North Carolina Action are based on the Change-Over Transaction, and the primary parties, GPC and Southeastern, are present in both cases. The Individual Defendants here are not currently parties to the North Carolina Action, but could be joined, as they are all residents of North Carolina subject to jurisdiction in the state court. (Am. Compl., ¶¶ 4-6.) The issues in the two cases are also “substantially the same,” as resolution of Plaintiff’s claims in the Amended Complaint will necessarily depend on resolution of the claims in the North Carolina Action. In particular, the North Carolina Action alleges that GPC failed to properly inventory Southeastern’s stores and provide credit for such inventory during the change-over; failed to provide promised discounts on inventory purchased from GPC, and failed to properly implement a computer system to track inventory at Southeastern’s stores. (Ex. A., N.C. Compl., ¶¶ 32-49.) Southeastern has also alleged that as a result of the failure to properly conduct the inventory, GPC claims that Southeastern has an inventory shortfall of over $1.4 million: Recently, and many months after Defendant NAPA’s failure to properly inventory Plaintiff’s previous store locations, Defendant NAPA announced to Plaintiff that the off-site counts that Defendant NAPA’s employees had taken without any oversight from Plaintiff had produced an inventory shortfall from Plaintiff’s Quickbooks records of One Million Four Hundred Thousand and 00/100 Dollars ($1,400,000.00) which Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 11 of 20 12 Defendant NAPA expected Plaintiff to write off and receive no compensation for despite the terms of the Changeover Agreement. (Id. at ¶ 52.) If it is determined in the North Carolina Action that GPC failed to properly credit Southeastern for its inventory, forced Southeastern to overstock, and improperly priced the auto parts purchased by Southeastern, then GPC’s claims for payment for those same auto parts, set forth in the Amended Complaint, will be undermined. Conversely, GPC’s claims cannot be decided until the issues in the North Carolina Action are resolved. Southeastern’s claims for fraud and violations of the North Carolina unfair and deceptive trade practices statute could similarly affect the claims GPC has brought in this case. Accordingly, this case and the North Carolina Action are parallel for purposes of Colorado River abstention. II. The Colorado River Factors Favor Abstention. In the interest of wise judicial administration, abstention is appropriate here under the Colorado River factors set forth above. Most importantly, abstention is necessary to prevent piecemeal litigation and the danger of inconsistent results. A. Abstention Is Necessary To Avoid Piecemeal Litigation. As discussed above, resolution of the issues raised by the Amended Complaint – namely, whether Southeastern owes GPC any amounts for unpaid Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 12 of 20 13 invoices – implicitly requires a determination as to whether GPC breached the Change-Over Agreement as alleged in the North Carolina Action. To decide the cases concurrently but separately would be unnecessarily repetitious and carry a substantial risk of inconsistent results. This case is similar to Sini v. Citibank, N.A., 990 F. Supp. 2d 1370 (S.D. Fla. 2014), in which parallel state and federal cases were filed regarding the proper disbursement of funds held in a bank account. The first case was filed in Florida state court, raising claims of breach of conversion, fraud, breach of fiduciary duty, and to impose a constructive trust over the funds. Citibank, a third party, filed a counterclaim for interpleader and a cross claim in the state court action. Then, the defendant in the state case filed a federal action alleging breach of contract, theft, and conversion against Citibank, who in turn filed a counterclaim for interpleader against the plaintiff in the state court action. Id. at 1377. The Sini court found that while the claims brought in each case were not identical, they were so intertwined that “dual litigation would likely result in deleterious duplication of judicial resources.” 990 F. Supp. 2d at 1379. The court determined that abstention was called for to avoid piecemeal litigation, stating: Given the duplicative claims in counterclaims in the state action, the redundant proofs required by the respective claims, and the potential for conflicting rulings, the Court finds that the parallel cases present a serious danger of Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 13 of 20 14 “abnormally excessive or deleterious” piecemeal litigation, and this factor weighs strongly in favor of abstention. Sini v. Citibank, N.A., 990 F. Supp. 2d 1370, 1379–80 (S.D. Fla. 2014). The Court also found that “continued litigation in this Court presents a real danger of conflicting rulings based on identical facts.” Id. at 1381. Just as in Sini, abstention is necessary here to avoid piecemeal litigation and the danger of conflicting rulings. This factor should be given the most weight here. Other factors also favor abstention, including that the North Carolina forum is more convenient; North Carolina law will apply to at least some of the claims, and federal law does not provide the rule of decision for any claim; and the North Carolina state court will adequately protect the rights of all parties. B. The North Carolina Court Assumed Jurisdiction First, and Discovery Has Begun. The North Carolina Action was filed on February 12, 2016 in in the Superior Court of Cumberland County, North Carolina, where it is currently pending. (See Ex. A.) This action was filed over a month later, on March 25, 2016. While both cases are still in the early stages, discovery has officially begun in the North Carolina Action. Initial discovery requests have been served on GPC and Riess, and responses are due. (See Ex. B.) Whether discovery has commenced is a persuasive factor when deciding whether to abstain under Colorado River. Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 14 of 20 15 Sini, 990 F. Supp. 2d at 1378 (collecting authority). C. The North Carolina Forum Is More Convenient, and North Carolina Law Will Apply. The North Carolina Action is a suit for damages based on a transaction that took place in North Carolina, largely between North Carolina citizens. Even though GPC is a Georgia company, the Change-Over Transaction was between Southeastern and segments of GPC located and doing business in High Point and Charlotte, North Carolina. (See Am. Compl., Ex. L, pp. 1.) All of the stores Southeastern contracted with GPC to change over to NAPA stores are located in eastern North Carolina, along with all of the relevant evidence and witnesses. Moreover, the fraud and unfair trade practice claims brought by Southeastern in the North Carolina Action are based on North Carolina law. No claim in either action is based on federal law. Skeete v. Moon, No. CIVA 508-CV- 326 CAR, 2009 WL 2611317, at *5 (M.D. Ga. Aug. 20, 2009) (abstaining pursuant to Colorado River where, among other factors, “both cases revolve around questions of Georgia law”). D. The North Carolina Court Will Protect The Rights Of All Parties, And The Forum Selection Clauses Do Not Change The Analysis Of This Factor. Though Plaintiff GPC has not yet answered Southeastern’s complaint in the North Carolina Action, the claims it brings in this court could be brought as Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 15 of 20 16 counterclaims or defenses there. GPC is also entitled to request a setoff against any potential award to Southeastern based on the allegedly unpaid invoices. The Change-Over Transaction took place in North Carolina, between Defendant Southeastern, a North Carolina company, and a North Carolina division of the Plaintiff. The Individual Defendants here, as well as John Michael Riess, II, the individual defendant in the North Carolina action, are all North Carolina citizens. There is no indication that the North Carolina court cannot adequately determine the rights of all parties, including GPC. The forum selection clauses found in the Financing Documents do not affect the conclusion that the North Carolina Court is capable of hearing the entire dispute, should GPC choose to bring its claims there. As detailed in the Factual Background above, the relationship between the parties is governed primarily by the Change-Over Agreement, which does not contain a mandatory forum selection clause and allows the litigation of this dispute in North Carolina. The Financing Documents were not executed until two weeks after the Change-Over Agreement, for the purpose of financing the Change-Over Transaction. The forum selection clauses contained in the ancillary Financing Documents do not mandate that this Court maintain jurisdiction over this action in the face of the parallel North Carolina Action. However, should this Court determine that it must hear GPC’s Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 16 of 20 17 claims pursuant to the forum selection clauses in the Financing Documents, Southeastern respectfully requests that this case be stayed until the North Carolina Action is resolved, so as to avoid inconsistent results. III. Plaintiff’s Claims Under The Guaranty Agreement Fail As A Matter of Law For Failure To Provide Notice Of Default. Should this Court decline to dismiss this case pursuant to Colorado River, Plaintiff’s claims under the Guaranty Agreement must be dismissed on the merits. The Guaranty Agreement includes a provision for notice of default: In the event that the Debtor shall fail to pay or otherwise discharge any of its indebtedness or obligations to GPC as contemplated herein GPC shall at once give notice to the Guarantor of such default, and the undersigned, upon such notice, shall have the right and obligation to cure such default in the same manner and as fully as the Debtor might do; provided failure by GPC to give any such notice shall not discharge any of the Guarantor’s obligations hereunder. (Am. Compl., Ex. M.) There is no allegation that the required notice and opportunity to cure was provided to the Individual Defendants. Accordingly, Plaintiff is not entitled to pursue the Individual Defendants under the Guaranty Agreement as a matter of law. CONCLUSION Because GPC’s claims in this action are dependent on resolution of the claims asserted in the North Carolina Action, Defendants