Swift Beef Co. v. Alex Lee, Inc., DOCKET NO. 5:17-cv-176

• Decision Date: 08 February 2018
• Docket Number: DOCKET NO. 5:17-cv-176
• Court: U.S. District Court — Western District of North Carolina
• Parties: SWIFT BEEF COMPANY, Plaintiff, v. ALEX LEE, INC., Defendant.

SWIFT BEEF COMPANY, Plaintiff, v. ALEX LEE, INC., Defendant.

DOCKET NO. 5:17-cv-176

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA STATESVILLE DIVISION

February 8, 2018

ORDER

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.

I. Background

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).

II. Standard of Review

A motion to dismiss "challenges the legal sufficiency of a complaint." Francis v. Giacomelli, 588 F.3d 186, 192 (4^th 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 (4^th Cir. 2010). The court need not accept "unwarranted inferences" or "unreasonable arguments." Giarratano v. Johnson, 521 F.3d 298, 302 (4^th 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 "specificfacts," 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 (4^th 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 (4^th 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.

III. Discussion

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 factsshowing 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 (4^th 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 (4^th 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 (4^th 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 (4^th 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 (4^th 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 UDTPAcounts 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...