Chesson v. Rives

Chesson v. Rives, 

.

STATE OF NORTH CAROLINA                  IN THE GENERAL COURT OF JUSTICE
                                             SUPERIOR COURT DIVISION
COUNTY OF DAVIDSON                                  12 CVS 3382

W. CHRISTOPHER CHESSON;           )
JAMES G. LOVELL; and DAVID D.     )
FRASER,                           )
                                  )
              Plaintiffs,         )
                                  )
                                    ORDER & OPINION ON MOTIONS FOR
      v.                          )
                                         SUMMARY JUDGMENT
                                  )
W. LEON RIVES; LEON L. RIVES, II; )
and RIVES & ASSOCIATES, LLP,      )
                                  )
              Defendants.         )
                                  )


      1.    THIS MATTER is before the Court on (1) Defendants’ Motion for Partial

Summary Judgment (“Defendants’ Motion”) and (2) Plaintiffs’ Motion for Partial

Summary Judgment (“Plaintiffs’ Motion”).        The Court GRANTS IN PART

Defendants’ Motion and DENIES Plaintiffs’ Motion. The Court will address other

pending motions in a subsequent order.

      Carruthers & Roth, P.A., by Jack B. Bayliss, Jr. and Mark K. York for
      Plaintiffs.

      Sharpless & Stavola, P.A., by Frederick K. Sharpless, for Defendants.

Gale, Chief Judge.

                             I.    THE PARTIES

      2.    Plaintiff W. Christopher Chesson (“Chesson”) is a licensed certified

public accountant (“CPA”) who resides in Davidson County, North Carolina. He is
currently employed by LB&A, Certified Public Accountants, PLLC (“LB&A”), a public

accounting firm in Matthews, North Carolina.

      3.     Plaintiff James G. Lovell (“Lovell”) is a licensed CPA who resides in

Mecklenburg County, North Carolina. He is licensed to practice law in New York.

Lovell is currently employed by LB&A.

      4.     Defendant William Leon Rives (“William”) resides in Davidson County,

North Carolina. William has been a licensed CPA since 1978 and is a member of the

American Institute of Certified Public Accountants (“AICPA”).

      5.     Defendant Leon L. Rives, II (“Leon”), sometimes referred to as “Little

Rives,” resides in Davidson County, North Carolina. He has been a licensed CPA

since 2002 and is a member of the AICPA.

      6.     Defendant Rives & Associates, LLP (“RA”) was formed in 2004 as a

North Carolina limited liability partnership that engages in certified public

accounting. RA has offices in Davidson, Mecklenburg, and Wake Counties.

                             II.   FACTUAL BACKGROUND

      7.     When reviewing a motion for summary judgment, the Court does not

make findings of fact or resolve contested factual issues. See Hyde Ins. Agency, Inc.

v. Dixie Leasing Corp., 

, 

, 164–65 (1975). The

Court may, however, summarize the factual record to provide context for its opinion.

See BDM Invs. v. Lenhil, Inc., No. 11-CVS-449, 

, at *3 (N.C.

Super. Ct. July 21, 2014).
   A. RA’s Formation and the Partnership Agreement

       8.    William and Leon formed RA in 2004. On September 1, 2007, Chesson

joined RA from Dixon Hughes, PLLC (“Dixon Hughes”), and William, Leon, and

Chesson executed the RA Partnership Agreement (Leon L. Rives, II Aff. Ex. D

(“Partnership Agreement”), at 1, Feb. 9, 2015.) The Partnership Agreement defines

the Founding Partners as William, Leon, and Chesson. (Partnership Agreement

§ 1.09.)

       9.    Dixon Hughes sued Chesson for breach of his contractual obligation to

pay Dixon Hughes one-half of all amounts that he later earned from former Dixon

Hughes clients. In November 2012, Dixon Hughes and Chesson reached a settlement

agreement that required payments from Chesson. RA paid Dixon Hughes with two

checks for $75,000 each, which RA contends were loan payments to Chesson.

       10.   The Partnership Agreement provides that each of RA’s geographic

locations serves as a separate division and creates an entity identified as the “Pool,”

which serves as a de facto holding company. (Partnership Agreement § 1.08.) The

Pool owns the entire interest in RA’s Charlotte Operations. (Partnership Agreement

§ 3.01.) The Pool’s ownership is limited to the Founding Partners and allocated 40%

to William, 40% to Leon, and 20% to Chesson. (Partnership Agreement § 3.01.)

       11.   The Partnership Agreement contemplates both voting and nonvoting

partners. Only partners who have an ownership interest in the Pool are entitled to a

vote, and a partner is “entitled to one (1) vote for each percentage ownership of the

Pool.” (Partnership Agreement § 2.06.)
       12.   The Partnership Agreement provides that RA’s management is vested

in the partners, who have the option to “delegate responsibilities to a Managing

Partner, Executive Team, or Chief Executive Officer.”       (Partnership Agreement

§ 2.05.)

   B. RA Admits Lovell and Fraser, but Not as Founding Partners.

       13.   A new partner can be admitted to RA “only by unanimous vote of the

Partners.” (Partnership Agreement § 2.04.) On August 17, 2009, William, Leon,

Chesson, and Lovell signed the Addendum to the Partnership Agreement

(“Addendum”) to admit Lovell as a partner. (Marshall Aff. Ex. O (“Addendum”), at 4,

Feb. 9, 2015.) Lovell was given a 0.01% interest in the “Charlotte Operations,” as

defined in the Partnership Agreement, and a $120,000 annual partnership draw.

(Addendum ¶¶ 1, 4.) He did not obtain ownership in the Pool and was never referred

to as a Founding Partner.

       14.   The Addendum expressly incorporates the Partnership Agreement by

reference, stating that:

       All terms of the [Partnership] Agreement shall continue to apply to the
       Partners and the New Partner as members of the Partnership as if the
       same terms were fully set forth herein, and the New Partner, by
       execution of this agreement, agrees to be bound by the terms and
       conditions of the [Partnership] Agreement.

(Addendum ¶ 3.)      Lovell read the Addendum but did not request to see the

Partnership Agreement before signing the Addendum. (Lovell Dep. 30:6–13, Feb. 5,

2014.) Lovell first read the Partnership Agreement either just before or just after he

left RA in 2012. (Lovell Dep. 30:14–31:2, Feb. 5, 2014.)
        15.    The Addendum includes a term that provides that if Lovell’s partnership

with RA terminates for any reason and Lovell thereafter “compete[s] with [RA] . . . by

performing work for clients of [RA],” Lovell is required to pay RA a percentage of the

fees that he bills to those clients for a period of two years (“Addendum Competition

Provision”).    (Addendum ¶ 5.)      More specifically, the Addendum Competition

Provision obligates Lovell to pay “fifty percent (50%) of the gross fees billed or

received by either [Lovell], his partnership, or a corporation in which he is a

stockholder or by any business entity by which he is employed in the field of public

accounting.” (Addendum ¶ 5.) Such payments are due “whether or not the fees are

collected by [Lovell], his partnership, or his corporation or his employer.” (Addendum

¶ 5.)

