Priest v. Coch
Opinion
Priest v. Coch, 2013 NCBC 6.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF DURHAM 12 CVS 3532 PETER H. PRIEST and ) LAW OFFICES OF PETER H. ) PRIEST, PLLC, ) ) Plaintiffs, ) ) ORDER ON DEFENDANTS’ v. ) MOTION TO DISMISS ) GABRIEL COCH and ) INFORMATION PATTERNS, LLC, ) ) Defendants. ) )
{1} THIS MATTER is before the court on Defendants’ Motion to Dismiss Plaintiffs’ Claims (“Motion”) pursuant to Rules 12(b)(6) and 12(b)(1) of the North Carolina Rules of Civil Procedure (“Rule(s)”). For the reasons stated below, the Motion is GRANTED, in part, and DENIED, in part.
J.W. Bryant Law Firm, PLLC, by John Walter Bryant, for Peter H. Priest and Law Offices of Peter H. Priest, PLLC.
Glenn, Mills, Fisher & Mahoney, P.A., by Carlos E. Mahoney and Amber J.
Ivie, for Gabriel Coch and Information Patterns, LLC.
Gale, Judge.
I. PROCEDURAL HISTORY
{2} Plaintiffs Peter H. Priest (“Priest”) and the Law Offices of Peter H.
Priest, PLLC (“Law Office”) initiated this action on June 19, 2012 by filing a Complaint alleging claims for breach of contract, breach of fiduciary duty, constructive fraud, fraud, and unfair and deceptive trade practices against Defendants Gabriel Coch (“Coch”) and Information Patterns, LLC (“Information Patterns”). {3} On July 10, 2012, presiding Superior Court Judge Orlando F. Hudson, Jr. issued a Consent Order directing counsel for Defendants to retain in the firm’s trust account the amount of $200,000.00 in proceeds from the sale of the patent at issue (“Patent”) until this matter is resolved. {4} On July 24, 2012, Defendants’ request that the case be designated as a complex business case was granted by Chief Justice Sarah Parker, and the case was assigned to the undersigned on July 25, 2012. {5} Plaintiffs allege that during the course of their representation of Defendants, they were tasked to draft and prosecute a patent application on Defendants’ behalf, and after an initial billing was paid, the Parties entered into an agreement whereby Plaintiffs would receive one-fourth of the proceeds from the sale or license of any patent issued as compensation for Plaintiffs’ unpaid legal services as well as for any additional services needed to complete the patent application (“Agreement”). Plaintiffs assert that this Agreement imposed a fiduciary duty on Defendants because of their exclusive control over selling or licensing the Patent.
Plaintiffs allege that Defendants have breached both the Agreement and their fiduciary duty by refusing to pay Plaintiffs their agreed-upon portion of the net proceeds from the sale. Plaintiffs further allege fraud on the basis that Defendants induced Plaintiffs to enter into the Agreement and to continue to provide legal services, knowing at the time of execution that they did not intend to comply with their promise. Finally, Plaintiffs assert that Defendants’ conduct as alleged constitutes an unfair and deceptive trade practice. {6} Defendants filed their Motion to Dismiss on August 24, 2012. They assert that Priest individually lacks standing to bring any claim because he is not a party to the Agreement and is not a proper party under N.C. Gen. Stat. § 57C-3- 30(b).1 As to the Law Office, Defendants contend that the allegations in the Complaint are insufficient to state any claims on which relief may be granted. {7} The Motion has been fully briefed and the Parties waived oral argument.
II. STATEMENT OF FACTS {8} Solely for the purposes of this Motion, the court accepts the allegations of the Complaint as true and draws reasonable inferences from those facts in Plaintiffs’ favor. See, e.g., Sutton v. Duke, 277 N.C. 94, 102–03, 176 S.E.2d, 161, 166 (1970); Crouse v. Mineo, 189 N.C. App. 232, 237, 658 S.E.2d 33, 36 (2008); Harris v. NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670–71, 355 S.E.2d 838, 840– (1987). {9} Priest is an attorney and resident of Durham, North Carolina. (Compl.
