Raniszewski et al v. Davidson
Filing
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ORDER granting in part and denying in part 15 Defendant's Motion for Judgment on the Pleadings. Signed by Senior Judge Graham Mullen on 10/17/11. (gpb)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:11CV59
CATHY RANISZEWSKI, as personal
representative of the Estate of Joseph M.
Marett, Jr. and SAV/WAY FOODS, INC.,
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Plaintiffs,
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vs.
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WILLIAM B. DAVIDSON,
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Defendant.
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__________________________________________)
ORDER
This matter is before the court upon Defendant’s Motion for Partial Judgment on the
Amended Pleadings pursuant to Rule 12(c).
FACTUAL BACKGROUND
Defendant William B. Davidson (“Davidson”) is the former owner of Sav/Way Foods,
Inc. (“Sav/Way”), which operates a grocery store in Charlotte, North Carolina. Davidson hired
Joseph Marett, Jr. (“Marett”) to work at the store when he was a teen, and Marett worked his
way up to managing the store by January of 2005. Beginning in 2004, Marett and Davidson
began to negotiate the terms of a deal whereby Marett would acquire an ownership interest in
Sav/Way. Negotiations continued until, on January 1, 2005, Davidson and Marett signed a
$5,000,000 Promissory Note. However, Marett and Davidson never prepared or executed a
purchase and sale agreement in connection with this Note and never implemented the transfer of
ownership pursuant to the Note.
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Plaintiffs allege that the parties discussed a draft of an agreement whereby Marett would
purchase all shares of the common stock of Sav/Way and would be required to place a
$5,000,000 insurance policy on his life to secure the purchase price in the event of his untimely
death. In March of 2005, Marett’s insurance agent (BB&T) submitted an application to Ohio
National Life Assurance Corporation (“Ohio National”) for a ten-year term life insurance policy
valued at $5,000,000, naming Marett’s estate as the beneficiary and describing the proposed
acquisition. This application states that the reason for the life insurance policy was to help
insure Marett’s purchase of a grocery store for $7,000,000. In connection with the application,
BB&T faxed Ohio National an Amplified Life Inspection Report which indicated that the
purpose of the loan was “business loan protection.” Ohio National issued a policy to Marett, but
Marett did not accept it. On April 30, 2005, BB&T submitted another application for a ten-year
term policy with a face value of $5,000,000 to U.S. Financial Life Insurance Company (“U.S.
Financial”) naming Marett’s estate as the beneficiary. In connection with the application, BB&T
also faxed a copy of the 2005 Note.
U.S. Financial approved the application and on July 12, 2005, Marett obtained a
$5,000,000 policy which named his estate as the beneficiary. However, on August 16, 2005,
Davidson and Marett executed and Marett submitted a Policyholder Service Request to U.S.
Financial requesting that Davidson be substituted for Marett’s estate as the beneficiary under the
policy and that ownership of the policy be assigned from Marett to Davidson. Plaintiffs allege
that Marett paid all the premiums on this policy.
Despite continued negotiations, Marett and Davidson did not come to an agreement on
the sale of Sav/Way until June 30, 2006. On that date, the two signed a Stock Purchase
Agreement (“SPA”), Stock Pledge Agreement, Security Agreement, Promissory Note, and
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Guaranty which effectively sold the store to Marett for $3,500,000. Davidson’s attorney drafted
the documents and represented Defendant throughout the negotiations; Marett was not
represented by counsel. Davidson fully financed the sale via the Promissory Note, under which
Marett promised to pay Davidson weekly installments of principal and interest until its maturity
on January 22, 2011.
Under the Capital Stock Pledge Agreement, full payment of the Note triggers Davidson’s
obligation to transfer the Sav/Way stock shares, held as security, to Marett. A default would
occur if Marett ever ceased to operate and personally manage the business. An event of default
gave Davidson the option to reclaim the shares of Sav/Way in exchange for deeming the Note
satisfied.
