North American Specialty Insurance Company v. United Builders Group, LLC et al

Filing 60

ORDER granting in part and denying in part 49 Motion to Dismiss for Failure to State a Claim. With respect to the crossclaim, the court DISMISSES without prejudice the crossclaim for contribution against UBG, but the crossclaim for indemnity and u njust enrichment against UBG survive. With respect to the third-party complaint, the court DISMISSES without prejudice the claim for breach of contract of the FCA, but the remaining claims in the third-party complaint survive. Order granting 53 Mo tion Clarify Court's Order D.E. 48 Granting Defendants and Third-Party Plaintiffs' Motion to Amend Cross Claim and Third-Party Claims. The amended crossclaim and third-party complaint [D.E. 45-1] is DEEMED filed today and will be the operative pleading of the Senior parties. Signed by Chief Judge James C. Dever III on 8/20/2018. (Sellers, N.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:17-CV-62-D

NORTH AMERICAN SPECIALITY
INSURANCE CO:MPANY,
Plaintiff,

v.
UNITED BUILDERS GROUP, LLC,
J.E. DILLAHUNT & ASSOCIATES, INC.,
JIMMY E. DILLAHUNT, a/k/a
JIMMY E. DILLAHUNT, SR., and
JANIE B. DILLAHUNT,
Defendants,

v.
JAMES DILLAHUNT, JR., CADET
CONSTRUCTION COMPANY, INC.,
and ENEMOS, INC.,

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ORDER

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Third-Party Defendants.)

On February 2, 2017, North American Speciality Insurance Company ("NAS" or "plaintiff')
flled a complaint seeking damages and equitable relief against United Builders Group ("UBG"), J.E.
Dillahunt & Associates, Inc. ("JED"), James E. Dillahunt, Sr. ("Senior"), and Janie B. Dillahunt
(collectively, "defendants") in connection with a dispute arising out of a surety bond indemnification
agreement [D.E. 1]. On June 20, 2017, JED, Senior, and Janie B. Dillahunt (now deceased)
(collectively, ''the Senior parties") answered the complaint, filed a counterclaim against NAS, flled
a crossclaim against UBG, and filed a third-party complaint againstJames E. Dillahunt Jr. ("Junior"),
Cadet Construction Company, Inc. ("Cadet"), and Enemenos, Inc. ("Enemenos") (collectively, ''the

Junior parties") [D.E. 24]. On July 6, 2017, UBG answered the complaint [D.E. 31]. On July 7,
2017, NAS answered the counterclaim [D.E. 32]. On July 10,2017, NAS filed a corrected answer
to the counterclaim [D.E. 33]. On August 21, 2017, UBG and the Junior parties moved to dismiss
the crossclaim and third-party complaint for failure to state a claim [D.E. 37], and filed a
memorandum in support [D.E. 38]. On October 10,2017, the Senior parties moved to amend the
crossclaim and third-party complaint [D.E. 44], and filed a memorandum in support [D.E. 45]. On
November 9, 2017, this court granted the Senior parties' motion to amend, and dismissed the motion
to dismiss as moot [D.E. 48]. On November 20, 2017, UBG and the Junior parties again moved to
dismiss for failure to state a claim, reasserting the original motion to dismiss [D.E. 49]. See [D.E.
37, 38]. On December 11, 2017, the Senior parties responded in opposition. On December 26, 2017,
UBG and the Junior parties replied [D.E. 51]. In that reply, UBG and the Junior parties asserted that
the Senior parties had failed to amend their pleadings in accordance with this court's order of
November 9, 2017. See [D.E. 51] 1-2. On December 29, 2017, the Senior parties asked the court
to clarify its order granting leave to amend the crossclaim and third-party complaint and permit the
amended crossclaim and third-party complaint to be deemed filed and to be the operative pleading
[D.E. 53]. See [D.E. 48]. On January 5, 2018, the Junior parties responded in opposition [D.E. 54].
As explained below, the court grants the motion to clarify and grants in part and denies in part the
motion to dismiss.

