Haigh v. Superior Insurance Management Group, Inc.

• Court: Superior Court of North Carolina
• Writing for the Court: Conrad, Judge.
• Citation: Haigh v. Superior Insurance Management Group, Inc., 2017 NCBC 98, 17 CVS 2582 (N.C. Super. Ct. Oct 24, 2017)
• Decision Date: 24 October 2017
• Docket Number: 17 CVS 2582
• Parties: MARSDEN HAIGH; ADAM DAVIS; JARED SANSPREE; STEPHEN CORLEY; and MLB1, LLC, Plaintiffs, v. SUPERIOR INSURANCE MANAGEMENT GROUP, INC.; MATTHEW GARRETT MITCHELL; DERICK JAMES PEGRAM; RICK RYAN PEGRAM, II; and PROSPECT AGENCY GROUP, INC., Defendants.

2017 NCBC 98

MARSDEN HAIGH; ADAM DAVIS; JARED SANSPREE; STEPHEN CORLEY; and MLB1, LLC, Plaintiffs, v. SUPERIOR INSURANCE MANAGEMENT GROUP, INC.; MATTHEW GARRETT MITCHELL; DERICK JAMES PEGRAM; RICK RYAN PEGRAM, II; and PROSPECT AGENCY GROUP, INC., Defendants.

No. 17 CVS 2582

Superior Court of North Carolina, Mecklenburg

October 24, 2017

Gray Layton, Kersh, Solomon, Furr & Smith, P.A., by Christopher M. Whelchel and Marshall P. Walker, for Plaintiffs.

Rayburn Cooper & Durham, P.A., by Ross R. Fulton and Tory Ian Summey, for Defendants Superior Insurance Management Group, Inc., Matthew Garrett Mitchell, Derick James Pegram and Rick Ryan Pegram II.

Bass Dunklin McCullough & Smith, PLLC, by Megan Sadler, for Defendant Prospect Agency Group, Inc.

ORDER AND OPINION ON DEFENDANTS' MOTIONS TO DISMISS

Conrad, Judge.

1. This case arises from two disputes between a franchisor, Defendant Superior Insurance Management Group, Inc. ("Superior Insurance"), and five of its franchisees, the Plaintiffs. The amended complaint asserts one set of claims based on allegations that Superior Insurance improperly negotiated direct commissions with insurance carriers, for its benefit and to Plaintiffs' detriment. In addition, the amended complaint asserts a second set of claims related to Plaintiffs' failed investments in Defendant Prospect Agency Group, Inc. ("Prospect").

2. Superior Insurance and the individual Defendants ("Superior Insurance Defendants") have moved to dismiss most of the claims pursuant to North Carolina Rule of Civil Procedure 12(b)(6). Prospect has filed a separate Rule 12(b)(6) motion. This Court, having considered the motions, briefs supporting and opposing the motions, and the parties' arguments at the hearing on August 9, 2017, DENIES

Prospect's motion and GRANTS in part and DENIES in part the Superior Insurance Defendants' motion.

I. BACKGROUND

3. The Court does not make findings of fact on a motion to dismiss under Rule 12(b)(6). The following factual summary is drawn from relevant allegations in the amended complaint and the attached exhibits.

A. Superior Insurance Franchise Agreements

4. Established in 2009, Superior Insurance is a North Carolina corporation that sells insurance agency franchises. (First Am. Compl. ¶¶ 6, 11 ["Compl."], ECF No. 9.) The individual Defendants are Superior Insurance's founders and officers: Rick Ryan Pegram, II ("Ryan Pegram") is the President; Matthew Garrett Mitchell is a Senior Vice President; and Derick James Pegram ("Derick Pegram") is a Vice President. (Compl. ¶¶ 7-9.)

5. Plaintiffs Marsden Haigh, Adam Davis, Jared Sanspree, and Stephen Corley are former college classmates of one or more of the individual Defendants. (See Compl. ¶¶ 17, 20, 23, 26.) Between 2009 and 2011, each individual Plaintiff entered into an agreement to open a Superior Insurance office in North Carolina ("2009-2011 Agreements"). (Compl. ¶ 16.) In 2013, Davis, Corley, and Sanspree formed Plaintiff MLB1, LLC, which entered into its own franchise agreement with Superior Insurance ("2013 Agreement"). (Compl. ¶ 27, Ex. 4.)

6. The 2009-2011 Agreements are substantially similar form agreements. (See Compl. ¶ 26 n.2, Exs. 1-3.) Haigh, Davis, Sanspree, and Corley agreed to pay a $300, 000 purchase price, either in a lump sum or through a financing arrangement. (Compl. ¶ 31, Exs. 1-3.) In return, each Plaintiff is entitled to receive commissions from insurance carriers (e.g., Nationwide or National General) for the sale of insurance policies. (See Compl. ¶ 33.) The individual Plaintiffs pay a percentage of their total monthly commissions to Superior Insurance, which "has the right to negotiate" these commissions on Plaintiffs' behalf. (See Compl. ¶¶ 33, 35, Ex. 1 ¶ 12.) According to the complaint, the parties intended "that any and all commissions from insurance carriers for policies sold and issued were to go to Plaintiffs (the franchisees) who, in turn, would pay over a specified percentage of their total commissions (in effect, a royalty)" to Superior Insurance each month. (Compl. ¶ 34.)

