Companion Property and Casualty Insurance Company v. Wood et al
OPINION AND ORDER granting in part and denying in part 25 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Plaintiff's First through Fifth and Seventh through Tenth Causes of Action; MOTION to Dismiss Plaintiff's Fifth and Sixth Causes of Action pursuant to Federal Rule of Civil Procedure 9(b). Signed by Honorable Cameron McGowan Currie on 9/20/2017.(cbru, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COMPANION PROPERTY AND CASUALTY
C/A No. 3:17-cv-00514 -CMC
CHARLES DAVID WOOD, JR.;
AMS STAFF LEASING, INC.;
BRECKENRIDGE ENTERPRISES, INC.; and
ASPEN ADMINISTRATORS, INC.,
OPINION AND ORDER
ON MOTION TO DISMISS
(ECF No. 25)
This matter is before the court on Defendants’ Motion to Dismiss the First Amended
Complaint. ECF No. 25 (Motion to Dismiss); ECF No. 21 (First Amended Complaint). For the
reasons set forth below, the motion is granted in part and denied in part.
Related Actions. This is the third related action between the parties. The first action was
initiated by Highpoint Risk Services, LLC (“Highpoint”), an entity owned by Defendant Charles
David Wood, Jr. (“Wood”), against Companion Property and Casualty Insurance Company
(“Companion”) in the Northern District of Texas. Highpoint Risk Serv., LLC, et al. v. Companion
Prop. & Casualty Ins. Co., C.A. No. 3:14-cv-3398-L (“Companion I”). See ECF No. 25-1 at 3
(summarizing prior litigation). The claims in Companion I focus on a line of business the courts
and parties have referred to as the “Pay-Go” line of business. The Defendants here were later
added as third-party Defendants in Companion I. Id. The third-party claims and counterclaims
address a line of business governed by a 2006 Coverage Agreement and various related agreements
in addition to the Pay-Go line of business. Id. 1 Companion I is set for trial in February 2018. See
ECF No. 25-1 at 3 n.4 (citing Companion I, ECF No. 139).
Companion II. Roughly a month after Companion I was filed, Companion filed an action
in this court against Highpoint, Wood, and several other entities owned by Wood. Those entities
include the present Defendants AMS Staff Leasing, Inc. (“AMS”); Breckenridge Enterprises, Inc.
(“Breckenridge”); and AMS Staff Leasing II, Inc. (“AMS II”) (collectively “AMS Defendants”)).
Companion Prop. & Casualty Ins. Co. v. Wood, et al., C.A. No. 3:14-cv-3719-CMC (“Companion
II”). The claims in Companion II related to both the Pay-Go line of business and the 2006
Coverage Agreement line of business. However, in deference to the court in which the claims
were first raised, this court stayed and later dismissed claims related to the Pay-Go line of business
from Companion II. The remaining claims proceeded through discovery and are now in the final
stages of litigation.
Certain deadlines in Companion II are significant to some of Defendants’ arguments for
dismissal. These include the deadline for amendment of pleadings, which passed on August 13,
2015. See Companion II, ECF No. 71 (Second Amended Scheduling Order). They also include
the deadline for discovery, which passed on September 14, 2016, subject to an extension for limited
purposes into October 2016. See Companion II, ECF Nos. 164 (Sixth Amended Scheduling
Order), 185 (Order on Discovery Issues). While Companion II is not yet closed, many claims have
been resolved on cross-motions for summary judgment, partial settlement just prior to a scheduled
jury trial, and through rulings on non-jury issues. E.g., Companion II, ECF Nos. 258, 409, 414.
Companion has taken the position the Pay-Go line of business is also governed by the 2006
Coverage Agreement. The Northern District of Texas disagreed in Companion I. This court has
not addressed the issue.
Remaining issues will be resolved through accounting and actuarial reviews, now in their final
stages, and post-judgment petition for attorneys’ fees, costs, and interest. Companion II, ECF No.
409 (Joint Submission); ECF No. 425 (Order on Actuarial Report).
Present Action. The claims in the present action are based primarily if not solely on the
2006 Coverage Agreement and related agreements. See ECF No. 21 (First Amended Complaint).
The related agreements include two agreements signed by Wood: a Guaranty and Indemnity
Agreement (“Wood Guaranty”); and a Pledge Agreement (“Wood Pledge”). 2 See, e.g., id. ¶¶ 8,
9, 31. The causes of action are summarized below.
