AGI Associates, LLC v. Profile Aviation Center, Inc. et al

Filing 15

ORDER granting in part and denying in part Dfts' 8 Motion to Dismiss. Plf's claims for Disgorgement of Rents and Unjust Enrichment survive Rule 12(b)(6) scrutiny while Plf's claims for Judicial Foreclosure a nd Accounting of Rents are moot and subject to dismissal. Plf's Breach of Contract claim against Profile, which is not implicated by the instant Memorandum and Order, remains a viable claim as well. Signed by District Judge Richard Voorhees on 8/20/2013. (cbb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO.: 5:13CV61-RLV
AGI ASSOCIATES, LLC,
Plaintiff,

)
)
)
vs.
)
)
Memorandum and Order
PROFILE AVIATION CENTER, INC., )
and the CITY OF HICKORY, NORTH )
CAROLINA,
)
Defendants.
)
______________________________________________________________________________
THIS MATTER is before the Court upon Defendant City of Hickory’s “Motion to
Dismiss Complaint,” pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6) filed March 8, 2013 along
with a Memorandum in Support. (Docs. 8, 9.) Plaintiff filed its Response and accompanying
Memorandum in Opposition on March 22, 2013. (Doc. 11.) Defendant amended its
Memorandum in Support on March 27, 2013 (Doc. 12) and filed its reply to Plaintiff’s Response
in Opposition on March 28, 2013. (Doc. 13.)
I. NATURE OF THE CASE
This civil case commenced on January 8, 2013 upon Plaintiff’s filing of its complaint in
this Court1 pursuant to 28 U. S. C. § 1332. Jurisdiction is proper pursuant to § 1332 because
complete diversity exists between the parties and the amount in controversy exceeds $75,000.00.
Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) because a substantial part of the
events and omissions giving rise to the claims occurred, and the real property that is the subject
of the action is located within the Western District – both Burke and Catawba Counties.
Plaintiff AGI Associates, LLC (“AGI”) is a limited liability company organized and
The case was originally filed in the Charlotte Division. Upon Defendant Hickory’s Motion dated
March 8, 2013 (Doc. 10), it was transferred to the Statesville Division as of April 11, 2013. (Doc. 14.)
1

existing under the laws of the State of Delaware. (Pl.’s Am. Compl. / Doc. 4 ¶ 1.) Defendant
Profile Aviation Center, Inc. (“Profile”) is a corporation organized and existing under the laws of
the State of North Carolina, with a principal place of business located in North Carolina. (Pl.’s
Am. Compl. ¶ 2.) Defendant City of Hickory (“Hickory”) is a municipal corporation organized
and existing under the laws of the State of North Carolina. (Pl.’s Am. Compl. ¶ 3.)
Plaintiff’s complaint arises out of an Airport Concessions Agreement (“ACA”)2
originally entered into by Profile and Hickory on or about March 4, 2003 by which Hickory
granted to Profile a leasehold interest in the certain parcels of property at the Hickory Regional
Airport (“Airport”), which Hickory owned. (Pl.’s Am. Compl. ¶¶ 7, 9.) The ACA’s purpose was
to memorialize agreements and obligations between Profile and Hickory whereby Profile would
provide commercial aviation services in Hickory in return for compensation. (Pl.’s Am. Compl. ¶
7.) On or about June 29, 2004, Profile executed and delivered to RBC Centura Bank (the
“Bank”) a Promissory Note in the amount of $2,000,000.00 which was to be due on June 29,
2009. To secure the Note, Profile executed and delivered to the Bank Deeds of Trust in its
leasehold interest in the Leased Premises and an Assignment of Rents 3 under which the Bank
was empowered to collect Concession Revenues and deduct them from the monthly payments
owed by Profile. (Def.’s Am. Mem. in Supp. at 4.)
Profile subsequently defaulted on its obligations to the Bank; Hickory claims that such a
default also constituted a default under the Lease (Def.’s Am. Mem. in Supp., at 4.) While the
precise timing of Profile’s default on its bank note is unknown, letters dated May 15, 2009 and
April 21, 2011 demonstrate Hickory’s understanding of Profile as being in default under the

2

Also known as the Fixed Based Operations (“FBO”) Agreement.