        16.    On the same day Lovell signed the Addendum, David Fraser (“Fraser”),

who had been an RA employee since December 2007, signed a substantially similar

addendum and was admitted as a partner.           (See Marshall Aff. Ex. N (“Fraser

Addendum”), Feb. 9, 2015.) Prior to Fraser signing the Fraser Addendum, Leon had

stated in an internal memo that he wanted to “remove Dave [Fraser] from the firm”

in order to improve the Charlotte office’s profitability. (See Marshall Aff. Ex. R

(“Rives Memo”), Feb. 9, 2015.) While Fraser was an employee, before he became a

partner, he was not subject to the Addendum Competition Provision or to any other

provision regarding competition. Fraser was not advised of the Rives Memo or of

Leon’s intent before he signed the Fraser Addendum.
   C. Plaintiffs Assert that Leon Violated Professional Standards and Failed to
      Afford Lovell Rights He was Entitled to as a Partner.

      17.    All RA partners are CPAs licensed in North Carolina and are therefore

subject to the practice standards established by the North Carolina State Board of

Certified Public Accountant Examiners (“Board Standards”). Plaintiffs assert that

William and Leon violated Board Standards and endorsed or acquiesced in other RA

employees’ violations of Board Standards, including but not limited to actions in

connection with an audit of at least one significant client. At the time of that audit,

Lovell oversaw RA’s audits and had the most experience of anyone at RA regarding

that specific type of audit. However, Lovell was excluded from participating in the

audit. Lovell contends that Leon and William ignored his expressed concerns and

approved an audit opinion that did not comport with applicable professional

standards, which ultimately resulted in litigation against RA.

      18.    Plaintiffs   further   complain    that   Leon    violated   professional

independence standards by forming and operating School Efficiency Consultants,

LLC (“Consultants”) as a subsidiary of RA and providing audit services for

Consultants’ clients on a contingency-fee basis.

      19.    Lovell further complains that Leon and William wrongfully excluded

him from RA’s management despite his being a partner. More specifically, Lovell

complains that he was not provided access to RA’s books and records.          He also

complains that he was not allowed to vote on partnership matters but does not point

to any Partnership Agreement provision that grants him voting rights.
   D. Plaintiffs Plan to Leave RA and Call for RA to Expel Leon as an RA Partner

      20.    In July 2012, Lovell and Fraser met with John Bly (“Bly”), a partner at

LB&A, to discuss the possibilities that Bly might purchase RA’s Charlotte office or

that Fraser and Lovell might leave RA to join LB&A. (Bly Dep. 27:16–29:8, 37:4–

38:20, Oct. 21, 2014.) Fraser and Lovell expressed their belief to Bly that the ethical

violations at RA should allow them to avoid any efforts to enforce the Addendum

Competition Provisions. (Bly Dep. 54:7–55:21, Oct. 21, 2014.)

      21.    Chesson began attending meetings with Lovell, Fraser, and Bly in

September 2012. Chesson sent Bly a spreadsheet that contained the names and

contact information of Chesson’s RA clients.

      22.    After the meetings with LB&A, Plaintiffs and their attorneys met with

William and Leon on September 24, 2012, and expressed concerns about the audit

discussed above, Defendants’ failure to adhere to Board Standards, and conflicts of

interest related to RA and Leon’s relationship with Consultants. (Chesson Aff. ¶ 4,

Feb. 9, 2015.) Plaintiffs called upon Leon and William to take actions to correct these

issues.

      23.    In the days following the September 24 meeting, Plaintiffs requested

that Leon resign from RA. Plaintiffs characterize their request as a call to expel Leon.

(Pls.’ Mem. Opp’n to Defs.’ Mot. Partial Summ. J. Ex. QQ.) However, the record does

not reflect that any meeting to expel Leon was requested or that any motion to expel

was presented for a vote.
      24.    A partner can be expelled for any reason by a two-thirds vote “of all of

the Partners excluding therefrom the vote of the Partner whose expulsion is under

consideration.” (Partnership Agreement § 7.02.) Additionally, “there will be a vote

of expulsion” if a partner commits any one of the eight unacceptable acts enumerated

in subsections 7.02(A)–(H) of the Partnership Agreement, unless the partners

determine that expulsion is not necessary. (Partnership Agreement § 7.02(A)–(H).)

The unacceptable acts include but are not limited to violations of Board Standards,

acts of professional misconduct, and acts that constitute gross negligence.        (See

Partnership Agreement § 7.02(B), (H).)

      25.    On September 26, 2012, Plaintiffs’ counsel wrote an e-mail to William

with a list of demands, including that Leon resign and that Lovell become RA’s

interim managing partner, suggesting that litigation would follow if these steps were

not taken. (Pls.’ Mem. Opp’n to Defs.’ Mot. Partial Summ. J. Ex. QQ.) Defendants

contend that Plaintiffs’ counsel also threatened to destroy Defendants’ reputation if

Defendants did not relieve Plaintiffs of their contractual obligations upon their

withdrawal. (William Rives Dep. 135:19–138:23, June 5, 2014.)

      26.    Leon did not resign, and William took no action to support Plaintiffs’

effort to expel Leon.

      27.    Defendants assert that, on October 3, 2012, Fraser e-mailed Bly a list of

all Fraser’s Charlotte tax clients and their contact information, and that the next day,

Plaintiffs deleted their RA e-mail inboxes and wiped their RA computers.
      28.    The Partnership Agreement requires a partner to provide four months’

written notice to effectively withdraw from RA. (Partnership Agreement § 7.01.) A

withdrawing partner is prohibited from contacting RA clients during the four-month

notice period. (Partnership Agreement § 7.03.)

      29.    On October 5, 2012, Plaintiffs notified Defendants that they were

immediately withdrawing from RA. They had not given prior notice. Each then

became an LB&A partner. Only a few days after Plaintiffs withdrew from RA, LB&A

sent announcement letters to the clients that Chesson identified in his spreadsheet,

and Plaintiffs began contacting their former RA clients. Plaintiffs contend that they

were not subject to the Partnership Agreement’s restrictions.

      30.    Plaintiffs filed this suit on October 25, 2012. Plaintiffs’ counsel then

distributed copies of the complaint to several RA clients. (See Marshall Aff. Ex. Y,

Feb. 9, 2015.) Facts are disputed as to whether the RA clients who received the

complaint specifically requested it, and whether those same clients relied on the

allegations in the complaint when deciding to discontinue their use of RA’s services.

      31.    Lovell has not paid RA for the work he performed for former RA clients.

Defendants have demanded such payment pursuant to the Addendum Competition

Provision.   Defendants have not paid Lovell or Chesson any value for their

partnership interests as provided by section 7.05 of the Partnership Agreement,

because Defendants contend that Plaintiffs forfeited their rights to receive such

withdrawal payments by failing to provide the requisite notice of withdrawal and

improperly contacting RA clients during the notice period.
                            III.   PROCEDURAL HISTORY

      32.    Plaintiffs filed their original Complaint on October 25, 2012.

Defendants filed a notice of designation on December 17, 2012. The action was

designated a mandatory complex business case on December 19, 2012, by then-Chief

Justice of the North Carolina Supreme Court Sarah Parker, and assigned to the

undersigned on December 20, 2012.

      33.    Defendants moved to dismiss all claims on January 18, 2013. Plaintiffs,

with leave of the Court, filed their First Amended Complaint on April 1, 2013.

Defendants then renewed their motion to dismiss, which the Court granted in part

on October 29, 2013.

