Independent Warehouse, LLC v. Kim

Filing 28

ORDER granting in part and denying in part 16 Motion to Dismiss Counterclaims. Signed by US District Judge Terrence W. Boyle on 9/28/2017. (Stouch, L.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 4:17-CV-49-BO

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INDEPENDENT WAREHOUSE,
Plaintiff,

v.
SAMUEL KIM,
Defendant.

ORDER

This matter is before the Court on plaintiffs motion to dismiss defendant's amended
counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure [DE 16]. The
matter has been fully briefed and is ripe for ruling. For the reasons discussed below, the motion
to dismiss is granted in part and denied in part.

BACKGROUND
Plaintiff produces and sells tobacco in Pitt County, North Carolina. Defendant and
plaintiff entered into an Asset Purchase Agreement relating to a tobacco production enterprise in
2014. Plaintiff agreed to sell office equipment, intellectual property, and a federal tobacco
permit, as well as loose tobacco, to defendant. In 2015, defendant stopped making payments, and
plaintiff sued in state court. That case was settled, though the parties decided to keep doing
business together. They committed to a settlement agreement that still contemplated the transfer
of the equipment, intellectual property, and the tobacco permit, as well as the sale of tobacco.
In early 2017, defendant again stopped making payments. Plaintiff again sued defendant
in state court, alleging $100,000 in damages. Defendant removed the case to federal court on the
basis of diversity jurisdiction and filed several counterclaims, which are the subject of plaintiffs

motion to dismiss. Defendant's counterclaims arise out of the purported transfer of the federal
tobacco permit. Such permits are governed by the Department of the Treasury's Alcohol and
Tobacco Tax and Trade Bureau ("TTB"). Defendant alleges four separate counterclaims against
plaintiff: breach of contract, unjust enrichment, actual fraud, and unfair and deceptive trade
practices.
ANALYSIS
Plaintiffs motion to dismiss the counterclaims is made under Rule 12(b)(6) of the
Federal Rules of Civil Procedure. A Rule 12(b)(6) motion tests the legal sufficiency of the
complaint. Papasan v. Allain, 478 U.S. 265, 283 (1986). When acting on a motion to dismiss
under Rule 12(b)(6), "the court should accept as true all well-pleaded allegations and should
view the complaint in a light most favorable to the plaintiff." Mylan Labs., Inc. v. Matkari, 7
F.3d 1130, 1134 (4th Cir.1993). A complaint must allege enough facts to state a claim for relief
that is facially plausible. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Facial
plausibility means that the facts pled "allow[] the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged," and mere recitals of the elements of a cause of
action supported by conclusory statements do not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). A complaint must be dismissed if the factual allegations do not nudge the plaintiffs
claims "across the line from conceivable to plausible." Twombly, 550 U.S. at 570.
However, the Court need not accept a complaint's "legal conclusions, elements of a cause
of action, and bare assertions devoid of further factual enhancement." Nemet Chevrolet Ltd v.

Consumeraffairs.com, Inc., 591F.3d250, 255 (4th Cir. 2009). Although complete and detailed
factual allegations are not required, "a plaintiffs obligation to provide the 'grounds' of his
'entitle[ment] to relief requires more than labels and conclusions." Twombly, 550 U.S. at 555

(citations omitted). "Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 555).

I.

Defendant's Breach of Contract Claim
Defendant sufficiently alleges facts such that the breach of contract claim is not

dismissed. In North Carolina, the elements of a breach of contract are the presence of a valid
contract, the breach of the terms of that contract, and damages. Supplee v. Miller-Motte Bus.
Coll., Inc., 768 S.E.2d 582, 590 (2015).

In his complaint, defendant alleges that plaintiff and defendant entered into two contracts:
an Asset Purchase Agreement, followed by the Settlement Agreement after their first dispute.
Defendant alleges that the Section 1.1 of the contract, which reads, "Seller hereby agrees to sell,
transfer, convey, assign and deliver to Buyer ... the federal tobacco permit" was a contract to
transfer the existing federal tobacco permit in plaintiffs name to defendant. Defendant further
alleges that the permit was never transferred, and so he suffered damages by paying for
something he never received.
Plaintiff and defendant's dispute appears to boil down to one question: what their
contract to "transfer" a tobacco permit means. Plaintiff argues in its motion that their contract
was in fact to "maintain the tobacco permit and sell tobacco to Defendant" until the TTB
approved defendant's application, and defendant's status with the TTB was a risk defendant
agreed to bear. However, plaintiff has failed to show why the word "transfer," which is used in
the Agreement, in all settlement materials from the previous lawsuit, and in its motions before

this Court, should be understood to mean something other than the actual transfer of the existing
permit.
Defendant has pled sufficient facts to show that a contract to transfer a permit, where the
permit is never transferred, could constitute a breach of contract. Defendant has stated a claim
upon which relief could be granted.

