WEST et al
Filing
29
MEMORANDUM OPINION AND ORDER signed by MAG/JUDGE L. PATRICK AULD on 7/10/2012, that Plaintiffs Motion to Amend Complaint (Docket Entry 21 ) is DENIED. (Lloyd, Donna)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
WILLIAM H. WEST, III and
WILLIAM H. WEST, IV,
Plaintiffs,
v.
ROBERT E. HOUCHIN, SR., d/b/a
TEXAS AMUSEMENTS,
Defendant.
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1:10CV936
MEMORANDUM OPINION AND ORDER
OF UNITED STATES MAGISTRATE JUDGE
This matter comes before the Court on Plaintiffs’ Motion to
Amend Complaint (Docket Entry 21).
For the reasons that follow,
the Court will deny the instant Motion.1
I.
BACKGROUND
The following facts are alleged in Plaintiffs’ Complaint
(Docket Entry 1):
1
For reasons stated in Deberry v. Davis, No. 1:08CV582, 2010
WL 1610430, at *7 n.8 (M.D.N.C. Apr. 19, 2010) (unpublished), the
undersigned Magistrate Judge will enter an order, rather than a
recommendation, as to this matter.
See also Everett v. Prison
Health Servs., 412 Fed. Appx. 604, 605 & n.2 (4th Cir. 2011)
(“Everett moved for leave to amend her complaint . . . to add
Appellee Prison Health Services, Inc. (‘PHS’) as a defendant based
on information obtained during discovery, and to add a state-law
claim of medical malpractice against PHS. After a hearing, the
magistrate judge denied Everett’s motion. Everett timely objected,
thereby preserving the issue for review by the district
court. . . . [T]he district court could not modify or set aside
any portion of the magistrate judge’s order unless the magistrate
judge’s decision was ‘clearly erroneous or contrary to law.’ Fed.
R. Civ. P. 72(a); 28 U.S.C.A. § 636(b)(1)(A) (2006 & Supp.
2010).”).
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.)
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.
¶ 10.)
(See id.
After Plaintiffs delivered a check to Defendant for the
full $175,000 purchase price, Defendant delivered only ten of the
one hundred gaming machines.
(See id.)
Defendant “sold and
transferred the ninety (90) [undelivered] gaming machines . . . to
one or more individuals or entities in the State of Ohio.”
(Id.
¶ 19.)
Based on these events, Plaintiffs filed a Complaint in this
Court, premised 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 a 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.)
The undersigned recommended dismissal of Plaintiffs’ claim for
“Conversion” because Plaintiffs failed to allege ownership or a
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superior possessory interest in the undelivered gaming machines.
(See Docket Entry 15 at 5.)
Moreover, the undersigned recommended
dismissal of Plaintiffs’ claims for “Unfair and Deceptive Trade
Practices”
and
“Constructive
Trust”
because
those
claims
necessarily relied on Plaintiffs’ claim for “Conversion.” (See id.
at 8.) The Court adopted the undersigned’s Recommendation in full.
(See Docket Entry 18.)
The instant Motion asserts that, “[i]n the course of reviewing
their
files,
Plaintiffs
located
several
audio
recordings
of
conversations one or both of the Plaintiffs had with Defendant, as
well as with Defendant’s business associates, prior to the filing
of
the
instant
litigation.”
(Docket
Entry
21,
¶
6.)
Per
Plaintiffs, “[i]n the conversations in question, Defendant and his
agents admitted that Plaintiffs’ funds for the purchase of the
machines in question had been received; that the machines ordered
by Plaintiffs had been manufactured; that the software necessary
for the operation of the machines had been installed; and that, due
to an indebtedness allegedly owed by Plaintiffs to an independent
entity apparently controlled by Defendant, the specific machines
manufactured for Plaintiffs had been shipped to a concern in Ohio,
where they were utilized in sweepstakes gaming, the proceeds from
which were paid over to Defendant.”
(Id. ¶ 7.)
On the weight of this “newly discovered” evidence, Plaintiffs
seek “to amend their [C]omplaint to add claims for fraud, unfair
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and deceptive trade practices, and constructive trust” (Docket
Entry 22 at 2) and to re-allege their claim for “Conversion” (see
Docket Entry 21-2 at 7).
