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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.

NO. COA07-961


Filed: 3 June 2008


v. Iredell County
No. 06-CvS-2689

Appeal by defendants from order entered 26 April 2007 by Judge
Richard L. Doughton in Iredell County Superior Court. Heard in the
Court of Appeals 6 February 2008.

Templeton & Raynor, P.A., by Kenneth R. Raynor, for plaintiff

Homesley, Jones, Gaines, Dudley, Childers, McLurkin &
Donaldson, PLLC, by Mark L. Childers, for defendant


The sole issue before us is whether the trial court properly
dismissed defendants’ counterclaim asserting that plaintiff engaged
in unfair and deceptive trade practices pursuant to Rule 12(b)(6)
of the North Carolina Rules of Civil Procedure. "In our review of
the dismissal of this action pursuant to [N.C. Gen. Stat. § 1A-1,] Rule 12(b)(6) [(2007)], we must consider the allegations of
plaintiff’s complaint as true." Arroyo v. Scottie’s Professional
Window Cleaning
, 120 N.C. App. 154, 155, 461 S.E.2d 13, 14 (1995). The facts as pled by defendants are as follows: The Rowboat
Company, Inc. (“Rowboat”) and C&C Grading, Inc. (“C&C”)
(collectively referred to as “defendants”) are North Carolina
corporations wholly owned by Robert Wilson (“Wilson”), who is the
president of both corporations. Rowboat is engaged in the business
of building piers, docks, boathouses, boat slips, and other
waterfront structures for residential and commercial customers. C&C
is engaged in the business of grading real property and
constructing upland amenities for resort developments.
In May 2005, Stephen P. Gress (“plaintiff”) approached Wilson
about the possibility of buying the assets of both Rowboat and C&C.
Plaintiff and Wilson entered into a written letter of intent on 30
May 2005, and plaintiff paid Wilson a $10,000 earnest money
deposit, refundable only in the event of a material
misrepresentation. Plaintiff represented that he would close the
asset purchase within sixty to ninety days.
During negotiations, plaintiff and Wilson agreed that
plaintiff would be permitted to observe the operations of the
businesses and to conduct due diligence measures in and about the
business premises prior to the closing of the deal. Further, in
the interest of maintaining the continuity of business, the parties
agreed to keep plaintiff’s pending purchase of defendants’ assets
confidential. To that end, the parties agreed to introduce
plaintiff as an employee of C&C and entered into a fictitious
employment agreement, entitled “C&C Grading Co. Inc. Agreement
President Opportunities and Expectations.” Neither party intendedfor this contract to be a true contract of employment; rather, the
parties agreed that defendants would “recoup from [p]laintiff at
the closing of the purchase and sale of the [defendants’] assets
. . . those sums . . . paid to [p]laintiff as a nominal
Thereafter, plaintiff did not purchase defendants’ assets as
planned within ninety days. In fact, plaintiff had no intention of
purchasing defendants’ assets, yet plaintiff induced defendants to
continually extend the closing deadline so that plaintiff could
continue to draw a salary and receive quarterly profit-sharing
bonuses. Further, while acting as a “nominal employee,” plaintiff
knowingly engaged in a series of unauthorized activities that
resulted in financial loss and damage to defendants, including
among other acts, upgrading the business’s computer network,
rebuilding and painting a remote office, and negotiating the
purchase of another company.
In January of 2006, it became evident to defendants that
plaintiff had no intention and no ability to close the purchase of
