Cbp Resources, Inc. v. Sgs Control Services, Inc., 1:03 CV 988.

• Citation: 394 F.Supp.2d 733
• Decision Date: 17 May 2005
• Docket Number: No. 1:03 CV 988.,1:03 CV 988.
• Parties: CBP RESOURCES, INC., Plaintiff, v. SGS CONTROL SERVICES INC., Defendant.
• Court: U.S. District Court — Middle District of North Carolina

394 F.Supp.2d 733

CBP RESOURCES, INC., Plaintiff, v. SGS CONTROL SERVICES INC., Defendant.

No. 1:03 CV 988.

United States District Court, M.D. North Carolina.

May 17, 2005.

COPYRIGHT MATERIAL OMITTED

Angela L. Little, Smith Helms Mulliss & Moore, LLP, Robert R. Marcus, Smith Moore, L.L.P., Greensboro, NC, Peter A. Gilbert, Bradfute W. Davenport, Jr., Troutman Sanders Mays & Valentine, LLP, Richmond, VA, for Plaintiff.

James R. Fox, Alexander P. Ryan, Bell Davis & Pitt, P.A., Winston-Salem, NC, for Defendant.

MEMORANDUM OPINION and ORDER

OSTEEN, District Judge.

Plaintiff CBP Resources, Inc. ("CBP"), a North Carolina corporation with its principal place of business in Greensboro, North Carolina, brings this diversity action against Defendant SGS Control Services, Inc. ("SGS"), a New York corporation with its principal place of business in New York, New York. Plaintiff brings suit to recoup its losses from an arbitration proceeding by bringing claims against Defendant for indemnification; contribution; and unfair and deceptive trade practices pursuant to Chapter 75 of the North Carolina General Statutes, N.C. Gen.Stat. § 75-1.1 ("Chapter 75"). This matter is now before the court on Defendant's motion to dismiss. For the reasons set forth herein, Defendant's motion will be denied in part and granted in part.

I. BACKGROUND

The following facts are presented in the light most favorable to Plaintiff.¹

Plaintiff CBP is a Greensboro, North Carolina, manufacturer of "yellow grease," a low-grade inedible fat which can include recycled frying oils and poultry fat. Plaintiff manufactures yellow grease from recycled fats and oils it collects from restaurants.

Between February 1998 and March 1999, Plaintiff entered into a series of five purchase order contracts to sell approximately 3,500 metric tons of yellow grease to Sun Chemicals Trading Corporation ("Sun"), a Turkish company that traded in fats and oils. The yellow grease was to be used as a poultry feed additive. The contracts were brokered by Pasternak, Baum & Co. ("Pasternak"), an agricultural commodity broker in Greenwich, Connecticut.

Sun conditioned each purchase from Plaintiff on the proviso that the grease contain no lard, pork, or pig-derived fat in order to comply with Islamic canons observed in Turkey. In response to Sun's "no lard" requirement, Plaintiff approached Defendant SGS about testing the yellow grease for the absence of lard. Defendant is a comprehensive laboratory analysis and inspection service which promotes its agricultural analytical expertise in food and commodity testing, including testing of protein, facts, and vegetable oils. Defendant knew the yellow grease was intended for an Islamic market and assured Plaintiff it could perform a test to certify the absence of lard in the yellow grease.

Plaintiff relied upon Defendant's representations about its testing ability and contracted with Defendant to test samples from each shipment of yellow grease bound for Turkey. Defendant took samples from each shipment, once it was loaded on ships, using American Oil Chemist Society ("AOCS") Method Ch 3-91, a test it had selected. After testing each shipment, Defendant reported to Plaintiff the tests were negative for the presence of lard and issued "no lard certificates" to Plaintiff, who, in turn, presented them to Sun.²

Despite the certificates, some participants in the Turkish poultry feed market raised concerns about the purity of the yellow grease. As a result, Plaintiff sought assurances from Defendant that its tests were accurate. Defendant did not give Plaintiff adequate assurances of reliability and later refused to certify that AOCS Method Ch 3-91 could determine the absence of lard in yellow grease. Plaintiff later discovered there was no known test to accurately determine the total absence of lard in yellow grease.

Sun and its founder and majority shareholder, Ahmet Cullu ("Cullu"), subsequently brought suit in this court against CBP SGS, and Pasternak. The suit alleged claims of breach of contract, fraud, breach of express and implied warranties, unfair and deceptive trade practices, and infliction of emotional distress. By consent order and pursuant to the terms of the purchase order contracts, Sun, Cullu, CBP, and Pasternak agreed to arbitrate their claims. SGS, however, refused to participate in the arbitration. Before arbitration began, Pasternak settled with Sun and Cullu, leaving CBP the only defendant in arbitration.

