North Carolina Lawyers Weekly
Gottfried v. Covington (Lawyers Weekly No. 14-15-0646, 12 pp.) (Calvin Murphy, J.) 2014 NCBC 26
Holding: The facts alleged in the complaint simply describe two parties bound to each other under the terms of a contract negotiated at arm’s length, which does not in itself create a fiduciary relationship between the parties; as a result, the complaint does not support plaintiff’s argument that defendants owed him a fiduciary duty to disclose information.
The court grants the motion filed by defendants Alexander Covington and Expressions Holdings, Inc. to dismiss plaintiff’s claims of fraud, unfair trade practices and civil conspiracy to commit conversion. The court also grants the motion filed by defendants Benjamin Covington and One Love Smoke Shop, Inc. to dismiss plaintiff’s claims of unfair trade practices, equitable accounting, and civil conspiracy to commit conversion.
Allegations
Pursuant to an asset purchase agreement, plaintiff sold his six adult novelty stores to defendant Alexander Covington (Alexander). Pursuant to an intellectual property agreement (IP Agreement), plaintiff licensed the trade name “Expressions” in return for royalty payments.
Defendants started One Love Smoke Shop, Inc. (One Love), an adult novelty store. Plaintiff contends that this constituted a breach of contract, defrauded him, was an unfair trade practice and a civil conspiracy to commit conversion, and necessitates an equitable accounting and a declaratory judgment.
Fraud
As noted above, the complaint does not adequately allege a fiduciary duty to disclose information.
While the complaint’s allegations support plaintiff’s claim that Alexander hid his true involvement with One Love, this concealment was not of a material fact relevant to the parties’ transaction. Under the IP Agreement, Alexander remained free to engage in other businesses, even similar, competing businesses.
The IP Agreement only constrained defendant Expressions Holdings, Inc. (Expressions) from opening similar businesses under a different name, and plaintiff does not allege that Expressions had any ownership interest or involvement in One Love.
Plaintiff’s fraud claim is dismissed.
Unfair Trade Practices
To the extent it relies on the fraud allegations, plaintiff’s unfair trade practices claim also fails. Without the fraud claim, plaintiff has not pled aggravating circumstances attending the breach of contract that would rise to the level of an unfair act.
Although plaintiff has alleged a civil conspiracy, he limited this claim to the alleged conversion of royalties and did not argue that it supported his unfair trade practices claim.
Plaintiff’s unfair trade practices claim is dismissed.
Equitable Accounting
Although plaintiff contends that he needs an accounting from One Love to assess the amount of royalties due under the IP Agreement, plaintiff may obtain this relief through discovery related to his breach of contract claim. The court will not grant equitable relief where a party has a complete remedy at law.
Plaintiff’s claim for an equitable accounting is dismissed.
Civil Conspiracy
Plaintiff alleges conversion as the underlying tort for his civil conspiracy claim.
A claim for conversion does not apply to intangible interests. The royalties at issue constitute an intangible, contractual expectancy under the IP agreement; thus, they are not subject to a conversion claim.
Plaintiff’s civil conspiracy claim is dismissed.
Motions granted.