defendants’ assets. C&C terminated the “nominal” employment
contract and revoked plaintiff’s access to defendants’ business
premises and records.
Plaintiff brought suit against defendants to recover his
$10,000 earnest money deposit. Defendants asserted counterclaims
against plaintiff for breach of contract and for Unfair and
Deceptive Trade Practices (“the UDTPA claim”) under N.C. Gen. Stat.
§ 75.1.1 (2007). Pursuant to Rule 12(b)(6), plaintiff moved todismiss the UDTPA claim on the ground that defendants had failed to
state a claim upon which relief could be granted. The trial court
granted this motion, concluding that the relationship between
plaintiff and defendants was that of an employee and employer, and
defendants’ counterclaim was, therefore, outside of the intended
scope of N.C. Gen. Stat. § 75-1.1.
On appeal, defendants contend that the trial court erred in
dismissing their UDTPA claim. We agree. Treating defendants’
allegations as true and construing their claim liberally, as we
must at the Rule 12(b)(6) stage, defendants have alleged that
plaintiff engaged in a fraudulent scheme arising from the sale of
corporate assets, which is sufficient to establish a claim for
relief under N.C. Gen. Stat. § 75-1.1.
“An inquiry into the sufficiency of a counterclaim to
withstand a motion to dismiss under Rule 12(b)(6) is identical to
that regarding the sufficiency of a complaint to survive the same
motion.” Chesapeake Microfilm, Inc. v. Eastern Microfilm Sales &
, 91 N.C. App. 539, 542, 372 S.E.2d 901, 902 (1988). In
deciding a motion to dismiss pursuant to Rule 12(b)(6), the trial
court must determine "’whether, as a matter of law, the allegations
of the complaint, treated as true, are sufficient to state a claim
upon which relief may be granted under some legal theory.’" Block
v. County of Person
, 141 N.C. App. 273, 277, 540 S.E.2d 415, 419
(2000) (quoting Harris v. NCNB, 85 N.C. App. 669, 670, 355 S.E.2d
838, 840 (1987)). The court must construe the complaint liberally
and "should not dismiss the complaint unless it appears beyond adoubt that the plaintiff could not prove any set of facts to
support his claim which would entitle him to relief." Id. at
277-78, 540 S.E.2d at 419.
To establish a prima facie claim for unfair trade practices,
the defendants must show: (1) plaintiff committed an unfair or
deceptive act or practice, (2) the action in question was in or
affecting commerce, N.C. Gen. Stat. § 75-1.1, and (3) the act
proximately caused injury to defendants. Pleasant Valley Promenade
v. Lechmere
, Inc., 120 N.C. App. 650, 664, 464 S.E.2d 47, 58
(1995). “'[T]he unfair and deceptive acts and practices forbidden
by G.S. 75-1.1(a) are those involved in the bargain, sale, barter,
exchange or traffic.’” Cameron v. New Hanover Memorial Hospital, 58
N.C. App. 414, 444-45, 293 S.E.2d 901, 919 (1982)(quoting Edmisten,
Attorney General
v. Penney Co., 292 N.C. 311, 316-17, 233 S.E.2d
895, 899 (1977)), appeal dismissed, cert. denied, 307 N.C. 127, 297
S.E.2d 399 (1982). The UDTPA is intended to apply “’“to dealings
between buyers and sellers at all levels of commerce
.”’” Sara Lee
Corp. v. Carter
, 351 N.C. 27, 32, 519 S.E.2d 308, 311 (citations
omitted), reh’g denied, 351 N.C. 191, 541 S.E.2d 716 (1999). This
Court has held that "it is not necessary for the plaintiff to show
fraud, bad faith, deliberate or knowing acts of deception, or
actual deception," but "plaintiff must . . . show that the acts
complained of possessed the tendency or capacity to mislead, or
created the likelihood of deception." Overstreet v. Brookland,
, 52 N.C. App. 444, 452-53, 279 S.E.2d 1, 7 (1981).