      34.    Defendants filed their answer, motion to strike, and counterclaims on

December 18, 2013. Plaintiffs moved to dismiss two of the six counterclaims. The

Court denied the motion on July 2, 2014.

      35.    Plaintiffs, with leave of the Court, filed their Second Amended

Complaint on October 29, 2014, alleging eight claims.              All claims by, and

counterclaims against, Fraser were voluntarily dismissed on March 8, 2016. The

remaining claims include (1) Plaintiffs’ claim for information and accounting against

RA; (2) Plaintiffs’ breach of fiduciary duty claim against William and Leon; (3) Lovell’s

fraud in the inducement claim against Leon and RA; (4) Lovell’s common law fraud

claim against Leon and RA; (5) Chesson’s breach of contract claim against all

Defendants; (6) Lovell’s declaratory judgment claim against all Defendants; (7)
Lovell’s breach of contract claim against Leon and RA; and (8) Plaintiffs’ claim for

breach of the implied covenant of good faith and fair dealing against all Defendants.

       36.    Defendants filed their answer to the Second Amended Complaint and

counterclaims on November 24, 2014. The counterclaims include (1) RA’s claim for

money had and received against Chesson; (2) William’s claim for money had and

received against Chesson; (3) RA’s abuse of process claim against all Plaintiffs; (4) all

Defendants’ claims of obstruction of justice, trespass to chattel, and breach of

fiduciary duty against all Plaintiffs based on destruction of computer information; (5)

all Defendants’ claims of breach of the partnership agreement and breach of fiduciary

duty against all Plaintiffs; and (6) all Defendants’ claim for accounting against all

Plaintiffs.

       37.    Plaintiffs and Defendants filed cross-motions for summary judgment on

February 9, 2015. The motions are ripe for determination.

                                    IV.    ANALYSIS

       38.    Plaintiffs move for partial summary judgment in their favor on their

claims for fraud in the inducement and declaratory judgment, and for partial

summary judgment against Defendants on their counterclaims for abuse of process

and breach of contract. Defendants move for summary judgment against Plaintiffs

on all of Plaintiffs’ claims, and for partial summary judgment in their favor on RA’s

counterclaim for money had and received against Chesson and on Defendants’ breach

of contract counterclaim against Plaintiffs, which would likely negate the need for an

accounting.
       39.     Each of the motions for summary judgment were timely filed and

briefed.

   A. Standard of Review

       40.     When moving for summary judgment under Rule 56 of the North

Carolina Rules of Civil Procedure (“Rules”), the movant bears the burden of showing

that there is no genuine issue of material fact with respect to the essential elements

of a claim or defense and that the movant is entitled to judgment as a matter of law.

See Steel Creek Dev. Corp. v. James, 

, 636–37, 

(1980).     To overcome a motion for summary judgment appropriately made and

supported, the nonmovant bears the burden “to present a forecast of evidence which

shows that a genuine issue of fact exists.” Watts v. Cumberland Cty. Hosp. Sys., Inc.,

, 

 (1985), aff’d in part, rev’d in part, 

, 

 (1986). The Court views the evidence in the light most favorable

to the nonmovant. See Coats v. Jones, 

, 

(1983).

   B. The Partnership Agreement and the Addendum Are Valid Contracts That May
      Be Enforced Against Lovell.

       41.     The Court must first address Lovell’s contention that the Partnership

Agreement and the Addendum cannot be enforced against him, because first, he was

fraudulently induced to sign the Addendum, and second, his contract was not

supported by valuable consideration because the promise of his partnership was

illusory.
      42.    To prevail on a claim of fraudulent inducement, a party must prove “(1)

false representation or concealment of a material fact, (2) reasonably calculated to

deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting

in damage to the injured party.” Ward v. Fogel, 

, 581, 

, 301 (2014) (quoting Media Network, Inc. v. Long Haymes Carr, Inc., 

, 

 (2009)). Even when analyzing the facts in the

light most favorable to him, the uncontested facts demonstrate that Lovell is unable

to maintain a claim for fraudulent inducement.

      43.    Lovell first contends that Leon fraudulently induced him to sign the

Addendum when Leon failed to disclose the existence and content of the Rives Memo.

When a fraud claim is based on a party’s failure to disclose a material fact, the party

accused of fraud must have had a duty to speak or have taken steps to actively conceal

facts. See Setzer v. Old Republic Life Ins. Co., 

, 

(1962). A duty to speak exists

      (1) in the context of a fiduciary relationship, (2) where “a party has taken
      affirmative steps to conceal material facts from the other,” or (3) “where
      one party has knowledge of a latent defect in the subject matter of the
      negotiations about which the other party is both ignorant and unable to
      discover through reasonable diligence.”

Jacobson v. Walsh, No. 10-CVS-9619, 

, at *16–17 (N.C. Super.

Ct. Jan. 22, 2014) (quoting Harton v. Harton, 

, 297–98, 

 (1986)).

      44.    It is uncontested that Leon did not disclose the Rives Memo to Lovell,

but there has been no showing that he had a duty to do so. At the time the parties
entered into the contract, Leon and Lovell did not have a fiduciary relationship.

Further, the Rives Memo did not contain material facts relevant to Lovell, as it only

discussed Fraser. There is no evidence that Leon took affirmative steps to conceal

the Rives Memo. The Court rejects Lovell’s contention that the Rives Memo contains

material facts relevant to Lovell’s election to execute the partnership documents,

because the Rives Memo provides insight into Leon’s business practices and would

have influenced Lovell’s decision to join RA. The Rives Memo did not reveal a latent

defect in the agreements that Lovell elected to enter into. Significantly, RA never

implemented any plan that may be evidenced by the Rives Memo. Therefore, Lovell

cannot claim that he was fraudulently induced to sign the Addendum on the basis

that the content of the Rives Memo was not disclosed to him.

      45.    Next, Lovell attempts to support a claim of fraudulent inducement on

the basis that he was not provided with a copy of the Partnership Agreement before

he executed the Addendum. Effectively, he asks to be excused from his contractual

obligations because of his failure to request a copy of and to read the Partnership

Agreement.    However, the clear and unambiguous language of the Addendum

specifies that the terms of the Partnership Agreement were incorporated into and

made a part of the terms of the Addendum. (See Addendum ¶ 3.)

      46.    Lovell cannot reasonably contend that he detrimentally relied on

Defendants’ failure to affirmatively offer him an opportunity to review the

Partnership Agreement before he executed the Addendum.             “Reliance is not

reasonable where the plaintiff could have discovered the truth of the matter through
reasonable diligence, but failed to investigate.” Bumpers v. Cmty. Bank of N. Va.,

, 

 (2013) (quoting Sullivan v. Mebane Packaging

Grp., Inc., 

, 

 (2003)). While questions

regarding reasonableness of a party’s reliance and the materiality of the

misrepresented or omitted fact may often present an issue that must be evaluated by

a jury, see Forbis v. Neal, 

, 

 (2007),

reasonableness can be determined as a matter of law when “the facts are so clear that

they support only one conclusion,” State Props., LLC v. Ray, 

,

 (2002). That is the case here.

      47.    In Sullivan v. Mebane Packaging Group., Inc., the North Carolina Court

of Appeals held that a plaintiff could not, as a matter of law, prevail on a fraud claim

“based on allegations that defendants both concealed and misrepresented his rights

under the Agreement” when the plaintiff “requested a copy of the Agreement” but

never received it. 

