               IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA16-556

                                Filed: 6 December 2016

Macon County, No. 15 CVS 289

ERIC CARL ALEXANDER, Plaintiff

              v.

RICHARD C. ALEXANDER, an individual, and OTTO TRUCKING, INC., a North
Carolina corporation, Defendants


        Appeal by defendant from judgment entered 31 July 2015 by Judge Tommy

Davis in Macon County Superior Court. Heard in the Court of Appeals 2 November

2016.


        Kenney Sloan & VanHook, PLLC, by Stuart Sloan, for plaintiff-appellee.

        Griffin Wells, P.A., by M. Chase Wells, for defendant-appellant.


        DAVIS, Judge.


        This case involves a dispute regarding the meaning of the phrase “in or

affecting commerce” as used in North Carolina’s Unfair and Deceptive Trade

Practices Act (“UDTPA”). Richard C. Alexander (“Defendant”) appeals from a default

judgment entered in favor of Eric Carl Alexander (“Plaintiff”) on his claims for breach

of fiduciary duty, unjust enrichment, and unfair and deceptive trade practices under

the UDTPA. On appeal, Defendant argues that the trial court erred in determining

that his acts were “in or affecting commerce” for purposes of the UDTPA. After
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                                  Opinion of the Court



careful review, we affirm in part, reverse in part, and remand for entry of a new

judgment.

                               Factual Background

       Defendant and his late brother, Carl Alexander (“Carl”), operated Otto

Trucking, Inc. (“Otto Trucking”), a closely-held corporation, together from 1998 until

February 2013. The company provided shipping services to Caterpillar, Inc., its sole

customer.    Originally, out of the 100 total shares of stock in the corporation,

Defendant and Carl each held 45 shares, the corporation controlled nine shares, and

the bookkeeper, Claire Graham, held the remaining share.

       A stock transfer occurred at some point prior to February 2013 as a result of

which Defendant held 51 shares, Carl controlled 45 shares, and Graham held the

remaining four shares. Upon Carl’s death in February 2013, his 45 shares passed to

Plaintiff, his son.

       Before Carl’s death, he and Defendant had generally made decisions regarding

shareholder distributions jointly and informally. At the end of each year, they would

distribute all of the funds held by the corporation except for those funds necessary to

operate the company through the following March.

       On 13 May 2015, Plaintiff sued Defendant in Macon County Superior Court

alleging that Defendant had misappropriated Otto Trucking’s corporate assets. The

complaint included allegations that Defendant had (1) “caused the Corporation to pay



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himself individually a monthly fee to use an area of land near the Defendant’s real

property . . . to park and store corporate vehicles and equipment[,]” the monthly

payment for which was “grossly in excess of a market rent for the land used . . . .”; (2)

“used corporate funds and credit to pay for wholly personal expenses,” including a

vacation to Costa Rica and personal health care; and (3) paid a total of $16,925 in

corporate funds to family members and friends even though the payments “had no

business purpose . . . .”

        In his complaint, Plaintiff alleged that Defendant was liable for breach of

fiduciary duty, unjust enrichment, and unfair and deceptive trade practices under

the UDTPA. Plaintiff also requested that Otto Trucking be dissolved. Defendant was

served with a summons and complaint on 14 May 2015. After Defendant failed to file

an answer, Plaintiff moved for entry of default on 18 June 2015, and the clerk of court

made an entry of default that same day.

        Plaintiff moved for a default judgment on 19 June 2015. A hearing was held

on 20 July 2015 before the Honorable Tommy Davis in Macon County Superior Court.

Plaintiff, Defendant, and Graham testified at the hearing. The trial court entered a

default judgment on 31 July 2015, which included the following pertinent findings of

fact:

              10. The Defendant RICHARD ALEXANDER, as majority
                  shareholder in the corporation OTTO TRUCKING,
                  INC., over the course of the years 2014 and 2015
                  misdirected and misappropriated corporate funds to


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   his personal benefit. The amounts found to be
   misdirected and misappropriated by the Defendant
   RICHARD ALEXANDER in 2014 and 2015 are as
   follows:

                     2014 payments

a) $24,000 in total payments denominated as ‘land rent’ in
   the corporation’s financial records;

b) $16,925 in total payments made to the Defendant
   RICHARD ALEXANDER’S mother and other family
   members;

c) $759.02 in a payment made to purchase airline tickets
   with Spirit Airlines for a personal trip to Costa Rica;

d) $183.71 in a payment made to Asheville Eye Associates
   for a personal expense;

e) $389.62 in total payments for personal meals and
   entertainment;

f) $202.46 in a payment made for golfing;

g) $100 in a payment made for repairs to an excavator;

                 2015 payments

h) $12,000 in total payments denominated as ‘land rent’ in
   the corporation’s financial records;

i) $1,490.99 in total payments for personal travel;

j) $202.11 in total payments made for meals and
   entertainment in Costa Rica;

The total amount of misappropriations for 2014 and 2015
is $56,252.91.



