HONGDA CHEM USA, LLC et al v. SHANGYU SUNFIT CHEMICAL COMPANY, LTD.
Filing
64
MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE signed by MAG/JUDGE JOE L. WEBSTER on 02/18/2016, that Third-Party Defendants' Motion to dismiss (Docket Entry 55 ) be GRANTED IN PART AND DENIED IN PART. Third-P arty Defendant's motion should be granted as to Sunfit's claim for constructive fraud. As to Sunfit's remaining claims (UDTPA claim and UFTA actual fraud claim), Third-Party Defendant's motion should be denied. To the extent Sunfit seeks to amend its Third-Party Complaint, IT IS RECOMMENDED that Sunfit's request be denied. (Garland, Leah)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
HONGDA CHE,MICAL US,\, LLC,
Et AI.,
)
Plaintiffs,
v
SHANGYU SUNF'IT CHEMIC,A,L
COMP,{,NY, LTD., et al.,
D e fendants
/Thitd-Patty
Plaintiff,
V
GARY DAVID MCKNIGHT, et al.,
Thfud-Party Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
1,:1,2CY1,1,46
MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE IUDGE
This matter is befote the court upon Thfud-Patty Defendants Gary David Mcl(night,
Raymond P. Perkins, \ü7ei Xu, Eco
Ago
Resources,
LLC ("Eco Agro"), Vasto Chemical
Company, Inc. ('"V-asto"), and l(adi Resources, LLC's ("I(adi") (hereinafter refened to
as
"Thitd-Party Defendants") motion to dismiss (Docket Etttry 55) the Third-Patty Complaint
filed by Third-Patty Plaintiff Shangyu Sunfit Chemical Company, Ltd. ('SunfiC'). The motion
has been fully bdefed and is ripe for disposition. For the teasons that follow, the Coutt will
recommend that the motion be granted in part and denied in part.
I.
PROCEDURAL BACKGROUND
Plaintiffs Hongda Chemical USA, LLC ("Hongda Chem") and Hongda Group
Limited, LLC ("Hongda Group") (collectively "Hongda") filed suit against Sunfit alleging
sevetal causes
of action adsing from Sunfit's
alleged intentional breach
provision in a sales contÍact executed by the patties.
(See
of ar
exclusivity
generalþComplaint, Docket Entry 1.)
Sunfit filed an,\nswer and asserted counterclaims against Hongda. Q)ocket Entry 8.) Ân
Amended Complaint was subsequendy filed adding Defendant YMS ,\gticulture International
Cotporation ('YMS') to this action.l (Am. Compl., Docket Entry 37.) Sunfit filed an Answer
to the amended Complaint, alleging counterclaims against Hongda. (Am. Âns., Docket Entty
38.) On March 2,201,5, Sunfit filed amended counterclaims against Hongda and aThird-Party
Complaint against Gary David Mclfuight, Raymond P. Petkins, !Øei Xu, Eco Agro Resources
LLC, Vasto Chemical Company, Inc., and l(adi Resources
LLC,
Q)ocket Entry 48.) On
Match 4, 201.5, Sunift agun amended its countetclaims and amended its Third-Patty
Complaint. (Docket E.rt"y 51.) Third-Party Defendants thereafter filed a motion to dismiss
the Third-Party Complaint for failure to state a claim. (Docket Entry 55.) Sunfit has filed a
response. (Docket Entry 58.)
(A4inute
II.
A
hearing was held
in this matter on December 8,
201,5.
Entry dated 12/8/20"15.)
FACTUAL BACKGROUND2
Viewing the evidence in the light most favorable to Sunfit, the material facts may be
summatized as follows. Sunfìt is a manufacturer that specialized in the "research, production
1 YMS
also filed an
Answer. (Docket F,n:rry 44.)
z The facts summanzed herein ate material to the pending motion.
2
^nd
ttade of fertilizet additives , phatmaceutical intermediates and food additives, including N-
(n-Butyl) thiophosphodc Triamide
('NBPT")." (Am.
Countetcl.
1T
13, Docket Entry 51.)
Hongda Chem is a Notth Carohna limited liability company that sells chemical products. (1/.
