Swan Racing Company, LLC v. XXXtreme Motorsport, LLC et al

Filing 32

MEMORANDUM and ORDER that Defendants' 22 Motion to Dismiss the Complaint's Ninth Claim for Relief is hereby DENIED; and Plaintiff's/Third-Party Defendant's concurrent 25 , 26 Motions to Dismiss the Counterclaim/Third Party Complaint's Second and Third Claims for Relief are DENIED. Signed by District Judge Richard Voorhees on 7/20/2015. (tmg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO. 5:14CV155-RLV
SWAN RACING COMPANY, LLC,
Plaintiff,
v.
XXXTREME MOTORSPORT, LLC
JOHNATHAN COHEN,
Defendants/Third-Party
Plaintiffs,
v.
BRANDON DAVIS,
Third-Party Defendant.

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MEMORANDUM and ORDER

THIS MATTER comes before the Court on Defendants’ Motion to Dismiss for Failure to
State a Claim pursuant to Federal Rule of Civil Procedure 12(b)(6) with respect to Plaintiff’s Ninth
Claim for Relief. Additionally, Plaintiff moves to dismiss the Second and Third Claims for Relief
in Defendants’ amended counterclaim and third-party complaint for failure to state a claim under
Rule 12(b)(6), and Third-Party Defendant Brandon Davis moves to dismiss all claims as against
him in Defendants’ amended counterclaim and third-party complaint.
I.

PROCEDURAL BACKGROUND AND RELEVANT FACTS
A. SALE OF THE #30 CAR
Swan Racing Company, LLC (“Swan”) is a limited liability company organized and

existing under the laws of Colorado and is owned by Brandon Davis. (Compl., ¶1). XXXtreme

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Motorsport, LLC (“XXXtreme”) is a limited liability company with its principal place of business
in Mooresville, North Carolina. (Compl., ¶2). XXXtreme is owned by Johnathan Cohen, who is
a resident of New Jersey. (Compl., ¶3). In 2014, Swan Racing operated two racing teams, the #30
and #26 teams, which competed in the Sprint Cup Series of NASCAR. (Compl., ¶¶10-11).
XXXtreme was also in the business of racing cars in the Sprint Cup. (Compl. ¶¶5-6). In April,
2014, Swan decided to discontinue its operations and liquidate its remaining assets. (Compl., ¶12).
On April 21, 2014, Swan agreed to sell the #30 racing team to XXXtreme Motorsport. (Compl.,
¶15). At this stage, the parties disagree as to the terms of the contract. Swan claims that XXXtreme
agreed to pay $200,000.00 in monthly payments equal to ten percent of the prize money earned by
the car bearing the #30. (Compl., ¶16). According to Swan, XXXtreme agreed to enter the #30
car in every Sprint Cup race until it earned $200,000.00 in prize money.

(Compl., ¶17).

XXXtreme claims that it only agreed to pay Swan ten percent of the purse money earned by the
#30 car during the remainder of the 2014 racing season. (Doc. 14, ¶16).
On April 26, 2014, XXXtreme raced a car bearing the #30 at Richmond International
Speedway, the first race following the agreement. (Compl., ¶19). According to Swan, this was
the first and last time that XXXtreme raced the #30, which XXXtreme denies. (Compl., ¶21; Doc.
14 ¶21). Swan alleges that XXXtreme, acting through its manager, Johnathan Cohen, transferred
the points of the #30 car to XXXtreme’s #44 car and raced the #44 in all subsequent races. Swan
alleges that XXXtreme never paid Swan any prize money. (Compl., ¶¶20, 22).
Swan brought action in this Court against XXXtreme Motorsport with nine claims to relief.
(Compl.). With respect to the above relevant facts, Swan brings claims against XXXtreme for
breach of contract, Quantum Meruit in the alternative, and violation of the North Carolina Unfair
and Deceptive Trade Practices Act. (Compl., ¶¶52, 86, 112). XXXtreme filed this action to

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dismiss the claim for unfair and deceptive trade practices pursuant to Federal Rule of Civil
Procedure 12(b)(6). (Doc. 22).
B. XXXTREME’S COUNTERCLAIMS
During the time that Swan and XXXtreme were negotiating the sale of the #30 car in April,
2014, XXXtreme also agreed to lease a commercial property from Swan located in Statesville,
North Carolina. (Compl., ¶29). Swan claims that XXXtreme further agreed to purchase a variety
of consumable goods, including but not limited to sheet metal, duct components, drive shafts,
batteries, brake components, rotors, shock parts, CO2 filters, and lugnuts.

