WEST et al
Filing
15
MEMORANDUM OPINION AND RECOMMENDATION - MAGISTRATE JUDGE re 8 MOTION to Dismiss filed by ROBERT E HOUCHIN, SR. be GRANTED and Plaintiffs' claims for conversion, unfair and deceptive trade practices and constructive trust shouldbe dismissed; however, as Plaintiffs claim for breach of contract remains, the Clerk should schedule an initial pre-trial conference signed by MAG/JUDGE L. PATRICK AULD on 12/6/11. (Wilson, JoAnne)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
WILLIAM H. WEST, III and
WILLIAM H. WEST, IV,
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Plaintiffs,
v.
ROBERT E. HOUCHIN, SR., d/b/a
TEXAS AMUSEMENTS,
Defendant.
1:10CV936
MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
This
matter
comes
before
the
undersigned
United
States
Magistrate Judge for a recommended ruling on Defendant’s Motion to
Dismiss (Docket Entry 8).
For the reasons that follow, the Court
should grant Defendant’s motion.
BACKGROUND
The following facts are alleged in Plaintiffs’ Complaint
(Docket Entry 1):
Defendant is in the business of designing, manufacturing and
selling machines which allow individuals to engage in various types
of gaming activities through the internet.
(See id., ¶ 8.)
On
July 3, 2008, Plaintiffs entered into a contract with Defendant for
the
purchase
of
one
hundred
of
Defendant’s
gaming
machines,
together with the software required for each, for the price of
$175,000.
(See id., ¶ 10.)
After Plaintiffs delivered a check to
Defendant for the full $175,000 purchase price, Defendant delivered
only ten of the one hundred gaming machines.
remaining ninety machines were never delivered.
(See id.)
The
(See id., ¶ 12.)
Plaintiffs filed a Complaint in this Court, based on diversity
jurisdiction (see id., ¶ 3), alleging (1) “Breach of Contract”
(id., ¶¶ 7-15); (2) “Conversion” (id., ¶¶ 16-21); (3) “Unfair and
Deceptive Trade Practices” (id., ¶¶ 22-25); and (4) “Constructive
Trust” (id., ¶¶ 26-28).
In response, Defendant filed the instant
motion to dismiss, “mov[ing] the Court to dismiss Plaintiffs’
claims of conversion, unfair and deceptive trade practices, and
constructive trust for failure to state a claim upon which relief
can be granted” pursuant to Fed. R. Civ. P. 12(b)(6). (Docket Entry
8 at 1.)
Legal Standard
“A federal court, sitting in North Carolina in a diversity
case, must apply the law as announced by the highest court of that
state or, if the law is unclear, as it appears the highest court of
that state would rule.”
Brendle v. General Tire & Rubber Co., 505
F.2d 243, 245 (4th Cir. 1974).
Although the Court looks to North
Carolina law in analyzing Plaintiff’s substantive claims, “pleading
standards are a matter of procedural law governed in this Court by
federal, not state, law.”
887,
920
(M.D.N.C.
McFadyen v. Duke Univ., 786 F. Supp. 2d
2011)
(Beaty,
C.J.)
(citing
Jackson
v.
Mecklenburg Cnty., N.C., No. 3:07–cv–218, 2008 WL 2982468, at *2
-2-
(W.D.N.C. July 30, 2008) (unpublished) (“North Carolina substantive
law applies to the elements of Plaintiff’s state law claims, but
the Federal Rules of Civil Procedure govern procedural law and
North Carolina pleading requirements, so far as they are concerned
with the degree of details to be alleged, are irrelevant in federal
court even as to claims arising under state law.”) (internal
quotation marks and citations omitted)).
Under the applicable
federal pleading standard, a complaint fails to state a claim if it
does not “contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (internal citations omitted)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
This
standard
“demands
more
than
the-defendant-unlawfully-harmed-me accusation.”
an
unadorned,
Id.
In other
words, “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal
conclusions. Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.”
Id.
Discussion
A. Plaintiffs’ Claim for Conversion
Plaintiffs
allege
that
“Defendant
converted
[the
gaming
machines and software] to his own use and purpose while retaining
the
purchase
price
thereof
which
-3-
had
been
paid
in
full
by
Plaintiffs and accepted by Defendant.”
(Docket Entry 1, ¶ 18.)