3

As the airport itself sits in both Burke and Catawba Counties, Deeds of Trust and Assignments
of Rents were entered separately in both the Burke and Catawba County Registries.

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ACA Agreement as of those dates. (Notice of Default for Non-Payment of Rent / No. 5:11-bk50642 Doc. 57-3 at 15, 17.) The record is unclear regarding whether Profile cured either of these
defaults.
Subsequently, on or about April 29, 2010, Plaintiff purchased the Profile Promissory
Note and Security Instruments from the Bank. (Pl.’s Am. Compl. ¶15; Def.’s Am. Mem. in
Supp. at 4.) On May 19, 2011, Profile filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of North Carolina. (Pl.’s
Am. Compl. ¶ 17; Def.’s Am. Mem. in Supp. at 5.) Via Consent Omnibus Order issued February
2, 2012, the bankruptcy court ruled, in relevant part:
2. Hickory is hereby placed in possession of the Hickory Regional Airport
premises pursuant to the Airport Concession Agreement (“FBO Agreement”) as
of 12:01 a.m. on December 9, 2011, with reservation of rights to all Parties as to
matters not specifically addressed by this Order.
...
4. The FBO Agreement is deemed to have been rejected by the Debtor as of 12:01
a.m. on December 9, 2011.
...
8. Hickory may co-mingle hanger [sic] rents with other general funds from
December 9, 2011 at 12:01 a.m. forward; however, Hickory shall account for all
hanger [sic] rents so received by payor, amount, and date. Hickory shall provide
such accounting in writing to AGI and any other affected secured party on a
monthly basis upon reasonable request to do so.
...
9. Nothing in this order shall be deemed to constitute findings of fact, conclusions
of law, or an adjudication of the Parties’ rights with respect to any alleged
termination of the FBO Agreement.
(No. 5:11-bk-50642 Consent Omnibus Order / Doc. 151 at 2-3.)
Profile’s bankruptcy was dismissed by order dated February 23, 2012, which stated that
Profile’s quarterly fees were due pursuant to 28 U.S.C. § 1930(a)(6) and that “With the
termination of the [ACA] Agreement, the Debtor is unable to reorganize.” (No. 5:11-bk-50642
Order Granting Motion to Dismiss Bankruptcy / Doc. 152 at 4.) In a letter dated August 22,

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2012, Plaintiff demanded from Hickory payment of rents beginning December 9, 2011; Hickory
has refused to pay over such rents. (Pl.’s Am. Compl. ¶ 25.)
Against movant Defendant Hickory, Plaintiff brings causes of action for Judicial
Foreclosure (Pl.’s Am. Compl. ¶ 36), Demand for Accounting (Id. ¶ 38), Disgorgement of Rents
(Id. ¶ 42), and Unjust Enrichment (Id. ¶ 50). Plaintiff also brings a cause of action for Breach
of Contract against defendant Profile.4 (Id. ¶ 30.)
Defendant Hickory moves to dismiss each of these claims pursuant to Fed. R. Civ. P.
12(b)(1) and (6).
II. STANDARD OF REVIEW
A. Rule 12(b)(1)
Rule 12(b)(1) provides for dismissal where the court lacks subject matter jurisdiction
over the lawsuit. Lack of subject matter jurisdiction may be raised at any time either by a litigant
or the court. See Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884). The Federal
Rules of Civil Procedure anticipate this issue and provide that “[i]f the court determines at any
time that it lacks subject matter jurisdiction, the court must dismiss the action.” Fed. R. Civ. P.
12(h)(3).
When a court considers its subject matter jurisdiction, the burden of proof is on the
plaintiff. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). In Richmond, Fredericksburg &
Potomac R.R. Co. v. United States, the Court of Appeals for the Fourth Circuit held as follows:
In determining whether jurisdiction exists, the district court is to regard the
pleadings’ allegations as mere evidence on the issue, and may consider evidence
outside the pleadings without converting the proceeding to one for summary
judgment. The district court should apply the standard applicable to a motion for
summary judgment, under which the nonmoving party must set forth specific
facts beyond the pleadings to show that a genuine issue of material fact exists.
4

The Breach of Contract claim against Profile is not presently before the Court on the Motion to

Dismiss.