1. The first cause of action alleges the AMS Defendants breached the 2006 Coverage
Agreement by failing to provide a $20 million letter of credit following a November 4,
2016 demand. Id. ¶¶ 46-54 (seeking damages and specific performance).
2. The second cause of action alleges Wood breached the Wood Guaranty by failing to cause
a letter of credit to be issued (covering the AMS Defendants’ obligations) following a
November 14, 2016 demand. Id. ¶¶ 55-69 (seeking damages and specific performance).
3. The third cause of action alleges Wood breached the Wood Guaranty by failing to provide
annual financial statements despite “several written requests” including a November 14,
2016 demand. Id. ¶¶ 70-78. 3
All but the Wood Pledge were at issue in Companion II.
As in the first and second causes of action, Companion seeks relief including but not limited to
specific performance. The performance sought suggests Companion is seeking relief for defaults
predating the demand letter sent to Wood on November 14, 2016, as it seeks financial statements
from him for the years ending December 31, 2011, through December 31, 2016. Id. ¶ 78.
4. The fourth cause of action alleges Wood breached the Wood Guaranty and Wood Pledge
by failing to provide information relating to pledged assets (including stock in AMS and
AMS II) and to deliver certain instruments of transfer and assets following a November
14, 2016 demand. Id. ¶¶ 79-90. It also alleges Wood breached the Wood Pledge through
his surreptitious sale of essentially all assets of AMS and AMS II and attempted dissolution
of those entities in March 2016. 4 Id.
5. The fifth cause of action alleges the breach of contract addressed in the fourth cause of
action was accomplished with fraudulent intent and accompanied by a fraudulent act
because Wood concealed the information relating to the sale and attempted dissolution. Id.
Companion alleges Wood acted with an intent to (1) avoid providing
Companion protections contemplated by their agreements, (2) “limit or escape liability
under the agreements”; and (3) “misappropriate the assets of [AMS and AMS II] for his
own benefit and to Companion’s detriment.” Id. ¶ 89.
6. The sixth cause of action alleges Wood’s sale of AMS and AMS II assets constitutes a
fraudulent conveyance. Id. ¶¶ 101-06. Companion alleges Wood was “a debtor who . . .
owed Companion a first priority lien and security interest in AMS’s assets” and, in
contravention of Companion’s interest as a creditor, “secretly transferred all of AMS’s
assets” to a third party “for the purpose of making Wood and AMS judgment proof[.]” Id.
¶¶ 102, 103.
The First Amended Complaint does not state the date of the alleged sale of assets, but describes
the sale as surreptitious and asserts Companion only recently learned of it. ECF No. 21 ¶ 88.
7. The seventh cause of action alleges Wood’s sale of AMS and AMS II assets breached a
fiduciary duty Wood owed to Companion. Id. ¶¶ 107-13.
8. The eighth cause of action alleges Wood and the AMS Defendants are obligated to
reimburse Companion for the portion of Companion’s settlement with the North Carolina
Insurance Guaranty Association (“NCIGA”) attributable to the below-deductible portion
of insurance claims covered by that settlement. Id. ¶¶ 114-120. It also alleges Defendants
are obligated to contribute the same share of “any future liability associated with the
alleged ‘dual’ or ‘overlapping’ Policies” that have caused various state’s insurance
guaranty associations to pursue claims against Companion. Id. ¶ 119.
9. The ninth cause of action alleges Wood is obligated under the Wood Guaranty to “pay all
legal fees, costs, losses, and expenses incurred by Companion related to the claims of state
guaranty funds.” Id. ¶ 125. This claim does not specifically mention and is not limited to
the settlement with NCIGA.
10. The tenth cause of action alleges Wood is obligated under the Wood Guaranty to “satisfy
the demands or claims made by Companion in the First Amended Complaint in this action
and ‘indemnify and hold Companion harmless from and against any and all claims, suits,
hearings, proceedings, actions, damages, liabilities, fines, penalties, losses, costs, or
expenses, including without limitation attorneys’ fees, at any time arising out of or
otherwise related to, directly or indirectly,’ the 2006 Coverage Agreement and/or the
Policies.” Id. ¶ 133.