, 581 S.E.2d at 458–59. “Such a request, absent

more, does not constitute reasonable diligence.” 

, 

. The

holding in Sullivan applies squarely to this case and precludes Lovell’s assertion of

reasonable reliance.

      48.    Lovell never requested a copy of the Partnership Agreement before he

signed the Addendum. (Lovell Dep. 30:6–13, Feb. 5, 2014.) He has presented no

evidence that Defendants refused any such request.          Lovell cannot reasonably

contend he is surprised by the Addendum Competition Provision. The Addendum

clearly states that if Lovell withdraws from RA and then competes with RA, he would
be required to pay RA a percentage of any fees he earns from RA clients. (Addendum

¶ 5.) Lovell cannot avoid those terms through his contention that he was misled to

believe that the Addendum Competition Provision applied to all of RA’s partners. The

Addendum Competition Provision specifically refers only to the “New Partner,”

without ever mentioning the other partners. (Addendum ¶ 5.) The fact that the

Partnership Agreement itself does not have a provision comparable to the Addendum

Competition Provision would have been evident from reading the Partnership

Agreement. In sum, Lovell cannot claim, as a matter of law, that he was fraudulently

induced to sign the Addendum on the basis that he was not given a copy of the

Partnership Agreement before he signed the Addendum.

      49.    Lovell also contends that he was fraudulently induced to sign the

Addendum because Leon misrepresented that Lovell would be treated as a full equity

partner. Again, Lovell is a victim of his own choice not to read the Partnership

Agreement, which clearly discloses that he would not be admitted as a full equity

partner with the same rights as the Founding Partners. (See Partnership Agreement

§ 2.06; Addendum ¶ 1.) Evidence that Leon may not have treated Lovell in accordance

with the Partnership Agreement may be relevant to Lovell’s breach of contract claim,

but it does not provide a basis for his claim of fraudulent inducement. See Williams

v. Williams, 

, 

 (1942) (explaining that “mere

unfulfilled promises cannot be made the basis for an action of fraud”).

      50.    Lovell also asserts a claim of common law fraud in the alternative to his

claim of fraudulent inducement. The alternative claim is based on the same grounds
as his fraudulent inducement claim, and like the inducement claim, requires

reasonable reliance. The Court concludes and holds that Lovell’s common law fraud

claim cannot survive because the uncontested record reveals that Lovell cannot prove

the necessary element of reasonable reliance. Therefore, the Court concludes that

Lovell’s fraudulent inducement and common law fraud claims must be DISMISSED.

      51.    In addition to claiming that the Addendum cannot be enforced against

him because his entry into that agreement was fraudulently induced, Lovell contends

that the Addendum is unenforceable because it was not supported by consideration,

because the promise of being treated as a partner was illusory. A contract must be

supported by consideration to be enforceable.        Inv. Props. of Asheville, Inc. v.

Norburn, 

, 

 (1972). “It is well established that

any benefit, right, or interest bestowed upon the promisor, or any forbearance,

detriment, or loss undertaken by the promisee, is sufficient consideration to support

a contract.” Brenner v. Little Red Sch. House, Ltd., 

, 

 (1981). “In order to defeat a contract for failure of consideration, the failure

of consideration must be complete and total.” Harllee v. Harllee, 

, 

 (2002).

      52.    The Addendum provides that, as a partner, Lovell was entitled to 0.01%

of the gains and losses of RA’s Charlotte Operations and a draw of $120,000 per year.

(Addendum ¶¶ 1, 4.) The Addendum incorporates the Partnership Agreement, which

provides for other rights and expectations.      Until he withdrew from RA, Lovell

performed under the Addendum and the Partnership Agreement. He represented
himself as a partner in e-mails and to clients. He received his partnership draw.

Therefore, there was consideration adequate to support the Addendum.

       53.    In sum, the Court concludes that there is no issue of material fact that

precludes the determination, as a matter of law, that Lovell entered into both the

Partnership Agreement and the Addendum without any fraudulent inducement, and

that the agreements are valid, supported by reasonable consideration, and may be

enforced against Lovell, absent other defenses. Accordingly, Lovell’s claim for a

declaration that the Partnership Agreement and the Addendum are unlawful is

DISMISSED.        The Court then turns to Lovell’s defense that the Addendum

Competition Provision fails as an unenforceable restrictive covenant.

   C. The Addendum Competition Provision Is Not Void as an Improper Covenant
      Against Competition.

       54.    Lovell contends that the Addendum Competition Provision is an

unenforceable restrictive covenant. Defendants counter that the provision does not

restrict Lovell from competing, but instead fairly allocates responsibility for damage

to RA as a result of its loss of clients by reason of Lovell’s choice to directly compete

with RA.

       55.    North Carolina’s appellate courts have interpreted contractual

provisions that provide for payment of revenues by a former partner or employee

resulting from competitive activities differently and less stringently than covenants

that actually preclude competition. “A restriction in the contract which does not

preclude the employee from engaging in competitive activity, but simply provides for

the loss of rights or privileges if he does so is not in restraint of trade. . . .” E. Carolina
Internal Med., P.A. v. Faidas, 

, 

 (quoting

Newman v. Raleigh Internal Med. Assocs., P.A., 

, 

 (1987)), aff’d per curiam, 

, 

 (2002). This type of

provision is “not subject . . . to the strict scrutiny as to reasonableness and public

policy required with a covenant not to compete.” Id. at 945, 

 (holding

that a cost-sharing provision that is triggered only if the defendant chooses to

compete with the plaintiff is not treated as a restrictive covenant).

      56.    The Addendum Competition Provision is remarkably similar to the

provision upheld by the North Carolina Court of Appeals in Dixon, Odom & Co. v.

Sledge, 

, 

 (1982). There, an accounting firm and a

partner executed a written agreement that the withdrawing partner was required to

pay the firm 50% of all fees earned from any client who was a client of the firm during

the two years prior to the partner’s departure, subject to certain limitations. 

, 

. The court of appeals upheld the provision against a challenge

that it was an improper covenant not to compete, finding that “[t]he contract simply

describes the obligations of the parties with regard to . . . [the] division of fees which

[the defendant] obtained from ‘former clients.’” 

 Because the provision did not

restrict the type of work that the former partner could conduct or the territory in

which the former partner could work, the strict rules of construction that govern

covenants against competition did not apply. Id.

      57.    The Court concludes that the holding in Dixon, Odom & Co. is

controlling. Accordingly, Lovell’s Addendum Competition Provision, which does not
prohibit Lovell from competing with RA but requires him to pay RA if he performs

work for RA’s former clients, is not an improper covenant not to compete.

      58.    The Court also rejects Lovell’s alternative argument that the Addendum

Competition Provision is an unenforceable penalty rather than a liquidated damages

provision. See Knutton v. Cofield, 

, 

 (1968) (noting

that liquidated damages are compensation for injuries in the event of a breach, and

a penalty is a punishment designed as a threat to prevent a breach). The Addendum

does not prohibit Lovell from competing with RA or soliciting RA’s clients. Further,

the Addendum Competition Provision does not impose a specific monetary penalty.

Rather, the provision expressly allows Lovell to compete with RA but provides that

he must pay RA 50% of the total fees that he or his new employer bill former RA

clients for a period of two years. Lovell and his new firm control whether they will

compete with RA by providing services to former RA clients, and if so, to what degree.