(Compl., ¶29).

XXXtreme denies such an agreement. (Doc. 16 ¶29). The parties also disagree as to the terms of
the contract for the commercial property. Swan claims that XXXtreme agreed to sublease the
property for $10,400.00 per month for rent with an additional monthly amount for XXXtreme’s
proportionate monthly share of taxes, utilities, and insurance. (Compl., ¶31). XXXtreme claims
that it agreed to lease the property for $10,000.00 a month only. (Doc. 14 ¶30). XXXtreme
occupied the property from April 23, 2014 until June 24, 2014 while using it as a race shop and
base of operations. (Doc. 14 ¶10). XXXtreme sent Swan a check for $20,000.00 that XXXtreme
claims was rent for the property, (Doc. 14 ¶11), though Swan claims that XXXtreme never
indicated how the check was to be applied. (Compl.,¶40).
XXXtreme then makes the following factual assertions, all of which Swan denies.
XXXtreme alleges that it tentatively agreed with Swan to purchase Swan’s remaining assets for
$600,000.00 to be paid out over a period of four months after contract execution. (Doc. 14 ¶12).
XXXtreme alleges that Mr. Davis subsequently decided that he wanted the full amount at once,
which XXXtreme refused. XXXtreme alleges that Mr. Davis then “orchestrated and directed Swan

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Racing to lock XXXtreme Motorsport out of the [Statesville property] on or about June 24, 2014”
and “refused to allow XXXtreme Motorsport any further access to the [p]remises.” (Doc. 14 ¶13).
XXXtreme further alleges that it had racing equipment at the locked-out property,
including but not limited to a fuel cell, brakes, pit jacks, wire harnesses, oil, renton springs, and
other racing equipment. (Doc. 14 ¶15). According to XXXtreme, Swan eventually returned some
but refused upon demand to return all of the equipment and instead “converted XXXtreme
Motorsport’s property for their own use.” (Doc. 14 ¶¶16, 17). XXXtreme also alleges that Swan
sold some of XXXtreme’s equipment to third parties at the direction of Mr. Davis. (Doc. 14 ¶16).
XXXtreme brings a counterclaim/third-party complaint against Swan and Brandon Davis
for (1) breach of contract; (2) conversion; and (3) unfair and deceptive trade practices. Swan and
Davis concurrently move to dismiss the Second and Third Claims for Relief for failure to state a
claim pursuant to Rule 12(b)(6), and Davis moves to also dismiss the First Claim for Relief as
against him under 12(b)(6).
II.

STANDARD OF REVIEW
The Court can dismiss a complaint for “failure to state a claim upon which relief can be

granted.” Fed. R. Civ. P. 12(b)(6). On a motion to dismiss pursuant to Rule 12(b)(6), this Court
must “take the facts in the light most favorable to the plaintiff,” but “need not accept the legal
conclusions drawn from the facts” or “accept as true unwarranted inferences, unreasonable
conclusions, or arguments.” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting
Eastern Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000)). Although
“heightened fact pleading of specifics” is not required for a complaint to survive a motion to
dismiss under Rule 12(b)(6), the allegations must provide “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering

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the plausibility of a claim, the Court must “draw on its judicial experience and common sense” to
determine whether the well-pleaded facts of the complaint “permit the Court to infer more than the
mere possibility of misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must
disregard conclusory statements unsupported by factual allegations, but “[w]hen there are wellpleaded factual allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement to relief.” Id. Determining whether a claim states a plausible
claim for relief will…be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Id. at 679.
III.