A motion under Federal Rule of Civil Procedure 12(b)(6) should be granted only if, after
accepting all well-pleaded allegations in the complaint as true, it appears certain the plaintiff
cannot prove any set of facts in support of its claims that entitles it to relief. See Edwards v. City
of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). Although the court must take the facts in the
light most favorable to the plaintiff, it “need not accept the legal conclusions [the plaintiff would
draw] from the facts.” 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)). The court may
also disregard any “unwarranted inferences, unreasonable conclusions, or arguments.” Id.
The Rule 12(b)(6) standard has often been expressed as precluding dismissal unless it is
certain the plaintiff is not entitled to relief under any legal theory that plausibly could be suggested
by the facts alleged. See Mylan Labs., Inc. v. Markari, 7 F.3d 1130, 1134 (4th Cir. 1993).
Nonetheless, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (quoted in Giarratano, 521 F.3d at 302).
Thus, in applying Rule 12(b)(6), the court also applies the relevant pleading standard.
Despite the liberal pleading standard of Rule 8, a plaintiff in any civil action must include more
than mere conclusory statements in support of a claim. See Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (court need only accept as true the complaint’s factual allegations, not its legal
conclusions); see also McCleary-Evans v. Maryland Dept. of Trans., 780 F.3d 582, 587 (4th Cir.
2015) (noting Iqbal and Twombly articulated a new requirement that a complaint must allege a
plausible claim for relief, thus rejecting a standard that would allow a complaint to survive a
motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later
establish some set of [undisclosed] facts to support recovery.” (emphasis and alteration in original,
internal quotation marks omitted)); Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing
Robertson v. Sea Pines Real Estate Companies, Inc., 679 F.3d 278 (4th Cir. 2012) for proposition
plaintiff need not forecast evidence sufficient to prove the elements of a claim, but must allege
sufficient facts to establish those elements).
Defendants argue Companion’s contract-based claims (first through fifth and eighth
through tenth causes of actions) should be dismissed for the following five reasons: (1) they
improperly split claims that were or could have been raised in prior litigation; (2) they are barred
by the statute of limitations; (3) damages are not adequately pleaded; (4) the allegations of a
contractual duty are deficient to the extent Companion alleges breach based on sale of assets or
attempted dissolution of AMS and AMS II; and (5) the indemnification claim is too vaguely
pleaded. These arguments are addressed, in order, below.
Defendants’ arguments. Defendants argue the contract claims are barred for improper
claim splitting because they arise out of the same contracts and transactions at issue in Companion
II and should have been brought, if at all, in that litigation. Defendants assert the facts underlying
most if not all of the contract claims were known before the deadline for moving to amend the
pleadings in Companion II. 5
In their opening memorandum, Defendants appear to argue all but the sixth and seventh causes
of action are barred for improper claim splitting. ECF No. 25-1 at 11. Their reply memorandum
addresses only the first through third, eighth and ninth causes of action under this argument. ECF
No. 28 at 5. While this may suggest the claim-splitting argument is abandoned as to the fourth,
fifth, and tenth causes of action, the court considers the argument as to those claims here.
Defendants also assert Companion was aware of (1) Defendants’ long-standing failure to
provide letters of credit throughout the pendency of Companion II and (2) the efforts of various
states’ guaranty funds, including the NCIGA, to hold Companion responsible for claims under
policies Companion argues were solely the responsibility of another insurer (“Dual/Overlapping
Policies”). 6 Companion, in fact, asserted an unsuccessful breach of fiduciary duty claim in
Companion II against Wood and Highpoint that sought relief relating to the Dual/Overlapping
Policies. That claim specifically mentioned Companion’s litigation with the NCIGA.
Companion’s Arguments. Companion responds the First Amended Complaint “does not
rely on facts in existence at the time it commenced [Companion II].” ECF No. 27 at 3. It refers,
specifically, to its demands made in November 2016 letters including a demand “Wood provide
his updated financial statements.” Id. at 4. As to the sale of AMS and AMS II assets, Companion
refers to actions occurring in March 2016 and Wood’s failure to comply with a related demand in
November 2016. Id. Companion characterizes its claim for contribution to the NCIGA settlement
as arising in March 2017 based on the date of that settlement. Id. at 4. Companion concludes the
claim-splitting bar does not apply because facts supporting its present claims did not exist when
Companion II was filed in September 2014 or when the deadline for amending pleadings in that
action passed in August 2015. Id. at 5. Companion also argues comments by the court in a pre-
The other insurer is Dallas National Insurance Company (“Dallas National”). ECF No. 21 ¶¶
14-19, 116. Dallas National was owned by Wood when the 2006 Coverage Agreement was
signed, is referred to in that agreement as one of the “AMS Entities,” was subsequently sold to a
third party, and is now in liquidation. Id. ¶¶ 14-19, 23. As a consequence of Dallas National’s
insolvency, “various state guaranty funds and other claimants, including [the NCIGA]” are
pursuing recovery from Companion for obligations under the “Dual/Overlapping Policies.” Id. ¶
trial hearing in Companion II indicate prior approval of amendment of the present action to include
claims relating to its settlement with the NCIGA.