I113, 11.)3 Third-Party Defendants in the present proceeding ate: three of Hongda's principals
named GaryDavíd McKnight (President and CEO of Hongda), Raymond P. Petkins (Hongda
Officer and also a managrngmember of Eco Agro Resources) and \)Øei Xu (Hongda Officet);
Eco Agto Resource, LLC, Vasto Chemical Company Inc., and l(adi Resouces
LLC. (A-.
Compl. IlT 11-15, Docket Entty 51.) In pertinent part, Sunfit alleges the following:
37.Prior to entering into the Agency Contact, Hongda and its principals, Gary
David Mcl(night (Àdclfuight"), Raymond P. Petkins ("Petkins') and Wei Xu
("Xr"), entities used by these individuals including Eco Agto Resources LLC,
Vasto Chemical Company, Inc. ("Vasto"), KaDi Resoutces LLC and othet, as
yet unnamed, conspirators (collectively with Hongda, the "Hongda r\ffiliates'),
conspired to create a competing venture in violation of both its agteements with
Sunfit and with Albemade Corporation and to impropedy retain ftaudulently
ttansfered funds belonging to Sunfit.
41. Worse yet, the Hongda Affiliates devised a scheme wheteby they would
induce Sunfit to manufacture and ship NBPT to Hongda, which would in turn
sell this NBPT to Albemade and, rather than pay Sunfit for this NBPT on the
tetms agreed, the Hongda ,\ffiliates would fraudulently transfet the proceeds
from these sales out of Hongda and then impropetly invest the proceeds of
these sales into the scheme, essentially using Sunfit's funds to build this new,
competing distribution system for the sale of NBPT from Chinâ to the United
States.
43. Once Sunfit reahzed that Hongda had deftauded it and did not intend to
pay over the many millions of dollars collected on Sunfit's behalf, it sent a
demand letter thteatening the present litigation absent paymerit. $Tithin minutes
Accotding to Sunfit, Hongda Gtoup is the alter ego of Hongda Chem. (,{,m. Compl.
Entry 51.)
3
J
I
11, Docket
of the deadline established by Sunfit for payment of these funds, Hongda sued
Sunfit claiming falsely that there was no obligation to p^y over Sunfit's money
because Sunfit had been selling NBPT into the North American market in
violation of the Agency Contact.
44. Thereafter, once this litigation commenced, Petkins sent a December 20,
201.2 e-mul where he set out the basic structute through which the Hongda
affiliates would begin to operate now that they had taken everything they could
from Sunfit; they would orgarize a new entity, which ultimately became Eco
,{.gro on Decembet 31.,201,2, and this new entitywould take ovet the sale of
NBPT in Noth America on behalf of the Hongda Affiliates.
2.
More specifically, the Third-Parq Defendants aided, abetted and were, in
many cases, the recipients of . . . fraudulent transfers . .
The Third-Party
Defendants are necessary parties in that, as benefìciaries of the ftaud alleged in
the Countetclaims, and given that all of the Hongda assets have been siphoned
off to the Thitd-Patty Defendants or their designees, recovery ftom Hongda
undet the Counterclaims would ultimately be a pyric victory.
3. Putsuant to the Agency Contract, Hongda was appointed agent fot Sunfit
with respect to sales of a certain Sunfit chemical product in the United States
and, upon receiving pâyment for the products sold in the United States, Hongda
was to take a thtee petcefi (3o/o) commission and remit the balance of the funds
paid to Sunfit within ninety (90) days from the date shipment.
4. Since.August of 201,2, Hongda has defaulted in the payment of material sums
due under the Agency Contract.
5. Specifically, no payment has been teceived from Hongda since August, 201,2,
despite the fact that Hongda has been paid by the ultimate consumers of the
Sunfit ptoduct; past due payments from Hongda undet the Contact have now
accumulated to an
te in the principal sum of $5,770,050, plus intetest
^ggteg
since date of breach.
Qd.ffi 1-5; Am. Countercl.ll1l37,
41,-44,
Docket Entty 51.) Sunñt brought this action alleging
that Thfud-Party Defendants conspfued to take Sunfit's ptoceeds to finance their own NBPT
distribution system in violation of the Noth Carolsna Unfait and Deceptive Trade Practices
4
Act ("UDT?,{.') and the North Carchna Unifotm Ftaudulent Transfer Act ("UFTA"). (A-.
Countetcl.
III.
II37, 41,-44;Âm. Compl.
fl6, Docket Entry 51.)
DISCUSSION
A. Standard of Review
Third-Party Defendants argue that dismissal is appropnate pursuant to Federal Rule
of
Civil Ptocedure 12þ)(6). ,{ motion to dismiss pursuant to Rule 12þ)(6) tests the "sufficiency
of
a
complaint." Edwards
u.