Defendant opposes said amendment on the
grounds of futility, including as a function of North Carolina’s
economic loss doctrine.
II.
(See Docket Entry 27 at 3-9.)
LEGAL STANDARD
Given the procedural posture of this case, Plaintiffs may
“amend [their] pleading only with [Defendant’s] written consent or
the [C]ourt’s leave.”
Fed. R. Civ. P. 15(a)(2).
The applicable
Rule further directs that “[t]he [C]ourt should freely give leave
when justice so requires.” Id.
Under this standard, the Court has
some discretion, “but outright refusal to grant the leave without
any justifying reason appearing for the denial is not an exercise
of discretion . . . .”
Foman v. Davis, 371 U.S. 178, 182 (1962).
Reasons to deny leave to amend a pleading include “undue delay, bad
faith or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed,
undue prejudice to the opposing party by virtue of allowance of the
amendment, [and] futility of amendment,” id.; accord Equal Rights
Ctr. v. Niles Bolton Assocs., 602 F.3d 597, 603 (4th Cir. 2010) (“A
district court may deny a motion to amend when the amendment would
be prejudicial to the opposing party, the moving party has acted in
bad faith, or the amendment would be futile.”).
-4-
“An amendment would be futile if the amended claim would fail
to survive a motion to dismiss for failure to state a claim
pursuant to Federal Rule of Civil Procedure 12(b)(6).”
Syngenta
Crop Prot., Inc. v. EPA, 222 F.R.D. 271, 278 (M.D.N.C. 2004).2
A
plaintiff fails to state a claim when the complaint does not
“contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’”
Iqbal,
556
U.S.
662,
678
(2009)
(emphasis
Ashcroft v.
added)
(internal
citations omitted) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
“Where a complaint pleads facts that are
‘merely consistent with’ a defendant's liability, it ‘stops short
of the line between possibility and plausibility of “entitlement to
relief.”’”
Id. (quoting Twombly, 550 U.S. at 557).
This standard
“demands more than an unadorned, the-defendant-unlawfully-harmed-me
accusation.”
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.
2
Threadbare recitals of the
Although the Court looks to North Carolina law when
analyzing Plaintiffs’ substantive claims, “pleading standards are
a matter of procedural law governed in this Court by federal, not
state, law.” McFadyen v. Duke Univ., 786 F. Supp. 2d 887, 920
(M.D.N.C. 2011) (Beaty, C.J.) (citing Jackson v. Mecklenburg Cnty.,
N.C., No. 3:07-cv-218, 2008 WL 2982468, at *2 (W.D.N.C. July 30,
2008)).
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elements of a cause of action, supported by mere conclusory
statements, do not suffice.”
Id.3
III. DISCUSSION
A.
Conversion
In addressing Plaintiffs’ claim for conversion in the original
Complaint, the undersigned noted that, because this case involves
a contract for the sale of goods, the Uniform Commercial Code
(“UCC”) as adopted by North Carolina governs. (See Docket Entry 15
at
5.)
The
undersigned
then
noted
that
the
UCC
provision
addressing 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).
Finally, the
undersigned found that because Plaintiffs did not allege delivery
of the gaming machines, and, in fact, based their claims on the
non-delivery of those goods (see Docket Entry 1) and because
Plaintiffs did not allege an agreement between the parties that
would alter the default provisions of N.C. Gen. Stat. § 25-2-401(2)
3
“[D]etermining whether a complaint states on its face a
plausible claim for relief and therefore can survive a Rule
12(b)(6) motion . . . requires the reviewing court to draw on its
judicial experience and common sense.” Francis v. Giacomelli, 588
F.3d 186, 193 (4th Cir. 2009).
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(see id.), Plaintiffs failed to allege an essential element for
their claim of conversion.
(See Docket Entry 15 at 5-6.)
Plaintiffs now contend:
Plaintiffs’ proposed [A]mended [C]omplaint contains
four [sic] specific paragraphs which enable them to make
out a viable claim for conversion:
21.
The
machines
in
question
were
manufactured
specifically for Plaintiffs and it was intended by
the parties that title to the machines would pass
to Plaintiffs at the time the machines were
manufactured and programmed.
22.