Standard. Subject to certain limitations, the claim-splitting bar requires dismissal of
claims if they arise out of the same transaction or series of transaction addressed in previouslyfiled litigation. Hartnett v. Bellman, 800 F.2d 1308, 1313 (4th Cir. 1986). Claims may fall within
the claim-splitting bar even if they “involve different harms or different theories or measures of
relief.” Id. at 1314. Generally, this rule will bar later claims relating to breach of the same contract
addressed in earlier litigation, “so long as the breaches antedated the original action.”
Peteromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1336 (10th Cir. 1988).
Thus, the critical question is whether the claims existed at a time they could have been raised in
the prior litigation. See Hartnett, 800 F.2d at 1313 (distinguishing barred claims from those that
“did not exist at the time of the prior litigation”).
As Defendants note, the First Amended Complaint includes factual
allegations that overlap with factual allegations in Companion II. These include allegations
addressing the contractual relationships and respective obligations of the parties under the 2006
Coverage Agreement and related agreements. They also include allegations relating to the
attempts of various state guaranty funds, including the NCIGA, to hold Companion responsible
for policies Companion maintains are the sole responsibility of Dallas National.
There are, however, distinctions between the claims, most critically relating to the specific
events on which the claims are founded. As explained below, the claims in the present action are
based on alleged contractual breaches and other events that occurred, at least in part, after the close
of pleadings in Companion II. While the First Amended Complaint may be read more broadly,
Companion’s response to the Motion to Dismiss limits its claims to specific events post-dating the
close of pleadings (and in most cases post-dating the close of discovery) in Companion II. To the
extent so limited, the claims are not barred for claim-splitting.
First through third causes of action. The first through third causes of action allege breach
due to Defendants’ failure to provide letters of credit and a financial statement following a
November 14, 2016 demand. Companion’s arguments in opposition to dismissal clarify its intent
to pursue only claims for failure to respond to this recent demand. 7
This clarification limits the claims to events occurring after the August 2015 deadline for
amendment of pleadings (indeed, after the October 2016 close of discovery) in Companion II.
Given the ongoing nature of the parties’ contractual relationship and the timing of the particular
breaches referenced, the court finds the first through third causes are not barred based on improper
claim splitting to the extent limited to failures following the November 14, 2016 demand.
Fourth and fifth causes of action.8 The fourth cause of action alleges Wood breached
the Wood Guaranty and Wood Pledge by failing to take required action (provide requested
information and turn over certain instruments and substitute assets) following a November 14,
2016 demand. It seeks relief for this failure and related actions taken in March 2016 (dissolution
or attempted dissolution of entities whose stock was pledged) as well as for Wood’s earlier sale of
AMS and AMS II assets. While the date of the asset sale is not provided, Companion alleges it
While allegations in the third cause of action regarding Wood’s financial statements may be
construed to reach earlier failures, Companion’s response to the Motion to Dismiss relies solely
on the failure to comply with the November 2016 demand. The court accepts this as a limitation
on the claim.
In their opening memorandum, Defendants argue the fourth and fifth causes of action are barred
under the claim-splitting rule. They do not argue for application of this rule to these claims on
reply. The court, nonetheless, assumes Defendants have not abandoned this argument as to these
learned of the sale only after the fact (apparently through depositions taken in 2016). The fifth
cause of action addresses the same alleged breaches of contract, adding allegations the breach was
committed with fraudulent intent and accompanied by a fraudulent act.
In responding to the Motion to Dismiss, Companion refers only to the March 2016
attempted dissolution, the failure to act following the November 2016 demand, and the recently
discovered sale of assets. So limited, the fourth and fifth causes of action do not constitute claimsplitting because the challenged events occurred (or were discovered) after the deadline for
amending pleadings in Companion II.