¶¶ 1–2, 8.) He owns and operates the Law Office, a North Carolina professional limited liability company with its principal place of business in Durham, North Carolina. (Compl. ¶¶ 1–2.) {10} Information Patterns is a limited liability company organized and existing under the laws of the State of North Carolina with its principal place of business in Chapel Hill, North Carolina. (Compl. ¶ 3.) Coch is a resident of Chapel Hill, North Carolina, and is a member and manager of Information Patterns. (Compl. ¶ 4.) {11} Other members of Information Patterns include Graham Knight (“Knight”) and David Smith (“Smith”), both of whom are citizens and residents of the United Kingdom. (Compl. ¶¶ 4–6.) Coch, Knight, and Smith created a computer program that eventually became the subject of the Patent. (Compl. ¶ 11.) {12} Around 2004, Plaintiffs entered an initial engagement agreement providing compensation at hourly rates based on time spent and capping fees at
Priest signed the Patent Sales Agreement on October 14, 2011. (Compl. ¶ 66.) Coch and Plut signed the Patent Sales Agreement on October 17, 2011. (Compl. ¶¶ 67- 68.) {24} During October 2011, Coch asked Priest, Knight, and Smith for a 10% finder’s fee of the net proceeds if the Patent was sold. (Compl. ¶ 71.) Coch asserted that his co-inventors agreed to this new term; Priest, however, did not agree to it. (Compl. ¶¶ 73–74.) On March 19, 2012, the sale of the Patent closed for $1,000,000.00. (Compl. ¶¶ 69, 76.) As provided by the Patent Sales Agreement, PPI received a brokerage fee of 20% of the sales price, leaving a net profit of $800,000. (Compl. ¶ 75.) {25} Plaintiffs assert that the Agreement between the Parties entitles them to 25% of the net proceeds from the sale, or $200,000.00 (Id.) and that Defendants have failed and refused to make this payment. (Compl. ¶ 76.)
III. STANDARD OF REVIEW
{26} A motion to dismiss pursuant to Rule 12(b)(6) inquires “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, whether properly labeled or not.” Crouse 189 N.C. App. at 237, 658 S.E.2d at 36; Harris at N.C. App. at 670−71, 355 S.E.2d at 840−41; see Sutton 277 N.C. at 102−03, 176 S.E.2d at 166. The court in ruling on the motion should consider exhibits attached to the complaint because they are a part of the pleading for all purposes. Woolard v. Davenport, 166 N.C. App. 129, 133–34, 601 S.E.2d 319, 322 (2004); N.C. GEN. STAT. § 1A-1, Rule 10(c) (2012).
IV. ANALYSIS
A. Priest Individually Is Not a Proper Party to the Action.
{27} “A party has standing to initiate a lawsuit if he is a real party in interest. A real party in interest is one who benefits from or is harmed by the outcome of the case and by substantive law has the legal right to enforce the claim in question.” Beachcomber Props., LLC v. Station One, Inc., 169 N.C. App. 820, 823–24, 611 S.E.2d 191, 193–94 (2005) (citations omitted). {28} The basis of Plaintiffs’ action is the alleged Agreement. To have a legal right to enforce claims based on the Agreement, Priest would need to be a party to the Agreement individually. See Coderre v. Futrell, ___ S.E.2d ____, No. COA12– 517, 2012 WL 6587657, at *3 (N.C. App. Dec. 18, 2012) (reasoning that Plaintiff, an individual, did not have standing where “the purchase agreement . . . form[ing] the basis of the initial complaint was not executed by [Plaintiff] in his individual capacity.”); see also Holshouser v. Shaner Hotel Grp. Props. One L.P., 134 N.C. App. 391, 399, 518 S.E.2d 17, 24–25 (1999) (“To assert a claim for breach of contract, the plaintiff must show that she is either a party to the contract or a third-party beneficiary of the contract”). The Complaint alleges that Priest signed the Agreement on behalf of the Law Office, not in his individual capacity, whereas Coch signed the Agreement both in his individual capacity, as well as on behalf of Information Patterns. This allegation is inadequate to confer standing on Priest individually.
