Outer Banks Beach Club Association, Inc. et al v. Fesitva Resorts Adventure Club Members' Association, Inc. et al

Filing 26

ORDER accepting 20 Memorandum and Recommendations and granting in part and denying in part 13 the Defendant's Joint Motion to Dismiss (see order for further details). Signed by District Judge Martin Reidinger on 09/18/2012. (thh)

THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:11cv246

OUTER BANKS BEACH CLUB
ASSOCIATION, INC. and OUTER
BANKS BEACH CLUB II OWNER'S
ASSOCIATION, INC.,

)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
FESTIVA RESORTS ADVENTURE
)
CLUB MEMBER'S ASSOCIATION,
)
INC.; INTERVAL ASSETS, INC.;
)
FESTIVA DEVELOPMENT GROUP,
)
LLC, a Nevada limited liability
)
company, and JOHN DOES I-X
)
to be added as appropriate,
)
)
Defendants.
)
_______________________________ )

ORDER

THIS MATTER is before the Court on the Defendants’ Joint Motion to
Dismiss

[Doc.

13];

the

Magistrate

Judge’s

Memorandum

and

Recommendation regarding the disposition of that motion [Doc. 20]; and the
parties’ Objections to the Memorandum and Recommendation [Docs. 21, 22].
I.

PROCEDURAL BACKGROUND
The Plaintiffs Outer Banks Beach Club Association, Inc. and Outer

Banks Beach Club II Owner’s Association, Inc. brought this action on

September 22, 2011 against the Defendants Festiva Resorts Adventure Club
Member’s Association, Inc., Interval Assets, Inc., Festive Development,
Group, LLC, and John Does I-X, asserting various claims arising from the
Defendants’ alleged failure to pay maintenance fees to the Plaintiffs. [Doc. 1].
The Defendants then jointly moved to dismiss all of the Plaintiffs’ claims
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. [Doc. 13].
Pursuant to 28 U.S.C. § 636(b) and the Standing Orders of Designation
of this Court, the Honorable Dennis L. Howell, United States Magistrate
Judge, was designated to consider Defendants’ Motion to Dismiss and to
submit a recommendation for its disposition.
Magistrate

Judge

entered

a

Memorandum

On June 18, 2012, the
and

Recommendation

recommending that the Defendants’ Motion be granted in part and denied in
part.

[Doc. 20].

Both parties filed Objections to the Memorandum and

Recommendation. [Docs. 21, 22]. The parties have responded to each
other’s Objections. [Docs. 23, 24].
Having been fully briefed, these matters are now ripe for disposition.

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II.

STANDARD OF REVIEW
A.

Standard of Review Applicable to Objections to Magistrate
Judge’s Memorandum and Recommendation

The Federal Magistrate Act requires a district court to “make a de novo
determination of those portions of the report or specific proposed findings or
recommendations to which objection is made.” 28 U.S.C. § 636(b)(1). In
order “to preserve for appeal an issue in a magistrate judge’s report, a party
must object to the finding or recommendation on that issue with sufficient
specificity so as reasonably to alert the district court of the true ground for the
objection.” United States v. Midgette, 478 F.3d 616, 622 (4th Cir. 2007). The
Court is not required to review, under a de novo or any other standard, the
factual or legal conclusions of the magistrate judge to which no objections
have been raised. Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88
L.Ed.2d 435 (1985). Additionally, the Court need not conduct a de novo
review where a party makes only “general and conclusory objections that do
not direct the court to a specific error in the magistrate’s proposed findings
and recommendations.” Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982).
B.

Rule 12(b)(6) Standard of Review

In reviewing a motion to dismiss filed pursuant to Rule 12(b)(6), the
Court is guided by the Supreme Court’s instructions in Bell Atlantic Corp. v.
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Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). As
the Fourth Circuit has noted, “those decisions require that complaints in civil
actions be alleged with greater specificity than previously was required.”
Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012).
In order to survive a motion to dismiss pursuant to Rule 12(b)(6), “a
complaint 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, 129 S.Ct.
1937 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). To be
“plausible on its face,” a plaintiff must demonstrate more than “a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678, 129
S.Ct. 1937.
In reviewing the complaint, the Court must accept the truthfulness of all
factual allegations but is not required to assume the truth of “bare legal
conclusions.” Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4th Cir. 2011). “The
mere recital of elements of a cause of action, supported only by conclusory
statements, is not sufficient to survive a motion made pursuant to Rule
12(b)(6).” Walters, 684 F.3d at 439.