The SPA required that:
Purchaser will acquire and maintain in force a policy of life insurance on his life
with a face value of $4,000,000.00, naming Seller as the beneficiary. No loans
against or advances of the policy shall be taken without the consent of the Seller.
The policy shall provide that the coverage shall not be cancelled without advance
written notice to Seller.
Contract, ¶ 6.1(f), at 3. Marett never obtained a life insurance policy with a face value of
$4,000,000, although he maintained the original $5,000,000 policy. Davidson never declared an
event of default or otherwise attempted to enforce this contractual obligation.
The SPA
references and incorporates all the remaining sale documents, including the Note, Stock Pledge
Agreement, Security Agreement, and Guaranty. Moreover, the SPA contained an explicit
merger clause which provided as follows:
11. Entire Agreement. This agreement constitutes the final, complete and
exclusive statement of the Agreement between the parties hereto as to the subject
matter hereof, and all other prior or contemporaneous oral or written agreements
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of the parties hereto with respect to the subject matter hereof are merged herein
and superseded hereby.
Contract, ¶ 11, at 4–5.
In December 2008, Marett became unable to meet his financial obligations under the
Promissory Note, and so the SPA was modified. The modifications cut the weekly payment
almost in half, but imposed a strict work schedule and cut Marett’s salary.
On November 1, 2010, Marett was found dead in Sav/Way as a result of a self-inflicted
gunshot wound. Defendant Davidson, as beneficiary of the life insurance policy, applied to U.S.
Financial for the policy benefits on November 4, 2010. On November 18, 2010, U.S. Financial
paid Davidson the $5,000,000 policy value, as well as an additional $2,166.77 as a refunded
partial policy premium. At the time of Marett’s death, less than $1,500,000 was owed on the
Promissory Note, approximately $3,500,000 less than the amount of the death benefit paid to
Davidson.
Plaintiffs allege that several weeks after Marett’s death, Davidson visited the Sav/Way
store. Acting store manager, Maria Vergas, reminded Davidson of the life insurance policy and
inquired about the status of the Note and SPA in light of the policy. Davidson responded that
there was no policy on Marett’s life and that Marett never obtained the policy to secure the Note
as required by the SPA. At this time, Davidson had already applied for the death benefits.
Plaintiff also alleges that in a conversation with an attorney on November 12, Davidson again
denied that there was an insurance policy on Marett’s life.
The Clerk of Superior Court for Cabarrus County, North Carolina, appointed Cathy
Raniszewski as administrator of Marett’s Estate. On behalf of the Estate and Sav/Way, Ms.
Raniszewski brought suit against Defendant Davidson on January 7, 2011, in the Mecklenburg
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County Superior Court, seeking the excess policy proceeds. The Complaint alleged that
Davidson lacked an insurable interest in Marett’s life sufficient to give him any right to the
proceeds beyond Marett’s indebtedness. Defendant filed a timely removal to this Court on
February 2, 2011. After Defendant filed a motion for judgment on the pleadings, Plaintiff
amended the Complaint, with Defendant’s consent, seeking relief under different legal theories.
Defendant has again moved for judgment on the pleadings.
DISCUSSION
A motion for judgment on the pleadings pursuant to FED . R. CIV . P. 12(c) is reviewed
using the same standard used to review motions to dismiss under FED . R. CIV . P. 12(b)(6).
Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 405–406 (4th Cir. 2002). When
considering a motion to dismiss pursuant to Rule 12(b)(6), the court must construe the complaint
in the light most favorable to the plaintiff. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.
2008). However, the court need not accept legal conclusions drawn from the facts, unwarranted
inferences, unreasonable conclusions, or arguments. Id. The plaintiff must plead “enough facts
to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007); Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Moreover, “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory statements” are
insufficient to survive a 12(b)(6) motion. Ashcroft, 129 S.Ct. at 1942. In deciding a motion for
judgment on the pleadings, a court evaluates the complaint in its entirety and in the context of
documents which are “‘integral and explicitly relied on in the complaint.’” E.I. du Pont de
Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011) (quoting Phillips v. LCI
Int’l, Inc., 190 F.3d 609, 618 (4th Cir. 1999)).
