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    "judges": [
      "Judges Arnold and Becton concur."
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    "parties": [
      "M. LEE HEATH, JR. v. CRAIGHILL, RENDLEMAN, INGLE & BLYTHE, P.A., JAMES B. CRAIGHILL, JOHN T. RENDLEMAN, JOHN R. INGLE and ROBERT BLYTHE"
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      {
        "text": "COZORT, Judge.\nPlaintiff brought this action to recover damages from a law firm based on allegations that a former member of the law firm wrongfully converted investment funds given by plaintiff to the former member of the firm. The trial court granted the law firm\u2019s motion for directed verdict as to three of plaintiff\u2019s four theories of liability and granted the law firm\u2019s motion for judgment notwithstanding the verdict on the fourth. We affirm.\nThis lawsuit has its origins in the relationship between plaintiff M. Lee Heath, Jr., and Francis 0. Clarkson, Jr., formerly a lawyer and member of Craighill, Rendleman, Clarkson, Ingle & Blythe, P.A. Clarkson had been a partner in the firm and became an officer, director, and employee when it incorporated as a professional association in July 1972. Beginning in 1977 Clarkson performed for Heath various legal services, including the preparation of a will, codicils, and a continuing power of attorney. Another member of the firm, Robert B. Blythe, handled real estate matters for Heath.\nIn September or October 1982, Clarkson telephoned to solicit Heath\u2019s investment \u201cin some type of oil-related venture.\u201d When Heath returned the call, Clarkson told him that another investor had been found. In the winter and spring of 1983 Clarkson proposed two other investments to Heath. The first offer involved a client in need of operating funds who would pay Heath \u201cfive percent per month for thirty to ninety days\u201d until a pending insurance settlement was approved. The second offer also involved a short-term loan, this time until funds were disbursed from an estate in probate. Heath declined both offers because he did not have funds available.\nIn August 1983 Clarkson, promising a \u201ctwo-to-one return,\u201d persuaded Heath to invest in an \u201cArab oil deal\u201d with a \u201cgroup of American investors\u201d represented by Richard Seaman of Florida. Heath testified that when he asked about the risk, Clarkson replied: \u201cI will minimize the risk by giving you my own promissory note.\u201d On 16 August 1983, in return for $25,000 Clarkson gave Heath a note for $50,000 payable on 30 September 1983. When the note came due, Clarkson promised an additional $12,500 in return for a two-week delay. Heath agreed to the new date and collected $62,500, representing a return on his money of one hundred and fifty percent in sixty days. In the meantime, in early October, by letter dated 30 September 1983, effective the same day, Clarkson resigned from his firm. The firm allowed him to remain in its offices for about two months until he negotiated a lease on an office condominium.\nHeath\u2019s final investments with Clarkson were made in November 1983. Again Clarkson proposed investment in foreign oil exploration which would yield investors a one hundred percent return. On 4 November 1983, Heath gave Clarkson $50,000 and took a note for $100,000 payable 19 December 1983. At the same time Heath requested and received from Clarkson a letter which read: \u201cThis is to confirm that the funds to pay off my note of even date will come from a legitimate banking source and not from the sale of drugs, any criminal activity or a Communist Bloc Country.\u201d (Emphasis in original.) According to Heath, he wanted the letter because, \u201cbeing a Federal Agent [employed by the United States Defense Investigative Service], it would not be wise for me not to have further documentation as to where I made money overseas.\u201d\nSoon afterward Clarkson solicited a final $25,000 from Heath, who declined the invitation until promised a \u201cthree-to-one return on this last phase . . . .\u201d On 19 November 1983 Heath exchanged $25,000 for Clarkson\u2019s note in the amount of $75,000 payable 19 December 1983 and a second letter from Clarkson stating \u201cthat the funds to pay off our loan. of today will not come from any drug or criminal sources or any other illegal source.