Beam v. Sunset Financial Services, Inc.
| Decision Date | 03 September 2019 |
| Docket Number | 18 CVS 2925 |
| Court | Superior Court of North Carolina |
| Parties | DAVID M. BEAM, JR., by and through his attorney-in-fact Donna B. Mayes; DONNA B. MAYES, as Executrix of the Estate of Doris P. Beam;and DONNA B. MAYES, as Trustee of the DAVID M. BEAM IRREVOCABLE TRUST dated September 12, 2001, Plaintiffs, v. SUNSET FINANCIAL SERVICES, INC., Defendant. |
Tin Fulton, Walker & Owen, PLLC, by Sam McGee, for Plaintiffs.
Moore & Van Allen, PLLC, by Elena Mitchell, Mark A. Nebrig, and Christopher D. Tomlinson, for Defendant.
1. THIS MATTER is before the Court on the Motion to Dismiss filed by Defendant Sunset Financial Services, Inc. ("Defendant") on February 1, 2019 (the "Motion"). (ECF No. 9.) Defendant seeks to dismiss all claims asserted against it by Plaintiffs David M. Beam, Jr. ("David Beam"), by and through his attorney-in-fact Donna B. Mayes; Donna B. Mayes, as Executrix of the Estate of Doris P. Beam ("Doris Beam") (David and Doris Beam collectively, the "Beams") and as Trustee of the David M. Beam Irrevocable Trust (the "Trust") dated September 12, 2001 (collectively, "Plaintiffs"). After full briefing on the Motion and a hearing held on March 21, 2019, for the reasons stated herein, the Court GRANTS in part and DENIES in part the Motion.
2. This litigation involves claims by Plaintiffs[1] arising from Defendant's investment services, rendered by and through Defendant's now-deceased, former employee, Jeffrey Lipscomb ("Lipscomb") and Defendant's other agents after Lipscomb's termination. Plaintiffs allege that Defendant, first by and through Lipscomb and thereafter through its other agents not yet known, mismanaged the Beams' investment accounts. Plaintiffs allege that Defendant should be liable for its actions and inactions, by and through its agents Lipscomb and others, that resulted in the Beams' investments failing and the depletion of the Beams' life savings.
3. The Court does not make findings of fact on a motion to dismiss pursuant to Rule 12(b)(6) but only recites those factual allegations that are relevant and necessary to the Court's determination of the Motion.
4. Defendant is a company duly organized and existing under the laws of the State of Washington, registered to do business in North Carolina. (Compl. ¶ 5.) In 2008, Lipscomb was an employee and agent of Defendant. (Compl. ¶ 7.)
5. Prior to 2008, David Beam, who is in his early eighties, and his wife Doris Beam (now-deceased), placed their life savings in real estate holdings and stock in David Beam's former employer, Duke Energy. (Compl. ¶¶ 6-7, 22.) Beginning in 2008, upon the advice of Lipscomb, the Beams shifted their investments out of these "conservative investments" and consolidated them "in high risk companies such as start-up energy companies and oil well drilling speculation companies." (Compl. ¶ 7.) In total, the Beams invested approximately two million dollars in companies "at the direction of Lipscomb." (Compl. ¶ 9.)
6. While employed by Defendant, Lipscomb "cultivated a close personal relationship" with the Beams. (Compl. ¶ 8.) He "frequently visit[ed] their home and [became] involved in virtually every aspect of their lives[, ]" becoming their "most trusted advisor." (Compl. ¶¶ 8-9.)
7. In or around 2010, Lipscomb was terminated from his employment with Defendant. (Compl. ¶ 11.) Although the Beams' investments were still with Defendant at that time, Defendant did not inform the Beams that Lipscomb was no longer employed by Defendant. (Compl. ¶ 13.) After Lipscomb's termination, the Beams' accounts continued to be managed by Defendant, but Defendant failed at that time, or any time thereafter, to properly inform the Beams regarding the state of their investments and what options they had with respect to those investments. (Compl. ¶¶ 13-15.)
8. Plaintiffs also allege that, although Lipscomb no longer worked for Defendant, Defendant allowed Lipscomb to remain involved in the Beams' investments. (Compl. ¶ 16.) Lipscomb was in frequent contact with the Beams about their investment accounts, through as recently as December 2016, despite having stopped working for Defendant in 2010. (Compl. ¶¶ 17-18.) Throughout this time and regardless of his employment status with Defendant, Lipscomb continued to give the Beams assurances about their investments, saying that they "would be successful and would result in substantial earnings[.]" (Compl. ¶ 19.)