respectfully request that Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 17 of 20 18 this Court dismiss the Amended Complaint pursuant to the abstention doctrine established in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). In the alternative, Defendants request that this action be stayed pending resolution of the North Carolina Action. Respectfully submitted, this 1st day of August, 2016. /s/Rachel F. Gage Richard L. Robbins Georgia Bar No. 608030 Rachel F. Gage Georgia Bar No. 547982 ROBBINS ROSS ALLOY BELINFANTE LITTLEFIELD LLC 999 Peachtree Street, NE Suite 1120 Atlanta, Georgia 30309 (678) 701-9381 (404) 856-3250 (fax) Attorneys for Defendants Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 18 of 20 L.R. 7.1(D) CERTIFICATION I certify that this brief has been prepared with one of the font and point selections approved by the Court in Local Rule 5.1(C). Specifically, this brief has been prepared using 14-pt Times New Roman Font. /s/ Rachel F. Gage Rachel F. Gage Georgia Bar No. 54798 Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 19 of 20 CERTIFICATE OF SERVICE I hereby certify that I have this day filed the within and foregoing BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS OR STAY with the Clerk of Court using the CM/ECF system, which automatically sent counsel of record e-mail notification of such filing. This 1st day of August, 2016. /s/ Rachel F. Gage Rachel F. Gage Case 1:16-cv-00955-LMM Document 19-1 Filed 07/31/16 Page 20 of 20 EXHIBIT A Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 1 of 26 The Law Offices of Lonnie M, Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 l:f:j; ,, . IN THE GENERAL COURT OF ms'l'm"' , <. t-:o ·• NORTH CAROLINA . b'f-(F' ,t r SUPERIOR COURT DIVISION · -:[' 1 ? r:C::-::UMB=:::E:c::RL-:-AND==C::-0-:cUN=T::-:Y:-::-:=:-==-:=,---., FILE NO. 16 cvs I ~~y•'',~i'{ :>; ~~ 'A/ I: Is . SOUTHEASTERN AUTOMOTIVE, INC., ,, , • a North Carolina Corporation, 'c: S r' ·v. Plaintiff, v. GENUINE PARTS COMPANY, a Georgia Corporation d/b/a NAP A AUTO PARTS and JOHN MICHAEL RIESS, II, Defendants. COMPLAINT NOW COMES Plaintiff, by and tln·ough the undersigned, and, complaining of Defendant, alleges and says as follows: 1. Plaintiff is a corporation organized and validly existing under the laws of the State of North Carolina, having its principal place of business in Cumberland County, North Carolina. 2. Upon information and belief, Defendant Genuine Parts Company (hereinafter, "NAP A") is a corporation organized and validly existing under the laws of the State of Georgia, having its principal place of business in Fulton County, Georgia and, at all times relevant hereto, doing business in Cumberland County, North Carolina as "NAP A Auto Parts." 3. Upon information and belief, Defendant John Michael Riess, II (''Riess") is a citizen and resident of Guilford County, North Carolina. At all times relevant hereto, Defendant Riess was an employee of Defendant NAP A. FIRST CLAIM FOR RELffiF BREACH OF CONTRACT 4. Plaintiff repeats and realleges the allegations contained in paragraphs 1 tlu·ough 3 of the Complaint. 5. Plaintiff is an auto parts distributor and retailer with locations across Southeastern North Carolina. -1- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 2 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 6. Plaintiff was fmmed in 2003 and by November, 2011 had grown to include the following eight (8) locations: (a) 1122 Gillespie Street, Fayetteville, North Carolina (Warehouse); (b) 601 Greenfield Street, Wilmington, North Carolina; (c) 2306 Atlantic Avenue, Raleigh, North Carolina; (d) 422 Watts Road; Lumbmton, North Carolina; (e) 2306 Elizabethtown Road, Lumberton, North Carolina; (f) 210 South Poplar Street, Elizabethtown, North Carolina; (g) 582 North 5tl' Street, St. Paul's, North Carolina; and (h) 7637 N.C. Highway 711 East, Pembroke, Nmth Carolina. 7. As ofNovember, 2011, Plaintiff was a factory authorized dealer of Ford Motorcraft auto pmts and also specialized in sales of automobile radiators and air conditioning systems. 8. In late 2011, a foru'J.er associate of Plaintiff's convinced Plaintiff to meet with representatives of Defendant to explore the feasibility of Plaintiff becoming one of Defendant's affiliates. 9. In November, 2011, Plaintiff, by and through its owners, Charlie Harrell, Brandon Harrell and Eric Prevatte, agreed to a face-to-face meeting with Defendant Riess, Defendant NAPA's General Manager for Defendant NAP A's distribution center located in High Point, North Carolina. 10. At that initial meeting, Defendant NAPA, by and through Defendant Riess, initially induced Plaintiff to explore an affiliation with Defendant NAP A by suggesting to Brandon Harrell that, while he was young, the majority of Defendant NAP A's affiliated dealers in Southeastern North Carolina were substantially older than he. 11. Defendant Riess then informed Plaintiff that it stood to eventually merge with and succeed to the majority of the eighty-four (84) existing NAP A store locations spread across Southeastern North Carolina as Defendant NAP A's "succession plan" for the region. -2- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 3 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 12. Al1hough significantly enticed by the prospect of 1he accelerated growth of 1heir business and market share in Southeastern Nmth Carolina through an affiliation wi1h Defendant NAP A, Plaintiff had several significant concerns going into those initial meetings in late 2011 wi1h Defendant NAP A, including, but not limited to, the following: (a) Up to that time, Plaintiff had been primarily a two-step factory auto pruts distributor and Plaintiff was concerned that a Defendant NAP A's 1hree step sales model would harm Plaintiff's profitability; (b) Plaintiff was concerned 1hat Defendant NAP A would not allow 1hem to continue as a Ford Motorcraft factory authorized dealer, which business accounted for approximately three million dollars ($3,000,000.00) of Plaintiff's gross rumual revenue at the time at an approximate gross profit margin of fifteen percent (15% ); and (c) Plaintiff was concerned that it would not be able to maintain its radiator and air conditioning specialties if it became affiliated wi1h Defendant NAP A, which business accounted for ano1her $3,000,000.00 in approximate gross revenue for Plaintiff at the time. 13. Plaintiff expressed 1hese concems to Defendant NAP~ by and through Defendant Riess, in detail during their initial meeting. 14. Defendant NAP A, by and through Defendant Riess, responded to each of Plaintiff's concerns as follows: (a) Defendant Riess asked Plaintiff to provide him a list of Plaintiff's major sales categories and, from 1his list, generated a proforma showing only a two percent (2%) total decline in Plaintiff's gross profit margin after its proposed affiliation with Defendant NAP A but wi1h an offsetting substantial increase in Plaintiffs projected, total gross revenue; (b) Defendant Riess assured Plaintiff that it could continue as a Ford Motorcraft factory au1horized dealer even after affiliating wi1h Defendant NAP A; and (c) Defendant Riess assured Plaintiff 1hat its niche mru·kets in radiator and air conditioning system sales would be unaffected by its becoming affiliated wi1h Defendant NAP A. -3- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 4 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 15. Its concerns satisfied by Defendant Riess' assurances, Plaintiff agreed with Defendant NAP A to move forward with the process of changing its existing store locations over to Defendant NAPA's model in April, 2012. The process of Plaintiffs transition to its affiliation with Defendant NAP A will be hereinafter referred to herein as the "Changeover." 16. Plaintiffs Changeover to Defendant NAPA was represented by Defendant to Plaintiff as follows: (a) Plaintiff would divest itself of its Raleigh, Nmth Carolina location; (b) Plaintiff would acquire three (3) of Defendant NAPA's existing, company- owned locations in Fayetteville, North Carolina; (c) Plaintiff would acquire and merge with Defendant NAP A's then-existing but independently owned locations in Lumberton, North Carolina, St. Paul's, North Carolina, Elizabethtown, North Carolina, Pembroke, North Carolina, Wilmington, North Carolina and Leland, Nmth Carolina, thus allowing Plaintiff to maintain and expand its existing market footprint and, essentially, converting the merged independent dealers from independent business owners to employees of Plaintiff; (d) Plaintiff's then-existing locations would be physically inventoried on-site; (e) Defendant NAPA's proprietary computer-based inventory control systems, TAMS II and Multistore ("MS"), would be installed in Plaintiff's locations and in Plaintiffs warehouse; (f) Plaintiffs inventory data would be transferred accurately into Defendant NAP A's computer inventmy-control systems; and· (g) Plaintiff would receive full and accurate credit for its inventory. 17. Defendant NAP A represented to Plaintiff that its TAMS II and MS inventory-control systems were state of the art and would make Plaintiffs inventory reconciliations with Defendant NAP A "a breeze." -4- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 5 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 18. The Changeover was initially scheduled to begin in January, 2013 to allow time for Plaintiff to transfer its financial accounting to FPO McGladety, Defendant NAP A's accounting ftrrn. 19. Control of Plaintiff's financial accounting, books and records by FPO McGladery was a requirement of the Changeover imposed by Defendant NAP A and could not be refused by Plaintiff. 20. In late 2012, Plaintiff was informed by Defendant NAPA that the start of the Changeover would be delayed until March I, 2013. 21. On or about February 12 and 13, 2013, Brandau Harrell, Charlie Harrell and Eric Prevette traveled to Atlanta, Georgia for a meeting with Defendant Riess, Defendant NAP A's President, Paul Donahue, and Defendant NAP A's Board Chaitman, Torn Gallagher. 22. At that meeting, Defendant Riess briefed Donahue and Gallagher on the Changeover plan described above. 23. At that meeting, Donahue and Gallagher specifically asked Defendant Riess if all of the independent store owners to be merged into Plaintiff had been informed of and agreed to the Changeover. 