\u201d\nShortly after the notes came due, Clarkson wrote personal checks to pay them. His checks were dishonored. In February 1984, Clarkson paid Heath $50,000. Subsequently that payment was identified as a preference by Clarkson\u2019s trustee in bankruptcy, and $37,500 was reclaimed in the bankruptcy proceedings.\nPlaintiff Heath initiated this action on 15 April 1986 with a complaint alleging that Clarkson converted plaintiffs funds and that defendants are liable for the conversion. Plaintiff made four claims, each of which set out a distinct theory for the recovery of damages: agency, breach of fiduciary duty, negligence, and violation of N.C. Gen. Stat. Chap. 78A (North Carolina Securities Act). Defendants denied liability, and the case came to trial before a jury.\nOn 13 May 1988, at the close of plaintiffs evidence, defendants moved for a directed verdict on all issues. The trial court granted that motion as to the second, third, and fourth claims and denied it as to the first (agency) claim. On the same day, at the close of all evidence, defendants renewed their motion for a directed verdict on the first claim. The court denied the motion, and the jury returned a verdict for the plaintiff in the amount of $25,000.\nOn 18 May 1988 defendants moved alternatively for judgment notwithstanding the verdict (JNOV) or for a new trial. On 15 June 1988 the trial court granted defendants\u2019 motion for JNOV and denied their alternative motion for a new trial. Plaintiff appealed from both the order of 13 May (directing a verdict for the defendants on the second, third, and fourth claims) and the order of 15 June (granting JNOV on the first claim). Defendants filed a cross-appeal from the court\u2019s denial of their motion for a new trial.\nPlaintiff contends that the trial court erred in granting defendants\u2019 motion for JNOV on the first claim and in granting defendants\u2019 motion for a directed verdict on the second, third, and fourth claims. We disagree.\nIn ruling on a motion for JNOV or for a directed verdict, the same standard applies: \u201cThe judge must consider the evidence in the light most favorable to the nonmovant and may grant the motion only if, as a matter of law, the evidence is insufficient to justify a verdict for the nonmovant.\u201d Williams v. Jones, 322 N.C. 42, 48, 366 S.E.2d 433, 437 (1988); see also Dickinson v. Pake, 284 N.C. 576, 584-85, 201 S.E.2d 897, 902-03 (1974). When, as in the case below,\na motion for a directed verdict made at the close of all the evidence is denied . . . the submission of the action to the jury shall be deemed to be subject to a later determination\nof the legal questions raised by the motion ... a party who has moved for a directed verdict may move to have the verdict and any judgment entered thereon set aside and to have judgment entered in accordance with his [earlier] motion for a directed verdict.\nN.C. Gen. Stat. \u00a7 1A-1, Rule 50(b)(1) (1989) (emphasis added.) For reasons of judicial economy, among others, a trial court may deny a motion for a directed verdict and then grant a motion for JNOV. Unlike an erroneous JNOV, if a directed verdict is in error, judgment cannot be entered for the nonmovant; instead, upon determining that the issue should have gone to the jury, the appellate court must require a new trial.\nA professional corporation like the firm in the case below is liable on the same basis and to the same extent as a partnership. Zimmerman v. Hogg & Allen, 22 N.C. App. 544, 546, 207 S.E.2d 267, 269, rev\u2019d on other grounds, 286 N.C. 24, 209 S.E.2d 795 (1974). A partnership is liable for loss or injury caused \u201cby any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with the authority of his copartners . . . to the same extent as the partner so acting or omitting to act.\u201d N.C. Gen. Stat. \u00a7 59-43 (1989) (emphasis added). Thus, the question presented upon the trial court\u2019s grant of JNOV turns on whether, as a matter of law, there was insufficient evidence to justify a verdict that Clarkson\u2019s dealings with Heath were within the scope of authority or apparent authority conferred on Clarkson by his firm.\nAuthority, sometimes called actual authority, \u201cis the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal\u2019s manifestations of consent to him.