Beam Construction Company, Inc. v. MRL Plumbing, Inc. et al
ORDER granting 16 Motion to Dismiss Claims III, IV & V without prejudice. Signed by Chief Judge Frank D. Whitney on 11/7/17. (clc)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
DOCKET NO. 3:17-cv-00420-FDW-DSC
BEAM CONSTRUCTION COMPANY, )
INSURANCE, INC. and MRL PLUMBING, )
THIS MATTER is before the Court on Defendant Allied World Specialty Insurance, Inc.’s
Motion to Dismiss pursuant to Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure
(Doc. No. 16). For the reasons stated herein, the Court GRANTS the Motion to Dismiss.
I. PROCEDURAL BACKGROUND
Plaintiff Beam Construction Company, Inc. (“Plaintiff”) commenced this action against
Defendants Allied World Specialty Insurance, Inc. (“Allied”) and MRL Plumbing, Inc. (“MRL”)
on June 13, 2017 in Superior Court in Gaston County, North Carolina. Allied removed the action
to this Court on July 17, 2017. Plaintiff subsequently filed an amended complaint on September
6, 2017, and Allied filed this Motion on September 20, 2017. Allied moves to dismiss claims III,
IV, and V of Plaintiff’s amended complaint for failure to state a claim upon which relief may be
granted. Claims III and IV seek relief for fraud, and claim V seeks relief for unfair or deceptive
trade practices. The Motion is now fully briefed and ripe for resolution.
II. FACTUAL BACKGROUND
This case arises out of Defendant MRL’s failure to perform its contractual obligations as a
subcontractor to Plaintiff.1 After MRL contracted with Plaintiff to provide plumbing work, MRL,
as principal, entered into a contract with Allied, as its surety, for a subcontract performance bond.
(Doc. No. 15 at 2; Doc. No. 15-1 at 2). The performance bond held Allied, as surety, bound to
Plaintiff, as obligee, in the amount of $1,282,000.00. (Doc. No. 15 at 2; Doc. No. 15-1 at 2). The
Performance Bond stated:
Whenever the principal shall be, and is declared by the Obligee to be in default
under the Subcontract, with the Obligee having performed its obligations in the
Subcontract, the Surety after receipt of written notice of the default from the
Obligee may remedy the default within fifteen (15) calendar days, or shall
. . . Complete the subcontract in accordance with its terms and conditions; or
. . . Obtain a bid or bids . . . for completing the Subcontract in accordance with its
terms and conditions. . . or
. . . Determine the total amount for which it is liable to the Obligee . . . and pay that
amount as soon as practicable
(Doc. 15-1 at 2-3).
Plaintiff subsequently declared MRL in default and then, terminated its contract with MRL.
(Doc. No. 15 at 3). Plaintiff alleges Allied has not fulfilled its contractual obligation as surety
under the performance bond. (Doc. No. 15 at 3-4). Allied has only paid Plaintiff $150,000 when
Plaintiff has submitted claims exceeding this amount. (Doc. No. 15 at 3-4). Plaintiff also alleges
Allied committed fraud by telling Plaintiff that it should complete MRL’s work and by hiring a
consultant to assess Plaintiff’s claims without honoring, or intending to honor, the consultant’s
determinations. (Doc. No. 15 at 9-12). Plaintiff further alleges Allied’s failure to pay the valid
The background is based on allegations in Plaintiff’s amended complaint (Doc. No. 15). All factual allegations are
taken in the light most favorable to Plaintiff. See e.g., Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
claims, along with Allied’s other conduct, constitutes an unfair or deceptive trade practice. (Doc.
No. 15 at 13-14).
III. STANDARD OF REVIEW
“The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint”—“not
resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”
Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (quoting Republican Party v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992)). The court accepts all well-pleaded allegations in the
complaint as true and draws all reasonable factual inferences from those facts in the plaintiff's
favor. Id. at 244 (citations omitted); Mylan Labs, 7 F.3d at 1134. Well-pleaded allegations “must
contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
To be plausible, the factual matter must “allow the court to draw the reasonable inference that
the defendant is liable.” Id. (citing Bell Atl. Corp., 550 U.S. at 556).