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In this action, Plaintiffs seek to recover $3,500,000, the amount of the life insurance
proceeds that exceeds Marett’s indebtedness to Davidson. The Amended Complaint asserts
claims for Breach of Agreement, Unjust Enrichment, Reformation/Rescission, Resulting Trust,
Constructive Trust, Declaratory Judgment, Conversion, Unfair and Deceptive Trade Practices,
and for a Preliminary and Permanent Injunction. Defendant seeks to dismiss all of the claims.
Plaintiffs’ primary cause of action is for breach of agreement. The SPA contains a
choice of law provision designating South Carolina law as the governing law for questions of
validity and construction. Plaintiffs allege that the documents, specifically the SPA, somehow
evidence an agreement by Davidson to distribute the policy proceeds to Marett’s estate in the
event of his death. Plaintiffs contend that the “plain language” of the SPA incorporates the
parties’ agreement that the policy proceeds should be applied to Marett’s indebtedness under the
Note in the event of his death. Paragraph 6.1(f) of the SPA provides: “In order to induce
[Davidson] to accept his Promissory Note . . . and so long as any obligation of [Marett] to
[Davidson] remain unsatisfied, . . . [Marett] shall acquire and maintain in force a [life
insurance policy].” (Emphasis added). Plaintiffs contend that the plain meaning of this language
provides that should the proceeds of the policy be distributed before the indebtedness is satisfied,
those proceeds should be distributed to Davidson in the amount of the indebtedness, with the
remainder to Marett’s estate. The problem with the Plaintiffs’ argument is that paragraph 6.1(f)
means exactly what it says and nothing more: that Marett was obligated to keep a $4 million
policy in place while he was indebted to Davidson. The agreement is silent as to the distribution
of proceeds. Plaintiffs are attempting to rewrite the terms of the SPA to include a provision that
simply is not there. Where an agreement is silent as to a particular term, an integration clause in
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the contract prohibits the admission of evidence purporting to add the term. U.S. Leasing Corp.
v. Janicare, Inc., 294 S.C. 312, 318, 364 S.E.2d 202, 205-6 (S.C. Ct. App. 1988).
Plaintiffs next seek to use parol evidence to establish an agreement that excess proceeds
of the policy after the satisfaction of the indebtedness should be distributed to Marett’s estate.
South Carolina law recognizes fraud and ambiguity as exceptions to the parol evidence rule. See
Id. at 316-17, 364 S.E.2d at 205. Plaintiffs may not rely upon fraud as they have not made any
such allegations. Plaintiffs do, however, argue in the alternative that paragraph 6.1(f) of the SPA
is ambiguous, and that parol evidence in the form of the Ohio National Application is admissible
to show that the policy was intended as “business loan protection” to secure repayment of the
Note. “An ambiguous contract is one that can be understood in more than just one way or is
unclear because it expresses its purpose in an indefinite manner.” Plantation A.D., LLC v.
Gerald Builders of Conway, Inc., 386 S.C. 198, 205, 687 S.E.2d 714, 718 (S.C. Ct. App. 2009).
The court finds that the paragraph at issue cannot be found to be ambiguous. To the contrary, it
is quite explicit and unambiguous. Marett was required to maintain a life insurance policy as
long as he continued to owe on the Note. Simply because the SPA does not contain the terms
that Plaintiffs desire to add does not make the agreement ambiguous. Plaintiffs are seeking to
add to the terms of the SPA a new provision that imposes additional obligations on Davidson in
excess of those in the fully integrated document. Even if the agreement could be found to be
ambiguous, South Carolina law is clear that no parol evidence can be considered when the
agreement contains an integration clause. See U.S. Leasing, 294 S.C. at 318, 364 S.E. 2d at 205.
The SPA contains an explicit merger clause, precluding and superseding any other written or
oral agreements.
