Biltmore Avenue Condominium Association, Inc. v. Hanover American Insurance Company

Filing 18

ORDER accepting the Magistrate Judge's 14 Memorandum and Recommendations; Granting in part and denying in part 10 Motion to Dismiss for Failure to State a Claim; Defendant's 15 Objection to the Memorandum and Recommendation is overruled. It is further ordered that Plaintiff's breach of contract claim contained in the 7 Amended Complaint is dismissed. Signed by District Judge Martin Reidinger on 2/2/2016. (kby)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:15-cv-43-MR-DLH

BILTMORE AVENUE CONDOMINIUM )
ASSOCIATION, INC.,
)
)
Plaintiff,
)
)
vs.
)
)
)
HANOVER AMERICAN INSURANCE )
COMPANY,
)
)
Defendant.
)
_______________________________ )

ORDER

THIS MATTER is before the Court on the Defendant’s Motion to
Dismiss

[Doc.

10];

the

Magistrate

Judge’s

Memorandum

and

Recommendation regarding the disposition of that motion [Doc. 14]; and the
Defendant’s Objection to the Magistrate Judge’s Memorandum and
Recommendation. [Doc. 15].
PROCEDURAL BACKGROUND
The Plaintiff initiated this action on January 16, 2015, by filing a
Complaint in the Buncombe County, North Carolina, Superior Court,
asserting one breach of contract claim and one unfair and deceptive trade

practices claim against Defendant. [Doc. 1-1]. Defendant removed the
action to this Court on the basis of diversity jurisdiction. [Doc. 1]. Thereafter,
Plaintiff filed an Amended Complaint [Doc. 7], and the Defendant moved to
dismiss the Amended Complaint in its entirety pursuant to Rule 12(b)(6).
[Doc. 10].
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 the Defendant’s motion and to submit to
this Court a recommendation for its disposition. On September 3, 2015, the
Magistrate Judge filed a Memorandum and Recommendation in this case
containing proposed conclusions of law in support of a recommendation that
the Motion to Dismiss be granted in part and denied in part. [Doc. 14]. The
Defendant filed an Objection to the Magistrate Judge’s Memorandum and
Recommendation on September 21, 2015. [Doc. 15].
STANDARD OF REVIEW
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
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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 findings or legal conclusions of the magistrate judge to which no
objections have been raised. Thomas v. Arn, 474 U.S. 140, 150 (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).
DISCUSSION
The Defendant objects to the Memorandum and Recommendation
(“M&R”) on one ground. The Defendant contends that the Magistrate Judge
erred in his conclusion that the Amended Complaint states a claim under
Chapter 75 of the North Carolina General Statutes. [Doc. 15 at 2].

In

particular, Defendant asserts Plaintiff fails to allege injury sufficiently in that
the $500,000.00 claimed by Plaintiff as part of its unfair and
deceptive trade practices claim is the exact same $500,000.00
claimed by Plaintiff as its alleged contract damages in its (timebarred) breach of contract claim. There are no allegations that
Plaintiff suffered any injury independent of the alleged breach of
contract. This is insufficient to state a claim for unfair and
deceptive trade practices under North Carolina law.

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[Doc. 16 at 5]. Defendant relies upon Gray v. N.C. Ins. Underwriting Assoc.,
352 N.C. 61, 529 S.E.2d 676 (2000).
Having conducted a careful, de novo review of the M&R, the Court
concludes Defendant’s objection is without merit. Hanover American has
moved to dismiss Plaintiff’s unfair and deceptive trade practices cause of
action for failure to state a claim. The Court, therefore, must take Plaintiff’s
factual allegations as true and construe them in the light most favorable to
Plaintiff, the non-moving party.
Plaintiff has alleged Defendant sold Plaintiff a policy for ordinance or
law coverage with a $2,000,000 liability limit. [Doc. 7-2 at 2]. Also according
to Plaintiff, Defendant sold Plaintiff a “Broadening Endorsement” that
expanded the liability limit of the ordinance or law coverage by an additional
$500,000 for which Plaintiff paid Defendant additional premiums. [Doc. 7-3
at 2]. Plaintiff’s insured building suffered fire loss and Plaintiff thereafter had
to expend sums to bring the building up to code (ordinance or law
compliance). Defendant only paid Plaintiff the initial policy limit of $2,000,000
and denied payment under the “Broadening Endorsement.” Defendant took
such action despite the plain language of the Endorsement, and despite
Defendant’s representation the coverage provided by the Endorsement was
“additional” to the initial policy. In short, Plaintiff’s claim is that it paid extra
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premiums for coverage Defendant deceptively represented would be in
addition to the initial policy’s coverage and that Defendant has now unfairly
refused to honor the expanded coverage. These allegations are sufficient to
state a claim under Chapter 75 of the North Carolina General Statutes as
explained in the M&R. High Country Arts & Craft Guild v. Hartford Fire Ins.
Co., 126 F.3d 629 (4th Cir. 1997).
Furthermore, Defendant’s reliance on Gray is misplaced. In Gray, the
jury found that the Defendant had breached its contact causing $256,256.91
in damages and had committed a deceptive trade practice proximately
causing $117,000 in damages. Gray, 352 N.C. at 65-66, 529 S.E.2d at 67980. The plaintiffs contended that they were thus entitled to an award of
$373,256.91 ($256,256.91 plus $117,000) trebled.