I.
NAS issues. surety bonds for construction projects in North Carolina. See Compl. ~ 9. NAS
alleges that UBG and the Senior parties are liable to it under an Indemnity Agreement executed
between NAS, UBG, Senior, and Janice Dillahunt in which UBG and the Senior parties agreed to
indemnify NAS for surety bond payments it made on deficient work performed (or not performed)

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by UBG. See id. ~~ 20-37. UBG is a general contractor and obtained NAS surety bonds for its
construction projects. See id. ~~ 10-11. James Dillahunt, Sr. founded and ran UBG from 2001 to
2008, when his son James Dillahunt, Jr. became majority shareholder. See [D.E. 38] 3. UBG is a
North Carolina limited liability corporation with three members: Senior, Junior, and TonyaDillahunt
(the daughter of James Dillahunt, Sr. and sister of James Dillahunt, Jr.). See [D.E. 44] ~~ 3-4. JED
is a North Carolina corporation that Senior owns. See id. ~ 2.
To procure the required surety bond from NAS, UBG, Senior, his wife, Janie B. Dillahunt,
and JED agreed to indemnify NAS for losses it sustained under these bonds. See Compl. ~~ 11-12;
[D.E. 1-2]. NAS alleges that it issued eight surety bonds to UBG in reliance on the Indemnity
Agreement and that it has "paid numerous claims against the[se] [b]onds". See Compl. ~~ 15-16.
In February 2014, NAS and UBG entered into a "Funds Control Agreement" ("FCA") designed to
"provide a structure for UBG' s partial performance under the Indemnity Agreement." Compl. ~ 17;
see [D.E. 1-4]. On March 4, 2014, NAS demanded indemnity from UBG under the Indemnity
Agreement and demanded that defendants deposit $1,300,000.00 as collateral with NAS. See Compl.
~ 18;

[D.E. 1-6]. NAS asks this court to require UBGto deposit$1,300,000.00 as collateral security,

and to find that defendants breached the Indemnity Agreement and award actual damages stemming
from this breach. See Compl. ~~ 20-36.
The Senior parties filed a crossclaim against UBG for contribution and indemnification for
"any and all amounts awarded, collected[,] or recovered from them as a result of any liability
established upon any legal bonds issued to UBG." [D.E. 44]
crossclaim for unjust enrichment against UBG. See id.

~~

~

23. The Senior parties also filed a

27-30.

Third-party defendant James Dillahunt, Jr. is the majority owner ofUBG. [D.E. 38] 3. Thirdparty defendants Cadet and Enemenos are North Carolina corporations that Junior established in

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November 2013. See [D.E. 44]

~~

43-44. The Senior parties allege (1) that these companies are

Junior's alter egos; (2) that these companies engage in "substantially the same business as UBG and
operate out of the same office as UBG;" and (3) that Junior has used his power as majority
shareholder of UBG

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divert business, funds, and equipment to Cadet and Enemenos without

compensating UBG. See id. ~~ 45-48. The Senior parties allege that Junior diverted funds subject
to the FCA for UBG' s repayment under the Indemnity Agreement into Cadet or Enemenos. See id.
~~

49-55. The Senior parties allege that Junior, Cadet, and Enemenos "have jointly taken and

pilfered the assets ofUBG[,] ... have acted in concert[,] and have engaged in a conspiracy to divert
the assets and monies of Senior and UBG to their own use." Id.

~

80.