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In an attempt to avoid the parol evidence rule, Plaintiffs rely on two exceptions unique to
North Carolina law. First of all, South Carolina, not North Carolina law governs the SPA and
South Carolina appears to not to recognize these limited exceptions. For example, North
Carolina seems to recognize a limited exception to the parol evidence rule when exclusion of the
evidence would frustrate the parties’ true intentions. See Zinn v. Walker, 87 N.C. App. 325, 333,
361 S.E.2d 314, 318 (1987). North Carolina courts have also recognized that parol evidence
may be admitted to show a collateral agreement as to how a promissory note should be repaid.
See Borden, Inc. v. Brower, 284 N.C. 54, 62, 199 S.E. 2d 414, 420 (1973) (Parol evidence is
“competent to show by oral evidence a collateral agreement as to how an instrument for the
payment of money should, in fact, be paid, though the instrument is necessarily in writing and
the promise it contains is to pay so many dollars . . ..”). Even if North Carolina law applied,
however, this limited exception is inapplicable because the Borden court’s ruling was unique to
promissory notes, as the court explained:
Promissory notes are not generally subject to the parol evidence rule to the same
extent as other contracts. Parties drawing such instruments tend to follow a rather
definitely standardized form. If collateral terms and conditions had been agreed
upon, they may be omitted from the note itself to insure its negotiability.
Id. at 61, 46 S.E.2d at 419.
The court agrees with the Defendant that this case does not involve the interpretation of a
promissory note or any ancillary agreement regarding how the note was to be paid. Plaintiffs
have failed to establish the applicability of any exceptions to the parol evidence rule with regard
to their breach of agreement claim. The SPA is unambiguous and contains an explicit merger
clause. Accordingly, judgment on the pleadings in favor of the Defendant as to Plaintiffs’
breach of agreement claim is appropriate.
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Plaintiffs’ second claim is for unjust enrichment. Defendant argues that quantum meruit
is not an appropriate remedy when there exists an actual contract between the parties. Paul L.
Whitfield, P.A. v. Gilchrist, 348 N.C. 39, 42, 497 S.E.2d 412, 415 (1998); Phillips Refrigeration
Co. v. Commercial Credit Co., 256 S.C. 500, 503, 183 S.E.2d 330, 332 (S.C. 1971). Not all of
Plaintiffs’ claims, however, are based upon the SPA. Accordingly, the court declines to dismiss
this claim at this stage of the litigation.
Plaintiffs’ third claim is for reformation/rescission of the Policyholder Service Request to
“accomplish the parties’ goal that the Policy secure repayment of Marett’s remaining obligations
under the Promissory Note and awarding the Excess Proceeds to the estate or, in the alternative,
rescinding the Policyholder Service Request and paying all of the Policy proceeds to the Estate.”
(Amd. Compl. ¶ 120). North Carolina law governs all contracts that insure lives in North
Carolina. See N.C. Gen. Stat. ¶ 58-3-1. As the grounds for this claim, Plaintiffs allege that
Marret and Davidson were mutually mistaken as to the effect of the Policyholder Service
Request, or, in the alternative, that Marett was unilaterally mistaken, and Davidson “exercised
undue influence over Marett, had reason to know of Marrett’s mistake, or both.” (Amd. Compl.
¶¶ 118-19).
Assuming that the document at issue could be considered a contract, in his Answer,
Davidson has denied that he was mistaken about the effect of the assignment, and his denial bars
reformation based upon mutual mistake. See Lancaster v. Lancaster, 138 N.C. App. 459, 46566, 530 S.E.2d 82, 86 (2000). Thus, Plaintiffs are left with their alternative claim that Marett
was unilaterally mistaken as to the “effect of the Policyholder Service Request.” (Amd. Compl.
¶¶ 118-19). A unilateral mistake may provide grounds for rescission if the other party knew of
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the mistake or caused the mistake. Creech v. Melnik, 347 N.C. 520, 528, 495 S.E.2d 907, 912
(1998). Plaintiffs have alleged that Davidson had reason to know of Marett’s mistake.