Eighth and ninth causes of action. The eighth and ninth causes of action seek relief for
losses resulting from various state guaranty funds’ pursuit of recovery from Companion for
Dual/Overlapping policies. The eighth cause of action focuses on but is not limited to losses
resulting from the settlement with the NCIGA. It limits the relief sought to the portion of any
settlement (or other liability imposed) attributable to the deductible portion of the policy or policies
under which liability is imposed. The legal theory is contract-based, seeking recovery from the
AMS Defendants based on the 2006 Coverage Agreement and policies and from Wood based on
the Wood Guaranty.
The ninth cause of action is asserted solely against Wood and seeks broader relief
(including defense costs and losses, presumably including payments to cover liability) based on
the Wood Guaranty. It does not specifically mention and is not, in any event, limited to costs and
losses relating to the NCIGA settlement. It, instead, refers generally to Companion’s disputes with
multiple states’ guaranty funds.
These two causes of action overlap with the thirteenth cause of action in Companion II,
which sought relief from Wood (and Highpoint) for placing Companion in the position of having
to defend claims by state guaranty funds relating to Dual/Overlapping Policies (referred to as
“Dual Coverage” policies in Companion II). See Companion II, ECF No. 88 ¶¶ 173-82. The
thirteenth cause of action in Companion II was pursued under a breach of fiduciary duty theory
and specifically mentioned then-ongoing litigation with the NCIGA as one of multiple disputes
with state guaranty funds. Id. ¶ 179. It sought both defense costs and indemnification for any
liability that might be imposed in the future.
In sum, the eighth and ninth causes of action here address the same subject matter as the
thirteenth cause of action in Companion II. They also seek relief that overlaps with relief sought
in Companion II including pursuit of relief for potential future injuries resulting from known or
anticipated disputes with third parties. 9 While the claims in the two actions rest on different legal
theories and are not pursued against identical sets of Defendants, all Defendants in the present
action were Defendants in Companion II. These factors raise claim-splitting concerns.
There are, however, countervailing considerations. Most critically, in seeking summary
judgment in Companion II, Defendants argued “Companion’s purported damages based on alleged
‘dual coverage’ are entirely speculative” because Companion, at that point, had paid no claims.
See Companion II, ECF No. 201-1 at 28. Consistent with Defendants’ speculativeness argument
in Companion II, Companion now argues its claim for a portion of its settlement with NCIGA is
only recently ripe. See ECF No. 27 at 4. Companion does not address ripeness or other potential
arguments against claim-splitting as to the broader relief sought under the eighth or any relief
The relief sought through the eighth cause of action is more limited than that sought in
Companion II because it seeks only the portion of any settlement (or other liability imposed on
Companion) attributable to what Defendants would otherwise have been obligated to pay as part
of their deductible liability and does not seek related litigation costs. The ninth cause of action
seeks broader relief.
sought under the ninth causes of action. Thus, Companion’s response to the Motion to Dismiss
appears to voluntarily limit the scope of its claims to those arising from settlement with the NCIGA
and limited to the portion of that settlement corresponding with Defendants’ below-deductible
Given Defendants’ ripeness arguments in Companion II, the court finds the eighth cause
of action is not barred for claim-splitting to the extent it seeks recovery of the portion of the
settlement with NCIGA corresponding with Defendants’ below-deductible obligations. As noted
above, Companion’s argument addresses only this aspect of the eighth cause of action, thus
appearing to voluntarily limit its eighth cause of action to this relief.
The ninth cause of action differs from the eighth largely due to its breadth. Rather than
seeking contribution for the share of Companion’s settlement with the NCIGA attributable to
deductibles (amounts Defendants would presumably have been obligated to pay whether the
policies were insured by Companion or Dallas National), the ninth cause of action seeks recovery
from Wood based on the Wood Guaranty for “all legal fees, costs, losses, and expenses incurred
by Companion related to the claims of state guaranty funds.” ECF No. 21 ¶ 125. Thus, the claim
appears to seek past and future litigation expenses as well as recovery for possible future liability
arising from claims of state guaranty funds. This overlaps significantly with the relief sought from
Wood (and Highpoint) through the thirteenth cause of action in Companion II, albeit under a
different legal theory (based on a contractual guarantee rather than a fiduciary duty). To the extent
it seeks relief for any claim that was ripe on or before the deadline to amend pleadings in
Companion II, the ninth cause of action is barred for claim-splitting. To the extent Companion
pursues relief for potential future settlements, judgments or other future injuries, the ninth cause
of action is unripe.