24. Defendant Riess responded unequivocally that each independent dealer had agreed to the Changeover and that each was "ready to do what's best for NAP A." 25. On or about March 1, 2013, Plaintiff executed a Changeover Agreement prepared by Defendant NAP A, a true, accurate and correct copy of which is attached hereto as Exhibit "A" and which is incorporated herein by reference as if fully set forth. 26. Among its other terms, the Changeover Agreement explicitly states as follows: (a) "Designated NAPA employees" would "physically inspect and count the existing automotive parts inventory" at each of Plaintiff's locations; (b) "All inventoty counts will be entered mto a NAP A TAMS computer system for record-keeping purposes"; -5- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 6 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 (c) "Store Owner will ensure that its authorized representative(s) is present at all times during the inspection, inventory count aud change-over procedures to observe aud participate in order to confirm that the procedures are conducted accurately and in accordance with the terms of this Agreement"; (d) "Upon completion of the inspection and inventory count, a listing and extension of the Store Owner's existing inventory at the agreed-upon pricing will be printed, and Store Owner's authorized representative will sign the inventory listing to confirm that the inspection and inventory counts were performed in au accurate aud correct manner"; (e) "Immediately following the inspection aud inventory count, all of the Store Owner's existing inventory" would thereafter be either "reboxed" as NAP A parts aud retumed to Plaintiff's inventory or "removed from the Store location(s) for return to the manufacturers/suppliers ofNAPA"; aud (f) "Genuine Parts Company will provide SOUTHEASTERN with two free enrollments for the NAP A Store Management School" (emphasis included in original) 27. Immediately thereafter, on March 3, 2013, Brandon Harrell met with Kendrick Eason, the existing independent dealer of Defendant NAP A in Elizabethtown, North Carolina whom Harrell had been told had previously agreed to merge into Plaintiff. 28. Eason was extremely hostile toward Harrell from the start of the meeting aud informed Harrell that he had neither agreed to auy "changeover" nor had he even been informed that one was even contemplated until mere days before his meeting with Hanel!. 29. Plaintiff soon thereafter discovered that none of the locations to be merged into Plaintiff in the Changeover had any prior. knowledge that Defendant NAP A wished for them to sell their stores to Plaintiff until just before March 1, 2013, mauy of them resented Plaintiff for engaging in a "hostile takeover" of their businesses aud some had even refused to agree to the Changeover altogether when approached by Defendant NAP A. -6- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 7 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 30. Upon infonnation and belief, Defendant NAP A's then-existing independent affiliates in both Lumbetton, North Carolina and Leland, Notth Carolina refused outright to be merged into Plaintiff and instead Defendant NAP A thereafter forced Plaintiff not only to exit the Lumberton, North Carolina market completely, where Plaintiff had thriving stores, but also to open a new store as Defendant NAP A's affiliate in Carolina Beach, North Carolina, where previous auto parts stores had failed. 31. Defendant NAP A further forced Plaintiff to agree to a non-competition agreement excluding Plaintiff from the market surrounding Leland, North Carolina market for a period of five (5) yeru·s. 32. Thereafter, upon information and belief and despite the explicit terms of the Changeover Agreement, none of Plaintiffs original store locations was inventoried on-site as required by the Changeover Agreement. 33. In fact, upon information and belief, Plaintiff's store locations in Pembroke, North Carolina, St. Paul's, North Cru·olina and Elizabethtown, North Carolina were not inventoried at all but rather their shelves were simply emptied onto Defendant NAP A's tractor trailer truck and hauled away to Defendant NAPA's Charlotte, North Carolina distribution center and no subsequent inventory of those items has ever taken place. 34. Upon information and belief, Plaintiff's store location in Raleigh, North Carolina was also not inventoried on-site as required by the Changeover Agreement but was rather also simply hauled away and eventually counted some six ( 6) mouths later without Plaintiffs oversight. 35. Upon information and belief, neither of Plaintiff's store locations in Lumberton, North Carolina were inventoried as required by the Changeover Agreement but rather those some of those items were simply packed up and moved to Defendant NAP A's Charlotte, Nmth Cru·olina distribution center where they were allegedly counted some two (2) months later without Plaintiff's oversight while a great many others were simply left lying on Plaintiff's floor uncounted. -7- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 8 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 36. Upon information and belief, Plaintiff's store location_in Wilmington, North Carolina was also not inventoried on-site as required by the Changeover Agreement but rather was also simply hauled away and ai"e now aiieged by Defendant NAPA subsequently counted without Plaintiffs oversight. 37. During the course of the Changeover, and during that period in ;vhich Plaintiff's inventory items were being removed from its stores and without performing proper inventories as required by the Changeover Agreement, Defendant NAP A installed its TAMS II and MS inventory control systems in Plaintiff's business locations. 38. Upon information and belief, Defendant NAPA's TAMS. II system is designed exclusively for use in single store operations and MS is designed for multi-store operations such as Plaintiff. 39. Upon information and belief, Defendant NAPA's TAMS II system was developed prior to its MS system, which was developed when Defendant NAP A's business model changed from servicing single-store operations from a central warehouse to servicing multi-store operations also from a central warehouse. 40. Upon information and belief, MS was designed to gather and synthesize inventory information from the TAMS II systems in each individual store location of a multi-store auto parts business operation. 41. Upon information and belief, in theory, such a process would aiiow MS to generate pooled inventory orders for ail stores in a multi-store operation such as Plaintiff's, automatically distributing and controiiing inventory levels across ail of Plaintiffs stores. 42. However, upon information and belief, TAMS II and MS are fundamentaiiy incompatible in design and function such that Defendant NAP A is required to maintain two (2) entirely different support staffs to ail ow each to continue to function. -8- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 9 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 43. Upon information and belief, the result of this fundamental incompatibility is that the suppmt staff for TAMS II knows practically nothing about the function of MS and, conversely, the MS support staff knows practically nothing about TAMS II. 44. During the course of the Changeover, Defendant NAP A's inability to manage the fundamental incompatibility between TAMS II and MS became exceedingly apparent to Plaintiff with disastrous results for Plaintiff's bottom line. 45. Throughout the Changeover process, Defendant NAP A would attempt to send TAMS II suppmt staff to train Plaintiffs employees in MS and vice versa. 46. When it became obvious to Plaintiff that Defendant NAP A could not train its employees to use these systems in this fashion, Plaintiff attempted to schedule its key employees to receive classroom training in MS only to be informed by Defendant NAP A that no such training existed. 47. Plaintiff then asked for a copy of Defendant NAP A's Operations Manual so they could begin to build an internal process to handle these matters only to be told that no such manual existed. 48. In the interim, while Plaintiff was learning everything Defendant NAP A claimed not to know about its own inventory control systems, TAMS II and MS were badly overstocking Plaintiff's stores with unnecessary inventory, inventory which Plaintiff was reqnired to bny from Defendant NAP A. 49. Plaintiff's employees had also never been trained in the processes by which purchase discounts were properly logged and recorded with Defendant NAP A, thus denying Plaintiff purchase discounts to which it was otherwise entitled and further damaging its bottom line. 50. Plaintiff finally reached out to Defendant NAPA's multi-store independent affiliates in other states for a solution. 51. In so doing, Plaintiff discovered the following: -9- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 10 of 26 The Law!Qffices of Lonnie-M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 (a) The vast majority of Defendant NAPA's independent affiliates had TAMS II and MS functionality and training problems almost identical to those being suffered by Plaintiff; (b) Defendant NAP A's other multi-store independent affiliates had been forced to resort to conducting their own training, inventory input and repmting processes in-house; (c) One of the reasons that Defendant NAPA's other multi-store independent affiliates had been forced to do so was that the Defendant NAPA's TAMS II and MS training staff were run and controlled by Defendant NAP A's sales force, a sales force receiving financial incentives for selling Defendant NAP A's affiliates product whether they needed it or not; and (d) Defendant NAP A's other multi-store independent affiliates did not trust Defendant NAP A to provide them with proper inventmy control. 52. Recently, and many months after Defendant NAPA's failure to properly inventory Plaintiff's previous store locations, Defendant NAP A announced to Plaintiff that the off-site counts that Defendant NAPA's employees had taken without any oversight from Plaintiff had produced an inventory shortfall from Plaintiff's Quickbooks records of One Million Four Hundred Thousand and 00/100 Dollars ($1,400,000.00) which Defendant NAP A expected to Plaintiff to write off and receive no compensation for despite the terms of the Changeover Agreement. 