\u201d Restatement (Second) of Agency \u00a7 7 (1958). Plaintiff contends that Clarkson had authority from his firm to solicit money from Heath for investment. Plaintiff bases that contention on the power of attorney which empowered Craighill, Rendleman, Clarkson, Ingle & Blythe, P.A. \u201cto deal generally and in all respects, without restriction, in and with any property of any nature whatsoever in which [Heath] may have any interest.\u201d\nPlaintiff\u2019s argument, however, ignores crucial facts. First, Clarkson\u2019s firm, Arthur Young & Co., and City National Bank were designated jointly as attorneys in fact. None could act without the concurrence of the other two. Secondly, when Clarkson took money from Heath, he dealt face to face. Clarkson did not employ or attempt to employ the power of attorney in his transactions with Heath. The promissory notes Heath received were signed by Clarkson in his personal capacity, and the checks he wrote to Heath were drawn on Clarkson\u2019s personal account. Without more, the fact that Clarkson\u2019s firm was designated in a power of attorney did not confer on Clarkson the authority to deal as he did with Heath.\nApparent authority \u201cis that authority which the principal has held the agent out as possessing or which he has permitted the agent to represent that he possesses.\u201d Zimmerman v. Hogg & Allen, 286 N.C. at 31, 209 S.E.2d at 799. Under the doctrine of apparent authority, a \u201cprincipal\u2019s liability in any particular case must be determined by what authority the third person in the exercise of reasonable care was justified in believing that the principal had, under the circumstances, conferred upon his agent.\u201d Id. Plaintiff contends that, even if Clarkson lacked authority for his dealings with Heath, he acted under the aegis of apparent authority.\nPlaintiff submits that apparent authority to solicit money may be attributed to Clarkson from a variety of transactions and circumstances. Plaintiff alleges principally that Clarkson\u2019s letter of 4 November 1983 was written on firm stationery, and he asserts that \u201c[o]n one occasion, James Craighill, a partner [sic] in the firm, was present with two staff members and overheard a discussion between Clarkson and Heath concerning the transactions.\u201d\nPlaintiff fails to note that he was never billed by the firm for any aspect of his investments with Clarkson, including the letters of 4 November and 19 November 1988, which plaintiff characterizes as \u201clegal opinions.\u201d The letter of 19 November was written on Clarkson\u2019s personal stationery. James Craighill testified that on or about 30 September 1983 the firm instructed its \u201csecretaries [to] run a line through [Clarkson\u2019s] name to indicate that he was no longer with the firm . . . .\u201d Clarkson\u2019s letter of 4 November 1983 on firm stationery was not typed by a secretary;it was written entirely in his hand.\nRegarding the discussion between Clarkson and plaintiff, at which James Craighill, Janice Burton and Elizabeth Carr were present, plaintiff testified as follows:\nI made what you would call, I guess, a jestful comment, in the presence of all these people, and I said, \u201cI\u2019d better be careful. Frank will have me signing over all my assets to him so he can invest it with his Arab clients,\u201d to which Mr. Clarkson responded, \u201cYes. They\u2019re having cash flow problems in Jidda,[\u201d] to which I responded, \u201cYes. Those poor Arabs are only making millions instead of billions.\u201d .... Everybody heard it. Everybody laughed. Mr. Clarkson chuckled, and Mr. Craighill grinned, and the girls sort of grinned, too, knowing that basically my comment was a jestful comment.\nMs. Burton testified that secretaries \u201cwere allowed to do personal work for the attorneys whose legal work they did.\u201d She testified further that, to the extent she knew of Clarkson\u2019s meetings with Heath, she never discussed them with other lawyers in the firm. Neither plaintiff\u2019s testimony, nor that of Ms. Burton supports his claim that other lawyers at the firm knew or \u201cshould have known about Clarkson\u2019s soliciting and accepting the money.\u201d (Emphasis in original.)