CiE of Goldsboro, 178 F.3d 231,,243 (1999). ,{. motion to dismiss a
complaint should be granted if the complaint does not meet the requirements of Rule 8. Bell
Atl.
Corp. u. Twombþ,550 U.S. 544,555
Q007). The Supreme Court has explained that "Federal
Rule of Civil Ptocedure 8(a)(2) tequires only'a short and plain statement of the claim showing
that the pleader is entitled to relief,'in order to þive the defendantfau notice of what the . .
claim is and the grounds upon which
it rests."' Twonbþ, 550 U.S. at 555 (citations
.
and
quotations omitted). A complaint that does not "contain sufficient factual matter, accepted
as true,
to 'state a claim to telief that is plausible on its face must be dismissed."' Ashcroft
Iqbal, 556 U.S. 662, 678 (2009) (quoting Twonbþ,550 U.S.
^t
u.
570). '.A claim has facial
plausibility when the plaintiff pleads factual content that allows the court
teasonable infetence that the defendant is liable for the misconduct alleged."
to draw the
Id. The "court
accepts all well-pled facts as true and construes these facts in the light most favorable to the
plainttff," but does not considet "legal conclusions, elements of a cause of action, . . . barc
assettions devoid of furthet factual enhancementlJ . . . unwarranted inferences, unÍeasonable
conclusions, or atgumerìts." Nemet Cherolet, Ltd. a. Conrumerffiirs.clm, Lnc.,591 F.3d 250,255
(4th Cir. 2009) (quotations and citations omitted). In other words, the standard "requires the
5
plaintiff to atticulate facts, when accepted as true, that 'show' that the plaintiff has stated a
claim entitling him to relief." Francis u. Giacornelli,5SS F.3d 1,86, 1,93 (4th Cir. 2009) (quoting
Iqbal,556 U.S. àt 557)
B. ANAYLSIS
Sunfit's UDTPA Claim
Sunfit argues that Thitd-Party Defendants'acts of withholding Sunfìt's ptoceeds and
using them to finance a competing venture were deceptive and unfair so as to place ThitdParty Defendants' conduct within the scope of the UDTPÂ. (Pl.'s Resp .
^t
15, Docket
Etrtty
58.) The North CarcltnaUDTPA is intended to prevent "unfah or deceptive acts ot ptactices
in ot affecting commerce."
Becker u. Graber Bøilders, Inc., 149
N.C.
'\pp.
905, 910 Q002) (citation and quotation omitted). A plaintiff asserting an
show: "(1) defendant committed an unfau or deceptive
question was
^ct
787
,794,561 S.E.2d
UDTP,\ claim must
ot ptactice; (2) the action in
in ot affecting cornmerce; and (3) the act proximately caused injury to
the
plaintiff." Id. An unfair practice is one that "offends established public policy or is immotal,
unethical, opptessive, unscrupulous, ot substantially injutious to consumers." McDonald Bros.
a. Tinder Wholesale, 11,C,395 F. Srrpp. 2d 255,269 QvI.D.N.C. 2005) (internal citations and
quotation omitted). "An actis deceptive if it has the capacity or tendency to deceive[.]" Bailel
u. L.eBeaa,79
N.C. App. 345, 352,339 S.E.2d 460,464 (1986) (quoting L¿e u. Pa1ton,67 N.C.
App. 480, 482 (1,984)). "[A] mete breach of contract, even if intentional, is not sufficiently
unfair ot deceptive to sustain an action under [the UDTPA]." Brvussard u. Meineke Discount
Mffir
Shops, Inc., 1,55
tr.3d
331,,
347 (4th Cir. 1998) (citing Branch
Thompson,107 N.C. ,{.pp, 53, 62,4'18 S.E.2d 694,700 (1992)).
6
Ban,Þ.ing
dv Tru¡t Co.
u.
Third-Party Defendants contend that Sunfit "has not alleged thatany of the Third Parg
Defendants made any representations to
it."
(Third-Party Defs.'Reply Br. at 8, Docket E.rtry
56.) Flowever, "fw]hether a tade practice is unfait ot deceptive usually depends upon the
facts of each case and the impact the practice has in the marketplace." Il/hite u. Thonþs0n,1.96
N.C. App. 568, 578, 676 S.E.2d 104,
(citations and quotations omitted).