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The moving party should prevail only if the material jurisdictional facts are not in
dispute and the moving party is entitled to prevail as a matter of law.
945 F.2d 765, 768-69 (4th Cir. 1991) (internal citations omitted). Where jurisdictional facts are
intertwined with facts central to the substance of a case, a court must find that jurisdiction exists
and consider and resolve the jurisdictional objection as a direct attack on the merits of the case.
United States v. North Carolina, 180 F.3d 574, 580 (4th Cir. 1999).
Although the Court could conduct jurisdictional analysis, as it pertains to governmental
immunity, under a Fed. R. Civ. P. 12(b)(2) standard as well5, in this district and elsewhere, there
is authority suggesting that motions to dismiss based upon governmental immunity may be
properly granted pursuant to Rule 12(b)(1). Johnson v. North Carolina, No. 5:11cv57, 2012 WL
5024039, at *4 (W.D.N.C. October 17, 2012) (internal citations omitted).
B. Rule 12(b)(6)
Defendant Hickory moves to dismiss Plaintiff’s Complaint pursuant to rule 12(b)(6) of
the Federal Rules of Civil Procedure. A Rule 12(b)(6) motion to dismiss for failure to state a
claim upon which relief can be granted challenges the legal sufficiency of a plaintiff’s complaint.
Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). Under this standard, “the court should
accept as true all well-pleaded allegations and should view the complaint in the light most
favorable to the plaintiff.” Marx Indus., Inc. v. Baseline Licensing Group, LLC, 2011 U.S. Dist.
LEXIS 81752, at *3 (W.D.N.C. July 26, 2011) (Voorhees, J.) (quoting Mylan Labs, Inc. v.
Matakari, 7 F.3d 1130, 1134 (4th Cir. 1993)). In order to survive a Rule 12(b)(6) motion to
dismiss, the facts alleged must be sufficient “to raise a right to relief above the speculative level”
and “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555, 570 (2007). Requiring plausibility “does not impose a probability requirement at the
5

See Data Gen. Corp. v. Cnty. of Durham, 545 S.E.2d 243 (N.C. Ct. App. 2001) (dismissing
claims against county on personal jurisdiction grounds).

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pleading stage.” Id. at 556. It does, however, demand more than a “sheer possibility that a
defendant has acted unlawfully.” Iqbal, 556 U.S. at 662. Ultimately, a claim has facial
plausibility when the plaintiff pleads factual content that permits the court “to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 663.
III. DISCUSSON
A. Governmental Immunity
Defendant Hickory claims that the doctrine of governmental immunity insulates it from
Plaintiff’s various claims. As a general proposition, the state of North Carolina and its
governmental subsidiaries are immune from tort liability when discharging a duty imposed for
the public benefit in the absence of some statute subjecting them to liability or a waiver of the
immunity. See Town of Sandy Creek v. East Coast Contracting, Inc.741 S.E.2d 673, 675 (N.C.
Ct. App. 2013). The analysis must thus focus on whether Hickory has waived its immunity.
1. Contract Theory
Hickory contends that it was not a party to any contract with either Plaintiff or the Bank
and thus is immune from Plaintiff’s various claims. (Def.’s Am. Mem. Supp. at 14.) In support,
the City cites a recent North Carolina Court of Appeals decision upholding a trial court’s
determination that “[W]ithout an allegation of a valid contract, plaintiff did not demonstrate that
defendant had waived its [governmental] immunity; and therefore, the trial court lacked
jurisdiction over defendant.” M Series Rebuild, LLC v. Town of Mt. Pleasant, NC, 730 S.E.2d
254, 257 (N.C. Ct. App. 2012). In response, Plaintiff alleges that Defendant Hickory “did
contract to lease the premises, did contractually agree that Profile could encumber the leased
premises, and did contractually agree on the manner in which it could assume possession of the
leased premises free and clear of encumbrances.” (Pl.’s Resp. in Opp’n at 14.)