Senior filed a derivative action on behalf ofUBG in North Carolina Superior Court. See id.
~

60. This litigation has yielded an accounting, and the accounting indicates ''that Junior has

transferred thousands of dollars that belonged to Senior and UBG to himself personally, Enemenos,
and Cadet." Id. ~ 66.
The Senior parties' third-party complaint against the Junior parties includes claims for breach
ofcontract, contribution and indemnification, civil conspiracy, tortious interference with contract, and
unjust enrichment. See id. ~~ 95-120. The Senior parties seek compensatory and punitive damages.

n.
A motion to dismiss under Rule 12(b)(6) tests the complaint's legal and factual sufficiency.
See Ashcroft v. Iqbal, 556 U.S. 662, 677-80 (2009); Bell Atl. Corp. v. Twombly. 550 U.S. 544,
554--63 (2007); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). To withstand a Rule
12(b)(6) motion, a pleading "must contain sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face." Iqbal, 556 U.S. at 678 (quotation omitted); see Twombly, 550
U.S. at 570; Giarratano, 521 F.3d at 302. In considering the motion, the court must construe the facts

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and reasonable inferences "in the light most favorable to the [nonmoving party]." Massey v. Ojaniit
759F.3d343, 352 (4thCir. 2014) (quotation omitted); seeClatterbuckv. City of Charlottesville, 708
F.3d 549, 557 (4th Cir. 2013), abrogated on other grounds by Reed v. Town of Gilbert, 135 S. Ct.
2218 (2015). A court need not accept as true a complaint's legal conclusions, ''unwarranted
inferences, unreasonable conclusions, or arguments." Giarratano, 521 F.3d at 302 (quotation
omitted); see Iqbal, 556 U.S. at 678-79. Rather, a plaintiffs allegations must "nudge" the claims
beyond the realm of"mere possibility" into "plausibility." Iqbal, 556 U.S. at 678-79; Twombly, 550
U.S. at570.
When evaluating a motion to dismiss, a court considers the pleadings and any materials
"attached or incorporated into the complaint." E.I. duPont de Nemours & Co. v. Kolon Indus .• Inc.,
637 F.3d435, 448 (4thCir. 2011); see Fed. R Civ. P. 10(c); Thompson v. Greene, 427F.3d263, 268
(4th Cir. 2005). A court also may take judicial notice ofpublic records without converting the motion
to dismiss into a motion for summary judgment.

See,~,

Fed. R Evid. 201(d); Tellabs. Inc. v.

Makor Issues & Rights. Ltd., 551 U.S. 308, 322 (2007); Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d
176, 180 (4th Cir. 2009).
This court has subject-matter jurisdiction based on diversity jurisdiction. Thus, the court
applies state substantive principles and federal procedural rules. See Erie RR v. Tompkins, 304 U.S.
64, 78-80 (1938); Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002).

A.
The Senior parties contend that Senior and JED are entitled to indemnification and
contribution from UBG under UBG' s Operating Agreement and the North Caro1inaLimited Liability
Act. See [D.E. 44] ,, 22-26. UBG and the Junior parties respond that the Senior parties have not

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plausibly alleged an express contractual right to indemnification and contribution. See [D.E. 38] 11;
[D.E. 51] 2-3.
Under North Carolina law, indemnification can arise in three ways: (1) by an express
contract; (2) by a contract implied-in-fact; or (3) by a contract implied-in-law. See Kaleel Builders.
Inc. v. Ashby, 161 N.C. App. 34, 38, 587 S.E.2d 470, 474 (2003). The UBG operating agreement
requires UBG to indemnify its Members "in connection with their services as Managers of the
Company." [D.E. 44] , 9. This provision plausibly suggests that Senior is entitled to indemnification
from UBG. Thus, the court denies UBG's motion to dismiss the Senior parties' crossclaim for
indemnification against UBG.
As for the crossclaim for contribution against UBG, contribution is a statutory right among
joint tortfeasors and is not available for breach of contract. SeeN. C. Gen. Stat. § 1B-1; Kaleel, 161
N.C. App. at 43, 587 S.E.2d at 477. The Senior parties allege tort claims against the Junior Parties
and UBG in the third-party complaint, but do not allege in the crossclaim that they are joint
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tortfeasors with UBG. See [D.E. 44] ,, 27-30. Accordingly, the court dismisses without prejudice
the Senior parties' crossclaim for contribution against UBG.
The Senior parties also filed a crossclaim against UBG for unjust enrichment. The Senior
parties allege that Senior , JED, and Janie Dillahunt signed the Indemnity Agreement with NAS for
the benefit ofUBG without compensation. See [D.E. 44] ,, 27-30. UBG argues that the Senior
parties "cannot maintain an unjust enrichment claim against UBG because UBG [and the Senior
parties] are all parties to the Indemnity Agreement with [NAS]." [D.E. 51] 3.
In North Carolina, to recover on an unjust enrichment claim, plaintiff must prove (1) that
it conferred a benefit on another party; (2) that the other party consciously accepted the benefit; and
(3) that the benefit was not conferred gratuitously or by an interference in the affairs of the