1,1,1,
(2009) af|d, 364 N.C. 47, 691 S.E.2d 676 Q01,0)
,\ review of the complaint
here shows that Sunfit has
alleged substantial aggravattngcircumstances sufficient to state a UDTP,{. claim. Sunfit alleges
that Third-Pafty Defendants conspited to retain funds belonging to Plaintiff
competing venture which would manufactute and sell NBTP.
(A-.
to
create
a"
Countercl. 1Tll37-38, 56,
Docket Entry 51.) Sunfit alleges that an email "from Perkins to Mcl{night and Xu" suggest
that the officets were upset that the agreement between Sunfit and Hongda would not allow
Hongda to bring NBTP into the United States unless purchased from Sunfitandthat someone
had leaked their secret plan. (Id. n 40.) Sunfit also indicates that thete were emails suggesting
that the Third-Party Defendants' plans fot Eco Atgo had to be accelerated because of
litigation.
(Id.
11
45.)
The alleged egregious factors highlighted in Sunfit's Third-Party Complaint elevate the
matter from a mere breach of contract to
a
violation of the UDTPI{,. McDonald Bros., 395 F.
S.tpp. 2d at269 (stating that"a bteach must be particulady egregious to permit recovery under
S
75-1.1'). Essentially, Sunfit
alleges that, from the start, the officers planned to pretend to
comply with the agreement between Hongda and Sunfit in otder to tetain proceeds to finance
a new competing venture to sell
NBTP. (,\m. Countetcl. lffl 37-45,56, Docket Entry
Concerning the officers' alleged acts, scheming to enter into
7
^
51.)
coîttact fot the purpose of
using Sunfit's proceeds to finance
â new venture is
cleady unethical, immotal, and
unsctupulots. McDonald Bros.,395 F. Srrpp. 2d at 270 (concluding that the defendant violated
the UDTPA because
it told the plaintiff
that a watta;nty would be honored in bad faith and
subsequently asserted that the express ot implied waranties wete waive d); Pedwell
u.
Firct Union
Nat Ban,ëofN. Carolina 51 N.C. App.236,237-38,2755.8.2d565,567 (1981) (reasoningthat
two patties conspiring to prevent another from performing undet
^
cotftract is consideted
unfair and affec:jrng commerce undet the UDTP,A.). Eco Agto, Vasto, and Kadi's
conduct
of
conspiring
unscrupulous. In
re
EBIY
to
receive Sunfit's ptoceeds
L^aser,
is
alleged
also unethical, immoral, atd
Inc., No. 05-10220C-7G,2008
WL 1805575, ú*2-3 @ankr.
M.D.N.C. Apr.21.,2008) (concluding that a company's UDTPA claim was sufficient to survive
a motion fot judgment on the pleadings because the defendants allegedly violated their
fiduciary duty by tansferring funds belonging to the company to a third pmty to hindet, delay
and deftaud creditots of the company); Pedwe/1,51 N.C. App. at 237-38,275 S.F,.2d at567. In
sum, the unfairness prong of the UDTPA is satisfied.
Next, Third-Patty Defendants' allegedly unfair and deceptive acts affect conunerce.
Commetce has been defined as "the exchange
of goods and services or trade and othet
business activities." Country Vintner of N. Carolina
't .-t
.C u.
E. dy J. Gallo lWiruery, Inc., No.
509CV3268R, 2010 \)fL 4105455, at x3 (E.D.N.C. Oct. 18,2010)
afd sub non. 461, F. App'x
302 (4th Ctt. 2012) (internal citations and quotations omitted). Third-Party Defendants'
alleged acts affect coÍunerce because the acts concern a controversy over ptoceeds amounting
to at least 5.7 million dollars fot the exchange of NBPT, a chemical good, between two
companies. Thetefore, the second element is satisfied.
I
Third-Party Defendants' alleged conduct would be the ptoximate cause of Sunfit's
injury. Proximate
cause is defined as:
a cause which in natural and continuous sequence, unbtoken by any new and
independent cause, produced the plaintiffs injuries, and without which the
injuries would not have occutted, and one from which a petson of ordinary
prudence could have reasonably foreseen that such a result, or consequences of
a generally injurious nature, was probable undet all the facts as they existed.