Tenth cause of action. Companion’s tenth cause of action seeks recovery from Wood
under the Guaranty and Indemnification Clauses of the Wood Guaranty. The recovery sought can
be broken into two subparts, (1) guaranty of damages arising from “demands or claims . . . .
referenced in the First Amended Complaint” and (2) indemnification for other obligations “at any
time arising out of or otherwise related to, directly or indirectly’ the 2006 Coverage Agreement
and/or the Policies.” EC No. 21 ¶ 133 (emphasis added). Companion advanced a similar claim in
In opposing dismissal, Companion characterizes the tenth cause of action as seeking “to
enforce the Wood Guaranty and Indemnity Agreement with respect to the obligations and
liabilities that arise from the specific conduct alleged in the complaint.” ECF No. 27 at 12 (also
stating “Companion’s amended complaint details the specific contractual responsibilities the AMS
Entities have ignored, including their failure to post a letter of credit, to protect corporate assets,
and to provide required financial data and documents”). This argument effectively limits the tenth
cause of action to enforcement of the Wood Guaranty as to (1) other claims asserted in the First
Amended Complaint (first subpart above) that (2) survive the motion to dismiss. So limited, the
court finds the tenth cause of action is not barred for claim splitting. 10
The broad wording of the second subpart is particularly problematic as it appears to encompass
any claim accruing at any time. Companion’s argument in opposition to dismissal abandons such
a broad reading of this claim. Such a reading would, in any event run afoul of the claim-splitting
rule due to overlap with claims in Companion II. It would also fail to give fair notice of the basis
for the claim in other respects. See infra § I.C. (addressing Defendants’ fifth argument as to
The court accepts Companion’s voluntary limitation of the tenth cause of action to seeking
to enforce the Wood Guaranty as to claims specifically pleaded in this action that are not otherwise
barred. The motion to dismiss is denied as to the narrowed claim.
Statute of Limitations Defense
An affirmative defense may be resolved on motion to dismiss only if the defense “clearly
appears on the face of the complaint.” Richmond, Fredricksburg & Potomac R. Co. v. Forst, 4
F.3d 244, 250 (4th Cir. 1993) (finding defense did not clearly appear on face of complaint). A
motion to dismiss based on a statute of limitations defense requires the complaint “clearly allege
all facts necessary to the affirmative defense.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th
Cir. 2007) (finding facts necessary to statute of limitations defense were not clearly alleged).
Defendants argue Companion’s contract-based claims are barred in whole or in part
because they arose before February 23, 2014 (three years before this action was filed). They
maintain any duty to provide letters of credit or financial statements arose in or before 2011 and
this raises a time-bar for any claim based on failure to provide these documents. Defendants argue
Companion’s November 2016 demand letter is irrelevant because the duty to provide the letters of
credit and financial statements preexisted the demand.
In response, Companion argues the obligations at issue are recurring obligations that were
not waived by prior non-enforcement. ECF No. 27 at 7 (citing State ex rel Wilson v. Ortho-McNeilJohnson Pharmas., 777 S.E.2d 176, 199-200 (S.C. 2015) for continuous accrual rule and noting
duty to provide letter of credit “exists every day” and obligation to provide financial statements is
an ongoing annual obligation); see also id. at 8, n.5 (relying on contract language giving
Companion discretion as to the order and timing of enforcement of protections and providing
failure to enforce contractual rights does not constitute waiver). These arguments effectively
concede any claim for breach based on events predating February 23, 2014. Companion’s
arguments as to claim-splitting (addressed above), further limit Companion’s contract-based
claims to events occurring well within the three-year period predating this litigation, specifically
Defendants’ failure to comply with demands made in November 2016 or actions relating to the
sale of AMS and AMS II assets and attempted dissolution of those corporations.
In light of the limitations noted above, the court finds the contract-based claims are not
barred by the statute of limitations, at least not on motion to dismiss.