DISCUSSION
A. SWAN RACING’S COMPLAINT
1. Swan Racing states a claim for unfair and deceptive trade practices.
N.C. Gen. Stat. §75-1.1, North Carolina’s Unfair and Deceptive Trade Practices Act

(“UDTPA”) prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce.” N.C.G.S. §75-1.1. The elements of a claim
for unfair or deceptive trade practices are: “(1) an unfair or deceptive act or practice by defendant,
(2) in or affecting commerce, (3) which proximately caused actual injury to plaintiff.” White v.
Thompson, 676 S.E.2d 104, 108 (N.C. Ct. App. 2009) aff’d 691 S.E2d 676 (N.C. 2010). An act
is deceptive “if it has a tendency or capacity to deceive.” Rahamankhan Tobacco Enterprises Pvt.
Ltd. v. Evans MacTavish Agricraft, Inc., 989 F.Supp.2d 471, 477 (E.D.N.C. 2013). An act is unfair
“if it offends established public policy,” “is immoral, unethical, oppressive, unscrupulous, or
substantially injurious to consumers,” or amounts to an inequitable assertion of …power or
position.” Id. “What is an unfair or deceptive trade practice usually depends upon the facts of
each case and the impact the practice has in the marketplace.” Durling v. King, 554 S.E.2d 1, 4

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(N.C. Ct. App. 2001) (citing Pan American World Airways, Inc. v. United States, 371 U.S. 296
(1963)). A mere breach of contract, even if intentional, is not enough to sustain a claim for unfair
and deceptive trade practices. Branch Banking & Trust Co. v. Thompson, 418 S.E.2d 694, 700
(N.C. Ct. App. 1992).1 A party must show substantial aggravating circumstances attending the
breach of contract. Id. The courts have found that “[a]ggravating factors include an intentional
misrepresentation for the purpose of deceiving another and which has a natural tendency to injure
the other.” Pan-American Prods. & Holdings, LLC v. R.T.G. Furniture Corp., 825 F.Supp.2d 664,
700 (M.D.N.C. 2011) (citing Baldine v. Furniture Comfort Co., 956 F.Supp. 580, 587-88
(M.D.N.C. 1996)). The Court finds that Swan Racing has alleged aggravating factors sufficient to
survive a 12(b)(6) motion to dismiss.
Swan Racing alleges that XXXtreme Motorsport’s actions were intentionally misleading
at the time of contracting, which is the type of aggravating circumstance that can justify an UDTPA
action. In Baldine and Pan-American, supra, the defendants obtained the contracts with the
plaintiffs by promising to pay without any intention of ever doing so. Swan alleges the same here,
specifically that XXXtreme “did not intend to perform the Agreement and abandoned and even
frustrated the performance of the #30 Agreement within days of agreeing to its terms.” (Compl.,
¶109). Swan alleges that XXXtreme took Swan’s asset without paying, stripped it of any of its
value by transferring the points to the #44 car, and then frustrated the agreed payment method by
not racing the #30 car. According to Swan, these actions can be seen as evidence that XXXtreme
never intended to adhere to the contract, and that these actions plausibly give rise to an action for
unfair and deceptive trade practices. This Court agrees.

1

See also Bob Timberlake Collection, Inc. v Edwards, 626 S.E.2d 315, 323 (N.C. Ct. App. 2006);
Bartolomeo v. S.B. Thomas, Inc. 889 F.2d 530, 535 (4th Cir. 1989); Skinner v. E.F. Hutton & Co., Inc.,
333 S.E.2d 236, 241 (N.C. Ct. App. 1985).