Strate¡Shows,Inc.u.Ama¡ement¡0fArn.,lnc.,1.84N.C.App.455,462,6465.F,.2d418,424Q007)
(internal quotations and citations omitted). Accotding to Sunfit's allegations, Third-Party
Defendants are the "but-for" cause of Sunfit's injury because no independent intervening act
interrupted Third-Party Defendant's actions that caused Sunfit's alleged injuties. Id. at 46365. (stating that the plaintiffs claim did not meet the ptoximate cause standard because the
plaintiff failed to establish "that but fot the defendant's illegal conduct fthey] would have been
awarded a conttac(');
Hnl
r. Autos Unlimited, Inc., 1.24 N.C. App. 410, 41,4, 477 S.E .2d 86, 89
(1996) writ denied, reuiew denied,346 N.C. 279,487 S.E.2d 546,547(1,997) (teasoning that the
defendant was the ptoximate cause
of the plaintiffs injuries resulting from purchasing
a
damaged vehicle because she "purchased th[e] car based on the assurances of defendant . .
and would not have purchased the car had she known
Funhermote,
it
it
.
was a reconsftucted vehicle").
could be reasonably foreseen that Third-Party Defendants' alleged act of
conspiring to breach the contract to confiscate Sunfit's proceeds would cause Sunfit's injury.
Il/ltatt u. Gilmore,57 N.C. -{pp. 57, 58,290 S.E.2d 790,791, (1,982) (concluding that
"^ tott-
feasor is liable if, by the exetcise of reasonal:'le care, he might have foreseen that some injury
would tesult from his conduct or that consequences of
9
a genetally
injurious nature might have
been expected"). Thus, Sunfit's claim sufficiendy satisfies the ptoximate cause element. In
sum, Sunfit's UDTPA claim should not be dismissed.
Sunfit's UFTA Claim
Next, Thitd-Party Defendants also argue that Sunfìt's UFTA claim should
be
dismissed. (Thitd-Party Defs.' Br. at 12, Docket Entry 56.) Thitd-Party Defendants' sole
argumenr is that Sunfit's UFTA claim is not pled with particuladty. Qd.)
meeting the plausibility standard of Iqbal, ftaud-based claims must
particulatity putsuant to Rule 9þ)
. . ;'
"In addition to
be
pleaded with
In re ll/hitley No. 10-10426,201.3 !øL 486782, at*9
@ankr. M.D.N.C. Feb. 7, 2013) (intetnal quotation omitted). Sunfit asserts both actual and
consúuctive fraud claims under the UFTA.
(Ä-.
Countercl. 1TI60-65, Docket Entry 51.)
Actual Fraud
First, Sunfit's allegations are sufficient to plausibly establish an actual fraud claim that
meets the requirements of Rule
8. "Undet fNotth
Caro]ina's Uniform Fraudulent Ttansfer
Act], a transfer is actually fraudulent if it is made with the intent to hindet, delay, ot deftaud
cteditot of the debtor." Thimbler Inc. u. Uniqae
Sols. Design,
a
Ltd., No. 5:1,2-CY-695-BR, 2013
lfl.4854514,at*7 (E.D.N.C. Sept. 11,,2013) (citingN.C. Gen. Stat. $ 39a3.4(a)(1)). Sunfit
alleges that Third-Party Defendants conspired to teceive fraudulent ttansfets
new venture for the putpose of manufacturing and selling
56-57, Docket Entry
51.) Sunfit furthet
hinder, delay, or deftaud Plaintiff . . .
(Id.
a
NBPT. (Am. Countercl. tflf 37-38,
alleges that the transfers were "made
."
to establish
n 60.) "pflhile
with intent to
each fact does rtot have to
demonstrate actual fraud, the facts taken together must lead to the conclusion that actual ftaud
existed," In
re Tanglewood Fanøs,Iruc. of E,lirybeth Cit14
10
No. 10-06719-8-JRL, 201,3WL 1405129,
at x9 (Bankt. E.D.N.C.
nfT- 4854514, at
Apr. 8, 201,3) (internal citations and quotations omitted);Thimbler,201,3
*8. The alleged
collect Sunfit's proceeds
act of entering the contract in bad faith and conspiring to
to fund another venture is
sufficient
Defendants' intent to deftaud Plaintiff undet the UF'TA. Tauenner
to
establish Third-Patty
u. Smoot,
257 F.3d 401,, 404-
05, 408 (4th Cir. 2001) (concludingthat the evidence suppotted intent to defraud because the
defendant ttansfetted $200,000
to a corporation owned "entirely by members of
defendant's] immediate family, and received no consideration
fthe
in" return after two entities
obtained judgments against the defendant); Nytco Itasing Inc. u. Se. Motels, Inc.,40 N.C. App.
