Swift Beef Company v. Alex Lee, Inc.
ORDER denying 30 Partial Motion to Dismiss. Signed by District Judge Max O. Cogburn, Jr on 2/8/2018. (nvc)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
DOCKET NO. 5:17-cv-176
SWIFT BEEF COMPANY,
ALEX LEE, INC.,
THIS MATTER is before the Court on plaintiff’s Partial Motion to Dismiss. Having
considered plaintiff’s motion and reviewed the pleadings, the court enters the following Order.
Plaintiff is a meat company that offers a range of brands and programs designed to meet
the needs of purchasers. One such program is known as “Case Ready,” which provides fresh meat
cut and packaged to customer specifications and made ready for placement in coolers or freezers,
such as at local grocery stores. Plaintiff offers beef, pork, and poultry options in its Case Ready
business line. Defendant is a privately held company with two primary food distribution and retail
operating companies: Merchants Distributors, Inc. and Lowes Foods, LLC. They service
customers in North and South Carolina, Virginia, West Virginia, Georgia, Alabama, Florida,
Tennessee, Ohio, Pennsylvania, and Kentucky. Defendant owns a plant in Lenoir, North Carolina,
which is used as a meat processing and packaging facility that defendant leases out to operators.
On April 21, 2014, defendant and plaintiff entered into a Lease Agreement and a Purchase
Agreement (“the Agreements”). Through those Agreements, defendant leased the Lenoir plant to
plaintiff. Those agreements also required plaintiff to supply defendant with certain Case Ready
products. The Agreements have a ten year term and are linked; if a party fails to perform under
one, both may be terminated. Due to a dispute over whether the Agreements were breached, this
Court earlier granted a preliminary injunction to bar defendant from evicting plaintiff while more
discovery was conducted in this case.
Here, plaintiff moves to dismiss three counts of defendant’s counterclaim against plaintiff
under Rule 12(b)(6), Federal Rules of Civil Procedure. Plaintiff argues that defendant has failed
to state viable claims under the North Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”) and for conversion. As to the claim of fraud, plaintiff also contends that defendant
has failed to plead fraud with the particularity required by Rule 9(b).
Standard of Review
A motion to dismiss “challenges the legal sufficiency of a complaint.” Francis v.
Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). For purposes of the motion, the factual allegations
in the complaint are accepted as true and viewed in the light most favorable to the non-moving
party. Coleman v. Md. Court of Appeals, 6266 F.3d 187, 189 (4th Cir. 2010). The court need not
accept “unwarranted inferences” or “unreasonable arguments.” Giarratano v. Johnson, 521 F.3d
298, 302 (4th Cir. 2008). “To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007)). The plausibility standard requires “more than a sheer possibility that a defendant has
acted unlawfully.” Id. Only “a short and plain statement of the claim showing that the pleader is
entitled to relief” is required. Fed.R.Civ.P. 8(a)(2). Such statement does not require “specific
facts,” but need only give defendant “fair notice of what the . . . claim is and the grounds upon
which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 544).
Finally, “[a] Rule 12(b)(6) motion ‘does not resolve contests surrounding the facts, the merits of
a claim, or the applicability of defenses.’” Pisgah Laboratories, Inc. v. Mikart, Inc., 2015 WL
996609, at *2 (W.D.N.C. Mar. 5, 2015) (quoting Edwards v. City of Goldsboro, 178 F.3d 231,
243 (4th Cir. 1999)).
In turn, Federal Rule of Civil Procedure 9(b) requires that “[i]n all averments of fraud or
mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” That
means that a plaintiff must allege “at a minimum . . . 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.” U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th
Cir. 2008); see also Ingersoll v. Life Indus. Corp., 698 F.Supp.2d 552 (E.D.N.C. 2010); Majeed
v. North Carolina, 520 F.Supp.2d 720 (E.D.N.C. 2007). Such facts “are often referred to as the
‘who, what, when, where, and how’ of the alleged fraud.” Wilson, 525 F.3d at 379.
Plaintiff moves to dismiss three counterclaims asserted by defendant for violation of the
North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), conversion, and fraud.
The court will consider each claim in turn.