The three-arbitrator panel held evidentiary hearings over eight days in April, May, and June 2003. Evidence was presented by live witnesses, affidavits, deposition transcripts, and documentary evidence. The panel issued a detailed award³ on July 9, 2003. (Compl.Ex. 3.) The panel awarded Sun $300,000 in lost profits against CBP. As to Cullu, the panel awarded him $150,000 for the loss of value of Sun, $1,275 for past medical expenses, $1,456 for future medical expenses, and $1.00 for "unquantifiable temporary damage" to his personal reputation. (Id. at 7.) The panel trebled the awards to Sun and Cullu under Chapter 75. In total, the arbitration panel awarded Sun and Cullu approximately $1.35 million dollars in damages against CBP, which was then reduced by the pre-arbitration settlement with Pasternak.⁴

After the arbitration concluded, SGS, the nonparty to the arbitration, moved to dismiss Sun and Cullu's complaint against it based upon complete satisfaction and collateral estoppel. The court dismissed Sun and Cullu's claims against SGS because "[u]nder the detailed arbitration award, of which the Court takes judicial notice, [Sun and Cullu] have made a recovery for all of the injuries they assert against SGS in this action." Sun Chem. Trading Corp. v. CBP Res., Inc., No. 1:01-CV-00425, 2004 WL 1777582 (M.D.N.C. June 3, 2004) (Order and Recommendation of United States Magistrate Judge adopted July 29, 2004).

Plaintiff brought this separate action against Defendant asserting a claim for unfair and deceptive trade practices and seeking to recover from Defendant some or all of the arbitration award under the theories of implied-in-law indemnity and contribution. Now before the court is Defendant's motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

II. STANDARD OF REVIEW

A defendant's motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the pleadings, but does not seek to resolve disputes surrounding the facts. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992). A court must determine only if the challenged pleading fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The issue is not whether the plaintiff will ultimately prevail on his claim, but whether he is entitled to offer evidence to support the claim. Revene v. Charles County Comm'rs, 882 F.2d 870, 872 (4th Cir.1989). A pleading "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The pleading must be liberally construed in the light most favorable to the nonmoving party and allegations made therein are taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404 (1969).

III. ANALYSIS

Plaintiff brings three causes of action: unfair and deceptive trade practices under Chapter 75, implied-in-law indemnity, and contribution. Defendant argues that plaintiff's complaint should be dismissed because, as to all counts, it has failed to state a claim upon which relief can be granted.

A. Unfair and Deceptive Trade Practices

In Count I, Plaintiff claims Defendant's negligent or fraudulent misrepresentations relating to tests for the presence of lard, its performance of the deceptive tests, and its issuance of deceptive certifications constitute a violation of Chapter 75. (Compl.¶ 32.) Defendant argues Plaintiff's claims of deception, which amount to either misrepresentation or fraud, have not been pled with particularity in accordance with Rule 9(b) of the Federal Rules of Civil Procedure. (Def.'s Mem. Supp. Mot. Dismiss Compl. at 10-11.) Defendant further argues that because Plaintiff's allegations fail for want of particularity, what remains is a mere breach of contract, which is not actionable under Chapter 75. (Id. at 11-12.)

The Federal Rules of Civil Procedure create a liberal system of "notice" pleading in which a complaint must contain only a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Exceptions to the liberal system are contained in Rule 9 of the Federal Rules of Civil Procedure ("Rule 9"), which requires heightened pleading for special matters. See Fed.R.Civ.P. 9. One such heightened pleading requirement is found in Rule 9(b), which provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Id. at 9(b). In construing Rule 9(b), courts require that a plaintiff plead the "time, place, and contents of the alleged fraudulent representation, as well as the identity of each person making the misrepresentation and what was obtained thereby." Liner v. DiCresce, 905 F.Supp. 280, 287 (M.D.N.C.1994) (quoting Riley v. Murdock, 828 F.Supp. 1215, 1225 (E.D.N.C.1993)).

The court has not located any controlling authority in the Fourth Circuit as to whether a claim under Chapter 75, premised on negligent or fraudulent misrepresentation, must be pled with particularity. Nor have any North Carolina courts required the same under their mirrored rule. See N.C. Gen.Stat. § 1A-1, Rule 9(b). Some federal courts have extended Rule 9(b) to claims under consumer protection statutes...