Adequacy of Damages Allegations
Defendants assert damages are inadequately pleaded as Companion does not allege it has
suffered any injury as a result of Defendants’ failure to provide letters of credit or requested
financial information. Companion responds that it is entitled to at least specific performance given
the purpose of the letters of credit and requirement to provide financial information. The court
agrees that the requested relief, including for specific performance, is sufficient to satisfy the
pleading requirements, particularly given the nature of the obligations at issue (contractual
obligations to provide financial assurances).
Adequacy of Pleading Contractual Duty as to Pledge
Defendants challenge the adequacy of pleading of a contractual duty as to the fourth cause
of action, which alleges Wood breached the Wood Pledge by selling virtually all assets of AMS
and AMS II (corporations whose stock was pledged) and then dissolving or attempting to dissolve
those corporations. Defendants argue the Wood Pledge does not expressly or impliedly prohibit
In response, Companion relies on language from the Pledge that not only gives Companion
“a first priority lien and security interest in all of the issued and outstanding equity interests” in
AMS and AMS II, but provides Companion the right to all earnings on the equity interests, “all
substitutions therefore,” and “other properties received upon the conversion or exchange thereof
pursuant to any merger, consolidation, reorganization, sale of assets or other agreements[.]” ECF
No. 27 (quoting Wood Pledge ¶ 2.1). It also relies on case law holding a pledgee of stock has “a
significant enough interest to be heard in equity for the protection and preservation of the assets”
of the entity whose stock is pledged “since a loss of corporate assets inevitably results in a
depreciation of the value” of the corporation’s stock. Id. at 11 (citing FDIC v. Kerr, 637 F. Supp.
828, 840-41 (W.D.N.C. 1986). In addition, Companion relies on the duty of good faith and fair
dealing inherent in every contract. Id. (citing Amended Complaint ¶¶ 107-13).
The court finds the fourth cause of action adequately pleaded. It is at least arguable the
language of the Wood Pledge combined with the duty of good faith and fair dealing precluded sale
of substantially all assets of the pledged entities without delivering the proceeds or benefits of the
sales to Companion. At the least, this is a novel issue of state law that would better be resolved
after full development of the factual record. See Madison v. Amercan Home. Prod. Corp., 595
S.E.2d 493, 494 (S.C. 2004) (acknowledging general rule “important questions of novel
impression should not be decided on a motion to dismiss” but noting such resolution is proper
where “the dispute is not as to the underlying facts but as to the interpretation of the law, and
development of the record will not aid in the resolution of the issues”).
Defendants argue the tenth cause of action should be dismissed because it is too vague to
give fair notice of the claim. As noted above (§ I.A.), this cause of action seeks enforcement of
the Wood Guaranty as to (1) claims asserted in the First Amended Complaint and (2) more
generally as to duties arising at “any time” under the subject agreements. Companion’s response
voluntarily limits this claim to enforcement of the Wood Guaranty as to claims specifically pleaded
in the First Amended Complaint that otherwise survive the Motion to Dismiss. So limited, the
indemnification claim survives to the same extent the substantive claims survive.
Breach of Fiduciary Duty Claim
Defendants argue the seventh cause of action for breach of fiduciary duty should be
dismissed because the Wood Pledge did not create a fiduciary relationship.
Companion argues, as pledgee of all stock, it stood in the shoes of stockholders, to whom corporate
officers and directors owe a fiduciary duty. ECF No. 27 at 13-14 (citing, e.g., Talbot v. James,
190 S.E.2d 759, 764 (S.C. 1972) (finding fiduciary relationship between corporate officers and
stockholders requiring disclosure of facts relevant to contracts between officers and corporation);
Nat’l Bank of Greenville v. Jennings, 17 S.E. 16, 17-19 (S.C. 1893) (imposing fiduciary duty on
pledgor of choses in action in favor of pledgee where pledgor undertook to collect on choses of
action).). In reply, Defendants point to both the age of these decisions and certain distinctions in
arguing neither support imposition of a fiduciary duty.