Plaintiffs further allege that, “without authority or permission
from Plaintiffs, Defendant sold and transferred the ninety (90)
gaming
machines
and
associated
software
which
had
not
been
delivered to Plaintiffs to one or more individuals or entities in
the State of Ohio.”
(Id., ¶ 19.)
Defendant contends that,
“[b]ecause the goods were not delivered to Plaintiffs, Plaintiffs
never acquired ownership of such goods” and, therefore, Plaintiffs
cannot maintain a claim for conversion.
(Docket Entry 12 at 1-2.)
Defendant’s argument has merit.
Under North Carolina law, “[t]he tort of conversion is well
defined as ‘an unauthorized assumption and exercise of the right of
ownership over goods or personal chattels belonging to another, to
the alteration of their condition or the exclusion of an owner’s
rights.’” Peed v. Burleson’s, Inc., 244 N.C. 437, 439, 94 S.E.2d
351, 353 (1956) (quoting 89 C.J.S. Trover & Conversion, § 1).
cause
of
action
for
the
tort
of
conversion
consists
of
A
(1)
ownership in the plaintiff and (2) a wrongful conversion by the
defendant.
Lake Mary Ltd. P’ship. v. Johnston, 145 N.C. App. 525,
532, 551 S.E.2d 546, 552 (2001) (internal citations omitted). “The
party claiming conversion must prove that it retained lawful
ownership in the chattel and a right to immediate possession.”
Variety Wholesalers, Inc. v. Salem Logistics Traffic Services, LLC,
___ S.E.2d ___, ___, 2011 WL 3113111, at *4 (N.C. App. 2011).
-4-
“A
successful claim of conversion requires that the plaintiff maintain
a right of possession superior to that of the alleged converter
from the time of the disputed action through the time of suit.”
Interstate Narrow Fabrics, Inc. v. Century USA, Inc., 218 F.R.D.
455, 467 (M.D.N.C. 2003) (Tilley, C.J.) (citing United States v.
Curritcuk Grain, Inc., 6 F.3d 200, 205 (4th Cir. 1993)).
On
the
ownership
or
instant
a
facts,
superior
Plaintiffs
possessory
undelivered gaming machines.
have
failed
interest
in
to
allege
the
ninety
As a dispute involving the sale of
goods, the parties’ rights are governed by the Uniform Commercial
Code (“UCC”) as codified in Chapter 25 of the North Carolina
General Statutes.
Specifically, the UCC provision governing the
passing of title states in relevant part:
Unless otherwise explicitly agreed title passes to the
buyer at the time and place at which the seller completes
his performance with reference to the physical delivery
of the goods, despite any reservation of a security
interest and even though a document of title is to be
delivered at a different time or place; and in particular
and despite any reservation of a security interest by the
bill of lading.
N.C. Gen. Stat. § 25-2-401(2) (emphasis added).
Here, Plaintiffs have not alleged delivery of the gaming
machines, and, in fact, base their claims on the non-delivery of
those goods.
(See Docket Entry 1.)
In addition, Plaintiffs have
not alleged an agreement between the parties that would alter the
default provisions of N.C. Gen. Stat. § 25-2-401(2).
-5-
(See id.)
Accordingly, Plaintiffs have failed to allege an essential element
for their claim of conversion and said claim should be dismissed.1
The undersigned notes additionally that, although independent
research
has
failed
to
locate
a
North
Carolina
decision
interpreting N.C. Gen. Stat. § 25-2-401(2) on similar facts,
rulings from other jurisdictions, applying like provisions of their
state’s UCC, support this result.
In Sam and Mac, Inc. v. Treat,
783 N.E.2d 760 (Ind. Ct. App. 2003), the plaintiff ordered, and
paid in full for, custom cabinets from Gruda Enterprises.
763.
Id. at
Gruda Enterprises ceased operations before delivering said
cabinets.
Id.
The
plaintiff
asked
the
landlord
of
Gruda
Enterprises to open the premises to allow him to remove the
cabinets, and after the landlord declined, the plaintiff brought
suit against the landlord for criminal conversion.
Id.
The Court
of Appeals of Indiana, in affirming the trial court’s finding of
summary judgment for the landlord, based its ruling in part on the
finding that the “plaintiff does not have a possessory interest in
the property.”
Id. at 767.