53. When Plaintiff questioned Defendant NAPA's findings and requested time to perform its own internal audits, Defendant NAP A, by and through Defendant Riess, summarily directed Plaintiff's accounting firm, FPO McGladrey, with which firm Defendant NAP A also had a substantial business relationship, to make a $1,400,000.00 write down on Plaintiffs books without Plaintiff's knowledge or consent. 54. FPO McG!adrey did as Defendant NAP A instructed but refused to fmalize the write down without Plaintiff's lmowledge and approval. 55. As of the date of the filing of this action, Plaintiff has not given its approval for such a writedown. -10- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 11 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 56. Upon information and belief, the errors in inventmy control, alleged counting and repmiing which have led Defendant NAPA to demand Plaintiff write $1,400,000.00 off its books with no compensation are entirely those of Defendant NAP A. 57. Further, as of the date of the filing of this action, Defendant NAP A has failed to enroll or even offer to emoll any of Plaintiffs employees in Defendant NAPA's "store management school" as required under the Changeover Agreement. 58. Further, Defendant NAP A has failed and refused to activate those components of its TAMS II and MS inventory control systems necessary for Plaintiff to order, inventory, report or otherwise maintain both the radiator and air conditioning sales components and Plaintiff's status as a Ford Motorcraft factory authorized dealer, in the process costing Plaintiff a substantial pmiion of its gross revenue. 59. As of the date of the filing of this action, Defendant NAPA has breached the Changeover Agreement in the following ways: (a) Defendant NAPA failed to perform on-site accounting and inventmy reconciliations at Plaintiff's 8 original locations as required by the Changeover Agreement; (b) Defendant NAPA failed to accurately account for Plaintiffs inventmy as required by the Changeover Agreement; (c) Defendant NAP A failed to allow Plaintiff credit for approximately $1,400,000.00 of its inventory as required by the Changeover Agreement; and (d) Defendant NAP A failed to allow or offer 2 of Plaintiff's employees to attend Defendant NAP A's "store management school." 60. Plaintiff has described the above-referenced discrepancies to Defendant NAP A in great detail since the date of their discovery and has repeatedly requested that Defendant NAP A rectify same. 61. Not only has Defendant NAPA failed to rectify or even to aclmowledge their culpability for these discrepancies as of the date of the filing of this action, Defendant NAP A has -11- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 12 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 further undertaken a series of punitive actions in retaliation for Plaintiff's complaints concerning these discrepancies by, among other things, holding and refusing to ship Defendant NAP A's direct orders for parts and related items, tl:ms causing Plaintiff to lose significant sales. 62. The acts and omissions of Defendant NAP A as are more fully set forth herein constitute breach of contt·act by reason of which Plaintiff has been damaged in an amount in excess of Twenty-Five Thousand and 00/100 Dollars ($25,000.00), together with interest accruing at the highest allowable legal rate from the date of breach until fully paid plus court costs. SECOND CLAIM FOR RELIEF FRAUD 63. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 62 of the Complaint. 64. Upon information and belief, and as is more fully set forth herein above, Defendants made the following representations to Plaintiff for the purpose of inducing Plaintiff to agree to the Changeover: (a) Defendants generated a proforma showing only a two percent (2%) total decline in Plaintiff's gross profit margin after its proposed affiliation with Defendant NAP A but with an offsetting substantial increase in Plaintiffs projected, total gross revenue; (b) Defendants assured Plaintiff that it could continue as a Ford Motorcraft factory authorized dealer even after affiliating with Defendant NAP A; (c) Defendants assured Plaintiff that its niche markets in radiator and arr conditioning system sales would be unaffected by their becoming affiliated with Defendant NAP A; (d) Plaintiff would acquire and merge with Defendant NAPA's then-existing but independently owned locations in Lumberton, Nmth Carolina and Leland, North Carolina; (e) Defendant NAPA's then-existing but independently owned locations in Lumberton, North Carolina, St. Paul's, North Carolina, Elizabethtown, North Carolina, Pembroke, North Carolina and Wilmington, Nmth Carolina, had all given their prior and willing consent to the Changeover; -12- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 13 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 (f) Plaintiffs then-existing locations would be physically inventoried on-site; (g) Plaintiffs inventory data would be transferred accurately into Defendant NAPA's computer inventory-control systems; (h) Defendant NAP A's ,TAMS II and MS inventory-control systems were state of the art and Plaintiffs employees would be properly and adequately trained in their use; (i) Plaintiff would be .given the oppmtunity to have an authorized representative present at all times during the inspection, inventmy count and change-over procedures to observe and participate in order to confirm that the procedures were conducted accurately and in accordance with the terms of the Changeover Agreement; G) Upon completion of the inspection and inventory count, Defendant NAP A would print a listing and extension of the Store Owner's existing inventory at the agreed-upon pricing and Plaintiffs authorized representative would be allowed the opportunity to sign the inventory listing to confirm that the inspection and inventory counts were performed in an accurate and correct manner; (k) Immediately following the inspection and inventory count, all of Plaintiffs existing inventory would thereafter be either reboxed and returned to Plaintiffs inventmy or removed from the Store location(s) for return to Defendant NAP A's manufacturers/suppliers of NAP A; and (I) Defendant NAP A would provide Plaintiff with two free enrollments for Defendant NAP A's Store Management School. 65. Upon information and belief, all of the above representations were false when made and Defendants knew them to be false at the time. 66. Upon information and belief, all of the above false representations were made with the intent to induce Plaintiff to agree to the Changeover. 67. Plaintiff was, in fact, deceived by the above false representations and reasonably relied upon the same to its detriment. -13- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 14 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 68. Plaintiff has suffered and continues to suffer significant financial hann as a result of the above false representations, which hann includes, but is not limited to the following: (a) Defendant NAP A has failed and refused to compensate or otherwise credit Plaintiff for approximately $1,400,000.00 in inventory, going so far as to attempt to coerce FPO McGladrey to perfonn a write down of this amount on Plaintiffs books without Plaintiffs lmowledge or consent; (b) Defendant NAP A ·has refused to allow Plaintiff access to those portions of the TAMS IT and/or MS inventory control systems which are necessary to stock, inventory, sell and/or reorder automobile radiators and air conditioning systems sufficient for Plaintiff to maintain its business and market share in those businesses, which refusal has resulted in a loss of approximately $3,000,000.00 of Plaintiffs annual gross revenue; (c) Defendant NAP A has refused to allow Plaintiff access to those portions of 0 the TAMS II and/or MS inventory control systems which are necessruy to stock, inventory, sell, report sales and/or reorder auto parts from Ford Motorcraft, which refusal has resulted in Plaintiff's loss of its status as a Ford Motorcraft factory authorized dealer and a loss of approximately a further' $3,000,000.00 of Plaintiff's annual gross revenue; (d) Defendant NAPA has refused to properly train Plaintiff's employees to use the TAMS II and MS inventory control systems which has resulted in inventory overstocks and substantial revenue loss to Plaintiff, all to the fmancial benefit of Defendru1t NAPA; (e) Defendant NAPA has refused to properly train Plaintiff's employees to register customers with Defendant NAP A in order to receive pricing discounts which has resulted in substantial revenue loss to Plaintiff, to the fina11cial benefit of Defendant NAP A; (f) Defenda11t NAPA has caused Plaintiff to lose all of its stores and market share in the Lumberton, North Carolina a11d Raleigh, North Carolina markets which has resulted in a substantial revenue loss to Plaintiff; -14- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 15 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 (g) Defendant NAP A has forced Plaintiff to enter into a non-competition covenant preventing Plaintiff from entering the Leland, North Carolina market for 5 years which has resulted in substantial revenue loss to Plaintiff; (h) Defendant NAPA has forced Plaintiff to operate a money-losing store location in Carolina Beach, North Carolina which has resulted in substantial revenue loss to Plaintiff; and (i) Defendant NAPA has undertaken a series of punitive actions in retaliation for Plaintiff's complaints concerning inventory discrepancies by, among other things, holding aud refusing to ship Defendant NAP A's direct orders for parts and related items, thus causing Plaintiff to lose significant sales. 69. Upon information and belief, Defendants' misrepresentations as are set forth above were intentional and designed to increase Defendant NAP A's profit from the acquisition of Plaintiff as its affiliate at the expense of Plaintiff. 70. Upon information and belief, such intentional acts and omissions were intended to cause and have in fact caused significant financial harm to Plaintiff. 71. The acts and omissions of Defendants as are more fully set forth herein constitute fraud in the inducement to the Changeover by reason of which Plaintiff has been damaged in an amount in excess of $25,000.00, together with interest accruing at the highest allowable legal rate from the date of the filing of this action until fully paid plus court costs. 