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XXXtreme points to Bartolomeo v. S.B. Thomas, Inc. to argue that a “complete and abrupt
abandonment of the contractual relationship” does not constitute a substantial aggravating
circumstance giving rise to an unfair and deceptive trade practices claim in a contractual context.
889 F.2d 530, 535 (4th Cir. 1989). But the Court in Bartolomeo, reviewing a summary judgment
motion, not a motion to dismiss, found that Bartolomeo had not actually been deceived because he
received timely notice of his termination, which was the subject of the action. Bartolomeo is
therefore inapposite, because the Court can make no finding at this stage in the process that
XXXtreme did not intentionally deceive Swan during the negotiations for the #30 car. Swan also
alleges more than merely an abrupt end to the contract, as detailed above.
For these reasons, Swan Racing’s Ninth Claim for Relief for unfair and deceptive trade
practices is not dismissed.
B. XXXTREME MOTORSPORT’S COUNTERCLAIM AND THIRD-PARTY
COMPLAINT
1. XXXtreme Motorsport states a claim for conversion.
“In North Carolina, conversion is generally defined as ‘an unauthorized assumption and
exercise of the right of ownership over goods or personal chattels belonging to another, to the
alteration of their condition or the exclusion of an owner’s rights.’” ACS Partners, LLC v.
American Group, Inc., No. 3:09-CV-464, 2010 WL 883663, at *11 (W.D.N.C. March 5, 2010)
(quoting Peed v. Burleson’s, Inc., 244 N.C. 437 (N.C. 1956)). “The tort of conversion requires
two essential elements: ownership by the plaintiff and conversion by the defendant.”

TSC

Research, LLC v. Bayer Chemicals Corp., 552 F.Supp.2d 534, 542 (M.D.N.C. 2008) (citing Lake
Mary Ltd. Partnership v. Johnston, 551 S.E.2d 546, 552 (N.C. Ct. App. 2001)). This Court finds
that the facts, taken in the light most favorable to the plaintiff (XXXtreme and Johnathan Cohen
in the counterclaim), give rise to a cause of action for conversion.
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Swan Racing contends that XXXtreme’s allegation of conversion was not pled with
adequate specificity because XXXtreme only identified the property located at the premises prior
to the lock-out, but did not specify what property was converted. The Court draws on its judicial
experience and common sense in finding that XXXtreme’s conversion counterclaim/third party
complaint is sufficient. The goal of Federal Rule of Civil Procedure 8(a)(2) is to “give the
defendant fair notice of what the … claim is and the grounds upon which it rests.” Erickson v.
Pardus, 551 U.S. 89, 93, 94 (2007) (citations omitted). Swan Racing cannot reasonably claim that
they are not on notice of the property they are accused of converting – it is equipment stored at the
premises, including but not limited to a fuel cell, brakes, pit jacks, wire harnesses, oil, renton
springs, and other racing equipment. The fact that XXXtreme identifies this equipment in one
paragraph but not the next does not render their claim implausible and subject to dismissal.
Swan would seem to hold that XXXtreme must specify how many of each item Swan
converted, but this is clearly not the standard. See McManus v. GMRI, Inc., No. 3:12-CV-009DCK, 2012 WL 2577420, at *7-8 (W.D.N.C. July 3, 2012) (conversion claim not dismissed where
property alleged to be converted included but was not limited to: “electrical equipment, light
fixtures, and portions of the ventilating and air conditioning system”); Eli Research, Inc. v. United
Commc’ns Grp., LLC, 312 F.Supp.2d 748, 763 (M.D.N.C. 2004) (conversion claim not dismissed
where property alleged to be converted was “confidential, private, secret, business
information…”).
Swan Racing further argues that XXXtreme is obligated to plead demand and refusal with
greater particularity, including the date, time, and manner in which the demand was made.
XXXtreme is not obligated, however, to plead demand and refusal at all. “When a party has
allegedly received the materials in question pursuant to a contract, then demand and refusal is a

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necessary element of the cause of action.” Hoch v. Young, 305 S.E.2d 201, 203 (N.C. Ct. App.
1983) (additional citation omitted). XXXtreme does not claim that the allegedly converted
property came into Swan’s possession pursuant to a contract. XXXtreme alleges that Swan took
the equipment from commercial property that XXXtreme was in lawful possession of. As such,
demand and refusal is not a necessary element of the cause of action.2
For the above reasons, XXXtreme Motorsport’s claim for relief for conversion as against
Swan Racing and Brandon Davis is not dismissed.
2. XXXtreme Motorsport states a claim for unfair and deceptive trade
practices.