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other party. See Booe v. Shadrick, 322 N.C. 567, 570, 369 S.E.2d 554, 556 (1988); Se. Shelter Corp.
v. BTU. Inc., 154 N.C. App. 321,330,572 S.E.2d200, 206 (2002); Duo-Fast Carolinas. Inc. v. Scott's
Hili Hardware& SuwlyCo., No. 16 CVS 9343,2018 WL264607, at *12 (N.C. Super. Jan. 2, 2018)
(unpublished).
The Senior parties have plausibly alleged that, by executing the Indemnity Agreement, they
conferred a benefit on UBG, that UBG accepted the benefit, and that the benefit was not gratuitous.
Moreover, although "an express contract precludes an implied contract with reference to the same
matter," the Indemnity Agreement with NAS is not "the same matter'' as to what the Senior parties
expected to receive for entering the Indemnity Agreement. See Vetco Concrete Co. v. Troy Lumber
Co., 256 N.C. 709, 713, 124 S.E.2d 905, 908 (1962). Accordingly, the court denies UBG's motion
to dismiss the Senior parties' crossclaim for unjust enrichment.

B.
The Senior parties filed a third-party complaint against the Junior parties alleging claims for
breach of contract, contribution and indemnification, civil conspiracy, tortious interference with
contract, and unjust enrichment. See [D.E. 44] ~~ 95-120. The Senior parties allege that Cadet and
Enemenos are Junior's alter egos and that Junior used these companies to siphon resources from
UBG. See id. ~~ 43-53.
In the breach of contract claim in the third-party complaint, the Senior parties allege that the
Junior parties acted together to breach the FCA. See id.

~~

96-104. The Junior parties move to

dismiss the breach of contract claim in the third-party complaint because the Junior parties are not
parties to the FCA. See [D.E. 38] 5-6; [D.E. 51] 3.
A valid contract between the parties must exist to prove breach of contract. See Carcano v.
JBSS. LLC, 200 N.C. App. 162, 168, 684 S.E.2d 41, 4 7-48 (2009). The Junior parties are not parties

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to the FCA and cannot be liable for breaching that contract. See Canady v. M~ 107 N.C. App. 252,
419 S.E.2d 597, 601 (1992). Thus, the court grants the motion to dismiss the breach of contract claim
against the Junior parties in the third-party complaint and dismisses the claim without prejudice. As
for the remaining claims in the third-party complaint, the court has reviewed the claims under the
governing standard. The court concludes that the remaining claims in the third-party complaint
plausibly state claims for relief and denies the motion to dismiss.

m.
In sum, the court GRANTS in part and DENIES in part the motion to dismiss [D.E. 49]. With
respect to the crossclaim, the court DISMISSES without prejudice the crossclaim for contribution
against UBG, but the crossclaim for indemnity and unjust enrichment against UBG survive. With
respect to the third-party complaint, the court DISMISSES without prejudice the claim for breach of
contract of the FCA, but the remaining claims in the third-party complaint survive. The court
GRANTS the motion for clarification [D.E. 53] and the amended crossclaim and third-party
complaint [D.E. 45-1] is DEEMED filed today and will be the operative pleading of the Senior
parties.
SO ORDERED. This 'tOday of August 2018.

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