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Plaintiff’s argument, however, either overlooks the fact that the ACA was entered into
solely between Hickory and Profile, or assumes that the contract was intended to benefit
Plaintiff. “The practice of allowing third-party beneficiaries not in privity of contract to bring an
action in their own name to enforce the contract made for their benefit was recognized in North
Carolina as early as 1842.” Vogel v. Reed Supply Co., 177 S.E.2d 273, 278 (N.C. 1970) (citation
omitted). “[A] person may bring an action to enforce a contract to which he is not a party, if he
demonstrates that the contracting parties intended primarily and directly to benefit him or the
class of persons to which he belongs.” DeMent v. Nationwide Mut. Ins. Co., 544 S.E.2d 797, 801
(N.C. Ct. App. 2001).
Here, on its face, the “right of first cure” language of section 9.5 of the ACA would seem
to contemplate, and place Hickory in privity with, third-parties such as Plaintiff or the Bank.
(Pl.’s Am. Compl. ¶ 16.) That section of the agreement reads:
City intends that it shall have the power to prevent the mortgagee or trustee or any
other third party from stepping into the shoes of Profile under the Concession
Agreement, or with respect to the Leased Property, in the event of a default under
the terms of any such mortgage, deed of trust or other instrument securing the
financial obligations of Profile by encumbrances on the Leased Property and
Profile's interests in the Concession Agreement. Toward that end the City
requires, and Profile agrees, that any and all debt instruments and the security
interests encumbering Profile’s interests as provided for in this Article 9 shall
have provisions giving City notice of default and, in the event that Profile fails, is
unable, or refuses to cure such defaults, the first right to cure such defaults. Upon
the City's cure of any such defaults, Profile’s interests in the Concession
Agreement and the leased Property will be foreclosed in favor of the City and
City shall retake possession of the Leased Premises free and clear of any interests
of Profile or under the provisions of Concession Agreement.
(Pl.’s Am. Compl. / Doc. 4-2 at 8.)
However, section 9.5 was not part of the original March 4, 2003 Airport Concession
Agreement. (Pl.’s Am. Compl. / Doc. 4-1.) Profile’s Promissory Note to the Bank was dated
June 29, 2004, section 9.5 first appeared in the Second Amendment to the ACA effective April 1,

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2008. Thus, with no contractual language indicating otherwise, the right to cure could not have
applied to the June 29, 2004 transaction. (Def.’s Am. Mem. in Supp. at 7.) Defendant Hickory
has not waived its governmental immunity under a theory of contract.
2. Proprietary Function
Plaintiff further argues that the City waived its governmental immunity by engaging in
proprietary functions. (Pl.’s Resp. in Opp’n to Mot. to Dismiss at 14.) Governmental immunity
does not apply when the municipality engages in a proprietary function. Estate of Williams ex.
rel. Overton v. Pasquotank County Parks and Recreation Dept., 732 S.E.2d 137, 141 (N.C.
2012) (citing Town of Grimesland v. City of Washington, 66 S.E.2d 794, 798 (N.C. 1951)). In
distinguishing governmental functions from proprietary ones, the North Carolina Supreme Court
has held that, “[G]enerally speaking, the distinction is this: If the undertaking of the municipality
is one in which only a governmental agency could engage, it is governmental in nature. It is
proprietary and ‘private’ when any corporation, individual, or group of individuals could do the
same thing.” Bostic Packaging, Inc. v. City of Monroe, 562 S.E.2d 75, 77 (N.C. Ct. App. 2002)
(quoting Britt v. City of Wilmington, 73 S.E.2d 289, 293 (N.C. 1952)).
Citing various examples of county and municipality actions which have been held as
proprietary, Plaintiff claims that Hickory was conducting proprietary functions when it leased
real property, operated an airport, collected rents, and, upon foreclosure, “operat[ed] the leased
premises just as [defendant] Profile had previously done.” (Pl.’s Resp. in Opp’n to Mot. to
Dismiss, at 15-16.) In response, Hickory relies on Whitfield v. Gilchrist which implies that the
only way a municipal corporation implicitly waives governmental immunity is by expressly
entering into a valid contract. 497 S.E.2d 412, 415 (N.C. 1998). The Whitfield discussion,
however, does not aid Hickory, as it comes clearly in the context of contract theory and aims to