Claims of fraud, however, must also “state with particularity the circumstances constituting
fraud[.]” Fed. R. Civ. P. 9(b). The purposes of Rule 9(b) include “providing notice to a defendant
of its alleged misconduct, of preventing frivolous suits, of eliminating fraud actions in which all
the facts are learned after discovery, and of protecting defendants from harm to their goodwill and
reputation[.]” United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 456
(4th Cir. 2013) (citations omitted) (internal quotation marks omitted). To satisfy the particularity
requirement, the complaint must “at a minimum, describe 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.” Takeda Pharms., 707 F.3d at 455–56 (quoting United States ex rel. Wilson v.
Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)).
Although there is no “precise formula” or “any certain language” that must be used to plead
a claim of fraud, Carver v. Roberts, 78 N.C. App. 511, 513, 337 S.E.2d 126, 128 (1985), the
complaint must allege facts that if proven would support a charge of fraud “upon a liberal
construction of the whole pleading,” Piles v. Allstate Ins. Co., 187 N.C. App. 399, 406, 653 S.E.2d
181, 186 (2007) (quoting Carver, 78 N.C. App. at 513, 337 S.E.2d at 128). The particularity
requirements under Rule 9(b) of the Federal Rules of Civil Procedure does not absolve the plaintiff
of its burden to plead facts that if accepted as true “state a claim to relief that is plausible on its
face.” Bell Alt. Corp., 550 U.S. at 570 (2007); see Ashcroft, 556 U.S. at 684 (holding plausibility
requirement applies to all civil actions).
While its acknowledged that “fraud has no all[-]embracing definition . . . , the following
essential elements of actionable fraud are well established: (1) False representation or concealment
of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which
does in fact deceive, (5) resulting in damage to the injured party.” Ragsdale v. Kennedy, 286 N.C.
130, 138, 209 S.E.2d 494, 500 (1974) (citations omitted). For a representation to be actionable as
fraud, it must be a misrepresentation of “[a] subsisting or ascertainable fact, as distinguished from
a matter of opinion or representation relating to future prospects[.]” Id. at 139, 209 S.E.2d at 500
(citations omitted). Concealment of a material fact relating to a transaction is also actionable if
there was a duty to disclose. Hardin v. KCS Int’l, Inc., 199 N.C. App. 687, 696, 682 S.E.2d 726,
733 (2009) (quoting Harton v. Harton, 81 N.C. App. 295, 297, 344 S.E.2d 117, 119 (1986)).
Allied argues that both of Plaintiff’s claims for fraud fail to allege a false representation.2
The Court agrees. For Plaintiff’s third claim for relief, the only representation alleged to have
been made by an representative of Allied is: “[Plaintiff] should complete the work left undone by
MRL’s default.” (Doc. No. 15 at 9). Not only has Plaintiff not alleged that this statement is false,
but the statement expresses a matter of opinion: “[Plaintiff] should complete the work[.]” (Doc.
No. 15 at 9). No fact is being represented by this statement—true or false. Accepting as true
Plaintiff’s other allegations including that Allied stated this “knowing that it was not properly
collateralized” and “knowing that Allied would likely delay and fail to make timely and complete
payments” does not make the statement a representation of “a subsisting or ascertainable fact.”
Instead, it is an opinion, which is insufficient to support a claim of fraud.
Plaintiff’s fourth claim for relief is similarly deficient. The amended complaint alleges that
James Keating of Allied represented to Plaintiff that Allied decided to retain a consultant to assess
Plaintiff’s claim. (Doc. No. 15 at 12). This is an ascertainable fact, but the amended complaint
does not allege that the statement was false. Instead, Plaintiff admits in its allegations that a
consultant was obtained and the consultant made recommendations to Allied. (Doc. No. 15 at 12).
Plaintiff alleges “Allied knew that [Plaintiff] . . . was relying upon Allied to give appropriate and
timely consideration to the recommendations made by Allied’s consultant” but Allied declined to
In its response, Plaintiff requested “that the court allow it to file a second amended complaint for the limited purpose
of inserting the formulaic elements of a traditional fraud cause of action within the existing language of the amended
complaint[.]” (Doc. No. 20 at 9). Motions made outside of a hearing or trial should be made in writing, supported by
a brief, and reflect consultation with the opposing parties. LCvR 7.1. Because Plaintiff’s request did not comply with
these requirements and Plaintiff had previously been granted an opportunity to amend its complaint, the Court declines
to consider Plaintiff’s motion to amend until properly brought before the Court.
pay Plaintiff the uncontested amount identified by the consultant of $96,298. (Doc. No. 15 at 12).