IL

Unjust Enrichment
Defendant's unjust enrichment claim may also proceed. While a breach of contract claim

requires the presence of a valid contract, an unjust enrichment claim requires that there not be a
valid contract. See, e.g., Augustson v. Bank ofAm., NA., 864 F. Supp. 2d 422, 438 (E.D.N.C.
2012). When the validity of the contract is in question, unjust enrichment can be pled as an
alternative to breach of contract. See, e.g., Volumetrics Med. Imaging, Inc. v. ATL Ultrasounds,
Inc., 243 F. Supp. 2d 386, 411 (M.D.N.C. 2003).

When consideration does not exist, neither does the contract. See Mills v. Bonin, 80 S.E.
2d 365 (1954). Consideration that is impossible, illegal, illusory or otherwise invalid cannot
underpin a contract. See Restatement (Second) of Contracts § 77, 78. Unjust enrichment provides
a remedy in the absence of a contract, when one party has been benefited at the expense of the
other. Booe v. Shadrick, 369 S.E. 2d 554 (1988).
Defendant alleges that he and plaintiff entered into an agreement to transfer a federal
tobacco permit, shown by the use of the word "transfer" both in the Asset Purchase Agreement
and the Settlement Agreement. Further, defendant has argued that the TTB does not permit the
transfer of a tobacco permit from one person to another, absent the sale of a business, which all
parties agree did not happen here. If defendant paid plaintiff for a transferred permit, then

defendant paid plaintiff money on the basis of a contract that is void, because defendant has
stated facts to suggest that the consideration-the transfer of an existing permit-is impossible.
Plaintiff emphasizes in its briefing that defendant was represented by counsel and that all
business ventures bear the risk of failure. This is true. But defendant claims he has paid plaintiff
money, not in the hope that his new tobacco permit application would be approved, but in
exchange for the existing tobacco permit, which plaintiff said could be reassigned. Defendant has
therefore stated a claim upon which relief can be granted.

III.

Fraud
Five elements are required for fraud in North Carolina: "(1) a false representation or

concealment of a material fact; (2) reasonably calculated to deceive; (3) made with intent to
deceive; (4) and which does, in fact, deceive; (5) to the hurt of the injured party." Vail v. Vail, 63
S.E.2d 202, 205 (1951 ). Mere allegations or conclusory statements will not suffice. In addition to
the normal requirements of pleading, Federal Rule of Civil Procedure 9(b) imposes a heightened
pleading standard for fraud or mistake, requiring a party to "state with particularity the
circumstances constituting fraud or mistake." Fed R. Civ. P. 9(b).
Defendant's fraud claim sterns from the contents of the Asset Purchase Agreement,
which he argues contains specific misrepresentations regarding the status of the sale of the
tobacco permit. According to defendant, plaintiff represented in the agreement the tobacco
permit would be transferred, defendant relied on that representation, and he was deceived.
Section 5 .1 of the Agreement explicitly notes that the TTB has sole discretion over
whether a permit will be approved or not, and that neither party guarantees such approval.

Plaintiff's discussion of what it means to transfer a permit is unsatisfactory, but the Agreement is
not deceptive on its face or fraudulent. As such, the claim is dismissed.

IV.

Unfair and Deceptive Trade Practices
Finally, defendant has not pled sufficient facts to constitute a claim for unfair or

deceptive trade practices.
Under North Carolina law, a contract claim does not rise to the level of an unfair or
deceptive trade practice absent "substantial aggravating circumstances." See N.C. Gen. Stat.
§75.1; PCS Phosphate Co. v. Norfolk Southern Corp., 559 F.3d 212, 224 (4th Cir. 2009).
Defendant has not alleged any aggravating circumstances. Therefore, defendant's trade practices
claim is dismissed for failing to state a claim.

CONCLUSION
For the foregoing reasons, plaintiff's motion to dismiss the amended counterclaims [DE
16] is GRANTED in part and DENIED in part. The Clerk is DIRECTED to enter judgment
accordingly and close the case.

so ORDERED, this 0-fday of September, 2017.

TERRENCE W. BOYLE
UNITED STATES DISTRICT J