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distinguish instances where the sovereign executes express contracts from those involving claims
of quasi or implied in law contracts.
As cited in Plaintiff’s Response in Opposition, The North Carolina Supreme Court has
deemed proprietary such functions as a municipality leasing an arena, Aaser v. City of Charlotte,
144 S.E.2d 610, 613 (N.C. 1965), or operating an airport, Piedmont Aviation, Inc. v. RaleighDurham Airport Auth., 215 S.E.2d 552, 555 (N.C. 1975). Further, a town acts pursuant to a
proprietary function by leasing property upon which a telecommunications tower will be
constructed. Stephenson v. Town of Garner, 524 S.E.2d 608, 615 (N.C. Ct. App. 2000).
Although contract theory analysis demonstrates that Plaintiff and the City were not placed in
direct privity, the underlying municipal activity in the instant case does not significantly
distinguish itself from such cases. As such, by leasing parcels of property at its municipal airport
and collecting rents, Hickory has acted in a proprietary capacity and has waived its governmental
immunity.
3. Liability Insurance
Pursuant to N.C. Gen. Stat. § 160A-485, a city is authorized to waive its immunity from
civil liability in tort by the act of purchasing liability insurance. Although section 24 of the ACA
discusses liability insurance, there are no allegations as to whether the City purchased said
insurance.6 Additionally, having found that the City has waived its immunity by acting in a
proprietary function, this Court needs not rule on the Motion on these grounds.
B. Effect of Bankruptcy Order
The doctrine of res judicata applies in the bankruptcy context. In Re Varat Enterprises,
Inc., 81 F.3d 1310, 1315 (4th Cir. 1996) (citations omitted). Courts are to invoke res judicata
Section 24.1 states: “The City and Operator agree that City shall have no obligation whatsoever
to procure or pay for insurance of any kind on the Leased Premises but may, in its sole discretion and at
its sole expense, procure such insurance for the benefit of the City if it desires.
6

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principles in determining whether an earlier federal judgment, including the judgment of a
bankruptcy court, bars a claim asserted in a later action. Grausz v. Englander, 321 F.3d 467, 472
(4th Cir. 2003) (citing Keith v. Aldridge, 900 F.2d 736, 739 (4th Cir. 1990)). Generally, claim
preclusion occurs when three conditions are satisfied:
1) the prior judgment was final and on the merits, and rendered by a court of
competent jurisdiction in accordance with the requirements of due process; 2) the
parties are identical, or in privity, in the two actions; and, 3) the claims in the
second matter are based upon the same cause of action involved in the earlier
proceeding.
In Re Varat, 81 F.3d at 1315 (citing Kenny v. Quigg, 820 F.2d 665, 669 (4th Cir. 1987)).
Applying this analysis to the instant case makes clear that res judicata principles bar the
claims seeking to essentially relitigate matters which the bankruptcy court adjudicated. First, the
February 2, 2012 bankruptcy order was both final and on the merits. The order specifically
states that “Appearances were made by counsel for the Debtor [Profile], the City of Hickory, . . .
AGI, . . . (cumulatively, the “Parties”).” (No. 5:11-bk-50642 Consent Omnibus Order / Doc. 151
at 2.) Although the order in question is not an Order Confirming Chapter 11 Plan of
Reorganization, Fourth Circuit law is clear that a bankruptcy consent judgment is “for claim
preclusion purposes, a final one on the merits.” Weiner v. Fort, 197 F.App’x. 261, 264 (4th Cir.
2006) (quoting Keith, 900 F.2d at 740). Secondly, both AGI and Hickory were parties, in their
same respective capacities, to the bankruptcy proceeding. Finally, the claims for accounting of
rents and judicial foreclosure ultimately stem from the same series of transactions or
occurrences, namely the process of Profile leasing property, encumbering it with security
interests, defaulting on its obligations, and filing for bankruptcy, as were at issue in bankruptcy
proceeding. As such, res judicata principles are applicable to claims in this proceeding to the
extent that they were adjudicated in bankruptcy.