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To survive a Rule 12(b)(6) motion, “a complaint must state a ‘plausible
claim for relief.’”

Id. (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937).

Determining whether a complaint states a plausible claim for relief is “a
context-specific task,” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.
2009), which requires the Court to assess whether the factual allegations of
the complaint are sufficient “to raise a right to relief above the speculative
level,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. As the Fourth Circuit has
recently explained:
To satisfy this standard, a plaintiff need not forecast
evidence sufficient to prove the elements of the claim.
However, the complaint must allege sufficient facts to
establish those elements. Thus, while a plaintiff does
not need to demonstrate in a complaint that the right
to relief is probable, the complaint must advance the
plaintiff’s claim across the line from conceivable to
plausible.
Walters, 684 F.3d at 439 (citations and internal quotation marks omitted).
III.

DISCUSSION
A.

Objections to Recommendation Regarding Substantive
Counts

The Defendants object to the Magistrate Judge’s recommendation that
the Motion to Dismiss be denied with respect to the Plaintiffs’ claims for
breach of contract (Count One) and fraudulent transfer (Count Three). [Doc.

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21]. The Plaintiffs object to the Magistrate Judge’s recommendation that the
Motion be granted as to their third party beneficiary claim (Count Two), their
claim for illegal abandonment (Count Four), their claim for conspiracy to
commit fraud (Count Five), and their RICO claim (Count Six). [Doc. 22].
In their Objections, the parties largely reiterate the arguments made in
their prior pleadings with respect to the Motion to Dismiss. These types of
objections do not warrant a de novo review of the Magistrate Judge’s
reasoning.

An objection “that merely restates the arguments previously

presented is not sufficient to alert the court to alleged errors on the part of the
magistrate judge.

An ‘objection’ that does nothing more than state a

disagreement with a magistrate’s suggested resolution, or simply summarizes
what has been presented before, is not an ‘objection’ as that term is used in
this context.” Aldrich v. Bock, 327 F.Supp.2d 743, 747 (E.D. Mich. 2004).
After a careful review of the Memorandum and Recommendation , the Court
concludes that the Magistrate Judge’s proposed conclusions of law are
correct and consistent with current case law. Accordingly, the Court hereby
overrules the parties’ Objections and accepts the Magistrate Judge's
recommendation that the Motion to Dismiss be denied with respect to Counts
One and Three and granted with respect to Counts Two, Four, Five, and Six.

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B.
In

Defendants’ Objection Regarding Punitive Damages Demand
addition

to

their

Objections

to

the

Magistrate

Judge’s

recommendations regarding the substantive counts of the Complaint, the
Defendants object to the Memorandum and Recommendation insofar as it
failed to address the Plaintiffs’ demand for punitive damages. [Doc. 21 at 1011]. North Carolina law permits the award of punitive damages “only if the
claimant proves that the defendant is liable for compensatory damages” and
that an aggravating factor such as fraud, malice, or willful or wanton conduct
“was present and was related to the injury for which compensatory damages
were awarded.” N.C. Gen. Stat. § 1D–15(a); see also Strawbridge v. Sugar
Mountain Resort, Inc., 320 F.Supp.2d 425, 435-36 (W.D.N.C. 2004). Of the
claims remaining in this case, punitive damages are sought only with respect
to their claim for fraudulent conveyance. In support of this claim, the Plaintiffs
have alleged that the Defendants engaged in fraudulent conduct. [Complaint,
Doc. 1 at ¶ 26]. Having alleged a basis for the award of compensatory
damages, and having additionally alleged the aggravating factor of fraud, the
Plaintiffs’ Complaint states a plausible claim for punitive damages.1 The
Defendants’ Motion to Dismiss the Plaintiffs’ request for punitive damages is

1

Of course, whether the Plaintiffs will be entitled to an actual award of such
damages is an issue which is reserved for another day.
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therefore denied, and the Defendants’ Objection to the Memorandum and
Recommendation for failing to address this aspect of the Plaintiffs’ Complaint
is overruled.
C.

Plaintiffs’ Request for Leave to Amend

In their Response to the Defendants’ Motion to Dismiss, the Plaintiffs
requested leave to amend their Complaint in the event that any portion of the
Motion is granted.

[Doc. 15 at 22-23].