B. Plaintiffs Fail to Allege Facts Sufficient to Support Their Claims for Breach of Fiduciary Duty, Constructive Fraud, and Unfair and Deceptive Trade Practices.
{29} Fairly read, the Complaint seeks to enforce a contingent fee agreement. Generally, such an agreement does not give rise to a fiduciary duty owed by the clients. “A claim for breach of a fiduciary duty requires the existence of a fiduciary relationship.” White v. Consol. Planning, Inc., 166 N.C. App. 283, 293, 603 S.E.2d 147, 155 (2004). As attorneys, Plaintiffs were fiduciaries to Defendants in regard to legal services. Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 907 (1931). A fiduciary relationship may include “all legal relations, such as attorney and client . . . but it [also] extends to any possible case in which a fiduciary relation exists in fact, and in which there is confidence reposed on one side, and resulting domination and influence on the other.” Id. However, “[o]nly when one party figuratively holds all the cards . . . have North Carolina courts found that the special circumstance of a fiduciary duty has arisen.” Crumley & Assocs., P.C. v. Charles Peed & Assocs., P.A., 730 S.E.2d 763, 767 (N.C. App. 2012) (internal quotation marks omitted). {30} There is no such dominion or control exercised by Defendants evidenced by the Complaint. Further, Plaintiffs do not allege that they and Defendants had entered a partnership or joint venture2 which might give rise to fiduciary duties.3 Plaintiffs rather allege: [1] that the Agreement between the
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Parties was for the purpose of compensating Plaintiffs for past unpaid legal work and for additional work required in the second phase of the patent application (Compl. ¶¶ 27–28, 42, 82–83, 91, 109); [2] that in exchange for this past and future legal work, Plaintiffs would receive an interest in the proceeds of the license or sale of the Patent (Compl. ¶¶ 28, 42, 83, 93, 109); [3] that in addition to receiving a 25% interest in the potential proceeds, Plaintiffs agreed they also would share 25% of the patent expenses (Compl. ¶¶ 41, 48, 84–85, 93); [4] that the Parties later reduced these terms to writing (Compl. ¶¶ 29–30, 42–46, 81); [5] that at the time of the Agreement neither party knew whether the Patent actually had any marketable value that could generate any kind of proceeds (Compl. ¶ 33); and [6] that after agreeing upon the terms, Plaintiffs continued to provide legal services at no cost to Defendants for the purpose of securing the Patent. (Compl. ¶¶ 50, 55, 86, 109.) The clearly stated purpose of the Agreement was to compensate Plaintiffs in the event Defendants derived any proceeds from the Patent. The arrangement alleged is then a contingent fee agreement that is subject to the rules for such agreements. {31} In sum, Plaintiffs have failed to state a claim for breach of fiduciary duty. It follows that Plaintiffs’ constructive fraud claim also fails for it depends upon the violation of such a fiduciary duty. See Compton v. Kirby, 157 N.C. App. 1, 16, 577 S.E.2d 905, 914 (2003) (stating that “a breach of fiduciary duty amounts to constructive fraud.”) {32} Likewise, because the Complaint is based on the Agreement for the payment of attorney’s fees, the unfair and deceptive trade practices claim is barred under North Carolina General Statute § 75-1.1 which provides that “professional services rendered by a member of a learned profession” are not “commerce” within the meaning of the statute.4
Boyce & Isley, PLLC v. Cooper, 153 N.C. App. 25, 36, 568 S.E.2d 893, 902 (2002), appeal dismissed and review denied, 357 N.C. 163, 580 S.E.2d 361 (2003).
C. Plaintiff Law Office Has Sufficiently Alleged Facts to Support Claims for Breach of Contract and Fraud.
{33} In order to establish a claim for breach of contract, Plaintiffs must show: “(1) existence of a valid contract and (2) breach of the terms of that contract.”
Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000). {34} The Complaint alleges that: [1] the Parties entered into a verbal agreement later reduced to writing (Compl. ¶¶ 27–28, 42, 82–83, 91, 93, 109); [2] under the terms of the Agreement, Plaintiffs agreed to defer compensation for past, unpaid legal services and to continue to provide legal services in exchange for a one- quarter potential interest in the proceeds of a sale or license of the Patent (Compl.