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                                            Opinion of the Court



          The trial court found Defendant liable for breach of fiduciary duty, unjust

enrichment, and unfair and deceptive trade practices under the UDTPA. The court

declined to dissolve Otto Trucking “given the profitability and ongoing operation of

the business of the company.” With regard to Plaintiff’s UDTPA claim, the trial court

specifically found that Defendant’s “acts of misappropriation were unfair and

deceptive acts which occurred in and affected commerce.”

          The trial court determined that had the funds not been misappropriated

Plaintiff would have received a $25,313.81 disbursement.                       Based on the court’s

conclusion that Plaintiff was entitled to prevail on his UDTPA claim, the court trebled

his damages to the amount of $75,941.42 and awarded Plaintiff attorney’s fees in the

amount of $5,125, resulting in a total judgment for Plaintiff in the amount of

$81,066.42. Defendant filed a timely notice of appeal.1

                                                 Analysis

          Defendant’s sole argument on appeal is that the trial court erred in finding

him liable under the UDTPA because his acts were not “in or affecting commerce.”2

We agree.




          1   Although Otto Trucking was named as a defendant in the complaint, it is not a party to this
appeal.

          2
          Defendant does not challenge any aspect of the trial court’s default judgment other than its
finding that his acts were “in or affecting commerce” and the resulting determination that Defendant
was liable under the UDTPA.

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       Pursuant to Rule 55 of the North Carolina Rules of Civil Procedure, “[w]hen a

defendant fails to timely answer a complaint, an entry of default may be made by the

clerk on motion of the plaintiff.” Revelle v. Chamblee, 168 N.C. App. 227, 230, 606

S.E.2d 712, 714 (2005) (citation omitted). Once an entry of default has been made,

Rule 55 authorizes the plaintiff to move for entry of a default judgment. See N.C. R.

Civ. P. 55(b). Upon the filing of a motion for a default judgment, the trial court may

hold a hearing in order to “determine the amount of damages or to establish the truth

of any averment by evidence or to take an investigation of any other matter[.]” N.C.

R. Civ. P. 55(b)(2)(a).

       “Once the default is established defendant has no further standing to contest

the factual allegations of plaintiff’s claim for relief.” Webb v. McJas, Inc., 228 N.C.

App. 129, 133, 745 S.E.2d 21, 24 (2013) (citation and quotation marks omitted). If

“the allegations of the complaint are sufficient to state a claim, the defendant has no

further standing to contest the merits of plaintiff's right to recover.” Hartwell v.

Mahan, 153 N.C. App. 788, 790, 571 S.E.2d 252, 253 (2002) (citation and quotation

marks omitted), disc. review denied, 356 N.C. 671, 577 S.E.2d 118 (2003). However,

“[a] default judgment admits only the allegations contained within the complaint, and

a defendant may still show that the complaint is insufficient to warrant plaintiff's

recovery.” Webb, 228 N.C. App. at 133, 745 S.E.2d at 24 (citation and quotation marks

omitted).



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                                   Opinion of the Court



      The UDTPA, which is contained in Chapter 75 of the North Carolina General

Statutes, provides that “[u]nfair methods of competition in or affecting commerce,

and unfair or deceptive acts or practices in or affecting commerce, are declared

unlawful.” N.C. Gen. Stat. § 75-1.1(a) (2015). “Whether an act found . . . to have

occurred is an unfair or deceptive practice which violates N.C.G.S. § 75-1.1 is a

question of law for the court.” Walker v. Fleetwood Homes of N.C., Inc., 362 N.C. 63,

71, 653 S.E.2d 393, 399 (2007) (citation and quotation marks omitted). If a violation

of the UDTPA is shown, the plaintiff is entitled to recover treble damages, and the

trial court has the discretion to award attorney’s fees. N.C. Gen. Stat. §§ 75-16, -16.1

(2015).