In the Memorandum and

Recommendation, the Magistrate Judge correctly noted that Local Rule
7.1(C)(2) provides that motions cannot be contained in a responsive brief and
instead must be filed as separate pleadings. [Doc. 20 at 16 n.3]. Accordingly,
the Magistrate Judge declined to address the Plaintiffs’ request to amend.
[Id. (“Because there is no motion pending before the Court, there is nothing
for this Court to rule on related to allowing Plaintiffs....leave to amend their
Complaint”)].
Failing to heed the Magistrate Judge’s sage advice, the Plaintiffs now
renew their request to amend, not by the filing of a separate motion, but as
part of their Objections to the Memorandum and Recommendation. [Doc. 22
at 13-14]. While acknowledging the requirements of Local Rule 7.1(C)(2), the
Plaintiffs nevertheless urge the Court to exercise its discretion and consider

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their request, despite their failure to file a separate motion requesting such
relief, “in the interest of judicial economy.” [Id. at 13].
The Plaintiffs’ request is not well-taken. The Plaintiffs had twenty-one
days from the filing of the Defendants’ motion to dismiss to file an amended
complaint as of right and to address the pleading deficiencies identified by the
Defendants in their motion. See Fed. R. Civ. P. 15(a)(1)(B). Despite having
the unilateral right to do so, the Plaintiffs failed to amend their Complaint
within the time required. Having failed to amend their pleading and to address
the deficiencies identified by the Defendants, the Plaintiffs left the Court with
no option but to address the motion to dismiss on its merits. In so doing, the
Magistrate Judge engaged in a thorough analysis of each of the Plaintiffs’
causes of action. After carefully analyzing each of the Plaintiffs’ claims and
the factual allegations made in support thereof, the Magistrate Judge issued
his recommendation that the Defendants’ motion to dismiss be granted in part.
Plaintiffs’ request to amend is not only in contravention of the Court’s
Local Rules but also is an obvious attempt to circumvent the recommendation
of the Magistrate Judge regarding the disposition of the Defendants’ motion
to dismiss. See Googerdy v. N.C. Agric. and Technical State Univ., 386
F.Supp.2d 618, 623 (M.D.N.C. 2005). “To allow the Plaintiffs to amend their

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Complaint at this stage of the proceedings, after the Magistrate Judge has
issued a formal recommendation regarding the disposition of a dispositive
motion, would not only prejudice the Defendants, who have expended the
time and expense of fully briefing a motion to dismiss; it would encourage
dilatory practices on the part of plaintiffs in delaying motions for leave to
amend until after they have the benefit of a Magistrate Judge’s opinion . . . .”
Bailey v. Polk County, No. 1:10cv264, 2011 WL 4565449, at *4 (W.D.N.C.
Sept. 29, 2011) (citation omitted). Moreover, allowing such amendment would
“impermissibly place a federal judge in the position of rendering advisory
opinions.” Id. (citation omitted). The referral of a dispositive motion to the
Magistrate Judge for a recommendation as to its disposition is not intended
to provide the parties with a advisory ruling on the sufficiency of their
pleadings. Rather, it is a mechanism by which the Magistrate Judge can
evaluate the merits of a dispositive motion and make recommendations to the
District Court regarding its disposition. Once a Magistrate Judge has made
a recommendation, the parties must file properly supported objections in order
to obtain de novo review by the District Court. See Orpiano, 687 F.2d at 47.
Plaintiffs’ request to amend, however, would render this entire procedure a
nullity and “would wreak havoc on the judicial system by adding substantial

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delay and undermining the Federal Rules of Civil Procedure.” Googerdy, 386
F.Supp.2d at 623. For all of these reasons, the Plaintiffs’ request to amend
their Complaint is denied.
V.

CONCLUSION
For the reasons stated therein, the Court hereby accepts the Magistrate

Judge’s recommendation that the Defendants’ Motion to Dismiss be granted
in part and denied in part.
IT IS, THEREFORE, ORDERED that the parties’ Objections to the
Memorandum and Recommendation [Docs. 21, 22] are OVERRULED; the
Magistrate Judge’s Memorandum and Recommendation [Doc. 20] is
ACCEPTED; and the Defendants’ Joint Motion to Dismiss [Doc. 13] is
GRANTED IN PART and DENIED IN PART.

Specifically, the Motion to

Dismiss is GRANTED with respect to Counts Two, Four, Five, and Six of the
Complaint, and these Counts are hereby DISMISSED pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. The Motion to Dismiss is
DENIED with respect to Counts One and Three.
IT IS FURTHER ORDERED that the Defendants shall file an Answer to
the Plaintiff’s Complaint within twenty-one (21) days of the entry of this Order.

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IT IS SO ORDERED.
Signed: September 18, 2012

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