At all times pertinent to the allegations of this
complaint, as each machine was manufactured and
programmed, Plaintiffs were entitled to immediate
possession thereof.
23.
Upon information and belief, Plaintiffs allege and
say that, in violation of Plaintiffs’ right to
immediate possession of the machines manufactured
and programmed for them, Defendant converted the
same to his own use and purpose while retaining the
purchase price thereof which had been paid in full
by
Plaintiffs
and
accepted
by
Defendant.
Defendant’s actions as alleged herein were without
Plaintiffs’ approval, consent, or ratification.
24.
Upon information and belief, Plaintiffs allege and
say 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 in the State of Ohio.
25.
The action of Defendant as aforesaid constituted a
conversion
of
Plaintiffs’
property
because
Plaintiffs had a right of possession with regard to
the machines in question which was superior to that
of Defendant.
(Docket Entry 28 at 4-5 (citing Docket Entry 21-2, ¶¶ 21-25).)
-7-
Plaintiffs’ assertions do not change the conclusions this
Court reached when addressing Plaintiffs’ original Complaint. With
the exception of conclusory allegations regarding the Parties’
intent, Plaintiffs have offered nothing that addresses the relevant
considerations provided for by N.C. Gen. Stat. § 25-2-401(2).
Plaintiffs’ Amended Complaint repeatedly alleges that Defendant
failed to deliver the gaming machines at issue.
21-2, ¶¶ 12, 14, 17, 19, 20, 29.)
(See Docket Entry
Absent physical delivery, or an
explicit agreement to the contrary, title of the machines remained
in Defendant.
See N.C. Gen. Stat. § 25-2-401(2).
Plaintiffs have
not alleged factual matter establishing a possessory right to the
machines superior to the person or entity with title.4
4
Bare
Moreover, as in the previous Memorandum Opinion (see Docket
Entry 6 at 6-7), the undersigned again finds the circumstances of
the instant action substantially similar to those confronted by the
Indiana Court of Appeals in Sam and Mac, Inc. v. Treat, 783 N.E.2d
760 (Ind. Ct. App. 2003), which also rejected a claim for
conversion based on Indiana’s corresponding provisions of the UCC.
The Court also notes unpublished decisions from the United States
District Courts for the District of Arizona and the Eastern
District of Michigan finding the same. Huber v. Crop Prod. Servs.,
Inc., No. 06-14564-BC, 2007 WL 2746625, at *7 (E.D. Mich. Sept. 19,
2007) (unpublished) (“Plaintiffs allege that title passed to them
at the time when they purchased the fertilizer from Defendants.
Plaintiffs do not assert any factual allegation of an agreement
between the parties that title passed prior to delivery.
Plaintiffs’ allegation that title passed before Defendants removed
nutrients from the fertilizer is nothing more than a bare factual
assertion.
Thus, Plaintiffs’ conversion claim is appropriately
barred by law.”); Aspect Sys., Inc. v. Lam Research Corp., No. CV
06-1620-PHX-NVW, 2006 WL 2683642, at *4 (D. Ariz. Sept. 16, 2006)
(unpublished) (“Because the contract is silent on the passage of
title and Defendants have not completed physical delivery of the
disputed property, title has not passed. While interference with
(continued...)
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assertions that the Parties “intended” for title to pass at the
time of manufacture and programming of the machines and that
Plaintiffs were entitled to immediate possession fall short under
the standards set by Iqbal and Twombly.
B.
Fraud
Fraud consists of: “(1) [f]alse representation or concealment
of a material fact, (2) reasonably calculated to deceive, (3) made
with
intent
to
deceive,
(4)
which
does
in
(5) resulting in damage to the injured party.”
fact
deceive,
Ragsdale v.
Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974).
Under the
Federal Rules of Civil Procedure, “[i]n all averments of fraud,
duress or mistake, the circumstances constituting fraud or mistake
shall be stated with particularity.” Fed. R. Civ. P. 9(b). “[T]he
‘circumstances’ to be pled with particularity under Rule 9(b) are
the time, place, and contents of the false representations as well
as the identity of the person making the misrepresentation and what
he obtained thereby.” Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776, 784 (4th Cir. 1999) (citations omitted).
However,
“[m]alice, intent, knowledge, and other conditions of a person’s
mind may be averred generally.”