A. UDTPA violation
Plaintiff first argues that defendant’s UDTPA counterclaim is barred due to failure to
plead sufficient facts that allege the kind of substantial aggravating circumstance that the
UDTPA requires for a valid claim. To state a claim under the UDTPA, a party must allege facts
showing three elements: “(1) the defendant committed an unfair act or deceptive trade practice;
(2) the action in question was in or affecting commerce; and (3) the act proximately caused
injury to the plaintiff.” Bob Timberlake Collection, Inc. v. Edwards, 176 N.C.App. 33, 41, disc.
rev. denied, 360 N.C. 531 (2006). Whether an act or practice is unfair or deceptive is “a question
of law for the court.” DiFrega v. Pugliese, 164 N.C. App. 499, 507 (2004).
Guidance on what actually constitutes an unfair or deceptive trade practice is somewhat
limited, as it is “a somewhat nebulous concept” that depends on a case’s particular
circumstances. Gilbane Bldg. Co. v. Fed. Reserve Bank of Richmond, 80 F.3d 895, 902 (4th Cir.
1996). Such practices must involve “[s]ome type of egregious or aggravating circumstances” in
order to be a violation of the UDTPA. S. Atl. Ltd. P’ship of Tenn. V. Riese, 284 F.3d 518, 535
(4th Cir. 2001) (citations and quotations omitted). Typically, an act or practice is unfair if it is
“immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” Bob
Timberlake, 176 N.C.App. at 41. An act or practice is considered deceptive “if it has the capacity
or tendency to deceive.” Id. A party need not actually show “fraud, bad faith, deliberate or
knowing acts of deception, or actual deception.” Chastain v. Wall, 337 S.E.2d 150, 153-54 (N.C.
Ct. App. 1985) (internal citations and quotations omitted). Rather, it is sufficient to “show that
the acts complained of possessed the tendency or capacity to mislead, or created the likelihood of
deception.” Id. In analyzing such acts, “[i]ntent of the defendant and good faith are irrelevant.”
Id.; see also Cameron v. Martin Marietta Corp., 729 F. Supp. 1529, 1531 (E.D.N.C. 1990) (“To
prevail under the Act, one must show that the acts complained of possessed the tendency or
capacity to mislead, or created the likelihood of deception”).
Since proof of such an act or practice entitles a plaintiff to treble damages, other courts
have noted that a claim under the UDTPA is made in almost “every complaint based on a
commercial or consumer transaction in North Carolina.” Broussard v. Meineke Discount Muffler
Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998) (internal quotations and citations omitted). In order
to prevent damages from spiraling out of control in every commercial dispute, “North Carolina
courts have repeatedly held that a mere breach of contract, even if intentional, is not sufficiently
unfair or deceptive to sustain an action under” the UDTPA. Id. Thus, to recover under the
UDTPA in the context of a contractual relationship, “a party must show substantial aggravating
circumstances attending the breach of contract.” Bob Timberlake, 176 N.C. App. at 42; see also
Birtha v. Stonemor, North Carolina, LLC, 220 N.C.App. 286, 298 (2012), disc. review denied,
366 N.C. 570 (2013) (“North Carolina courts are extremely hesitant to allow plaintiffs to attempt
to manufacture a tort action and alleged UDTPA out of facts that are properly alleged as a breach
of contract claim”). Indeed, “North Carolina courts routinely dismiss UDTPA claims asserted in
simple breach of contract cases.” Harty v. Underhill, 211 N.C. App. 546, 554 (2011).
Most of defendant’s allegations are within the realm of contract law are based on the
Agreements. As contract disputes, they do not qualify as UDTPA claims. See PCS Phosphate
Co., Inc. v. Norfolk Southern Corp., 559 F.3d 212, 224 (4th Cir. 2009) (holding that a railroad’s
threats to abandon a line going to a mine did not constitute “substantial aggravating
circumstances” because they involved a dispute over obligations under the contract between the
parties); Canady v. Crestar Mortg. Corp., 109 F.3d 969, 975 (4th Cir. 1997) (holding that even an
intentional breach is insufficient for liability to attach under the UDTPA); Broussard, 155 F.3d at
346 (“The district court erred, however, by allowing plaintiffs to advance tort and UDTPA
counts paralleling their breach of contract claims. The crux of this matter is and always has been
a contract dispute.”).