¶¶ 28, 42, 83, 93, 109); [3] the Parties agreed to split the expenses of the patent application on a pro rata basis (Compl. ¶¶ 41, 48, 84–85, 93); [4] subsequent to this agreement, Defendants accepted Plaintiffs’ services at no cost and the Parties otherwise conducted themselves according to these terms up to and until Defendants realized proceeds from selling the Patent (Compl. ¶¶ 50–55, 86, 109); and [5] Defendants have failed and refused to pay Plaintiffs their agreed-upon portion of the net proceeds from the Patent sale. (Compl. ¶¶ 76, 86, 114.) These facts are sufficient, for purposes of 12(b)(6), to state a claim for breach of contract. {35} Admittedly, the Agreement’s language is less than precise. Plaintiffs assert that the Agreement allowed them to share in proceeds realized from either licensing or selling the Patent. (Compl. ¶¶ 28, 32, 35, 41–42, 48–49, 83, 86, 93, 109, 114.) Defendants contend that Plaintiffs’ interest only includes proceeds generated from licensing the Patent. (Defs.’ Br. in Supp. of their Mot. to Dismiss at 2, 6–8, 16– 17.) There is contract language upon which to base these respective arguments.
The present Motion is not the proper vehicle to resolve disagreements regarding how the terms of the Agreement are to be construed. {36} Likewise, the court cannot determine on the Rule 12(b)(6) Motion whether the Agreement is unenforceable because it violates North Carolina Rule of Professional Conduct 1.5(c). This Rule requires that “[a] contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer . . .” Rule 1.5(c) N.C.R.P.C. Plaintiffs have alleged there was such a writing. Their allegations must be accepted as true for purposes of this Motion.5 {37} Likewise, the fraud allegations survive the Rule 12(b)(6) Motion and the fraud claim does not fail for want of particularity. “While the facts constituting the fraud must be alleged with particularity, there is no requirement that any precise formula be followed or that any certain language be used.” Carver v. Roberts, 78 N.C. App. 511, 513, 337 S.E.2d 126, 128 (1985); N.C. GEN. STAT. § 1A-1, Rule 9(b) (2012). The particularity requirement can be met if the complaint specifies the time, place and content of the misrepresentation, the identity of the person making the misrepresentation, and what was obtained as a result of the misrepresentation. Terry v. Terry, 302 N.C. 77, 85, 273 S.E. 2d 674, 678 (1981). {38} The Complaint alleges that: [1] Defendants falsely represented to Plaintiffs that they would receive an interest in any proceeds realized from the sale or license of the Patent in exchange for waiving compensation for their legal services (Compl. ¶¶ 77, 110–11); [2] Defendants knew that neither they nor the Patent co-inventors were capable of paying Plaintiffs for their work (Compl. ¶¶ 21– 28, 107–09); [3] Defendants knew when they made the representation regarding Plaintiffs’ potential interest in the Patent proceeds that they did not intend to pay (Compl. ¶¶ 78–79, 110–13); [4] Plaintiffs relied on the representation and continued to provide free legal services (Compl. ¶¶ 91–95, 109, 114); [5] the Patent eventually was sold for a net profit of $800,000.00 (Compl. ¶¶ 69, 75); [6] Plaintiffs were entitled to payment of 25% of the net proceeds (Compl. ¶¶ 48–49); and [7] Defendants have failed to and refuse to pay Plaintiffs their agreed-upon portion of the proceeds. (Compl. ¶¶ 76, 86, 114.) These facts are alleged with sufficient
V. CONCLUSION
{40} For the reasons stated, Defendants’ Motion is GRANTED, in part, and DENIED, in part. The following claims are DISMISSED: (a) all claims by Priest individually and (b) claims by the Law Office for breach of fiduciary duty, constructive fraud, and unfair and deceptive trade practices. The Motion is DENIED as to the Law Office’s claims for breach of contract and fraud.
IT IS SO ORDERED, this 25th day of January 2013.
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