Thus, the Court concludes that the Addendum Competition Provision is not an

unenforceable penalty.

      59.    For similar reasons, the Court finds inapposite any argument that the

Addendum Competition Provision is unconscionable.              A contract term is

unconscionable only if “the inequality of the bargain is so manifest as to shock the

judgment of a person of common sense, and where the terms are so oppressive that

no reasonable person would make them on the one hand, and no honest and fair

person would accept them on the other.” Brenner, 

, 

.

Seeking to satisfy this exacting standard, Lovell argues that the Addendum
Competition Provision is not reasonably proportionate to any loss suffered by RA. In

response, Defendants maintain that the provision is reasonable because it reflects a

standard valuation methodology used in the accounting profession for the purchase

of accounting firms, which values CPA firms at one times their annual billings. (See

Bly Dep. 37:1–14, Oct. 21, 2014.) Defendants further note that Chesson had a similar

provision in his employment contract with his former employer, Dixon Hughes.

      60.    The Court is unable to find a basis to conclude that the Addendum

Competition Provision is so one-sided as to “shock the judgment” of a person of

common sense. Brenner, 

, 

. Accordingly, the Court

holds, as a matter of law, that the Addendum Competition Provision is a valid and

enforceable term of the overall agreement between Lovell and RA.

   D. Construction of Other Contract Terms on Which the Parties’ Claims and
      Counterclaims Are Based

      61.    To resolve the various claims and counterclaims, the Court must

determine whether it can ascertain the meaning of certain terms embodied in the

Partnership Agreement, as a matter of law. The Court interprets contract terms as

a matter of law when the contract “is plain and unambiguous on its face.” Int’l Paper

Co. v. Corporex Constructors, Inc., 

, 

 (1989).

However, when a contract term is “fairly and reasonably susceptible to either of the

constructions asserted by the parties,” the term is ambiguous, and its interpretation

must be reserved for the jury. Maddox v. Colonial Life & Accident Ins. Co., 

, 

 (1981). “An ambiguity can exist when, even though the

words themselves appear clear, the specific facts of the case create more than one
reasonable interpretation of the contractual provisions.” Register v. White, 

, 

 (2004) (emphasis added).

      (1) There are terms of the Partnership Agreement that are clear and
          unambiguous and can be applied as a matter of law.

      62.    The voting provision of the Partnership Agreement provides that “[e]ach

Partner shall be entitled to one (1) vote for each percentage ownership of the Pool.”

(Partnership Agreement § 2.06.) This language is clear and unambiguous on its face.

It provides that, of the parties, only William, Leon, and Chesson had a right to vote,

because they were the only partners with an ownership interest in the Pool.

(Partnership Agreement § 3.01.) Lovell never had any ownership interest in the Pool

and thus had no right to vote. (Addendum ¶ 1.)

      63.    The Partnership Agreement also is unambiguous when it specifies that

RA’s management “shall be vested in the Partners.” (Partnership Agreement § 2.05.)

The partners “may delegate responsibilities to a Managing Partner, Executive Team,

or Chief Executive Officer.”   (Partnership Agreement § 2.05 (emphasis added).)

Section 2.05 must be read in connection with section 2.06, which states that “[a]ll

issues shall be determined by a 2/3 vote.” (Partnership Agreement § 2.06.) Leon and

William together owned 80% of the interest in the Pool, and thus collectively

controlled more than two-thirds of the partners’ votes, which effectively gave them

control of RA. (Partnership Agreement §§ 2.06, 3.01.)

      64.    The Partnership Agreement is also unambiguous in providing each

partner with a right to inspect RA’s books and records, regardless of ownership

interest. (See Partnership Agreement § 13.01). “Partners,” as used here, includes
“the signatories to [the Partnership Agreement] and such additional certified public

accountants or persons as the [sic] Partners shall from time to time elect.”

(Partnership Agreement § 2.01.) The Partnership Agreement then clearly provides

that all the partners, including Lovell, had a right to inspect RA’s books and records.

      65.    The Partnership Agreement also includes a clearly stated provision that

requires a partner to provide four months’ written notice to withdraw, unless two-

thirds of the partners vote to allow the withdrawing partner to “accelerate the

effective date of the withdrawal” (“Notice Provision”).      (Partnership Agreement

§ 7.01.) The Partnership Agreement further provides that a withdrawing partner is

not permitted to “contact, solicit, or send announcements to any clients regarding

such withdrawal” until RA has mailed a letter “to clients for which the

withdrawing . . . Partner had been designated as the originating, responsible, or

billing Accountant” (“Client Contact Provision”). (Partnership Agreement § 7.03.)

This notification letter must be sent to the affected clients within thirty days of the

date that the withdrawing partner gives his notice. (Partnership Agreement § 7.03.)

These terms are not ambiguous.

      66.    The Partnership Agreement provides that a withdrawing partner “shall

be paid the value of his or her Partnership interest as determined in Section[] 7.05.”

(Partnership Agreement § 7.01.) Section 7.05 is titled “Amounts to be Paid to a

Withdrawing or Expelled Partner,” but its substantive text explicitly refers only to

amounts to be paid to an expelled partner. (Partnership Agreement § 7.05.) The

parties each acknowledge that the provision provides the method for calculating the
amount to be paid “in equal monthly installments over a seven year period” to a

withdrawing partner. (Partnership Agreement § 7.05(D).) The provision further

specifies that the withdrawing partner cannot “directly or indirectly induce any

former client to patronize any other accounting firm” during the time in which he

receives withdrawal payments. (Partnership Agreement § 7.05(E).) These terms are

not ambiguous.

      (2) As worded, section 7.02 regarding expulsion did not require William to vote
          in favor of expelling Leon.

      67.    Plaintiffs contend that section 7.02 of the Partnership Agreement

required William to vote in favor of expelling Leon from the partnership once

confronted with evidence that Leon engaged in acts that the partners have agreed

are unacceptable. As such, Plaintiffs assert that William’s failure to agree to expel

Leon constituted a breach of contract, which allowed Plaintiffs to withdraw from the

partnership free of any obligation to comply with the Notice Provision, the Client

Contact Provision, or the Addendum Competition Provision.

      68.    Solely for purposes of this analysis, the Court assumes, without

deciding, that Plaintiffs can prove that Leon engaged in the conduct proscribed as

unacceptable by section 7.02 of the Partnership Agreement. The issue is whether the

language of the Partnership Agreement can be construed to impose on William an

obligation, rather than an option, to vote in favor of expelling Leon because of such

conduct.

      69.    Section 7.02 lists eight specific acts that the “Partners have

agreed . . . are unacceptable to the Firm.” (Partnership Agreement § 7.02.) However,
section 7.02’s language does not expressly state that a partner’s engaging in such

conduct is a breach of the Partnership Agreement. Rather, section 7.02 allows for a

partner’s expulsion for engaging in such conduct.

      70.    Section 7.02 provides that a partner may be expelled without notice “by

2/3 vote of all of the Partners excluding therefrom the vote of the Partner whose

expulsion is under consideration.” (Partnership Agreement § 7.02.) Section 7.02

further states that, “unless otherwise determined by the Partners, there will be a vote

of expulsion if such Partner” commits one of the eight listed unacceptable acts.