\nFinally, plaintiff cites Zimmerman v. Hogg & Allen in support of his argument for reinstating the verdict below. In Zimmerman our Supreme Court refused to allow summary judgment against a plaintiff who sought to hold a professional association liable for the stock transactions of one of its agents (Glenn L. Greene, Jr.) with the plaintiff. In its holding, the Court relied on the following facts:\n[T]he powers granted to the Professional Association by its charter were very broad powers, the exercise of which was principally in the hands of Greene; that defendant Greene, while he was on business trips to attend to the legal business of Holly Farms, accepted funds for investment purposes from employees of the corporate client; that these corporate employees were assured that such moneys would be handled through the Professional Association; that such activities by Greene, the president and principal stockholder of the Professional Association, had occurred over a period of several years; and that [shareholder-]employees of the Professional Association had knowledge of such dealings.\nZimmerman v. Hogg & Allen, 286 N.C. at 39, 209 S.E.2d at 804.\nIn the case below, the charter of Craighill, Rendleman, Clarkson, Ingle & Blythe, P.A., limited it to rendering legal services. Clarkson was not the principal stockholder of the professional association, nor principally in charge of its operation. He gave no assurances that money invested with him would be handled through his law firm, and plaintiff presented no credible evidence that other shareholder-employees knew or had reason to know of Clarkson\u2019s transactions with Heath. Given these facts, plaintiff\u2019s reliance on Zimmerman is misplaced.\nWe turn now to plaintiff\u2019s contention that the trial court erred in directing a verdict for defendants on the claims of breach of fidiciary duty, negligence, and violation of the North Carolina Securities Act. These claims (the second, third, and fourth in the pleadings) are grounded on the same facts presented in the first claim, and those facts are inadequate to support elements essential for plaintiff\u2019s recovery of damages.\nBreach of fiduciary duty is a species of negligence or professional malpractice. Childers v. Hayes, 77 N.C. App. 792, 795, 336 S.E.2d 146, 148 (1985), disc. review denied, 316 N.C. 375, 342 S.E.2d 892 (1986). For recovery in any type of negligence action there must exist a duty owed by the defendant to the plaintiff. In the case below, as in the parallel case of McGarity v. Craighill, Rendleman, Ingle & Blythe, P.A., plaintiff \u201cwould have to show that defendants owed a duty to detect and supervise Mr. Clarkson\u2019s activities which were outside the practice of law, which he had no authority to take, and of which defendants had no reason to know.\u201d McGarity, 83 N.C. App. 106, 111, 349 S.E.2d 311, 314 (1986), disc. review denied, 319 N.C. 105, 353 S.E.2d 112 (1987). As a matter of law, no such duty exists. Id.\nPlaintiff bases his final theory of defendants\u2019 liability on N.C. Gen. Stat. \u00a7 78A-56(a) and (c). Subsection (a) defines the civil liability of a person offering and selling securities by means of false or misleading statements. Subsection (c) reads, in pertinent part,\nEvery person who directly or indirectly controls a person liable under subsection (a) or (b), every partner, officer, or director of such a person, every person occupying a similar status or performing similar functions, every employee of such a person who materially aids in the act or transaction, and every dealer or salesman who materially aids in the sale are also liable jointly and severally with and to the same extent as such person, unless the person who is so liable sustains the burden of proof that he did not know, and did not act in reckless disregard, of the existence of the facts by reason of which the liability is alleged to exist.\nBecause plaintiff failed to show that the defendants knew or should have known that Clarkson was selling securities they cannot be held to have \u201cdirectly or indirectly controlled]\u201d his actions within the meaning of the statute.\nWe hold that the trial court ruled correctly on the defendants\u2019 motions for directed verdict and JNOV. Our holding renders moot the defendants\u2019 cross-appeal pursuant to N.C. Gen. Stat. \u00a7 1A-1, Rule 50(c).\nThe trial court\u2019s orders of 13 May 1988 and 15 June 1988 are\nAffirmed.\nJudges Arnold and Becton concur.",
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        "author": "COZORT, Judge."
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    "attorneys": [
      "Justice & Eve, P.A., by R. Michael Eve, Jr., for plaintiff appellant.",
      "Smith Helms Mulliss & Moore, by E. Osborne Ayscue, Jr., and Benne C. Hutson, for defendant appellees."