      For purposes of the UDTPA, the term “ ‘commerce’ includes all business

activities, however denominated, but does not include professional services rendered

by a member of a learned profession.” N.C. Gen. Stat. § 75-1.1(b). The phrase

“ ‘business activities’ connotes the manner in which businesses conduct their regular,

day-to-day activities, or affairs, such as the purchase and sale of goods, or whatever

other activities the business regularly engages in and for which it is organized.”

White v. Thompson, 364 N.C. 47, 52, 691 S.E.2d 676, 679 (2010) (citation, quotation

marks, brackets, and ellipses omitted).

      “Although this statutory definition of commerce is expansive, the [UDTPA] is

not intended to apply to all wrongs in a business setting.” HAJMM Co. v. House of



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Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d 483, 492 (1991). In White, our

Supreme Court emphasized that the UDTPA “is not focused on the internal conduct

of individuals within a single market participant, that is, within a single business[,]”

but rather “the General Assembly intended the Act’s provisions to apply to

interactions between market participants.” White, 364 N.C. at 53, 691 S.E.2d at 680

(emphasis added).

      In White, three welders formed Ace Fabrication and Welding (“ACE”), a

partnership created primarily to provide welding services for a plant owned by

Smithfield Packing Company, Inc. (“Smithfield”). Id. at 49, 691 S.E.2d at 677. The

three partners agreed that they would divide up the contracts they won between

themselves and earn hourly wages for the hours each of them actually worked. One

of the partners — the defendant — subsequently violated this agreement by (1) hiring

several welders not affiliated with ACE to help him perform certain Smithfield jobs

that had been awarded to ACE; and (2) bidding for Smithfield welding jobs on behalf

of a new company he had formed called PAL. As a result of the defendant’s actions,

ACE ultimately went out of business. Id. at 49-50, 691 S.E.2d at 677-78. The

defendant’s former business partners sued him for breach of fiduciary duty and for

unfair and deceptive trade practices. Id. at 50, 691 S.E.2d at 678.

      After the jury found that the defendant had breached his fiduciary duty to the

plaintiffs, the trial court determined that the defendant had violated the UDTPA. Id.



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at 51, 691 S.E.2d at 678. Our Supreme Court affirmed the decision of a divided panel

of this Court, holding that the defendant’s unlawful acts toward his partners did not

fall within the UDTPA because his acts were not “in or affecting commerce.” The

Supreme Court explained its ruling as follows:

             [T]he unfairness of [the defendant’s] conduct occurred in
             interaction among the partners within ACE. Plaintiffs
             were partners with [the defendant] in a single market
             participant. Plaintiffs alleged and proved that [the
             defendant] breached his fiduciary duty as a partner in this
             single market participant. . . . Because [the defendant]
             unfairly and deceptively interacted only with his partners,
             his conduct occurred completely within the ACE
             partnership and entirely outside the purview of the
             [UDTPA].

Id. at 53-54, 691 S.E.2d at 680.

      The Court specifically rejected the argument that the defendant’s acts were “in

or affecting commerce” on the theory that they caused ACE to cease its operations as

a viable competitor in the marketplace for specialty fabrication work, which

potentially increased the prices that Smithfield would need to pay for such work in

the future. The Court held that such an argument “overlooks that the unfairness of

[the defendant’s] conduct did not occur in his dealings with Smithfield Packing” and

that the defendant “was found to have breached his fiduciary duty to his partners

through his conduct within the ACE partnership.” Id. at 54, 691 S.E.2d at 680

(emphasis added).    The Supreme Court concluded that “[t]he General Assembly

simply did not intend for such conduct to fall within the [UDTPA]’s coverage.” Id.


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      We believe that the Supreme Court’s analysis in White compels a result in

Defendant’s favor in the present case. Here, the evidence shows that the unlawful

acts by Defendant involved his misappropriation of Otto Trucking funds through

payments made directly to himself and his family members as well as payments made

to cover some of his own personal expenses.

      As in White, the “unfairness of [Defendant’s] conduct did not occur in his

dealings with [other market participants.]”        Id.   The inflated payments that

Defendant caused Otto Trucking to make to himself — as “land rent” in connection

with the storage of the company’s vehicles — and the other payments he caused Otto

Trucking to make for the benefit of himself and his family members are more properly

classified as the misappropriation of corporate funds within a single entity rather

than commercial transactions between separate market participants “in or affecting

commerce.”    Like the plaintiff in White, Plaintiff here “alleged and proved that

[Defendant] breached his fiduciary duty as [co-owner of] this single market

participant. . . . Because [Defendant] unfairly and deceptively interacted only with

[Plaintiff, his co-owner], his conduct occurred completely within [the corporation] and

entirely outside the purview of the [UDTPA].” Id. at 53-54, 691 S.E.2d at 680.