Plaintiff also alleges upon information and belief that “Allied had no intention of promptly paying
Plaintiff for any damages its consultant identified as due and owing . . . .” (Doc. No. 15 at 12).
This alleged knowledge taken as true does not make Allied’s statement that it was obtaining a
consultant a false representation. Thus, the facts alleged in the amended complaint, taken as true
and viewed in the light most favorable to Plaintiff, do not state a plausible claim of fraud under
the third or fourth claim for relief. Accordingly, the Court dismisses Plaintiff’s third and fourth
claim for relief of fraud without prejudice.3
b. Unfair or Deceptive Trade Practices
The three elements for a claim of unfair or deceptive trade practices under section 75-1.1
of the North Carolina General Statutes are “(1) defendant committed an unfair or deceptive act or
practice, (2) the action in question was in or affecting commerce, and (3) the act proximately
caused injury to the plaintiff.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001)
(citing Spartan Leasing Inc. v. Pollard, 101 N.C. App. 450, 461, 400 S.E.2d 476, 482 (1991)). A
practice or act is deceptive if it has “the tendency or capacity to mislead” and unfair “when it
offends established public policy as well as when the practice is immoral, unethical, oppressive,
unscrupulous, or substantially injurious to consumers.” Marshall v. Miller, 302 N.C. 539, 548,
276 S.E.2d 397, 403 (1981) (citations omitted). The determination that a trade practice is unfair
or deceptive is a question of law for the court. Gray v. N.C. Ins. Underwriting Ass’n, 352 N.C.
61, 68, 529 S.E.2d 676, 681 (2000).
Plaintiff has neither plead Allied had a duty to disclose nor plead facts to support that a duty to disclose exists.
Hardin, 199 N.C. App. at 696, 682 S.E.2d at 733. Therefore, Plaintiff has not plead a cause of action of fraud for
concealment of a material fact.
North Carolina courts have recognized that contractual disputes are generally outside the
scope of an unfair or deceptive trade practices claim. See e.g., Branch Banking & Trust Co. v.
Thompson, 107 N.C. App. 53, 62, 418 S.E.2d 694, 700 (1992) (“[A]ctions for unfair or deceptive
trade practices are distinct from actions for breach of contract.”). This recognition reflects that
“‘[p]arties contract partly to minimize their future risk’ [and] [o]pening the door to trebling,
punitive damages, and other tort remedies would upset those expectations.” Kerry Bodenhamer
Farms, LLC v. Nature’s Pearl Corp., No. 16 CVS 217, 2017 WL 1148793, at *7 (N.C. Super. Ct.
Mar. 27, 2017) (quoting Strum v. Exxon Co., USA, 15 F.3d 327, 330 (4th Cir. 1994)). Therefore,
to recover under section 75.1-1 for a breach of contract, a plaintiff “must show ‘substantial
aggravating circumstances attending the breach to recover[.]’” Eastover Ridge, LLC v. Metric
Constructors, Inc., 139 N.C. App. 360, 368, 533 S.E.2d 827, 833 (2000) (quoting Branch Banking
& Trust, 107 N.C. App. at 62, 418 S.E.2d at 700)).
Substantial aggravating circumstances are more likely to be shown in the formation of a
contract than after the formation of the contract. Heron Bay Acquisition, LLC v. United Metal
Finishing, Inc., 781 S.E.2d 889, 893 (N.C. Ct. App. 2016); see generally Bartolomeo v. S.B.
Thomas, Inc., 889 F.2d 530, 535 (4th Cir. 1989).
One reason for this is that disputes concerning the circumstances of the breach are
often bound up with one party’s exercise of perceived rights and remedies under
the contract. Even where the exercise of contractual rights is “allegedly contrary
to the terms of the agreement,” the legal question concerns the interpretation and
application of the agreement—that is, whether the contract has been breached.