Defendant argues that the mistake was one of law, not fact, and thus cannot be grounds for
rescission. However, North Carolina courts have suggested that even a mistake of law can
support rescission of an agreement if it is accompanied by fraud, misrepresentation, undue
influence, or abuse of confidential relationship. Swain v. C & N Evans Trucking Co., Inc., 126
N.C. App. 332, 484 S.E.2d 845, 848 (1997). Plaintiff has made sufficient allegations at this
stage of the litigation to survive a motion for judgment on the pleadings.
In Plaintiffs’ Fourth and Fifth Claims for Relief, they seek the remedies of resulting trust
and constructive trust. Each of these claims for relief are not stand-alone causes of action, but
rather are remedies dependent on Plaintiffs successfully prevailing on one of their causes of
action. See Meekins v. Box, 152 N.C. App. 379, 382-83, 567 S.E.2d 422, 425 (2002) (discussing
the propriety of awarding the “remedy” of resulting trust); Laws v. Priority Tr. Servs. Of N.C.,
LLC, 610 F.Supp. 2d 528, 532 (W.D.N.C. 2009) (dismissing claims for injunctive relief and
constructive trust under North Carolina law because “these are remedies rather than separate
causes of action”). Plaintiffs could certainly seek to amend their Complaint to properly plead
these remedies in their prayer for relief.
Plaintiff’s Sixth and Ninth claims are for Declaratory Judgment. The Sixth Claim for
Relief requests that the court enter judgment declaring that the Policy was intended to secure
payment of the Note only to the extent that it was unpaid at the time of Marett’s death and that
the excess proceeds are payable to the Estate. The Ninth Claim for Relief seeks a declaratory
judgment that Davidson is not entitled to exercise the remedies set forth in paragraphs 5 and 6 of
the Stock Pledge Agreement, which would allow Davidson to foreclose on his security interest in
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the shares of Sav/Way. The court declines to grant Defendants’ Motion for Judgment on the
Pleadings as to these claims at this stage in the litigation. In particular, the court notes that both
North Carolina and South Carolina law appear to follow the majority of courts which have held
that a creditor may not retain the proceeds of a life insurance policy intended to secure a debt in
excess of the amount of the debt. It appears to the court that the issue of the intent of the debtor
is one for the trier of fact. Contrary to Defendant’s argument, this theory of recovery is
completely separate from the SPA with its parol evidence issues. Indeed it is conceivable that the
SPA itself could be considered as evidence supporting this theory of recovery.
Plaintiffs’ Seventh Claim for Relief is for the tort of Conversion Plaintiffs allege that the
Estate is the rightful owner of both the refunded Policy premium and the excess proceeds and
that Defendant has wrongfully converted these funds. The courts finds that this claim is
implausible on its face. A claim of conversion requires two elements: (1) ownership by the
plaintiff and (2) a wrongful conversion by defendant. Bartlett Milling Co. v. Walnut Grove
Auction & Realty Co., 192 N.C. App. 74, 86, 665 S.E.2d 478, 489 (2008). Plaintiffs did not
technically own the property they allege was converted. The Policyholder Service Request
named Davidson as the beneficiary, and the carrier distributed the Policy proceeds to him on that
basis. Moreover, Davidson owned the life insurance Policy and was therefore issued the
premium refund. Plaintiffs simply cannot state a claim for conversion.
In their Eighth Claim for Relief, Plaintiffs allege Unfair and Deceptive Trade Practices.
Accepting Plaintiffs’ allegations as true, the court finds that they have alleged enough to survive
a motion for judgment on the pleadings as to this claim.
Based upon the foregoing,
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IT IS THEREFORE ORDERED that Defendant’s Motion for Partial Judgment on the
Pleadings is hereby GRANTED IN PART AND DENIED IN PART.
Signed: October 17, 2011
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