(Partnership Agreement § 7.02(A)–(H).) The Partnership Agreement does not further

define the basis on which the unaffected partners might “otherwise determine[]” not

to expel. (Partnership Agreement § 7.02.)

      71.    Plaintiffs requested that Leon resign. They now claim that this request

should be deemed the equivalent of a demand for a partnership vote of expulsion.

However, there is no record that Chesson presented a motion to expel or called for a

vote. At that time, the partnership voting percentage was 40% to William, 40% to

Leon, and 20% to Chesson. If Leon’s percentage is disregarded, as required under

section 7.02, William effectively controlled two-thirds of the required vote.

      72.    The Court concludes that section 7.02’s language, though not a model of

clarity, should be construed by the Court rather than being left for a jury’s

determination, because section 7.02 is not “reasonably susceptible” to Plaintiffs’

interpretation. Maddox, 

, 

. Plaintiffs’ interpretation

would unreasonably allow Chesson, because of his control of the remaining one-third
interest, to preclude two-thirds of the partners from “otherwise determin[ing]” not to

proceed with a vote of expulsion.         (Partnership Agreement § 7.02.)          That

interpretation contravenes the express language in section 7.02 that expulsion is

determined by a two-thirds vote, (Partnership Agreement § 7.02,) and the language

in section 2.06 that specifically provides that “[a]ll issues shall be determined by a

2/3 vote,” (Partnership Agreement § 2.06.) Accordingly, the Court concludes, as a

matter of law, that William was not contractually required to vote in favor of expelling

Leon, and thus, his failure to do so was not an antecedent breach that excused

Plaintiffs from performing under the Partnership Agreement.

   E. Defendants Did Not Otherwise Materially Breach the Partnership Agreement
      Excusing Plaintiffs from Performing under the Agreements.

      73.    The Court turns to its consideration of whether Defendants otherwise

breached the Partnership Agreement and thus excused Plaintiffs from performing

their duties under valid provisions of their agreements. The Court must determine

whether, when construing the facts in the light most favorable to Plaintiffs, there are

issues of material fact that preclude a finding that Defendants did not breach the

Partnership Agreement as a matter of law. See Steel Creek Dev. Corp., 300 N.C. at

636–37, 

.

      74.    Plaintiffs contend that they were excused from performing their

obligations to provide the requisite notice of withdrawal, to refrain from certain

conduct with respect to RA’s clients during the notice period, and to make payments

pursuant to the Addendum Competition Provision, because Defendants first breached

the Partnership Agreement in any one of the following ways:
      (1) Leon and William refused to give Lovell access to RA’s books and records;

      (2) Leon and William refused to allow Lovell to vote and participate in RA’s

            management;

      (3) Leon violated Board Standards in connection with both the above-

            mentioned audit and the formation and operation of Consultants;

      (4) William refused to expel Leon after being informed of Leon’s misconduct;

            and

      (5) Collectively, by these acts, Leon and William breached the implied covenant

            of good faith and fair dealing.

The Court has above rejected the fourth contention related to an expulsion vote.

      75.      The Partnership Agreement clearly provides Lovell with a right to

inspect RA’s books and records. (See Partnership Agreement § 13.01.) Defendants

do not dispute that Lovell was denied access to RA’s books and records. (See RA

30(b)(6) Dep. 251:7–252:18, June 4, 2014.) Therefore, Defendants are not entitled to

summary judgment against Lovell on this breach of contract claim.

      76.      However, the Court concludes that Defendants’ failure to allow Lovell to

inspect RA’s books and records did not constitute an antecedent breach that excused

Lovell’s further obligation to perform under the agreements. A breach discharges

further performance only if the breach was material. See Crosby v. Bowers, 

, 

 (1987). A material breach is “one that substantially

defeats the purpose of the agreement or goes to the very heart of the agreement, or

can be characterized as a substantial failure to perform.” Supplee v. Miller-Motte
Bus. Coll., Inc., 

, 220, 

, 593 (2015) (quoting Long v.

Long, 

, 

 (2003)). The Court can determine

materiality, as a matter of law, where it is clear based on the circumstances that the

breach does not constitute “a substantial failure to perform.” Id.; see also Combined

Ins. Co. v. McDonald, 

, 

 (1978) (holding that

an employer’s failure to comply with the notice of termination provision of the

employment contract, on its own, “does not as a matter of law constitute a material

breach”). The Court concludes that a failure to allow an inspection of books and

records, based on the facts of this case, is not a material breach that excuses Lovell

from performing substantive undertakings of the Partnership Agreement and the

Addendum.

      77.    The Court concludes that Defendants are entitled to summary judgment

that Defendants did not breach the Partnership Agreement by refusing to allow

Lovell to vote and participate in RA’s management. The unambiguous language of

the Partnership Agreement afforded Lovell no voting right.          (See Partnership

Agreement § 2.06.) In addition to giving William and Leon discretion as to how to

delegate management responsibility, the Partnership Agreement “bars claims based

on disagreements with managerial decisions unless the effect of those decisions

violated fiduciary duties that cannot be eliminated by the Partnership Agreement.”

Chesson v. Rives, No. 12-CVS-3382, 

, at *12 (N.C. Super. Ct.

Oct. 28, 2013).
      78.    The Court further concludes that the wording of section 7.02 of the

Partnership Agreement cannot be construed to provide that Leon’s violation of

professional standards, even if proven, directly constitutes a breach of the

Partnership Agreement. Those acts may have subjected Leon to expulsion, but his

acts did not independently constitute a breach of the Partnership Agreement that

excuses Plaintiffs’ further performance of their obligations under the Partnership

Agreement. That conduct may have presented ample motivation for Plaintiffs to

withdraw from the partnership, but it did not give Plaintiffs a license to disregard

the obligations that arose as a result of a withdrawal.

      79.    Finally, Plaintiffs allege that Leon and William breached the implied

covenant of good faith and fair dealing.      “In every contract there is an implied

covenant of good faith and fair dealing that neither party will do anything which

injures the right of the other to receive the benefits of the agreement.” Bicycle Transit

Auth., Inc. v. Bell, 

, 

 (1985) (quoting Harrison

v. Cook, 

 (Dist. Ct. App. 1963)). However, the Court may not

imply a term that already exists in the contract. See Heron Bay Acquisition, LLC v.

United Metal Finishing, Inc., No. 12-CVS-5505, 

, at *42 (N.C.

Super. Ct. May 7, 2014); see also Campbell v. Blount, 

, 

 (1975) (“There cannot be an express and an implied contract for the

same thing existing at the same time.”).

      80.    Plaintiffs first contend that Leon breached the implied covenant of good

faith and fair dealing when he failed to disclose the Rives Memo to Lovell and failed
to disclose that Defendants would not treat Lovell as a full equity partner. This claim

essentially recasts the fraud in the inducement claim that the Court has already

rejected. The discussions between Lovell and Leon occurred before the contract was

entered and cannot be implied as terms in the contract.

      81.    Plaintiffs separately contend that William breached the implied

covenant of good faith and fair dealing when he refused to vote to expel Leon.

Plaintiffs seek to use the implied covenant to vary the terms of an express provision

in the Partnership Agreement. The Court rejects that effort as improper.