120,"1.22,131,252 S.E.2d 826,829,833-34 (1,979) (concluding that the defendant's attempt to
convey ten patcels of land to his wife for 100 dollars after the
plaintiff filed suit against the
defendant to recover alarge sum money was sufficient fot a jury to infer that defendant and
his wife intended to defraud the plaintiff). Therefore, Sunfit's actual ftaud claim meets the
Rule 8 plausibility standard.
Secondly, Sunfit's acttal ftaud claim must be pled with particularity. In re lf,/hitley 2013
ffT- 486782, at *1,3. With respect to ftaudulent ttansfet claims, both the Noth Caroltna
Middle District Bankruptcy Court and the North Carohna Eastetn Distict Coutt have applied
a parttculadty test detived from the Bankruptcy Code concetning ftaudulent ttansfets and
obligations. Id. at 12 (teasoning that following the Banktuptcy Code "in ordet to give meaning
to state statutes" is in hatmony with what several coutts have done in the past); Thinbler,201,3
WL
4854514,
at *7
(upplyt"g the Bankruptcy Code fraudulent transfer test for
patticularity). The test requires that the complaint allege "(1) the property subject to the
transfet, (2) the timing and, if applicable, frequency of the transfers and (3) the considetation
1,1,
paid u/ith respect thereto." Thinbler, 201,3 WL 485451,4, at *7 ; In re IY/hitley 201,3 WL 4867 82,
*.x1.3.
Sunfit satisfies the
ftst prong of the test. It
states that "Hongda intended to imptopedy
retain and use some or all of the revenues that were intended to be delivered to Sunfit upon a
sale
of NBPT, notwithstanding the obligation to remit
these revenues
to Sunfit." (A*.
Countetcl. tf 56, Docket Entry 51.) Sunfit further states that"a portion of the tevenues due
to be temitted to Sunfit were used to
finance the establishment
of
[a] new Chinese
manufacturer," aÍrd some portions were taken by Third-Party Defendants. (1/
11
58.) This
puts Third-Party Defendants on notice that the property subject to the transfer is the proceeds
allegedly confi scated by Third-Patty Defendants.
Regatding timing and frequency, the Fourth Citcuit has not addressed what is sufficient
to satisfy the Rule (9Xb) timing prong in fraudulent transfer câses. Moreover, district courts
in North Caroltna have tately addressed this issue. InTltimbler, the Court found that the timing
prong was not satisfied because the "complaint [did] not identiSr the date of the transfer . . .
or the relationship between the timing of the transfer and the date that fthe plaintiffls] ctaim
arose."
201,3
WL
485451,4,
ú*7.
To the contÍat!, in F.D.I.C.
u. Mingo
TribalPres. Trast, the
Court found that although the plaintiff did not identi$' the date of the rransfer, the complaint
satisfied Rule
(9)þ) because "[d]efendants þadl notice of the time pedod of the
alleged
tortious activities, namely the years of the lending relationship." No. 5:13-CV-1 1.3,201.5 WL
1.646751, at
*5
CX/.D.N.C.
Apr
14, 201,5). Additionally, in In re ll/hitley the Middle District
Bankruptcy Coutt found that "[w]hile the complaint [did] not
12
. . . give the date of
each
deposit/transfer," alleging that all transfets made between 2008 and 2010 were fraudulent
satisfied the timing
prong. 201,3WL
486782, at*13.
The Coun fìnds that this case is distinguishable fuomThimbler,becatse unlike this case,
the plaintiff in Thinbler, "failed to inject any measure of substantiation into its allegations
regarding the factual circumstances surrounding the fraud." 2013 ìøL 4854574,atx7. Here,
Sunfit's Thfud-Paty Complaint ptovides information regatding the Third-Party Defendants'
alleged scheme to take Sunfit's proceeds to fund a new business venture. (Am. Countercl. tlffl
37-45, Docket Etttty 51.) Sunfit's Thitd-Party Complaint does not identiSr the year, or how
many üansfets were made; howevet,
it
In re ll/hitlejt, the Bankruptcy Court in this district held
that the paticularity requirements mây be telaxed in situations in which the information
tegarding the fraudulent act is only in the hands the defendant. 201,3
WL
486782, at *1.3
(concluding that "Rule 9þ) may be relaxed when aplainttff alleges facts particularþ within the
knowledge of the defendant");
see also
DiMare
2010) (stating that a plaintiff is not requfued
u.
MeîUfe Ins. Co.,369 F. App'" 324,330 (3d Cir.