The standard for unfair and deceptive trade practices is the same as in the above section.
Additionally, the Court notes that a conversion of property may constitute a deceptive and unfair
trade practice in North Carolina, but does not automatically create an UDTPA claim as a matter of
law. See Bartlett Milling Co., L.P. v. Walnut Grove Auction & Realty Co., Inc., 665 S.E.2d 478,
487 (N.C. Ct. App. 2008). “A conversion must include sufficiently aggravating circumstances to
elevate the conversion to an unfair and deceptive trade practice and warrant the heightened
damages of Chapter 75.” Id. See also Hancock v. Renshaw, 421 B.R. 738 (M.D.N.C. 2009). This
Court finds that XXXtreme has sufficiently alleged enough aggravating circumstances to survive
a 12(b)(6) dismissal.
In this case, the Court is guided by Love v. Pressley, cited by both the Plaintiff and
Defendant in this case. 239 S.E.2d 574, 583 (N.C. Ct. App. 1977). Swan argues that Love stands
for the principle that “a finding of demand and refusal to return property was ‘implicit’ in
determining that the conversion rose to the level of an unfair and deceptive trade practice.” (Doc.

2

The Court then need not address the issue of whether XXXtreme Motorsport pled demand and
refusal with sufficient particularity.

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27 at 7). Swan misreads the case, for Love only held that a finding that the defendant refused to
return the property on demand was implicit in the jury verdict. Love, 239 S.E.2d at 583.3 In Love,
the North Carolina Court of Appeals said:
In the instant case, the jury properly found facts that the defendant or his agent trespassed
upon the premises rented to the plaintiffs and converted the personal property of the femme
plaintiff. Implicit in the verdict as to the conversion is the finding that defendant refused
to return the property upon demand. Also, it was stipulated that defendant did not evict
plaintiffs from the premises pursuant to any judicial process…We hold that defendant’s
conduct constituted unfair or deceptive acts or practices in commerce…”
Id.
The actions of the landlord in Love are almost identical to the actions alleged against Swan
in this case, including not just conversion of personal property, but also ostensible trespass and
eviction without judicial process.
Swan also points to House v. Federal Home Loan Mortg. Corp., No. 4:14-CV-129-D, 2015
WL 135979 (E.D.N.C. Jan. 9, 2015). In House the Eastern District of North Carolina notes that
“[m]ost cases upholding an UDTPA claim in a landlord-tenant context involve situations where
‘the residential rental premises were unfit for human habitation and the landlord was aware of
needed repairs.’” Id. at 9. (quoting Foy v. Sprinks, 414 S.E.3d 87, 90 (N.C. Ct. App. 1992). The
Eastern District goes on to say, however, that “UDTPA claims involving landlords and tenants are
not limited to the Foy context.” Id. The present case is easily distinguished from House. In that
case, equitable title transferred to Freddie Mac in a foreclosure action and Freddie Mac brought an
ejectment notice against the plaintiffs through the sheriff and county clerk’s office. That set of

3

In any case, this Court does not find that XXXtreme failed to plead demand and refusal with
sufficient particularity. Swan further argues that the UDTP claim cannot stand on XXXtreme’s
conversion claim because the conversion claim is insufficient, but the Court has already determined that
the conversion claim is well-pled.

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facts is far less indicative of aggravating circumstances than the lock-out and conversion that is
alleged here.
Further, assuming the allegations of XXXtreme to be true in the present case, Brandon
Davis is responsible for the trespass giving rise to an UDTPA action because he personally
orchestrated it. Swan fails to cite any case law that indicates that Davis cannot be liable even if
Swan is found liable. As such the action against Davis shall go forward.
Accordingly, this Court finds that XXXtreme Motorsport has adequately pled aggravating
circumstances and its unfair and deceptive trade practices claim as against Swan Racing and
Brandon Davis is not dismissed.
IV.

ORDER
IT IS, THEREFORE, ORDERED that Defendants’ Motion to Dismiss the Complaint’s

Ninth Claim for Relief is hereby DENIED; and Plaintiff’s/Third-Party Defendant’s concurrent
Motions to Dismiss the Counterclaim/Third Party Complaint’s Second and Third Claims for Relief
are DENIED.

Signed: July 20, 2015

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