7. The 2013 Agreement between MLB1 and Superior Insurance is structured differently. Superior Insurance waived the initial franchise fee, is entitled to receive a higher percentage of MLB1's monthly commissions, and may receive "overrides" from insurance carriers. (Compl. ¶¶ 42-44, Ex. 4 ¶ 8(j).) The 2013 Agreement also includes a "Franchise Disclosure Document" (which the 2009-2011 Agreements lacked). (See Compl. ¶ 44; see also Compl. ¶¶ 28-30.) This document states that Superior Insurance will negotiate commissions with the insurance carriers, that "all commissions are paid directly to" MLB1 by the insurance carriers, and that Superior Insurance, "in turn, receive[s] compensation from" MLB1. (Compl. ¶¶ 44-45 (emphasis omitted).)

8. Since entering into these agreements, Plaintiffs have not received an increase in their commissions. (Compl. ¶ 48.) Plaintiffs believe that Superior Insurance has not attempted to renegotiate commissions with any insurance carrier. (Compl. ¶ 48.) As a result, "Plaintiffs have attempted to individually renegotiate their commissions with insurance carriers, " but Superior Insurance "has effectively prohibited Plaintiffs from engaging in such discussions." (Compl. ¶ 50.)

9. In addition, Plaintiffs allege that Defendants have abused their authority to negotiate commissions by securing direct commissions for themselves. (See Compl. ¶¶ 52, 54-55, 57, 59-60.) Approximately two years before filing this lawsuit, "Plaintiffs began hearing rumors that [Superior Insurance], in addition to receiving a percentage of the commissions paid to Plaintiffs, had a direct commission arrangement with the insurance carriers based on the policies sold by the Plaintiffs." (Compl. ¶ 52.) Although Superior Insurance representatives initially denied these rumors and "refused to discuss any specifics of any direct arrangement with insurance carriers, " (Compl. ¶ 56), Derick Pegram later confirmed that Superior Insurance was receiving direct commissions, (Compl. ¶ 57).

B. Prospect Investments

10. In March 2014, the individual Defendants, along with third-party Christopher Gregg Thomas, created Prospect. (Compl. ¶ 68.) Prospect is a Wyoming corporation with its principal place of business in Colorado. (Compl. ¶ 68.)

11. Prior to the creation of Prospect, Defendants solicited Plaintiffs to invest in the company. (Compl. ¶ 69.) At Superior Insurance's annual meeting in Charlotte, North Carolina in January 2014, Plaintiffs were given a form that identified three stock option plans and were told by Defendants that they must decide whether to invest by the end of the meeting. (See Compl. ¶¶ 69-70, 72-73.) The form bore the logos for Superior Insurance and Prospect. (Compl. ¶ 70.) Though initially hesitant, each Plaintiff agreed to invest in Prospect after Defendants represented that they would also be investing in the company and that Plaintiffs would receive a return on their investment that would "exceed[] their initial investment." (Compl. ¶¶ 74, 77- 79.) Defendants further announced that Thomas would be the President of Prospect and "was a successful businessman who had recently sold his prior company for 'millions of dollars.'" (Compl. ¶ 76.)

12. In August 2016, Plaintiffs learned that Prospect was insolvent, and that the individual Defendants never invested in Prospect. (Compl. ¶¶ 81-82.) Plaintiffs believe that Defendants solicited their investments "so that the individual Defendants would not have to put forward their own financial capital and [could] still receive a financial return and ownership in Prospect." (Compl. ¶ 84.) Plaintiffs further allege that Thomas was not a successful businessman but had defrauded investors in previous endeavors in addition to declaring bankruptcy. (See Compl. ¶¶ 86-93.)

C. Procedural History

13. Plaintiffs filed this action on February 13, 2017 and amended their complaint on April 26, 2017 as a matter of right. The amended complaint includes seven causes of action related to the Superior Insurance franchise agreements. It includes four additional causes of action related to the Prospect investments, for fraud and securities violations.

14. The Superior Insurance Defendants moved to dismiss most of these claims on May 26, 2017. (Defs.' Mot. to Dismiss Am. Compl., ECF No. 15.) Prospect filed a separate motion to dismiss on July 24, 2017. (Prospect's Mot. to Dismiss, ECF No. 28.) Both motions have been fully briefed.

15. The Court held a hearing on the Superior Insurance Defendants' motion on August 9, 2017. (Am. Notice of Hearing, ECF No. 27.) In its discretion, the Court elects to decide Prospect's motion, which raises overlapping arguments, without holding a separate hearing. (See Prospect's Mem. in Supp. 1 n.1 ["Prospect's Mem."], ECF No. 29.) These motions are now ripe for resolution.

II. ANALYSIS

16. A motion to dismiss under Rule 12(b)(6) "tests the legal sufficiency of the complaint." Concrete Serv. Corp. v. Inv'rs Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986). "Dismissal of a complaint under Rule 12(b)(6) is proper when one of the following three conditions is satisfied: (1) when the complaint on its face reveals that no law supports plaintiff's claim; (2) when the complaint on its face reveals the absence of fact sufficient to make a good claim; (3) when some fact disclosed in the complaint necessarily defeats plaintiff's claim." Jackson v. Bumgardner, 318 N.C. 172, 175, 347 S.E.2d 743, 745 (1986).

17. In deciding a Rule 12(b)(6) motion, the Court must treat the well-pleaded allegations of the complaint as true and view the facts and permissible inferences "in the light most favorable to" the non-moving party. Ford v. Peaches Entm't Corp., ...