      82.    In sum, the Court concludes that while Defendants breached the

Partnership Agreement by refusing to allow Lovell access to RA’s books and records,

that breach did not excuse Plaintiffs from performing under the agreements. On all

of Plaintiffs’ other breach of contract claims, Defendants are entitled to summary

judgment that they did not breach the Partnership Agreement in any of the ways

Plaintiff contends, and thus, there are no antecedent breaches that excuse Plaintiffs’

further performance.

      83.    Because the Court concludes that Defendants did not materially breach

the Partnership Agreement, excusing Plaintiffs’ performance obligations, the Court

must consider Plaintiffs’ further argument that they were excused from performing

based on the frustration of purpose doctrine.

   F. Plaintiffs’ Performance Obligations Were Not Discharged By the Frustration
      of Purpose Doctrine.

      84.    Defendants seek a summary adjudication that both Chesson and Lovell

breached sections 7.01 and 7.03 of the Partnership Agreement by failing to provide
requisite advance notice of their withdrawal and by improperly contacting RA clients

during the notice period.       Plaintiffs again claim that they were excused from

complying with those sections of the Partnership Agreement.

      85.    It is undisputed that Plaintiffs did not provide the four months’ written

notice of withdrawal as required by the Notice Provision. (Pls.’ Second Am. Compl.

¶ 133 (“[O]n October 5, 2012, [Plaintiffs] tendered their resignation from the

Defendant RA effective immediately upon receipt.”).) Additionally, it is undisputed

that Plaintiffs contacted RA clients immediately upon leaving RA in contravention of

the Client Contact Provision.

      86.    A party’s performance under a contract may be excused “whenever a

fortuitous event supervenes to cause a failure of the consideration or a practically

total destruction of the expected value of the performance.” Brenner, 

,

 (quoting 17 Am. Jur. 2d Contracts § 401 (1964)). The frustration

of purpose doctrine, however, does not excuse performance where “the frustrating

event was reasonably foreseeable” or “the parties have contracted in reference to the

allocation of the risk involved in the frustrating event.” Id.

      87.    Plaintiffs claim that they were required to immediately withdraw from

RA because they were “jeopardizing their CPA licenses through a continued

association with Defendants” due to Defendants’ violations of Board Standards and

acts of gross negligence. (Mem. Supp. Pls.’ Mot. Partial Summ. J. 6.) Plaintiffs may

have a valid argument that one or more of the RA partners violated Board Standards;

however, those violations do not allow Plaintiffs to fail to comply with the Notice
Provision and Client Contact Provision of the Partnership Agreement when they

withdrew from the partnership.        The possibility of a partner violating Board

Standards was reasonably foreseeable. In fact, the Partnership Agreement includes

specific provisions that address such conduct, providing that a partner may be

expelled if he commits professional misconduct or gross negligence. Additionally, the

Partnership Agreement did not prevent Plaintiffs from withdrawing; it only limited

their right to pursue RA clients after doing so.

      88.    In sum, the Court rejects Plaintiffs’ contention that their performance

under sections 7.01 and 7.03 was excused. Defendants are entitled to summary

judgment that Plaintiffs breached those provisions of the Partnership Agreement.

The Court does not here express any opinion on what damages may be awarded based

upon these breaches.

   G. There Are Issues of Material Fact Regarding How to Offset the Parties’
      Damages for Their Respective Claims.

      89.    Defendants contend that, because Plaintiffs breached sections 7.01 and

7.03 of the Partnership Agreement, Plaintiffs forfeited any right to receive payments

that otherwise might be due to withdrawing partners under section 7.05 of the

Partnership Agreement. The Court is unable to determine as a matter of law that

Defendants’ obligation to pay Plaintiffs their partnership interest under section 7.05

was completely offset by Plaintiffs’ breach. As noted, a party’s performance obligation

is discharged altogether only if the other party commits a material breach that

“substantially defeats the purpose of the agreement.” Supplee, 239 N.C. App. at 220,

768 S.E.2d at 593. The Court is unable to conclude that Plaintiffs’ breach of the
Notice Provision and the Client Contact Provision substantially defeated the overall

purpose of the Partnership Agreement so as to lead to a complete forfeiture of other

interests that Plaintiffs may have had in the partnership at the time they withdrew.

Rather, the Court concludes that the alleged damages from Plaintiffs’ respective

breaches may be offset against the damages, if any, resulting from Defendants’

antecedent breach.

      90.    There are insufficient facts to allow the Court to determine that the

damages, if any, that resulted from Plaintiffs’ breaches, and the future Addendum

Competition Provision payments to be made to Defendants, are greater than the

amounts that would otherwise be due to Plaintiffs for their partnership interests.

   H. Defendants Are Entitled to Summary Judgment on Plaintiffs’ Breach of
      Fiduciary Duty Claim.

      91.    A partner’s fiduciary duty “imposes on [him] the obligation of the utmost

good faith in [his] dealings with one another in respect to partnership affairs.” Casey

v. Grantham, 

, 

 (1954). “Each [partner] is the

confidential agent of the other, and each has a right to know all that the others know,

and each is required to make full disclosure of all material facts within his knowledge

in any way relating to the partnership affairs.”       

   Further, “a partnership

agreement cannot eliminate those enumerated fiduciary duties partners owe to one

another as a matter of law.” Chesson, 

, at *13.

      92.    The Court previously ruled that Plaintiffs may pursue a claim for breach

of fiduciary duty “only insofar as Plaintiffs specifically allege that the Riveses

breached their fiduciary duties while Plaintiffs were partners by manipulating client
accounts to divert partnership revenue to themselves personally or using partnership

assets to form [Consultants].” Id. at *14. Defendants have developed testimony that,

other than a loan that has since been repaid, RA has never given any money or

business opportunities to Consultants.      (Leon Rives Aff. ¶¶ 6–9, Feb. 9, 2015.)

Plaintiffs have not offered any evidence to rebut this testimony. Accordingly, the

Court concludes that there are no disputed issues of material fact regarding Plaintiffs’

claim for breach of fiduciary duty, that Defendants are entitled to summary judgment

as a matter of law, and that Plaintiffs’ breach of fiduciary duty claim should be

DISMISSED.

   I. Defendants Are Not Entitled to Summary Judgment on RA’s Counterclaim
      Against Chesson for Money Had and Received.

      93.    RA moves for summary judgment on its counterclaim against Chesson

for money had and received. RA avers that it is entitled to be repaid its loan to

Chesson for $150,000, which was used to pay obligations owed to Chesson’s former

employer, Dixon Hughes. Chesson argues that the payments were not a loan, but

instead were used to acquire Chesson’s book of business and goodwill. Additionally,

Chesson contends that the Partnership Agreement’s terms bar the payments from

being characterized as a loan.

      94.    The North Carolina Supreme Court has delineated the common-law

claim for money had and received as follows:

      [T]he crucial question in an action of this kind is, to which party does
      the money, in equity and good conscience, belong? The right of recovery
      does not presuppose a wrong by the person who received the money, and
      the presence of actual fraud is not essential to the right of recovery. The
      test is not whether the defendant acquired the money honestly and in
      good faith, but rather, has he the right to retain it. “In short, the gist of
      this kind of action is, that the defendant, upon the circumstances of the
      case, is obliged by the test of natural justice and equity to refund the
      money.”

Smith Chapel Baptist Church v. City of Durham, 

, 

,

882–83 (1999) (citations omitted) (quoting Ridley v. Jim Walter Corp., 

, 

 (1968)).