72. Further, Defendants' acts and omissions as are more fully set forth herein were willful, wanton and malicious within the meaning of North Carolina General Statute lD-15 by reason of which Plaintiff is entitled to punitive damages of Defendant in that amount ot be determined by the trier of fact in this action. -15- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 16 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 THIRD CLAIM FOR RELIEF UNFAIR AND DECEPTIVE TRADE PRACTICES (N.C.G.S. 75-1.1, et seq.) 73. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 72 of the Complaint. 74. The acts and omissions of Defendants as are more fully set forth herein were in or affecting commerce in the State of North Carolina within the meaning of North Carolina General Statute 75-1.1, et seq. 75. The acts and omissions of Defendants as are more fully set forth herein constitute unfair and deceptive trade practices, within the meaning of North Carolina General Statute 75-1.1, et seq., by reason of which Plaintiff has been damaged in an amount in excess of $25,000.00, together with interest accruing at the highest allowable legal rate from the date of the filing of this action until fully paid plus court costs. 76. Plaintiff is entitled to have its damages hereunder trebled pursuant to North Carolina General Statute 75-16. 77. Defendants have acted willfully, as is more fully set forth herein above, and have made an unwarranted refusal to fully resolve this matter such that Plaintiff is entitled to the recovery of its costs and attorney's fees in pursuing this action pursuant to North Carolina General Statute 7 5- 16.1. WHEREFORE, Plaintiff respectfully prays the Court that it have and recover of Defendants as follows: 1. Damages sounding in breach of contract as against Defendant NAP A in an amount in excess of $25,000.00, together with interest accruing at the highest allowable legal rate from the date of breach until fully paid plus comt costs; 2. Damages sounding in fraud as against Defendants, jointly and severally, in an amount in excess of $25,000.00, together with interest accruing at the highest allowable legal rate from the date of the filing of this action until fully paid plus court costs; -16- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 17 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 3. Punitive damages sounding in fi'aud as against Defendants, jointly and severally, pursuant to Nmth Carolina General Statute lD-15, in au amonntto be determined by the trier of fact; 4. Damages sounding in nnfair and deceptive trade practices as against Defendants, jointly and severally, pursuant to North Carolina General Statute 75-1.1, et syq., in an amolint in excess of $25,000.00, together with interest accming at the highest allowable legal rate from the date of the filing of this action nntil fully paid plus court costs; 5. That Plaintiff's damages be trebled pursuant to North Carolina General Statute 75-16; 6. That Plaintiff have and recover its costs and attorney's fees pursuant to North Carolina General Statute 75-16.1; 7. That a trial by jury be had upon all triable issues; 8. That the further costs of this action be taxed as against Defendants, jointly and severally; and 9. That Plaintiff have and recover such other and further relief as the Court may deem appropriate. Respectfully submitted, this the /1l.day of February, 2016. THE LAW OFFICES OF LONNIE M. PLAYER, JR., i ~--PL~ LO~~A%'10R Post Office Box 88095 Fayetteville, NC 28304-8095 Telephone: (910) 426-5291 Facsimile: (910) 426-9500 and STEVENS MARTIN VAUGHN & TADYCH, PLLC t ,/4 /J.- H"'Ul,~0l"""ikr t·'1 ~,(I/ K.MATTHEW AUG ··{ ))Lfi-_,,.~l::-"- 1101 Haynes Street, Suite 100 t..e ~ · Raleigh, NC 27604-1455 Telephope: (919) 582-2300 Facsimile: (866) 593-7695 Attorneys for Plaintiff -17- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 18 of 26 The Law Offices of Lonnie M. Player, Jr., PLLC P. 0. Box 88095 Fayetteville, North Carolina 28304 (910) 426-5291 VERIFICATION I, Brandon Harrell, having first been duly sworn, do state on oath: that I am of legal age; that I am under no legal disability; that I am President of Southeastem Automotive, Inc.; that, for myself and in that corporate capacity, I have read the foregoing COMPLAINT; that the foregoing COMPLAINT is true to my knowledge, except as to those matters stated on information and belief, and as to those matters, I believe them to be true. ~ s~AUTOMOTIVEJNc. -- By: Brandon Harrell Its: President -18- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 19 of 26 NAPA "CHANGE-OVER" AGREEMENT THIS NAPA "CHANGE-OVER" AGREEMENT is effective as of March 1, 2013, (the "Effective Date") between Genuine Parts Company d/b/a the NAP A High Point and Napa Charlotte Distribution Center ("NAP A") and Southeastern Automotive, INC ("Store Owner"). Store Owner is the legal owner of the automotive parts store( s) at the following address location(s): Southeastern Automotive Fayetteville Southeastern Automotive Wilmington Southeastern Automotive Raleigh Southeastern Automotive Lumberton #1 1122 Gillespie St. Fayetteville, NC 28306 601 Greenfield St. 2306 Atlantic Ave. Raleigh, NC 27601 Phone: 919-755- 1237 Wilmington, NC 28401 Phone: 910-762-1803 Phone: 910-483-0805 Southeastern Automotive Lumberton #2 2306 ElizabethTown Road Lumberton, NC 28358 Phone: 910·735·1001 (the "Store(s)"). Southeastern Automotive St. Pauls 582 N. 5th Street St. Pauls, NC 28358 Phone: 91 0-865·51 05 422 Watts Road Lumberton, NC 28360 Phone: 91 0-739·382.6 Southeastern Automotive Pembroke 7637 NC Hwy. 711 East Pembroke, NC 28372 Phone: 910·521-4130 Store Owner wishes to convert or "change-over" the Store(s) to NAPA AUTO PARTS store(s), and NAP A is willing to change-over the Store(s) on the tenns set forth in this Agreement. IN CONSIDERATION of the mutual promises and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, NAP A and Store Owner agree as follows: EXI-IlEJll' I ~A......,-- Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 20 of 26 1. Within a reasonable time after the execution of this Agreement by all parties, NAP A will change-over the Stores of Store Owner by directing designated NAP A employees and certain manufacturers' representatives to physically inspect and count the existing automotive parts inventory located at the Stores. This inspection and inventory count is scheduled to occur at the location of the Stores according to the master schedule beginning March 1, 2013 and completing the last store in June (the "Change-over Date"), unless rescheduled by mutual agreement of the parties. All inventory counts will be entered into a NAPA TAMS computer system for record- keeping purposes. Store Owner will ensure that its authorized representative(s) is present at all times during the inspection, inventory count and change-over procedures to observe and participate in order to confirm that the procedures are conducted accurately and in accordance with the terms of this Agreement. Upon completion of the inspection and invent01y count, a listing and extension of the Store Owner's existing inventory at the agreed-upon pricing will be printed, and Store Owner's authorized representative will sign the inventory listing to confirm that the inspection and inventory counts were performed in an accurate and correct manner. · 2. Immediately following the inspection and inventory count, all of the Store Owner's existing inventory, which in NAP A's sole opinion is not obsolete, is in saleable condition, is interchangeable with NAP A part numbers, and is othetwise acceptable for return to the manufacturers/suppliers of NAPA, will be either: (1) re-boxed in NAPA packaging and irmnediately returned to the inventory in the Store(s), if appropriate; or (2) removed from the Store location(s) for return to the manufacturers/suppliers of NAPA. NAPA will be entitled to receive all credits issued by the manufacturers/suppliers for such returned inventoty. NAP A will ship NAP A products with a total value of$ aprrox 3,000,000 for the 7 stores of inventory by store location at Napa Golden Rod pricing for placement into the Store(s) inventory. NAPA will be responsible for all cost and expense incurred in connection with the return of the Store Owner's existing inventory to the manufacturers/suppliers of NAP A, under the terms of this Agreement. 3. In consideration of Store Owner's agreement to change-over the Store(s) to NAP A AUTO PARTS store(s) and contingent upon the successful completion of the change-over, NAPA a!p'ees to provide the following incentives to Store Owner: Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 21 of 26 Each SOUTHEASTERN location that is closed or is changed over, including their cutrent Parts Plus locations, will be eligible for a budget of $35,000 to assist with the cost of conversion. The budget would cover the following: o TAMS computers system, work stations, and printers o Interior and exterior signage and graphics o Interior and exterior paint o Store retail and warehouse fixtures including though not limited to gondolas, wall units, cross baTs, hooks, battery and oil racks. o Grand Opening expenses o Uniforms o Set up of retail areas (Genuine Parts Company will provide a site project manager at no expense to guide the set up of retail areas in changeover locations. Our manufacturers will pay 1/3rd of the labor expense for the set up of retail areas when a national or regional retail set up partner is used to perform the set up. The balance of the cost will be paid by SOUTHEASTERN). o Store Fees as listed below: • Retail Sales Driver • Real Deals (T &E) Program • Retail Space Management Service • Fast Track Job Orientation Internet Training • NAP A Training Webinars • TAMS Support Fee • TAMS Catalogue Fee • TAMS Wide Area Network (WAN) Fee • Freight sure charge $99 per store adjusted quarterly • Genuine Parts Company will require that within 1 year of the changeover of each SOUTHEASTERN location that SOUTHEASTERN will comply with the NAP A Pipeline program guidelines and will create and maintain a retail area with current NAP A plano grams, pricing and interior/exterior NAP A signage, paint scheme and graphics. Genuine Parts Company agrees to the following conditions: o SOUTHEASTERN will not be required to paint or replace existing vehicles in their fleet. SOUTHEASTERN will, where practical, apply NAP A signage and hat toppers to existing vehicles. o SOUTHEASTERN will make a determination regarding uniform selection and vendor. Uniforms will require an approved NAP A logo and shall be worn by drivers and counter staff. • Genuine Parts Company will provide SOUTHEASTERN with two free enrollments for the NAPA Store Management School. • Genuine Parts Company agrees to engage in an immediate changeover, at any SOUTHEASTERN location, of product lines affected by the decision by any cmrent SOUTHEASTERN supplier to cease shipment or service to SOUTHEASTERN, or if such shipments or service deteriorate to a point where SOUTHEASTERN is unable to conduct business properly with their customers. Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 22 of 26 Except as listed above, NAP A is not obligated to provide any other financial or other incentives to Store Owner in connection with Store Owner's agreement to change-over the Store(s) to NAPA AUTO PARTS store(s). 4. NAP A and Store Owner acknowledge that NAP A will incur substantial costs and expenses in connection with the change-over procedures and incentives set forth in this Agreement. Accordingly, Store Owner agrees that for a minimum continuous period of five years after the Change-over Date, Store Owner will purchase a minimum of$8,000,000 or 90% of their COGS in product, net of returns, from NAP A on an armual basis (the "Minimum Purchase Requirement"), and will stock NAPA product in accordance with the NAPA Classification Program. 5. In the event Store Owner fails or refuses to comply with the Minimum Purchase Requirement from NAPA dUting any twelve (12) month period within the term set forth above, or fails to stock NAP A product according to the NAP A Classification Program at any time duting the tenn of this Agreement, then NAP A may immediately tenninate the supplier/customer relationship with Store Owner, and Store Owner shall return to NAP A any and all property of NAP A in Store Owner's possession, including, but not limited to, any personal property provided by NAP A to Store Owner without charge as an incentive in connection with the change-over (but not including any inventory placed in the Stores by NAP A in connection with the change-over, or any inventory sold by NAP A to Store Owner for which NAP A has been paid). In addition, in the event that: i) Store Owner fails or refuses to change-over the Stores to NAP A AUTO PARTS stores as set forth herein within a reasonable time after the Effective Date; ii) Store Owner changes-over the Stores from NAP A AUTO PARTS stores to another type of automotive parts store at any time within six ( 6) months after the Change-over Date; or iii) NAP A tenninates its supplier/customer relationship with Store Owner due to a breach of this Agreement as described above, then Store Owner shall also reimburse NAP A for all expenses incurred by NAP A in connection with the preparation for, and actual change-over of, the Stores, including, but not limited to, any overtime costs, the cost of any paint or signage provided to Store Owner, and any Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 23 of 26 costs inc1med in connection with the return of the Store Owner's existing inventory to the manufacturers/suppliers of NAP A. The foregoing shall not in any manner limit NAP A from asserting any other remedies that it may have at law or in equity due to any breach of this provision by Store Owner. 6. In addition to the rights and remedies of NAP A as set forth in Paragraph 5, above, in the event Store Owner desires to either: (a) change-over the Stores from a NAPA AUTO PARTS stores to another type of automotive parts store; or (b) sell its ownership interest in, or the assets in bulk of; the Stores to a third party; within a period of five (5) years after the Change-over Date (the "Right of First Refusal Term"), then NAP A shall have a "right offirst refusal" to purchase the assets of the Stores on the following terms. During the Right of First Refusal Tenn, Store Owner will notify NAP A in writing of any intent to "change-over'' or sell its ownership in, or assets of, the Stores. NAP A shall then have sixty (60) days after receipt of such notification to detennine whether it wishes to purchase the assets of the Stores from Store Owner. In the event NAP A notifies Store Owner in Wiiting within said sixty (60) day period that it wishes to purchase the assets of the Stores, then Store Owner will proceed to sell said assets to NAP A , with aJI automotive parts inventory priced at then-current "NAP A Jobber Net" pricing, and all other assets priced at their depreciated book value as shown on the accounting records of the Stores at the time of the purchase. If, however, NAP A: 1) notifies Store Owner in writing that it does not wish to purchase the assets of the Stores; 2) fails to notify Store Owner in writing that it wishes to purchase the assets of the Stores within the sixty (60) day notice period; or 3) fails to purchase the assets of the Stores within a reasonable time (but in any event not to exceed ninety (90) days) after notifying Store Owner of its desire to do so within the sixty ( 60) day notice period, then this right of first refusal shall automatically tenninate. 7. This Agreement shall create a supplier/customer relationship between NAPA and Store Owner only, and nothing in this Agreement shall be interpreted or construed to create any other type of relationship between NAP A and Store Owner, either explicitly or by implication. Store Owner acknowledges and agrees that it has not paid any type of fee or other monetary sum to NAPA, either directly or indirectly, in connection with this Agreement. Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 24 of 26 8. In addition to the termination provisions of Paragraph 5, above, Store Owner acknowledges and agrees that NAP A shall have the right to tem1inate this Agreement, and the supplier/customer relationship with Store Owner, without cause, by providing written notice to Store Owner of NAP A's intent to terminate at least ninety (90) days before the effective date of termination. In the event NAP A elects to tenninate this Agreement and the supplier/<..'Ustomer relationship with Store Owner pursuant to this Paragraph, the parties agree that the provisions of Paragraph 5, regarding the return of personal property to NAP A, shall also apply. 9. The terms and conditions of this Agreement are and shall remain confidential, and Store Owner accordingly agrees to maintain the confidentiality of said terms and conditions, as well as the fact that this Agreement has been negotiated and entered into, and will not disclose orally or in writing any such C()nfidential information regarding this Agreement to any third parties, without the prior written consent of NAP A. The parties agree that NAP A may enforce the tetms of this confidentiality provision through an injunction or other equitable relief, in addition to any other remedies that NAP A may have at law for any breach of this provision. 10. No amendment to this Agreement shall be bin\fing on either party hereto unless such amendment is in writing and executed by both parties with the same formality as this Agreement is executed. 11. No failure of either party hereto to exercise any power given such party hereunder or to insist upon strict compliance by the other party to its obligations hereunder, and no custom or practice of the parties in variance with the terms hereof shall constitute a waiver of either party's right to demand exact compliance with the terms hereof 12. This Agreement shall be construed and interpreted under the laws of the State of Georgia, without regard to conflicts of law principles, and the parties hereto agree that the courts of Georgia shall have jurisdiction over the subject matter of this Agreement and personal jurisdiction over the parties hereto, the parties upon execution of this Agreement hereby expressly submitting to such jurisdiction. Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 25 of 26 13. In the event any part of this Agreement shall be finally detennined by a court of law to be illegal or unenforceable for any reason, then that illegal or unenforceable part shall be severed from the Agreement, and the remaining tenns shall continue in full force and effect. 14. This Agreement constitutes the entire agreement of the parties hereto and no prior representation, inducement, promise or agreement, oral or written, between the parties not embodied herein shall be of any force and effect. SIGNED AND AGREED TO by the duly-authorized representatives of the parties below as of the 13 day of February, 2013. DISTRIBUTION CENTERS: (Corporate Seal) GENUINE PARTS COMPANY D/B/A THE NAP A HIGH POINT & NAP A CHARLOTE SOUTEASTERN AUTOMOTIVE INC: BY: 2¥-? ~ (Seal) Case 1:16-cv-00955-LMM Document 19-2 Filed 07/31/16 Page 26 of 26 EXHIBIT B Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 1 of 26 STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE COUNTY OF CUMBERLAND SUPERIOR COURT DIVISION 16-CVS-n86 SOUTHEASTERN AUTOMOTIVE, INC., a North Carolina Corporation Plaintiff, GENUINE PARTS COMPANY, a Georgia Corporation d/b/a NAPA AUTO PARTS and JOHN MICHAEL RIESS, II, Defendants. PLAINTIFF'S FIRST SET OF INTERROGATORIES, FIRST SET OF REQUESTS FOR PRODUCTION OF DOCUMENTS AND FIRST SET OF REQUESTS FOR ADMISSION TO DEFENDANT GENUINE PARTS COMPANY d/b/a NAPA AUTO PARTS Plaintiff, through undersigned counsel of record and pursuant to Rules 26, 33, 34 and 36 of the North Carolina Rules of Civil Procedure, hereby serves the following interrogatories, requests for production of documents and requests for admission on the Defendant, Genuine Parts Company d/b/a NAPA Auto Parts (herein after "NAPA Auto Parts"). Defendant must respond to these discovery requests within forty-five (45) days after service of these requests. Service of written responses and production of documents should be directed to plaintiffs counsel at Stevens Martin Vaughn & Tadych, PLLC, 1101 Haynes Street, Suite 100, Raleigh, NC 27606. These discovery requests are continuing in nature to the extent required by Rule 26(e) of the North Carolina Rules of Civil . Procedure. DEFINITIONS AND INSTRUCTIONS 1. "You," "your," and "NAPA" or "NAPA Auto Parts" refers to the Defendant in this action known and designated as Genuine Parts Company, d/b/a NAPA Auto Parts and its parents, subsidiaries, affiliates, successors, assigns, representatives, employees, agents and independent contractors. 2. "Southeastern Automotive" or "Southeastern Automotive, Inc." refers to the Plaintiff in this action known and designated as Southeastern Automotive, Inc. and its parents, subsidiaries, affiliates, successors, assigns, representatives, ethployees, agents and independent contractors. 