Taylor v. United States, 89 F. Supp. 3d 766, 773 (E.D.N.C. 2014); see also PCS
Phosphate Co. v. Norfolk S. Corp., 559 F.3d 212, 224 (4th Cir. 2009); Dew Elec.,
Inc. v. Mass Elec. Constr. Co., 3:09cv361-RJC-DCK, 2010 U.S. Dist. LEXIS
19904, at *11-12 (W.D.N.C. Mar. 5, 2010). These claims are “best resolved by
simply determining whether the parties properly fulfilled their contractual duties.”
Heron Bay Acquisition, 781 S.E.2d at 893 (quoting Mitchell, 148 N.C. App. at 75,
557 S.E.2d at 623-24).
Post v. Avita Drugs, LLC, No. 17 CVS 798, 2017 WL 4582151, at *5 (N.C. Super. Ct. Oct. 11,
2017). Therefore, regardless of how “unscrupulous [the] conduct may appear[,]” “efforts to
encourage” contractual performance while “planning to breach,” a “refusal to otherwise meet”
contractual obligations, Deltacom, Inc. v. Budget Telecom, Inc., No. 5:10-cv-38-FL, 2011 WL
2036676, at *4 (E.D.N.C. May 22, 2011); see also Bartolomeo, 889 F.2d at 534-35 (holding that
“knowingly misleading” a party that a contractual arrangement would persist was not a deceptive
act), or an intentional breach of contract are not aggravating circumstances, Mitchell v. Linville,
148 N.C. App. 71, 74, 557 S.E.2d 620, 623 (2001) (“Neither an intentional breach of contract nor
a breach of warranty . . . constitutes a violation of Chapter 75.” (citations omitted)); Bartolomeo,
889 F.2d at 534 (“A simple breach of contract, even if intentional, does not amount to a violation
of the Act; a plaintiff must show substantial aggravating circumstances attending the breach to
recover under the Act, which allows for treble damages.”).
Allied contends Plaintiff has not alleged aggravating circumstances attendant to the alleged
breach of contract sufficient for a claim under section 75-1.1 of the North Carolina General
Statutes.4 Plaintiff summarizes Allied’s unfair or deceptive acts and practices in the amended
complaint as Allied’s “failing, without reasonable explanation, to pay [Plaintiff’s] payment
requests on a timely and/or complete basis, failing to pay items identified by its own consultant as
undisputed, asserting meritless defenses, and forcing both Morrison Supply and [Plaintiff] to file
suit to recover payment related to the Project, all while representing to federal court that it had
The Court does not consider the matters raised in Defendant’s memorandum in support of its Motion that extend
beyond the scope of the pleadings. (Doc. No. 17 at 7-9; Doc. No. 17-1).
reasonably certain future losses in amounts very similar to [Plaintiff’s] claim[.]” (Doc. No. 15 at
14; see also Doc. No. 15 at 14-15).
Such conduct, viewed in the light most favorable to Plaintiff, does not amount to substantial
aggravating circumstances. Plaintiff, as previously discussed, has not alleged fraud or deception
in the formation of the contract, Wells Fargo Bank, N.A. v. Corneal, 238 N.C. App. 192, 196, 767
S.E.2d 374, 378 (2014) (affirming dismissal of claim where plaintiff “did not allege that plaintiff
intended to break its promise at the time that it made the promise) or fraud or deception in the
performance of the contract, cf. Interstate Narrow Fabrics, Inc. v. Century USA, Inc., 218 F.R.D.
455, 465-66 (M.D.N.C. 2003) (holding that plaintiff had shown aggravating circumstances
sufficient to survive a motion for summary judgment where defendant intentionally made material
misrepresentations to cover up that a breach). Contrary to Plaintiff’s argument, North Carolina
courts also have not recognized bad faith or the inequitable assertion of power in the breach of a
contract between a surety and an obligee as an unfair or deceptive trade practice. See Cincinnati
Ins. Co. v. Centech Bldg. Corp., 286 F. Supp. 2d 669, 689-90 (M.D.N.C. 2003) (holding that
violations of North Carolina insurance laws by a surety cannot be the basis for an unfair or
deceptive trade practices claim and that North Carolina has not recognized a bad faith cause of
action against a surety). Although the North Carolina Court of Appeals has stated in dicta that
“under certain circumstances, a defendant’s failure to offer payment of an undisputed debt may
rise to the level of an unfair and deceptive trade practice” when rejecting the assertion that “[prejudgment] interest should be tolled when a defendant offers to pay the aggrieved party undisputed
portions of the alleged debt . . . [,]” Members Interior Constr. v. Leader Constr. Co., 124 N.C.