The North Carolina

Supreme Court held that only the $117,000, as Chapter 75 damages, were
subject to trebling. This is far from the proposition for which Hanover
American cites Gray, namely that a plaintiff must allege some damages
“independent of” damages for breach of contract in order to state a claim
for unfair and deceptive trade practices arising from the same course of
conduct. The court in Gray did not so hold. Moreover, the North Carolina
Court of Appeals has decided this very issue in Garlock v. Henson, 112 N.C.
App. 243, 435 S.E.2d 114 (1993).
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In Garlock, the plaintiff conveyed his bulldozer to Henson and Phillips
who agreed to assume the loan on the bulldozer and to sell it for plaintiff
whereby plaintiff would be entitled to receive $7,642.40 after the sale. 112
N.C. App. at 244, 435 S.E.2d at 115. There was disagreement over whether
Phillips knew about the obligation to pay plaintiff the additional sum after the
sale and whether the contract contained that obligation when Phillips signed
it. Henson, however, acknowledged the obligation. The defendants sold the
bulldozer and failed to tell the plaintiff. Plaintiff called Henson practically
every month for three years to ask him if the bulldozer was sold. Henson
continually misled plaintiff after the bulldozer was sold and thereby avoided
paying the additional sum due under the contract. Id.

Plaintiff learned of

the bulldozer’s sale when he saw it on a car lot in another county. Plaintiff
thereafter brought suit alleging claims for breach of contract and unfair and
deceptive trade practices.
The legal argument raised by Henson to Garlock’s suit is the same one
Hanover American raises here: “the defendant argues that plaintiff may not
maintain an action for unfair and deceptive trade practices because plaintiff
suffered no actual injury from the deceptive conduct.” 112 N.C. App. at 246,
435 S.E.2d at 116. In other words, according to the defendant, his conduct
did not cause any additional injury but only delayed recovery of money
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already owed.

The appellate court rejected the defendant’s argument

outright.
Defendant attempts to divide this case into two distinct
occurrences, as if the breach of contract is separate from the
conduct which aggravated the breach, when in fact we have a
continuous transaction that amounts to unfair and deceptive
trade practices. It does not matter that the same set of facts also
constitutes a breach of contract. Where the same course of
conduct gives rise to a traditionally recognized cause of action,
as, for example, an action for breach of contract, and as well
gives rise to a cause of action for violation of G.S. 75-1.1,
damages may be recovered either for the breach of contract, or
for violation of G.S. 75-1.1....
112 N.C. App. at 246, 435 S.E.2d at 116 (internal quotations and citation
omitted).
The Plaintiff herein has stated a claim for unfair and deceptive trade
practices. If Plaintiff is able to prove such a claim, its damages may be the
same as what its contract damages would have been; and they may be
different. But that inquiry is not before the Court on the present motion
pursuant to Rule 12(b)(6).
In sum, after a careful, de novo review of the Magistrate Judge’s wellreasoned M&R, the Court concludes that the Magistrate Judge’s conclusions
of law are consistent with current case law. Accordingly, the Court hereby
accepts the Magistrate Judge’s recommendation that the Defendant’s
Motion to Dismiss be granted in part and denied in part.
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ORDER
IT IS, THEREFORE, ORDERED that the Magistrate Judge’s
Memorandum and Recommendation [Doc. 14] is ACCEPTED; the
Defendant’s Objection to the Memorandum and Recommendation [Doc. 15]
is OVERRULED; and the Defendant’s Motion to Dismiss [Doc. 10] is
GRANTED in part and DENIED in part.
IT IS FURTHER ORDERED that Plaintiff’s breach of contract claim
contained in the Amended Complaint [Doc. 7] is hereby DISMISSED.
IT IS SO ORDERED.

Signed: February 2, 2016

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