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C. Judicial Foreclosure and Demand for Accounting
The substance of these claims was adjudicated during they bankruptcy proceeding; they
are precluded and thus dismissed. The claim for judicial foreclosure cannot stand where the
bankruptcy order unequivocally vests possessory interest of the airport property in the City of
Hickory. Secondly, in demanding an accounting for all airport rents and profits Hickory
received since December 9, 2012, Plaintiff claims a remedy to which it is already entitled by
virture of the Consent Omnibus Order in bankruptcy, paragraph eight, referred to above.
D. Disgorgement of Rents and Unjust Enrichment
In as much as discovery may establish Plaintiff’s entitlement to equitable relief by virtue
of one or both of these claims, the Court will not dismiss them at this time. First, providing for
ultimate disgorgement of some or all of the rents which the City has collected since December 9,
2011 would not prove inconsistent with the bankruptcy order and may constitute suitable
equitable relief for AGI pending discovery on the appropriate time period to which this remedy
would apply.
With regards to unjust enrichment, in order to establish such a claim:
[A] party must have conferred a benefit on the other party. The benefit must not
have been conferred officiously, that is it must not be conferred by an interference
in the affairs of the other party in a manner that is not justified in the
circumstances. The benefit must not be gratuitous and it must be measurable.
Health Management Associates, Inc. v. Yerby, 715 S.E.2d 513, 519 (N.C. Ct. App. 2011)
(quoting Booe v. Shadrick, 369 S.E.2d 554, 556 (N.C. 1988)). In Booe, the North Carolina
Supreme Court further described the nature of unjust enrichment claims, stating:
A claim of this type is neither in tort nor contract but is described as a claim in
quasi contract or a contract implied in law. A quasi contract or a contract implied
in law is not a contract. The claim is not based on a promise but is imposed by
law to prevent an unjust enrichment

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Booe, 369 S.E.2d at 556. Thus, to survive a motion to dismiss for its unjust enrichment
claim, Plaintiff must establish a contract implied in law between it and Hickory. Whereas
North Carolina law is clear that, absent an express contract between parties, courts will
not imply a contract in law to the derogation of governmental immunity,7 Hickory has
waived its immunity by operating the airport proprietarily. At this stage of the litigation,
the possibility for judicial implication of a contract between Plaintiff and the City
remains.
IV. ORDER
For all of these reasons, the Court finds that it has subject matter jurisdiction over the
Plaintiff’s various claims. Further, Plaintiff’s claims for Disgorgement of Rents and Unjust
Enrichment survive Rule 12(b)(6) scrutiny while Plaintiff’s claims for Judicial Foreclosure and
Accounting of Rents are moot and subject to dismissal. Plaintiff’s Breach of Contract claim
against Profile, which is not implicated by the instant Memorandum and Order, remains a viable
claim as well.
IT IS, THEREFORE ORDERED that Defendants’ Motion to Dismiss is hereby
GRANTED in part and DENIED in part.
Signed: August 20, 2013

7

See Whitfield v. Gilchrist, 497 S.E.2d 412 (N.C. 1998) (concluding that a contract implied in
law is insufficient to constitute a waiver of sovereign immunity where private attorney who had assisted
district attorney brought quantum meruit claim for attorney’s fees); Data Gen. Corp., 545 S.E.2d 243
(N.C. Ct. App. 2001) (finding no personal jurisdiction over county with respect to plaintiff’s claims for
breach of contract, quantum meruit and estoppel).

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