    ],
    "corrections": "",
    "head_matter": "M. LEE HEATH, JR. v. CRAIGHILL, RENDLEMAN, INGLE & BLYTHE, P.A., JAMES B. CRAIGHILL, JOHN T. RENDLEMAN, JOHN R. INGLE and ROBERT BLYTHE\nNo. 8926SC87\n(Filed 6 February 1990)\n1. Attorneys at Law \u00a7 1 (NCI3d); Principal and Agent \u00a7 5.2 (NCI3d)\u2014 attorney\u2019s conversion of client\u2019s investment funds \u2014 liability of professional association \u2014 actual authority\nA law firm was not liable for a former firm member\u2019s conversion of funds sent to him by plaintiff for investment on the ground that the former member\u2019s dealings with plaintiff were within the scope of authority conferred on him by the firm because plaintiff had given the firm a power of attorney \u201cto deal generally and in all respects, without restriction, in and with any property of any nature whatsoever in which [plaintiff] may have any interest\u201d where the law firm, an accounting firm and a bank were designated jointly as attorneys in fact and none could act without the concurrence of the other two, and where the former firm member did not employ the power of attorney in his dealings with plaintiff, signed promissory notes to plaintiff in his personal capacity, and wrote checks to plaintiff drawn on his personal account.\nAm Jur 2d, Attorneys at Law \u00a7\u00a7 216, 217.\n2. Attorneys at Law \u00a7 1 (NCI3d); Principal and Agent \u00a7 5.2 (NCI3d)\u2014 attorney\u2019s conversion of client\u2019s investment funds \u2014 liability of professional association \u2014apparent authority\nA law firm was not liable for a former firm member\u2019s conversion of funds sent to him by plaintiff for investment on the ground that the former member acted within his apparent authority in soliciting funds from plaintiff where the evidence showed that a letter to plaintiff on firm stationery was written entirely in the former member\u2019s hand; another letter to plaintiff was written on the former member\u2019s personal stationery; plaintiff was never billed by the firm for any aspect of his investments with the former member; neither plaintiff\u2019s testimony nor that of the former member\u2019s secretary supported plaintiff\u2019s claim that the other lawyers at the firm knew or should have known about the former member\u2019s solicitation and acceptance of money from plaintiff; the charter of the law firm, a professional association, limited it to rendering legal services; the former member was not the principal stockholder in the professional association and was not principally in charge of its operation; and the former member gave plaintiff no assurances that money invested with him would be handled through the law firm.\nAm Jur 2d, Attorneys at Law \u00a7\u00a7 216, 217.\n3. Attorneys at Law \u00a7 1 (NCI3d(\u2014 attorney\u2019s conversion of client\u2019s investment funds \u2014 liability of law firm \u2014 negligence and breach of fiduciary duty\nA law firm was not liable in damages for a former firm member\u2019s conversion of investment funds solicited by him from plaintiff on theories of negligence or breach of fiduciary duty since members of the firm had no duty to detect and supervise actions of a firm member which were outside the practice of law, which the member had no authority to take, and of which the other firm members had no reason to know.\nAm Jur 2d, Attorneys at Law \u00a7\u00a7 216, 217.\n4. Attorneys at Law \u00a7 1 (NCI3d); Trover and Conversion \u00a7 2 (NCI3d)\u2014 attorney\u2019s conversion of client\u2019s investment funds\u2014 Securities Act \u2014 no liability by professional association\nMembers of a law firm were not liable for a former member\u2019s conversion of investment funds sent to him by plaintiff based on a violation of provisions of the N. C. Securities Act relating to civil liability for offering and selling securities by means of false or misleading statements, N.C.G.S. \u00a7 78-56(a), (c), where plaintiff failed to show that defendants knew or should have known that the former firm member was selling securities while he was a member of the firm, and defendants thus did not \u201cdirectly or indirectly control\u201d the former firm member\u2019s actions within the meaning of the statute.\nAm Jur 2d, Attorneys at Law \u00a7\u00a7 216, 217.\nAPPEAL by plaintiff from Orders of Judge James U. Downs entered 13 May 1988 and 15 June 1988 in MECKLENBURG County Superior Court. Heard in the Court of Appeals 12 September 1989.\nJustice & Eve, P.A., by R. Michael Eve, Jr., for plaintiff appellant.\nSmith Helms Mulliss & Moore, by E. Osborne Ayscue, Jr., and Benne C. Hutson, for defendant appellees."
  },
  "file_name": "0236-01",
  "first_page_order": 264,
  "last_page_order": 273
}