Defendant’s allegations regarding misassignment of labor costs and failure to credit
defendant with proceeds are more troubling. Such conduct may or may not rise to the level of a
“substantial aggravating circumstance” that would remove this matter from the realm of contract
law. See Moore v. Seterus, Inc., 2017 WL 3496485, at *5 (W.D.N.C. 2017) (“where a cause of
action presumes the ‘existence of an agreement, the terms contained in an agreement, and the
interpretation of an agreement,’ the issues raised must be relegated to the arena of contract law,
and are not appropriate for resolution under tort principles”) (quoting Broussard, 155 F.3d at
347). While matters of internal corporate management do not affect commerce as defined by the
UDTPA, Wilson v. Blue Ridge Elec. Membership Corp., 157 N.C.App. 355, 358 (2003), the
allegations of fraud in allegedly assigning costs incurred by Food Lion to defendant, a Food Lion
competitor, have given the Court some concern, as discussed in Section C below.
While the Court agrees with plaintiff that the UDTPA claim is inherently weak as much
of it is based on claims cognizable in contract, the Court will not grant the plaintiff’s partial
motion to dismiss defendant’s UDTPA counterclaim at this time. Instead, the court will deny the
motion without prejudice as to reconsidering dismissal of this claim after the close of discovery
by way of a motion for summary judgment.
Next, plaintiff argues that defendant has failed to state enough facts to support a
counterclaim for conversion, claiming that the property in question was not owned by defendant,
and thus cannot be the basis of a viable conversion claim. Plaintiff also argues that any funds at
issue cannot be the subject of a conversion claim, as defendant does not allege facts showing that
they must have been segregated from other funds. Finally, plaintiff contends that defendant
failed to demand the return of any allegedly converted property, and that defendant’s conversion
claim must therefore fail.
Under North Carolina law, conversion is 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.” Peed v. Burleson’s, Inc., 94
S.E.2d 351, 353 (1956). When conversion is based on money, it must be identifiable and
described as a specific chattel. Alderman v. Inmar Enter., Inc., 201 F.Supp.2d 532, 548
(M.D.N.C. 2002), aff’d per curiam, 58 F.App’x 47 (4th Cir. 2003). If a party receives chattel
under contract, there is no conversion until another party makes an absolute, unqualified refusal
to surrender the chattel. TSC Research, LLC v. Bayer Chemicals Corp., 552 F.Supp.2d 534, 542
(M.D.N.C. 2008); ACS Partners, LLC v. Americon Group, Inc., 2010 WL 883663, at *11
(W.D.N.C. March 5, 2010).
The Agreements are silent on ownership of supply inventory; thus, defendant’s allegation
that the supply inventory belongs to it must be taken as true for purposes of the instant motion.
See Davis v. Trans Union, LLC, 526 F. Supp. 2d 577, 582 (W.D.N.C. 2007). As the Agreements
are silent on this issue, it also potentially removes this counterclaim from the arena of contract
law. Finally, defendant alleges that it was unaware of the conversion until after the sale of the
property in question had been completed, making any attempt to demand the return of the
property impossible. As a result, the Court finds that defendant has pled sufficient facts to
survive a Rule 12(b)(6) motion.
Finally, plaintiff alleges that defendant’s counterclaim for fraud lacks sufficient
particularity under Rule 9(b), arguing that the counterclaim does not specifically identify who
made any alleged false representations, the content of the representations, when they were made,
or where they were made. Plaintiff also argues that the counterclaim fails to plead facts showing
that plaintiff had the requisite intent not to fulfill its contractual promises, or that defendant
reasonably relied on any alleged misrepresentation or concealment.
Fraud has six elements: “(1) material misrepresentation of a past or existing fact; (2) the
representation must be definite and specific; (3) made with knowledge of its falsity or in culpable
ignorance of its truth; (4) that the misrepresentation was made with intention that it should be
acted upon; (5) that the recipient of the misrepresentation reasonably relied upon it and acted
upon it; and (6) that there resulted in damage to the injured party.” Hudson-Cole Dev. Corp. v.