      95.    There is no written loan agreement that memorializes the terms of any

loan between Chesson and RA. During the three and a half years that Chesson was

an RA partner, RA never deducted any amount from payments made to Chesson as

a result of any loan and never demanded repayment for any loan. Leon testified that

RA was interested in bringing Chesson and his book of business to RA, that RA hired

an attorney on Chesson’s behalf to represent him in the Dixon Hughes litigation, and

that the ultimate settlement discharged both Chesson and his partners at RA from

any liability resulting from the Dixon Hughes litigation. (RA 30(b)(6) Dep. 166:18–

170:12, June 4, 2014.)    However, Defendants allege that the fact that Chesson

considered the payment to Dixon Hughes a loan is evident from the fact that Chesson

did not report the payment as income on his tax returns. (Chesson Dep. 72:15–75:9,

June 5, 2014.)

      96.    The Court concludes that the record and the disputed contentions of the

parties create an issue of material fact that must be resolved by a jury, and therefore

neither party is entitled to summary judgment on RA’s claim against Chesson for

money had and received.
      97.    As to Chesson’s further contention that the Partnership Agreement bars

this transaction from being characterized as a loan, the Court considers the language

of section 1.06 of the Partnership Agreement. Section 1.06 states that “[a]ll previous

agreements, understandings and undertakings, whether oral or written, among any

partners with respect to their association for the practice of Accounting are hereby

superseded in their entirety by this Agreement.” (Partnership Agreement § 1.06.)

The Court concludes that this section cannot be construed to bar a claim for monies

advanced in order to resolve claims arising from Chesson’s having left his prior firm

to join RA. Accordingly, the Court concludes that if a jury finds that the $150,000

advance should be treated as a loan, Defendants will then be entitled to repayment

of the $150,000, subject to an offset based on monies that RA owes to Chesson for

other obligations.

   J. There Are Issues of Material Fact Regarding Defendants’ Abuse of Process
      Claim.

      98.    Plaintiffs move for summary judgment in their favor on Defendants’

abuse of process counterclaim. Defendants allege that Plaintiffs included certain

allegations in their complaint to embarrass or professionally damage Defendants and

then distributed the filed complaint to RA clients with the intent to harm RA.

(Countercls. ¶¶ 23–26.)

      99.    The North Carolina Supreme Court has described a claim for abuse of

process as “the misuse of [a] legal process for an ulterior purpose.” Stanback v.

Stanback, 

, 

 (1979) (quoting Fowle v. Fowle, 

, 

 (1965)). To prevail on an abuse of process claim,
Defendants must establish that Plaintiffs (1) had an ulterior motive and (2)

committed “an act in the use of the process not proper in the regular prosecution of

the proceeding.” Edwards v. Jenkins, 

, 

 (1958)

(quoting Barnette v. Woody, 

, 

, 227–28 (1955)). The

ulterior motive element is satisfied when it is proven that the “action

was . . . used . . . to achieve a purpose not within the intended scope of the process

used.” Hewes v. Wolfe, 

, 

 (1985). The requisite

action is demonstrated by establishing “that during the course of the . . . proceeding,

the [party] committed some willful act whereby he sought to use the proceeding as a

vehicle to gain advantage of the plaintiff in respect to some collateral matter.” 

Evidence of actual damages is not required. See Stanback, 

, 

.

      100.   The record creates issues of material fact as to whether Defendants can

prove each of the essential elements of their claim. The Court earlier acknowledged

“that the Amended Complaint contained allegations of professional malpractice

against former clients and other improper conduct by Defendants against others that

arguably had little, if any, relevance to recovering Plaintiffs’ partnership interests

after their withdrawal or redressing any other legal wrong committed by Defendants

that harmed Plaintiffs.” Order on Motion to Dismiss, Chesson v. Rives, No. 12-CVS-

3382, slip op. at 2 (N.C. Super. Ct. July 2, 2014). Additionally, Defendants have

provided evidence that when Plaintiffs and Defendants met shortly before Plaintiffs

withdrew from RA, Plaintiffs’ attorney threatened to ruin Defendants’ reputation and
destroy their practice unless Defendants discharged Plaintiffs’ performance

obligations under the Partnership Agreement. (William Rives Dep. 135:19–138:23,

June 5, 2014.) There is a dispute as to whether RA clients who received the complaint

specifically requested it, or if clients relied on the allegations contained in the

complaint when deciding to leave RA. (Defs.’ Br. Opp’n to Pls.’ Mot. Summ. J. 10.)

Under these facts, Plaintiffs are not entitled to rely solely on the invocation of

litigation privilege to defeat the claim.

      101.   Accordingly, the Court denies Plaintiffs’ Motion on Defendants’

counterclaim for abuse of process.

   K. The Final Determination of Claims for Accounting Must Await Resolution of
      Other Disputed Claims.

      102.   North Carolina General Statutes section 59-52 provides partners the

remedy of an accounting to redress claims arising under a partnership agreement.

See 

 (2015). Because there are unresolved claims, upon which

a final accounting would be based, neither party is entitled to summary judgment

regarding a final accounting at this time.

                                   V.       CONCLUSION
      103.   Based on the foregoing, the Court holds and orders as follows:

   A. Plaintiffs’ Motion

      1) Summary judgment is DENIED on Lovell’s fraud in the inducement claim

          against Leon.

      2) Summary judgment is DENIED on Plaintiffs’ declaratory judgment claim.
  3) Summary judgment is DENIED on Defendants’ breach of contract

     counterclaims against Plaintiffs.

  4) Summary judgment is DENIED on Defendants’ abuse of process

     counterclaim against Plaintiffs.

B. Defendants’ Motion

  1) Summary judgment is GRANTED on Lovell’s fraud in the inducement

     claim against Leon, and this claim is DISMISSED WITH PREJUDICE.

  2) Summary judgment is GRANTED on Lovell’s common law fraud claim

     against Leon, and this claim is DISMISSED WITH PREJUDICE.

  3) Summary judgment is GRANTED on Lovell’s declaratory judgment claim,

     and this claim is DISMISSED WITH PREJUDICE.

  4) Summary judgment is DENIED as to Lovell’s breach of contract claim

     regarding his access to RA’s books and records.

  5) Summary judgment is GRANTED as to all other breach of contract claims

     against   Defendants,   and    these   claims     are   DISMISSED   WITH

     PREJUDICE.

  6) Summary judgment is GRANTED on Plaintiffs’ breach of the implied

     covenant of good faith and fair dealing claim against all Defendants, and

     this claim is DISMISSED WITH PREJUDICE.

  7) Summary judgment is GRANTED on Defendants’ breach of contract

     counterclaim against all Plaintiffs, provided, however, that Plaintiffs’
   breach did not discharge Defendants’ obligation to pay Plaintiffs under

   section 7.05, subject to a proper offset that must be determined.

8) Summary judgment is GRANTED on Plaintiffs’ breach of fiduciary duty

   claim against all Defendants, and this claim is DISMISSED WITH

   PREJUDICE.

9) Summary judgment is DENIED on RA’s money had and received

   counterclaim against Chesson.

10) Summary judgment is DENIED on all of the claims for a final accounting.



IT IS SO ORDERED, this the 30th day of November, 2016.




                                  /s/ James L. Gale
                                 James L. Gale
                                 Chief Business Court Judge