Under South Carolina law, whether there is a fiduciary relationship between two classes of
persons is an equitable issue for the court to resolve. Hendricks v. Clemson Univ., 578 S.E.2d 711,
715-16 (S.C. 2003). Such a relationship arises “when one imposes a special confidence in another,
so that the latter, in equity and good conscience, is bound to act in good faith and with due regard
to the interests of the one imposing confidence.” Id. at 715. “Historically, the [South Carolina
Supreme Court] has reserved imposition of fiduciary duties to legal or business settings, often in
which one person entrusts money to another, such as with lawyers, brokers, corporate directors,
and corporate promoters.” Id. at 716 (declining to find fiduciary relationship between student and
While neither case on which Companion relies is on point, together they suggest at least
the possibility the South Carolina Supreme Court would recognize a fiduciary relationship between
a controlling officer of a corporation who pledges all of the corporation’s stock and the pledgee of
that stock as it relates to corporate assets. Other courts appear to recognize a fiduciary relationship
under similar circumstances. See, e.g., Gibson v. Manuel, 534 So. 2d 199, 201-03 (Miss. 1988)
(relying on analogous fiduciary duty owed by corporate officers to shareholders in finding
corporate officer who pledged stock owed fiduciary duty to pledgee). Gibson noted the existence
of “a considerable body of case law [from other states] accepting the proposition that a pledgor of
corporate stock, when in control of the corporation, has the affirmative duty to preserve corporate
assets for the benefit of the pledgee.” Id.; see also Fletcher Cyclopedia of the Law of Corporations
§ 5651 (Suppl. 2017) (addressing rights of pledgees of corporate stock including right to pursue
equitable relief to preserve corporate assets and noting “pledgee is entitled to have [its] security
protected from fraudulent dissipation by the pledgor, where the latter practically controls the
corporation.”); id. § 5641 (“the rights and duties arising from the relationship of pledgor and
pledgee are analogous to those that all corporate officers owe to shareholders”). Under these
circumstances, the court finds the argument raises a novel issue that would better be resolved on a
fully developed factual record. See Madison, 595 S.E.2d at 494 (discussed supra § II.D.).
Accordingly, the court denies Defendants’ motion to dismiss the seventh cause of action.
Defendants seek dismissal of Companion’s two fraud-based claims: the fifth cause of
action for breach of contract accompanied by a fraudulent act; and the sixth cause of action for
fraudulent conveyance. Defendants argue the allegations are not sufficiently detailed to satisfy
Rule 9(b) of the Federal Rules of Civil Procedure. As to the fifth cause of action, Defendants also
argue the alleged fraudulent act is not separate and distinct from the breach of contract. As to the
sixth cause of action, Defendants argue Companion has not alleged Companion was a creditor at
the time of the challenged sale of assets (as opposed to a potential creditor).
These arguments are not persuasive. The allegations provide fair notice of the basis for the
fraud allegations, specifically, Wood’s sale of assets of entities whose stock he had pledged,
attempted dissolution of the underlying entities, and concealment of the facts. The allegations of
concealment are sufficiently distinct from the allegations of the underlying breach to support the
fifth cause of action and Companion has pleaded facts that give rise to an inference Companion
was a creditor of Wood’s at the time of the alleged actions, thus supporting the sixth cause of
action. Accordingly, Defendants’ motion to dismiss is denied as to the fraud based claims (fifth
and sixth causes of action).
For reasons set forth above, Defendants’ motion to dismiss is granted in part and denied in
part. Specifically, as to the first through fifth causes of action, the motion is denied to the extent
Companion’s claims are limited to seeking recovery for Defendants’ alleged (1) failure to provide
letters of credit and financial documents following a November 14, 2016 demand; (2) sale of AMS
and AMS II assets that Companion did not discover prior to the close of pleadings in Companion
II; and (3) attempted dissolution of AMS and AMS II in or around March 2016.
The motion is denied as to the sixth (fraudulent conveyance) and seventh (breach of
fiduciary duty) causes of action, both of which address Wood’s sale of AMS and AMS II assets
and attempted dissolution of those corporations. The motion is denied as to the eighth cause of
action to the extent that claim is limited to seeking recovery of the portion of Companion’s
settlement with the NCIGA corresponding with Defendants’ below-deductible obligations under
the policies at issue. The motion is denied as to the ninth cause of action to the extent that claim
is limited to preclude recovery for any claim for expense or loss that was ripe on or before the
deadline for amendment of pleadings in Companion II. The motion is denied as to the tenth cause
of action to the extent the claim is limited to enforcement of the Wood Guaranty as to other claims
specifically pleaded in this action that survive the motion to dismiss.
IT IS SO ORDERED.
s/ Cameron McGowan Currie
CAMERON MCGOWAN CURRIE
Senior United States District Judge
Columbia, South Carolina
September 20, 2017
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