3. "Mr. Riess" refers to the Defendant in this action known and designated as John Michael Riess, II. 4. The "NAPA Change-Over Agreement" refers to the agreement bearing that title and stating an effective date of March 1, 2013, entered into between you and Southeastern Automotive. 5. "Document" refers to the original, and any copies thereof that differ from Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 27 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 2 of 26 the original (whether by interlineation, draft copy, notations written thereon, indication of copies sent or received or to whom routed, or otherwise), of any written, recorded (electronically or otherwise), or transcribed matter or descriptions, however produced or reproduced, and any supplements or amendments thereto. 6. "Person" or "persons" mean all entities, including without limitation individuals, associations, companies, partnerships, joint ventures, corporations, trusts, estates, agencies or governmental entities. 7. "Communicate" or "communication" means and includes any utterance, spoken or heard, whether in person, by telephone, electronic transmissions such as e- mail, or otherwise and refers to all written, verbal or other communications and/or exchange of information or documents between or among persons or entities. 8. "Identify" or "state the identity of' or "describe": (a) When used in reference to a natural person, means that person's full name, present or last known business address, and business telephone number. (b) When used in reference to an entity means, its full and complete name, its type of entity (i.e., corporation [including state or states of incorporation], partnership, unincorporated association, trade name, etc.), and the location of its principal place of business, mailing address, and telephone number. (c) When used in reference to a document, means a description of the type of document, the identity of the person or persons who authorized, prepared, signed and received the document, the date, title and general description of the subject matter of the document, the identity of any persons who can identify the document and, if privilege is claimed, the specific basis for such claim in addition to the information set forth above. (d) When used in reference to any act or occurrence or fact, means the identity of every person known to have been involved in or to have witnessed the actor or occurrence and a description of any documents, records or things documenting or involved in such act, occurrence or fact. 9. In order to bring about the discovery of all relevant information and documents, the following rules of construction should be observed in the interpretation of this discovery request: (a) The singular of any word shall be construed to include its plural and vice-versa; (b) The word "and" and the word "or" shall be construed both conjunctively and disjunctively as the equivalent of "and/or"; -2 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 28 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 3 of 26 (c) The word "each" shall be construed to include the word "every" and vice-versa; (d) The word "any" shall be construed to include the word "all" and vice-versa; (e) The present tense shall be construed to include the past tense and vice-versa; and (f) The masculine shall be construed to include the feminine and vice- versa. 10. If you believe that any of the discovery requests justify the assertion of an objection on the basis of attorney/client privilege or the "work product" doctrine (hereinafter referred to collectively as a "claim of privilege"), you should nevertheless respond to the particular request for to the extent possible without disclosing privileged information or documents. Furthermore, you should then state your claim of privilege with regard to other information or documents and identify each fact or circumstance justifying the application of the claim of privilege to the information or documents that you are refusing to provide. With respect to any documents that you refuse to provide, or provide with redactions, based on a claim of privilege or other protection from discovery, state the following in your written response or in a separate privilege log: (a) Author(s); (b) Recipient(s); (c) Date; (d) Brief description of subject matter; (e) Number of pages; and (f) Specific privilege(s) or protection(s) asserted. Also, with respect to any documents produced in redacted form, redactions should be made in black or other opaque fashion to allow an understanding of where redactions were made. ii. If for reasons other than a claim of privilege you refuse to respond to a request for production of documents, please disclose whether there are responsive documents in existence and identify any such documents. 12. If any discovery request seeks information or documents known to you, but not available or accessible, in whole or in part, to you, your response to that particular request should set forth in reasonable detail a sufficient explanation for such unavailability or inaccessibility and provide such responsive information or documents as are available or accessible. 3 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 29 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 4 of 26 13. You have a continuing obligation pursuant to Rule 26 of the North Carolina Rules of Civil Procedure to amend or supplement your responses hereto. , INTERROGATORIES 1. Please state the full name(s), title and contact information of the person(s) drafting or completing the responses to these interrogatories, requests for admission and/or requests for production of documents including any other names such person(s) has/have used or by which such person(s) has/have been known at any time. RESPONSE: 2. Identify each person you intend to call as an expert witness in the trial of this action, and for each such expert identified, please describe with particularity: a. the expert's name and address; b. the subject matter(s) about which the expert is expected to testify; c. the substance of the facts and opinions to which the expert is expected to testify; d. the summary of the grounds for each opinion; e. the name, date, publisher and author of any scientific, technical or professional text, treatise, journal or similar publication to which the expert will refer, consider or rely on at trial in support of that expert(s)' opinion; and f. the education, training and other aspects of the expert(s)' •har 4 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 30 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 5 of 26 background which you contend qualify each expert(s) named as an expert witness. RESPONSE: 1 3- For any Request for Admission that you deny, in whole or in part, provide a detailed explanation of all bases for your denial and identify any document or other evidence supporting your denial. RESPONSE: • 4. With respect to documents covered by the First Request for Production of Documents which you claim a privilege as grounds for non-production or which you contend that you do not have the actual or constructive possession, custody or control, „ describe such documents in your response as follows: a. Date; b. Author(s); c. Recipient(s); d. Type of document; e. Subject matter (without revealing the information as to which any 5 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 31 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 6 of 26 privilege is claimed); f. Factual and legal basis for claimed privilege or other legal ground for non- production; and g. Location of the document. RESPONSE: REQUESTS FOR PRODUCTION Pursuant to Rule 34 of the North Carolina Rules of Civil Procedure, and the instructions set forth above, please produce for inspection and copying: 1. All documents to which you referred in responding to the foregoing interrogatories. RESPONSE: 2. All documents which you contend constitute a written agreement between you and Southeastern Automotive. RESPONSE: 6 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 32 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 7 of 26 3. All documents which refer or relate to the NAPA Change-Over Agreement. RESPONSE: 4. All document which reflect or concern any attempt by you to fulfill and/or comply with the terms of the NAPA Change-Over Agreement. RESPONSE: 5. All documents which describe or define your Growth Capital Program. RESPONSE: 6. All documents which show or relate to the calculation of the figure of 12.597mm" in the memorandum attached hereto as Exhibit A. RESPONSE: 7. All documents which show or relate to the calculation of the figure of 12.235mm" in the memorandum attached hereto as Exhibit A. 7- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 33 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 8 of 26 RESPONSE: 8. All notes and other records of meetings attended by any one or more representatives of you, at which Southeastern Automotive was discussed. RESPONSE: 9. All electronic mails sent to and/or from any representative of you, which mentions or refers to Southeastern Automotive. RESPONSE: 10. All documents which constitute or concern any communication between you and Southeastern Automotive. RESPONSE: ii. All documents which constitute or concern any communication between you and any representative of Cherry Bekaert, which refer or relate to Southeastern 8 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 34 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 9 of 26 Automotive. RESPONSE: 12. All documents which constitute or concern any communication between you and any representative of FPO McGladrey, McGladrey, LLP and/or RSM US, LLP, which refer or relate to Southeastern Automotive. RESPONSE: 13. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 1122 Gillespie Street, Fayetteville, North Carolina. RESPONSE: 14. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 1122 Gillespie Street, Fayetteville, North Carolina. RESPONSE: 9 Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 35 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 10 of 26 15. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 6o1 Greenfield Street, Wilmington, North Carolina. RESPONSE: 16. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 601 Greenfield Street, Wilmington, North Carolina. RESPONSE: 17. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 2306 Atlantic Avenue, Raleigh, North Carolina. RESPONSE: 18. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 2306 Atlantic Avenue, Raleigh, North Carolina. RESPONSE: -10- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 36 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 11 of 26 19. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 422 Watts Road, Lumberton, North Carolina. RESPONSE: 20. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 422 Watts Road, Lumberton, North Carolina. RESPONSE: 21. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 2306 Elizabethtown Road, Lumberton, North Carolina. RESPONSE: 22. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 2306 Elizabethtown Road, Lumberton, North Carolina. RESPONSE: Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 37 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 12 of 26 23. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 582 N. Fifth Street, St. Pauls, North Carolina. RESPONSE: 24. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 582 N. Fifth Street, St. Pauls, North Carolina. RESPONSE: 25. All documents concerning your removal of inventory from Southeastern Automotive's facility located at 7637 NC Highway 711 East, Pembroke, North Carolina. RESPONSE: 26. All documents concerning any physical count or estimate of inventory removed by you from Southeastern Automotive's facility located at 7637 NC Highway 711 East, Pembroke, North Carolina. RESPONSE: - 12 - Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 38 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 13 of 26 27. All documents concerning the decision by you to require that all orders to you from Southeastern Automotive be made on a COD basis. RESPONSE: 28. All documents concerning inventory shipped from you to Southeastern Automotive. RESPONSE: 29. All documents concerning inventory shipped from Southeastern Automotive to you. RESPONSE: 30. All documents concerning problems and/or complaints relating to your i acquisiti on of inventory from Southeastern Automotive. RESPONSE: - 13- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 39 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 14 of 26 31. All documents referring to the FUSE-5 inventory system used by Southeastern Automotive. RESPONSE: 32. All documents constituting or concerning communications between you and any owner of a NAPA store, regarding the acquisition of their store by Southeastern Automotive. RESPONSE: REQUESTS FOR ADMISSION Pursuant to Rule 36 of the North Carolina Rules of Civil Procedure and the instructions set forth above, you are requested to admit, for the purposes of this action only, the truth of the following matters: 1. Admit that you removed inventory from Southeastern Automotive's facility located at 1122 Gillespie Street, Fayetteville, North Carolina. RESPONSE: -14- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 40 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 15 of 26 2. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 1122 Gillespie Street, Fayetteville, North Carolina. RESPONSE: 3. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 1122 Gillespie Street, Fayetteville, North Carolina. RESPONSE: 4. Admit that you removed inventory from Southeastern Automotive's facility located at 6oi Greenfield Street, Wilmington, North Carolina. RESPONSE: 5. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 6o1 Greenfield Street, Wilmington, North Carolina. - 15 - Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 41 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 16 of 26 RESPONSE: 6. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 601 Greenfield Street, Wilmington, North Carolina. RESPONSE: 7. Admit that you removed inventory from Southeastern Automotive's facility located at 2306 Atlantic Avenue, Raleigh, North Carolina. RESPONSE: 8. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 2306 Atlantic Avenue, Raleigh, North Carolina. _.. RESPONSE: - 16 - Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 42 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 17 of 26 9. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 2306 Atlantic Avenue, Raleigh, North Carolina. RESPONSE: 10. Admit that you removed inventory from Southeastern Automotive's facility located at 422 Watts Road, Lumberton, North Carolina. 'RESPONSE: ii. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 422 Watts Road, Lumberton, North Carolina. RESPONSE: - 17- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 43 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 18 of 26 12. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 422 Watts Road, Lumberton, North Carolina. RESPONSE: 13. Admit that you removed inventory from Southeastern Automotive's facility located at 2306 Elizabethtown Road, Lumberton, North Carolina. RESPONSE: 14. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 2306 Elizabethtown Road, Lumberton, North Carolina. RESPONSE: 15. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 2306 Elizabethtown -18- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 44 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 19 of 26 Road, Lumberton, North Carolina. RESPONSE: 16. Admit that you removed inventory from Southeastern Automotive's facility located at 582 N. Fifth Street, St. Pauls, North Carolina. RESPONSE: 17. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 582 N. Fifth Street St. Pauls, North Carolina. RESPONSE: 18. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 582 N. Fifth Street, St. Pauls, North Carolina. Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 45 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 20 of 26 RESPONSE: 19. Admit that you removed inventory from Southeastern Automotive's facility located at 7637 NC Highway 711 East, Pembroke, North Carolina. RESPONSE: 20. Admit that you did not physically inspect and count inventory prior to removing it from Southeastern Automotive's facility located at 7637 NC Highway 711 East, Pembroke, North Carolina. RESPONSE: 21. Admit that you did not physically inspect and count inventory after removing it from Southeastern Automotive's facility located at 7637 NC Highway 711 East, Pembroke, North Carolina. -20- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 46 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 21 of 26 RESPONSE: 22. Admit that one or more of your employees, without notice to or consent from Southeastern Automotive, directed a representative of Southeastern Automotive's accounting firm, FPO McGladrey, to make a write down in excess of $1,400,000 on Southeastern Automotive's books. RESPONSE: 23. Admit that you failed and refused to activate those portions of your TAMS II and MS inventory control systems necessary for Southeastern Automotive to order, inventory, report or otherwise maintain its radiator and air conditioning sales components and status as a Ford Motorcraft factory authorized dealer. RESPONSE: - 21 - Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 47 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 22 of 26 24. Admit that you breached the NAPA Change-Over Agreement by failing to perform on-site accounting and inventory reconciliations at Southeastern Automotive's locations. RESPONSE: 25. Admit that you breached the NAPA Change-Over Agreement by failing to accurately account for Southeastern Automotive's inventory. RESPONSE: 26. Admit that you breached the NAPA Change-Over Agreement by failing to allow Southeastern Automotive credit for approximately $1,400,000 of its inventory. RESPONSE: \ 27. Admit that you breached the NAPA Change-Over Agreement by failing to -22- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 48 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 23 of 26 allow or offer two of Southeastern Automotive's employees to attend your "store management school." RESPONSE: 28. Admit that, prior to execution of the NAPA Change-Over Agreement, you prepared and provided to Southeastern Automotive a pro forma showing only a two percent decline in Southeastern Automotive's gross profit margin after affiliation with you, but with an offsetting substantial increase in projected total gross revenue. RESPONSE: 29. Admit that, prior to execution of the NAPA Change-Over Agreement, you assured Southeastern Automotive that it could continue as a Ford Motorcraft factory authorized dealer even after affiliating with you. RESPONSE: -23- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 49 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 24 of 26 30. Admit that, prior to execution of the NAPA Change-Over Agreement, you assured Southeastern Automotive that its niche markets in radiator and air conditioning system sales would be unaffected by becoming affiliated with you. RESPONSE: 31. Admit that, prior to execution of the NAPA Change-Over Agreement, you represented to Southeastern Automotive that the owners of your then-existing independently owned stores in Lumberton, North Carolina, St. Paul's, North Carolina, Elizabethtown, North Carolina, Pembroke, North Carolina, and Wilmington, North Carolina, had all given their consent to being acquired by or merged with Southeastern Automotive. RESPONSE: -24- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 50 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 25 of 26 ry ''4 Respectfully submitted, this the (22- day of , 2016. THE LAW OFFICES OF LONNIE M. -LAYER, JR., ELL. LONNTh M. YER, JR. . Post Office Box 88095 Fayetteville, NC 28304-8095 Telephone: (910) 426-5291 Facsimile: (910) 426-9500 and STEVENS MARTIN VAUGHN & TADYCH, PLLC /IL 47 K. MATTHEW VAUTHN 1101 Haynes Street, Suite 100 Raleigh, NC 27604-1455 Telephone: (919) 582-2300 Facsimile: (866) 593-7695 Attorneys for Plaintiff CERTIFICATE OF SERVICE The undersigned hereby certifies that the foregoing document was served by depositing a true copy thereof with the United States Postal Service, Certified Mail, Return Receipt Requested, addressed to: Genuine Parts Company d/b/a NAPA Auto Parts John Michael Riess, II qo CT Corporation System, Registered Agent ii Hulme Court 150 Fayetteville Street, Box ion Greensboro, NC 27455 Raleigh, NC 27601 , This the day of Fe Ca , 2016. ( 4ei ()‘ K. Matthew Vaugh -25- Case 5:16-cv-00130-D Document 1-1 Filed 03/25/16 Page 51 of 101 Case 1:16-cv-00955-LMM Document 19-3 Filed 07/31/16 Page 26 of 26