9. Plaintiffs also allege that Defendant, through Lipscomb and otherwise, made assurances to the Beams that their investments were suitable for investors of their age, financial situation, sophistication, and investment goals. (Compl. ¶¶ 24, 26(a), (c).) Plaintiffs also allege that Defendant misrepresented or made misleading statements to the Beams regarding the profitability of their investments, how well the investments were doing, and that the investments were capable of recovering from any difficulties. (Compl. ¶¶ 26(b), (d), (e).) Additionally, Plaintiffs allege that Defendant concealed the status of the Beams' investments from them and concealed Lipscomb's employment status, the reason for the change in his status, and who was truly managing or otherwise in charge of the Beams' investments. (Compl. ¶¶ 27(d), (e), (g)-(j).)
10. At some point in 2016, the Beams became aware that some of their investments managed by Defendant had failed and that their "life savings/nest egg was gone or at least substantially depleted." (Compl. ¶ 22.) Plaintiffs allege that as a result of Defendant's actions, Plaintiffs are currently unaware of the status of their investments or which of Defendant's agents has been managing the Beams' accounts. (Compl. ¶ 21.)
11. Before instituting this action, in May 2017, Plaintiffs commenced an arbitration proceeding against Defendant with the Financial Industry Regulatory Authority ("FINRA"). In September 2018, the panel assigned by FINRA to consider Plaintiffs' arbitration demand dismissed Plaintiffs' claims against Defendant under FINRA's six-year eligibility rule. The six-year eligibility rule provides that no claim is eligible for arbitration "where six years have elapsed from the occurrence or event giving rise to the claim." FINRA Rule 12206(a).
12. After dismissal of the arbitration proceeding, Plaintiffs filed this action on November 26, 2018, (ECF No. 3), asserting eight claims for relief against Defendant: (1) breach of fiduciary duty; (2) constructive fraud; (3) fraud and misrepresentation; (4) unfair and deceptive trade practices ("UDTP"); (5) violation of the North Carolina Securities Act ("NCSA"); (6) negligence, including negligent hiring, supervision and retention; (7) breach of contract; and (8) punitive damages. On January 4, 2019, this action was designated as a mandatory complex business case by order of Mark Martin, then-Chief Justice of the Supreme Court of North Carolina, (ECF No. 1), and thereafter assigned to the undersigned by the Chief Business Court Judge, (ECF No. 2).
13. On February 1, 2019, Defendant filed the instant Motion, (ECF No. 9), and supporting brief, (ECF No. 10). Plaintiffs filed their brief in opposition to the Motion on February 21, 2019. (ECF No. 11.) Defendant filed its reply brief on March 13, 2019. (ECF No. 16.) The Court held a hearing on the Motion on March 21, 2019, at which all parties were represented by counsel. The Motion is now ripe for resolution.
14. In ruling on a motion to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rule(s)"), the Court reviews the allegations in the Complaint in the light most favorable to Plaintiffs. See Christenbury Eye Ctr., P.A. v. Medflow, Inc. (Christenbury II), 370 N.C. 1, 5, 802 S.E.2d 888, 891 (2017). The Court's inquiry is "whether, as a matter of law, the allegations of the complaint . . . are sufficient to state a claim upon which relief may be granted under some legal theory[.]" Harris v. NCNB Nat'l Bank, 85 N.C.App. 669, 670, 355 S.E.2d 838, 840 (1987). The Court accepts all well-pleaded factual allegations in the relevant pleading as true. See Krawiec v. Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018). The Court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Good Hope Hosp., Inc. v. N.C. Dep't of Health & Human Servs., 174 N.C.App. 266, 274, 620 S.E.2d 873, 880 (2005) (citation omitted).
15. Our Supreme Court has noted that "[i]t is well-established that dismissal pursuant to Rule 12(b)(6) is proper when '(1) the complaint on its face reveals that no law supports the plaintiff's claim; (2) the complaint on its face reveals the absence of facts sufficient to make a good claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff's claim.'" Corwin v. British Am. Tobacco PLC, 821 S.E.2d 729, 736-37 (N.C. 2018) (quoting Wood v. Guilford County, 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002)). This standard of review for Rule 12(b)(6) is the standard our Supreme Court "uses routinely . . . in assessing the sufficiency of complaints in the context of complex commercial litigation." Id. at 737 n.7 (citations omitted).
16. The Motion seeks dismissal of all eight of Plaintiffs' claims on both procedural and substantive grounds pursuant to Rules 12(b)(6) and 9(b). Specifically, Defendant argues that Plaintiffs' allegations of fraud fall below the heightened pleading requirement of Rule 9(b) and that Plaintiffs' other claims also fail because Plaintiffs have not alleged sufficient facts to support each element of each...
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