"to have personal knowledge of the details of
corporate intetnal affairs" and thetefore the
de
is relaxed "when factual information
is
peculiatþ within the defendant's knowledge or conffol") (internal citation and quotation
omitted); Michøels Bldg. Ca
"in à
case
a.
Aneritru¡t Co.,848 tr.2d 674,680 (6th Cir. 1988) (reasoning that
in which there has been no discovely, courts have been reluctant to dismiss the
action whete the facts underþing the claims are within the defendânt's control"). Under the
circumstances, there is no way for Sunfit to discover details regarding the date, amount, and
how much of the ptoceeds wete allegedly ttansferred to each Third-Party Defendant. Thus,
with tespect to timing, Sunfit has satisfied the relaxed particularity standard.
13
Regarding consideration, Sunfit states that Third-Pafty Defendants transferred the
ptoceeds "without teceiving a reasonably equivalent value in exchange for the tansfet." Qd.l
60). In its complaint, Sunfit does not ptovide facts to support this assertion. However,
stated above, "[t]he tequirements of Rule
9þ) may be relaxed when
a plaintiff alleges facts
paticularly within the knowledge of the defendant." In re lØhitley 2013 WL 486782,
In the instant case, Hongda
^t*1.3.
and Third-Party Defendants are the only patties that could
whether consideration was given by Third-Party Defendants
as
know
in exchange for the alleged
fraudulent tansfets. Thus, because Rule 9þ) is telaxed under the circumstances, Sunfit's claim
is sufficient to survive Rule
9þ). In re lVhitley
201,3
WL
486782,
ú*73.
Furthermore, Rule
(9)þ) is intended to be analyzed in harmony with the theory of Rule 8 which only requires
"simple, concise, and direct allegations."
Id. The claim must make Third-Party
Defendants
"^ware of the partcular circumstances for which [they] will have to prepare a defense at tÅal,
and" the court must be satisfied "that plaintiff has substantial pte-discovery evidence of those
facts."
Id.
overcome."
Rule
9þ) "is not intended to be an insutmountable hutdle for claimants
Id. Here, Third-Paty Defendants
are aware
of the circumstances
to
needed to
prepare for trial including the alleged conspirators, the general scheme, when Third-Party
Defendants allegedly decided to implement the scheme, and the property at issue.
(A-.
Countetcl. 111137-45, Docket Entry 51.) Thus, Rule 9þ) is satisfied with respect to Sunfit's
actval fraud claim.
Constuctive Ftaud
Next, Sunfit alleges that Third-Party Defendants' acts constitute consffuctive ftaud.
"Constructively fraudulent transfers, in conttast to those based on actual fraud, focus on the
1,4
effect the ransfer had on the debtot's financial condition without regard for the debtor's state
of mind ot intentions." Thimbler,2013IfL 4854514, at *8 (citation omitted). Constructive
ftaud can be established under two separate statutes.4 N.C. Gen. Stat.
23.5. "To establish
a claim under
"N.C. Gen. Stat.
S
SS
39-23.4(a)Q),39-
39-23.4(^)(2), fSunfit] must allege facts
showing that fHongda] was either engaged in a business ttansaction fot which its remaining
assets were unreasonably small
in telation to the transaction or thât [Hongda] knew þhe] debt
incurred was beyond its ability
to pay)' Id. Moreover, "[t]o plead a clair.r, for constructive
fraudulent ttansfet under N.C. Gen. Stat. $ 39-23.5, fSunût] must allege facts showing that
[Hongda] was insolverftat the time of the transfer ot that [Hongda] became insolvent as a
result of the transfer." Id. (cittngMilleru. FirstBank,206 N.C. App. 1,66,1,69,6965.8.2d824,
827 Q01,0)).
Sunfit fails to state a plausible claim to establish relief for constructive fraud under
either statute.s Accotding to lqbal, "ft]hreadbare recitals of the elements of a cause of action,
suppoted by mete conclusory statements, do not suffice . . . . Second, only
states a plausible claim
for relief survives a motion to dismiss." In
a
re Batenan,
complaint that
No. 10-06206-
8-RDD, 201,2WL 1110080, at*2 @ankr. E.D.N.C. Apr. 2,2012) (quoting Iqbal,556 U.S. at
678). In its complaint, Sunfit merely recites the elements needed to establish a claimpursuant
+A fraudulent transfet claim can be brought under N.C. Gen. Stat. 39-23.5 if the claim arose before
$
the ftansfer was made. N.C. Gen. Stat. $ 39-23.5. A fraudulent transfer claim ca¡ be brought under
N.C. Gen. Stat. $ 39a3.a@)Q) whethet the creditor's claim atose before ot after the üansfer. N.C.