A. Employee-Employer Relationships

As a general rule, there is a presumption against unfair and
deceptive practice claims as between employers and employees.
Dalton v. Camp, 353 N.C. 647, 658, 548 S.E.2d 704, 711 (2001).
Ordinarily, in such a context, the claimant must make a showing of
business related conduct that is unlawful or of deceptive acts that
affect commerce beyond the employment relationship. Durling v.
, 146 N.C. App. 483, 488-89, 554 S.E.2d 1, 4 (2001). The
rationale behind this general rule is that pure employer-employee
disputes are not sufficiently “in or affecting commerce” to satisfy
the second element of a UDTPA claim. Id. at 489, 554 S.E.2d at 5.
Here, however, defendants do not allege the existence of a
true employer-employee relationship. See State ex rel. Employment
Security Comm. v. Faulk
, 88 N.C. App. 369, 374, 363 S.E.2d 225,
227-28 (“Whether someone is an ’employee’ is a mixed question of
law and fact. The question of fact is what the terms, express or
implied, of the employment contract are; the question of law is
whether those terms show the requisite degree of control.”). Id.
(citation omitted), disc. review denied, 321 N.C. 480, 364 S.E.2d
917 (1988). Defendants allege that both Wilson and plaintiff
intended for a fictitious employer relationship to exist solely as
a cover to enable plaintiff to conduct due diligence measures
related to the purchase of defendants’ assets, while maintaining
the confidentiality of the pending transaction. Plaintiff was not
to be legitimately compensated for his work as a “nominal”
employee; rather, the parties agreed that defendants were to
receive a credit at closing for all sums paid to plaintiff asfictitious compensation. Thus, the facts alleged by defendants do
not establish a true employer-employee relationship; rather, they
show a fictitious relationship that would not exist but for
plaintiff and defendants’ buyer-seller relationship. Furthermore,
the conduct at issue all arises from an underlying contract to
purchase corporate assets which satisfies the “in or affecting
commerce” element of a UDTPA claim under N.C. Gen. Stat. § 75-1.1.
See La Notte, Inc. v. New Way Gourmet, Inc., 83 N.C. App. 480, 484-
86, 350 S.E.2d 889, 891-92 (1986), cert. denied, appeal dismissed,
319 N.C. 459, 354 S.E.2d 888 (1987) (holding that evidence of
deceptive conduct in connection with the sale of a restaurant is
sufficient to establish an unfair and deceptive trade practice in
violation of § 75-1.1). Accordingly, we conclude that the general
presumption against unfair and deceptive practice claims as between
employers and employees does not apply to the facts before us.

B. Fraudulent Scheme
Instead, we find the facts before us demonstrate a fraudulent
scheme concerning the sale of corporate assets, which is sufficient
to establish a claim for relief pursuant to N.C. Gen. Stat. § 75-
1.1. In Mapp v. Toyota World, Inc., 81 N.C. App. 421, 344 S.E.2d
297 (1986), a car dealer induced a customer to sign a purchase
agreement for a car by promising her that he would allow rescission
of the contract if she was not satisfied with the car; the car
dealer had no intention of keeping such promise. The customer
attempted to return the car the next day, and the car dealer
refused to rescind the contract and refused to return thecustomer’s money and trade-in vehicle. We reasoned that the
plaintiff’s evidence “showed not just a breach of promise; it
showed a fraudulent scheme, i.e., a contract induced by the
defendant’s promise to allow rescission of the contract by
plaintiff, which promise defendant never intended to keep.” Id. at
426, 344 S.E.2d at 301. We held that the dealer’s
misrepresentations to plaintiff were sufficiently “offensive,
oppressive and outrageous,” to support an award under N.C. Gen.
Stat. § 75-1.1.
Here, the facts alleged by defendants are largely analogous to
those of Mapp. Defendants allege that plaintiff induced Wilson to
sign an employment agreement by promising that all compensation
paid to plaintiff would be reimbursed upon closing of the asset
purchase. Plaintiff’s promise to return all compensation paid under
the employment contract is much like the car dealer’s promise to
allow rescission of the purchase agreement in Mapp. Thereafter,
while plaintiff had no intention of closing on the sale, plaintiff
used the pending sale to induce C&C to continue paying him a salary
and quarterly profit-sharing bonuses. These facts establish more
than just a breach of contract by plaintiff; they show a fraudulent
scheme in which plaintiff’s misrepresentations were sufficiently
deceptive to (1) constitute unfair or deceptive acts (2) in or
affecting commerce, which (3) proximately caused injury to
defendants. As such, defendants’ allegations, treated as true, are
sufficient to establish a violation of N.C. Gen. Stat. § 75-1.1. While defendants may not be able to prove their allegations
after the discovery stage, these allegations are sufficient to
survive plaintiff’s Rule 12(b)(6) motion to dismiss. Accordingly,
we reverse the trial court’s order dismissing defendants’
counterclaim for unfair and deceptive trade practices.
Judges ELMORE and ARROWOOD concur.

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