Fed. R. Civ. P. 9(b).
4
(...continued)
some rights to possession other than title may suffice for the tort
of conversion, a solely contract-based expectancy of future
possession is insufficient.”).
-9-
Here, Plaintiffs argue that the following assertions satisfy
the specificity requirement of Rule 9(b), so as to defeat a
challenge under Rule 12(b)(6):
29.
Defendant’s
representations
that
the gaming
machines would be manufactured, programmed and
delivered to Plaintiffs upon receipt of the full
purchase price were false at the time that they
were made and were, upon information and belief,
made by Defendant with the knowledge of their
falsity or in culpable ignorance of their truth in
that Defendant made no effort whatsoever to perform
his obligations to Plaintiffs other than to deliver
ten (10) of the gaming machines as set forth in
Plaintiffs’
First
Claim
for
Relief.
Upon
information and belief, Plaintiffs allege and say
that Defendant made the representations in question
for the sole purpose of obtaining payment of a debt
allegedly owed by Plaintiffs to an entity
affiliated with Defendant.
30.
These false representations made by Defendant were
material in that they deceived Plaintiffs and
induced them to pay the full purchase price of the
gaming machines in advance in the reasonable belief
that Defendant would fulfill his obligations to
them.
31.
Upon
information
and
belief,
these false
representations made by Defendant were made
willfully, with the intent that they should be
acted upon by Plaintiffs, and the Plaintiffs
reasonably relied and acted upon these false
representations of Defendant.
(Docket Entry 28 at 9 (quoting Docket Entry 21-2, ¶¶ 29-31).) This
argument lacks merit.
Plaintiffs have not alleged a single misrepresentation with
the requisite specificity to survive a motion to dismiss under Fed.
R. Civ. P. 12(b)(6).
Plaintiffs’ Amended Complaint only states
generally that Defendants represented that “the gaming machines
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would be manufactured, programmed and delivered to Plaintiffs”
(Docket Entry 21-2, ¶ 29) without alleging the time (with the
exception of stating that said representations took place “prior
to” payment (see Docket Entry 28 at 10 n.6)) or place of the
misrepresentations.
Moreover,
Plaintiffs’
“newly
discovered”
evidence consists entirely of conversations which occurred after
the Parties entered into the contract at issue and said contract
was
allegedly
breached.
(See
Docket
Entries
23-1,
23-2.)
Accordingly, those statements cannot constitute the basis for a
claim for fraud.
In their Reply, Plaintiffs acknowledge the absence of certain
information generally recognized as required under Rule 9(b), but
deny the materiality of those details:
Plaintiffs admit that they have not alleged the precise
date of the misrepresentations. However, it is clear
that such were made prior to the payment of the purchase
price of the machines.
The place where the
representation was made ought not be considered a
material allegation given that Plaintiffs have been
abundantly
specific
as
to
all
other
pertinent
considerations incident to making out a case of
actionable fraud.
(Docket Entry 28 at 10 n.6.)
that,
in
addition
to
Again, the undersigned highlights
not
including
the
place
of
the
representations, Plaintiffs’ Amended Complaint only makes general
allegations that Defendant represented that the machines would be
“manufactured,
programmed
and
delivered”
and
cites
more
specifically only statements allegedly made by Defendant after the
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alleged breach.
These considerations render Plaintiffs’ proposed
fraud claim futile.
C.
Unfair and Deceptive Trade Practices and Constructive
Trust
As Plaintiffs acknowledge, “[t]he viability of Plaintiffs’
claims for unfair and deceptive trade practices and constructive
trust is necessarily based upon that of their claims for conversion
and fraud.”
(Docket Entry 28 at 10.)
Given that Plaintiffs have
not stated a claim for either “Conversion” or “Fraud,” their claims
for “Unfair and Deceptive Trade Practices” and “Constructive Trust”
necessarily fail.
IV.
CONCLUSION
Because Plaintiffs’ proposed amendments would fail under Fed.
R. Civ. P. 12(b)(6), their Motion to Amend Complaint is futile.
IT IS THEREFORE ORDERED that Plaintiffs’ Motion to Amend
Complaint (Docket Entry 21) is DENIED.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
July 10, 2012
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