Partnerships – Unfair Trade Practices –Fiduciary Duty Breach –Treble Damages –Internal Partnership Acts –Acts Affecting Commerce

White v. Thompson. (Lawyers Weekly No. 09-07-0431, 22 pp.) (James A. Wynn Jr., J.) (Sam Ervin IV, J., concurring in part and dissenting in part) Appealed from Columbus County Superior Court. (Douglas B. Sasser, J.) N.C. App.
Holding: A partner’s internal partnership acts were not in or affecting commerce, meaning that the trial court erred by trebling the award of damages against him pursuant to G.S. Sect. 75-16 in a breach of fiduciary duty and unfair and deceptive trade practices case.
Treble damages were appropriate, however, on claims against a second defendant, who served as a bookkeeper for the partnership.
Background
Plaintiffs Charles M. White and Earl Ellis formed a partnership, Ace Fabrication and Welding, with defendant Andrew Thompson. Ace Welding hired defendant Douglas Thompson (Andrew Thompson’s father) to keep the partnership’s accounting records. From the outset, Ace Welding won bids for several lucrative specialty fabrication projects at the Smithfield Packing Plant.
The parties presented contrasting views of the partners’ involvement in Ace Welding. Plaintiff White testified that, soon after Ace Welding began operating, he discovered defendant Andrew Thompson working on jobs without informing or incorporating the other partners. He stated that defendant Andrew Thompson misreported the days on which jobs were to begin, resulting in the other partners missing out on jobs altogether.
On the other hand, defendant Andrew Thompson testified that his two partners were unavailable or left in the middle of jobs. He testified that he told his partners he wanted out in January 2001.
Plaintiff White stated that he first learned of defendant Andrew Thompson’s desire to leave Ace Welding in February 2001. He stated that although defendant Andrew Thompson denied that he was forming another company, a Smithfield engineer revealed that defendant Andrew Thompson had decided to work independently and was bidding for jobs at the plant under the business name of Pal.
The three men eventually had an attorney draft a partnership withdrawal agreement; however, none of the partners signed that agreement. Plaintiffs continued as partners under a new name but ceased operations a couple of months later. Pal continued to do jobs at the Smithfield plant until October 2001.
In October 2002, the plaintiffs brought this action alleging that defendant Andrew Thompson breached his fiduciary duties; conspired with Smithfield employees to usurp Ace Welding’s opportunities; and conspired with defendant Douglas Thompson to improperly keep and maintain Ace Welding’s accounting records. Plaintiffs also alleged that defendants’ acts amounted to unfair and deceptive trade practices.
The jury rendered a special verdict finding: 1) defendant Andrew Thompson breached a fiduciary duty to the plaintiffs, resulting in $138,195 damages; 2) defendant Douglas Thompson breached a fiduciary duty to the plaintiffs, resulting in $750 damages; and 3) the plaintiffs did not breach fiduciary duties they owed to defendant Andrew Thompson. Thereafter, the trial court trebled the damages against the defendants.
Discussion
Defendants Andrew Thompson and Douglas Thompson argue that because their alleged unfair and deceptive acts were not in or affecting commerce, the trial court erred by trebling the award of damages against them. We reverse as to defendant Andrew Thompson (internal partnership acts not in or affecting commerce) but affirm as to defendant Douglas Thompson (accounting acts in or affecting commerce).
To establish a claim for unfair or deceptive trade practices, a party must present evidence showing: “(1) an unfair or deceptive act or practice by defendant, (2) in or affecting commerce, (3) which proximately caused actual injury to plaintiff.” Our courts have construed the term “commerce” broadly, encompassing more than mere business activity between sellers and buyers.
In this case, we agree that the claim against defendant Andrew Thompson differs from the typical claim for unfair and deceptive trade practices because his relationship to the plaintiffs was a partner, not a competitor or consumer. The proper inquiry in an unfair or deceptive trade practices case is not on the nature of the contractual relationship between the parties; rather, it must be shown that the alleged unfair or deceptive acts had an impact in the marketplace.
The allegations against defendant Andrew Thompson do not amount to practices impacting the marketplace; instead, the plaintiffs complain of defendant Andrew Thompson’s breach of partnership duties matters germane to the partners’ contractual agreement to form and operate Ace Welding.
On the other hand, defendant Douglas Thompson was hired to provide accounting services to Ace Welding; therefore, he was not situated as a partner or a partnership insider such that his actions can be characterized as matters of internal partnership management. Instead, defendant Douglas Thompson was engaged in the business activity of providing accounting services to the partnership, and his actions may be considered unfair practices “in or affecting commerce.”
Dissent and Concurrence
(Ervin, J.) Although I concur in the remainder of the court’s opinion, I respectfully dissent from the majority’s conclusion that the trial court erred by trebling the jury’s damage award against defendant Andrew Thompson pursuant to G.S. Sect. 75-1.1, et seq. As a result, I would affirm the judgment entered by the trial court in its entirety.
I believe that the evidence in the present record amply supports a finding that defendant Andrew Thompson engaged in acts that amount to constructive fraud, a type of conduct which clearly supports a finding of liability under Sect. 75-1.1.