Specifically, the court noted that
“[Ind. Code] § 26-1-2-401(2) provides, in pertinent part, that
1
The parties have devoted a large portion of their briefing to discussing
North Carolina’s economic loss doctrine, which provides that “[o]rdinarily, a
breach of contract does not give rise to a tort action by the promisee against
the promisor,” North Carolina State Ports Auth. v. Lloyd A. Fry Roofing, Co., 294
N.C. 73, 81, 240 S.E.2d 345, 349 (1978), rejected in part on other grounds,
Trustees of Rowan Tech v. Hammond Assoc., 313 N.C. 230, 328 S.E.2d 274 (1985).
Because Plaintiffs’ claim should be
(See Docket Entry 9; Docket Entry 11.)
dismissed due to failure to allege ownership of the goods in question, the Court
need not address the merits of the parties’ arguments under the economic loss
doctrine.
-6-
unless explicitly agreed, title passes to the buyer at the time and
place at which the seller completes his performance with respect to
physical delivery of the goods.”
find
that
“[t]he
record
Id. at 764.
shows
that
Gruda
The court went on to
Enterprises
never
physically delivered the cabinets to [the plaintiff] at the agreed
upon destination. Therefore, we find that title did not pass under
[Ind. Code §] 26-1-2-401(2).”
Id.
Similarly, in Huber v. Crop
Prod. Servs., Inc., No. 06-14564-BC, 2007 WL 2746625, at *7 (E.D.
Mich. Sept. 19, 2007) (unpublished), the Eastern District of
Michigan held that purchasers’ claim against a seller of fertilizer
for conversion before delivery was barred by law.
The court noted
that under Mich. Comp. Laws § 440.2401(2) “title passes to the
buyer at the time and place at which the seller completes his
performance with reference to the physical delivery of the goods”
and the plaintiff did “not assert any factual allegation of an
agreement between the parties that title passes prior to delivery,”
Huber, 2007 WL 2746625, at *7.
Consistent with these rulings, courts interpreting facts
inverse to the instant action, i.e., where the goods were delivered
by the seller but not paid for, have rejected efforts by the seller
to maintain an action for conversion against the buyer as title
passed to the buyer upon delivery.
See, e.g., Sun Coast Merch.
Corp. v. Myron Corp., 393 922 A.2d 782, 800 (N.J. Super. Ct. App.
Div. 2007) (“Because the goods were delivered, title passed to
-7-
[defendant]; there is nothing in the record to suggest otherwise.
Accordingly, [defendant] could not be held to have converted
property to which it held title.”); Connecticut Valley Wholesale
Florists, Inc. v. Ferris, No. CV 980410610S, 1999 WL 989599, *6
(Conn. Super. 1999) (unpublished) (“Ferris cannot prevail on the
conversion claim because title to the flowers passed to Connecticut
Valley when Ferris delivered the flowers to it.”).
B. Plaintiffs’ Claims for Unfair and Deceptive Trade Practices and
Constructive Trust
As Plaintiffs have made clear in their Brief in Opposition to
Defendant’s Motion to Dismiss (Docket Entry 11), Plaintiffs’ claims
for unfair and deceptive trade practices and constructive trust are
based on Plaintiffs’ claim for conversion. (See id. at 8 (“Acts of
conversion may constitute unfair and deceptive trade practices.”),
10-11 (“[A] constructive trust may be imposed on the converted
property or any
proceeds received as a result of the sale or
transfer of the converted property.”).)
As the undersigned has
found that Plaintiffs’ claim for conversion should be dismissed for
failure to state a claim upon which relief can be granted, see
discussion
supra
pp.
3-8,
Plaintiffs’
claims
for
unfair
and
deceptive trade practices and constructive trust should likewise be
dismissed.
-8-
Conclusion
Plaintiffs have failed to state a claim upon which relief can
be granted with respect to their claim for conversion, and,
accordingly, that claim should be dismissed.
Because Plaintiffs’
claims for unfair and deceptive trade practices and constructive
trust necessarily rely on said claim for conversion, those claims
should be dismissed as well.
IT IS THEREFORE RECOMMENDED that Defendant’s Motion to Dismiss
(Docket Entry 8) be GRANTED and Plaintiffs’ claims for conversion,
unfair and deceptive trade practices and constructive trust should
be dismissed; however, as Plaintiffs’ claim for breach of contract
remains, the Clerk should schedule an initial pre-trial conference.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
December 6, 2011
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