      The cases cited by Plaintiff are materially distinguishable.          Defendant

principally relies on Sara Lee Corp. v. Carter, 351 N.C. 27, 519 S.E.2d 308 (1999),

disc. review denied, 365 N.C. 360, 718 S.E.2d 396 (2011). In that case, the defendant-



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employee of the plaintiff, Sara Lee Corporation (“Sara Lee”), was responsible for

purchasing computer equipment for Sara Lee from outside vendors. The defendant

created several companies through which he sold Sara Lee equipment at inflated

prices while concealing his own ownership interests in those businesses. Id. at 29,

519 S.E.2d at 309.

      The trial court found that the defendant had breached his fiduciary duty to

Sara Lee through this self-dealing and that his acts came within the UDTPA, and the

Supreme Court agreed that the defendant’s actions were “in or affecting commerce.”

The Court held that “[t]rusting that these were legitimate transactions secured at

competitive prices in the marketplace, [Sara Lee] regularly conducted business with

the companies in which defendant had an interest. In this case, defendant and

plaintiff clearly engaged in buyer-seller relations in a business setting[.]” Id. at 33,

519 S.E.2d at 312. In White, the Supreme Court distinguished Sara Lee, noting that

there “the defendant-employee’s unfair or deceptive actions were within the

[UDTPA]’s ambit because they did not occur solely within the employer-employee

relationship, but rather occurred in interactions between the plaintiff and the

defendant’s outside businesses.” White, 364 N.C. at 53, 691 S.E.2d at 680.

      Defendant also cites Songwooyarn Trading Co. v. Sox Eleven, Inc., 213 N.C.

App. 49, 714 S.E.2d 162 (2011). In that case, the plaintiff corporation, Songwooyarn

Trading Company (“Songwooyarn”), created a separate corporation, Sox Eleven, Inc.



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                                  Opinion of the Court



(“Sox Eleven”), and hired the defendant, Ung Chul Ahn, to operate it. Sox Eleven

was set up as an intermediary to facilitate the sale of socks manufactured by

Songwooyarn — a South Korean company — to wholesalers in the United States. Id.

at 51, 714 S.E.2d at 164.      Songwooyarn sued Ahn after he failed to remit to

Songwooyarn a payment that had been made by a wholesaler to Sox Eleven for an

order of socks sold by Songwooyarn. The trial court found Ahn liable under the

UDTPA. Id. at 53, 714 S.E.2d at 166.

      On appeal, this Court affirmed the trial court’s ruling, finding the case to be

analogous to Sara Lee and relying on the fact that Songwooyarn and Sox Eleven were

“distinct corporate entities.” Id. at 57, 714 S.E.2d at 168. We held as follows:

             By misappropriating th[e] funds, Defendant Ahn
             interrupted the commercial relationship between
             Songwooyarn and Sox Eleven. Because there are multiple
             companies, including a North Carolina corporation,
             involved, we conclude that Ahn’s actions were “in or
             affecting commerce” and constituted unfair or deceptive
             acts or practices.

Id.

      Unlike in Sara Lee and Songwooyarn, the present case does not involve

“outside businesses,” “distinct corporate entities,” or the interruption of a

“commercial relationship” between two market participants. Rather, as in White, the

unlawful acts at issue here occurred within a single market participant.




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                                  Opinion of the Court



      For these reasons, the trial court erred in concluding that Defendant’s actions

were “in or affecting commerce.”      Therefore, no legal basis existed for finding

Defendant liable under the UDTPA and awarding Plaintiff treble damages and

attorney’s fees.

                                    Conclusion

      For the reasons stated above, we reverse the portion of the trial court’s 31 July

2015 judgment finding Defendant liable under the UDTPA, trebling the amount of

damages, and awarding Plaintiff attorney’s fees. Accordingly, we remand this matter

for entry of a new judgment consistent with this opinion.

      AFFIRMED IN PART; REVERSED IN PART; REMANDED.

      Judges INMAN and ENOCHS concur.




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