Beemer, 132 N.C. App. 341, 346 (1999). Plaintiff must allege “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,” with such information typically referred to as the “‘who, what, when,
where, and how’ of the alleged fraud.” Wilson, 525 F.3d at 379. Furthermore, merely failing to
carry out a promise in contract “does not support a tort action for fraud.” Strum v. Exxon Co.,
U.S.A., 15 F.3d 327, 331 (4th Cir. 1994). Simply put, “[a]n unfulfilled promise is not actionable
fraud . . . unless the promisor had no intention of carrying it out at the time of the promise, since
this is a misrepresentation of a material fact.” McKinnon v. CV Indus., Inc., 213 N.C. App. 328,
338, disc. review denied, 365 N.C. 353 (2011); see also Wellness Group, LLC v. King Bio, Inc.,
2014 WL 1632930, at *4 (W.D.N.C. April 24, 2014); Carolina Power & Light Co. v. Aspect
Software, Inc., 2009 WL 256332, at *2 (E.D.N.C. Feb. 3, 2009) (“the mere fact that the
Defendants ultimately failed to fulfill the promises they made to Plaintiffs does not raise the
inference that these promises were made ‘with the intent to defraud’”). In determining if a
promisor had the specific intent not to perform at the time the promise was made, “[m]ere
generalities and conclusory allegations will not suffice to sustain a fraud claim.” Norman v.
Tradewinds Airlines, Inc., 286 F.Supp.2d 575, 594 (M.D.N.C. 2003). Should a plaintiff offer
nothing more than its own assertions that the promisor never intended to honor a contract,
“dismissal as a matter of law is appropriate.” Id.
Here, the court finds that defendant has pled its fraud counterclaim with sufficient
particularity. The particularities are found in defendant’s pleadings and highlighted by Exhibit C,
an investigative report detailing that the plant’s general manager instructed his employees to
falsify labor records in June 2015, in order to charge defendant with labor costs that should have
been charged to Food Lion (one of defendant’s competitors). (Exhibit C, ECF No. 26-4). While
plaintiff also argues that the report negates the fraud claim by showing a variety of alternate,
reasonable explanations for the labor variances, the existence of alternative explanations does not
negate a claim of fraud or make those claims any less plausible. See Houck v. Substitute Trustee
Services, Inc., 791 F.3d 473, 484 (4th Cir. 2015) (“To survive a motion to dismiss, a plaintiff
need not demonstrate that . . . alternative explanations are less likely; rather, she must merely
advance her claim ‘across the line from conceivable to plausible’”) (internal citations omitted).
Overall, the court finds that the “who, what, when, where, and how” of the alleged fraud has
been stated with sufficient particularity under Rule 9(b), and will therefore deny plaintiff’s
motion to dismiss on that basis.
The Court also finds that defendant has pleaded sufficient facts for a counterclaim under
the more general requirements of Rule 12(b)(6). While plaintiff argues that defendant has failed
to plead sufficient facts to show that plaintiff did not intend to comply with the Agreement, this
does not appear to be the crux of defendant’s counterclaim. Defendant is not arguing that
plaintiff fraudulently entered into the Agreements or intended and failed to carry them out, but
that plaintiff defrauded defendant in the context of the parties’ relationship by using their
relationship as an opportunity to pass on labor costs that would otherwise have gone to another
party. In doing so, defendant’s argument does not appear to be predicated on plaintiff’s
performance under the Agreements or a breach thereof, but rather on actions plaintiff took in
regards to labor variances that defendant alleges were fraudulent. As such, the court finds that
defendant’s pleadings appear to show a sufficient factual basis, interpreted in a light most
favorable to defendant, to survive a Rule 12(b)(6) motion to dismiss.
Finally, plaintiff argues that defendant could not have reasonably relied on plaintiff’s
alleged fraudulent misrepresentations because it conducted an investigation in early 2016 and did
not immediately attempt to end the parties’ relationship. However, the plant manager’s allegedly
fraudulent actions took place in 2015, meaning that such costs and alleged damages had already
been passed to defendant before the 2016 investigation took place. As a result, that investigation
could not be construed as providing defendant with knowledge of the alleged fraud in time to
prevent it. In sum, the court finds that defendant has pleaded allegations of fraud with sufficient
particularity and an adequate factual basis to survive a motion to dismiss.
IT IS, THEREFORE, ORDERED that plaintiff’s Partial Motion to Dismiss (#30) is
DENIED. Plaintiff is granted leave to reassert the substance of the Motion to Dismiss as to the
UDTPA claim on a Motion for Summary Judgment, filed after the close of discovery, when the
Court can consider the evidence of record concerning the alleged assignment of competitor costs
Signed: February 8, 2018
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