Gen. Stat. $ 39a3A@)Q).
5 "Federal Rule of Civil Procedure 9þ), which requires the circumstances
of fraud to be stated with
patticularity, is not applicable to claims of constructive fraudulent transfer. " Thinbler, 2013 WL
4854514, at x8 n.5. See al¡o In re Caremerica,Inc.,409 B.R. 737,755 (Bankr. E.D.N.C. 2009) ('Rule 9þ)
does not apply to claims fot avoidance of constructively fraudulent transfers because such claims are
not based on actual ftaud but instead tely on the debtor's financial condition and the sufficiency of
consideration provided by the transferee.")
15
to N.C. Gen. Stat.
\ 39-n.a@)Q)
and S 39-23.5. Sunfit states that "lelach of these ttansfers
by Hongda w[ere] made at a ttme when Hongda did not have temaining assets sufficient to
pay the amounts owed to Sunfit." (Am. Countercl. fl 61, Docket Entty 51.) Next, Sunfit states
that Hongda intended to incur debts beyond its ability to pay. (1d.n62.) Subsequently, Sunfit
states that "[a]s a tesult
of the ttansfers at issue Hongda became insolvent."
Qd.
T
65.)
However, Sunfit failed to plead facts regatding Hongda's financial condition to allow the Coun
to dtaw teasonable inferences that Hongda was insolvent ot that its remaining
unreasonably small in relation to the transaction.
See
id.; Thinbler, 201.3
WL
assets were
485451.4, at *8
(holding that the plaintiff failed to plead facts about the defendant's finances other than two
conclusory statements that mirrored the language of the UFT,\). Âlthough Sunfit alleged facts
that would support its constructive fraud claim in its response, these facts were not in its
amended complaint. (Sunfit Response
Bl
at 19, Docket Entry 58.) Therefote, although
Sunfit's actual fraud claim survives Thitd-Patty Defendant's motion to dismiss,
established a plausible constructive fraud claim. In re Operation¡
it
has not
NY I t C.,490 B.R. 84, 95-96,
98 (Bankr. S.D.N.Y. 2013) (concluding that one of the plaintiffs intentional ftaudulent
üansfet claims was sufficient to survive a motion to dismiss, while two of the plaintifls
constuctive ftaudulent
trans fer claims
wete "legally insufficient").
C. Leave to Amend Third-Party Complaint
Sunfit contends that it should be granted leave to amend its complaint if Third-Party
Defendant's motion is granted. "This district's LocaI Rules require a proposed amended
pleading to be attached
Pepsi Bottling
to
any
motion for leave to amend a pleading." L.R.
15.1,; Robinson
u.
Gp., No. 1:1,3CY729,201,4WL 20481,27, at x4 (À{.D.N.C. May 1.9,201,4). "The
r6
obvious purpose is to avoid having cases thrust into limbo on such generalized requests that
may later prove
unsupported." Robinson,201.4WL 20481,27, at *4. FIete, Sunfit did not file a
motion for leave to amend the complaint; nor has it attached
to its response. L.R.
1.5.1,;
1989)(concluding that
opposition
a proposed amended
complaint
Morgan Distrìb. Co. u. Unidlnamic Corp.,868 F.2d 992,995 (8th Cir.
"it is axiomatic thât a complaint m y not be amended by the briefs in
to a motion to
dismiss.
To hold
otherwise would mean that a party could
unilatetally amend a complaint atwill, even without filing an amendment, and simply by raising
a
point in a brief') (citations and quotatìons omitted). T'herefore, Sunfìt's request to amend
the constructive ftaud complaint should be denied.
IV. CONCLUSION
For the reasons stated herein,IT IS HEREBY
Defendants' Motion
RECOMMENDED thatThird-Patty
to dismiss (Docket Entry 55) be GRANTED IN PART AND
DENIED IN PART. Third-Party Defendant's motion should be gtanted
as
to Sunfit's claim
fot constuctive ftaud. As to Sunfit's remaining claims (UDTPA claim and UFTA actual ftaud
claim), Third-Paty Defendant's motion should be denied.
To the extent Sunfit seeks to
amend
its
Third-Party Complaint,
IT
RECOMMENDED that Sunfit's tequest be denied.
ster
Magistrate Judge
United States
Jo.
Durham, North Carolina
February 18,201,6
17
IS
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