App. 121, 125, 127, 476 S.E.2d 399, 403 (1996) (citing Dailey v. Integon General Insurance Corp.,
75 N.C. App. 387, 331 S.E.2d 148 (1985)), the case cited and relied on by the North Carolina
Court of Appeals, Dailey, is factually distinct from this case. The court in Dailey held that under
some circumstances North Carolina law “permits the recovery of punitive damages on claims for
a tortious, bad faith refusal to settle under an insurance policy, even though, as in this instance,
the refusal to settle is also a breach of contract.” 75 N.C. App. 387, 395, 331 S.E.2d 148, 154
(1985) (emphasis added). Dailey involved a dispute between the insurer and the insured and
involved conduct sufficient to support a tort claim for bad faith refusal to settle. Id. at 395-97, 331
S.E.2d at 154-155. In contrast, this case involves a surety and an obligee, and tort claims for bad
faith refusal to settle have not been recognized in North Carolina for surety relationships, see
Cincinnati Ins., 286 F.Supp.2d at 689-90; KISAQ-RQ 8A 2 JV v. Bankers Ins. Co., No. 4:15-cv155-BO, 2016 WL 649529, at *2 (E.D.N.C. Feb. 17, 2017) (declining “to recognize a claim for
bad faith by an obligee against a surety” because North Carolina has not recognize such a claim).5
The North Carolina Court of Appeals has also emphasized the distinctions between an insurer and
a surety in Henry Angelo & Sons, Inc., v. Property Development Corp., 63 N.C. App. 569, 306
S.E.2d 162 (1983). Specifically, the court stated:
In the law, insurance and suretyship are not synonymous terms, and if any appellate
court anywhere has ever so held, our research has failed to disclose it. They involve
different functions, relationships, rights and obligations; and have been recognized
and treated by the profession as distinctive fields of law for generations.
Even if the Court recognized bad faith refusal to settle as a basis for a claim against a surety under Chapter 75,
Plaintiff has not alleged facts to support a plausible claim for bad faith refusal to settle. A necessary element of a
claim for bad faith refusal to settle is “a refusal to pay after recognition of a valid claim[.]” Lovell v. Nationwide
Mutual Ins. Co., 108 N.C. App. 416, 420, 424 S.E.2d 181, 184 (1993) (“In order to recover punitive damages for the
tort of an insurance company’s bad faith refusal to settle, the plaintiff must prove (1) a refusal to pay after recognition
of a valid claim, (2) bad faith, and (3) aggravating or outrageous conduct.”). The consultant’s determination of an
undisputed claim amount and the payment of the claim in part while continuing to dispute the remainder is not a
recognition of a valid claim. See New Hickory Pizza, Inc. v. TIG Ins. Co., No. 5:16-cv-00164-RLV-DSC, 2017 WL
3840278, at *29-30 (W.D.N.C. Sept. 1, 2017).
Henry Angelo & Sons, 63 N.C. App. at 574, 306 S.E.2d at 165 (citations omitted). Given the
recognized distinctions between sureties and insurers under North Carolina law and the lack of
North Carolina precedent recognizing a cause of action under Chapter 75 for the conduct alleged
by Plaintiff, the Court dismisses Plaintiff’s claim for unfair or deceptive trade practices. Plaintiff’s
allegation of an intentional breach of contract along with unscrupulous conduct does not state a
claim upon which relief can be granted under section 75-1.1 of the North Carolina General
Statutes. The conduct accompanying the alleged intentional breach is not unfair, deceptive, or
aggravating as a matter of law.
IT IS THEREFORE ORDERED that Allied’s Motion to Dismiss (Doc. No. 16) is
GRANTED. Plaintiff’s Claims III, IV, and V are DISMISSED without prejudice.
IT IS SO ORDERED.
Signed: November 7, 2017
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?