HONGDA CHEM USA, LLC et al v. SHANGYU SUNFIT CHEMICAL COMPANY, LTD., No. 1:2012cv01146 - Document 64 (M.D.N.C. 2016)
Court Description: MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE signed by MAG/JUDGE JOE L. WEBSTER on 02/18/2016, that Third-Party Defendants' Motion to dismiss (Docket Entry 55 ) be GRANTED IN PART AND DENIED IN PART. Third-P arty Defendant's motion should be granted as to Sunfit's claim for constructive fraud. As to Sunfit's remaining claims (UDTPA claim and UFTA actual fraud claim), Third-Party Defendant's motion should be denied. To the extent Sunfit seeks to amend its Third-Party Complaint, IT IS RECOMMENDED that Sunfit's request be denied. (Garland, Leah)
Download PDF
<![CDATA[
HONGDA CHEM USA, LLC et al v. SHANGYU SUNFIT CHEMICAL COMPANY, LTD. Doc. 64 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA HONGDA CHE,MICAL US,\, LLC, Et AI., ) Plaintiffs, v SHANGYU SUNF'IT CHEMIC,A,L COMP,{,NY, LTD., et al., D e fendants /Thitd-Patty Plaintiff, V GARY DAVID MCKNIGHT, et al., Thfud-Party Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 1,:1,2CY1,1,46 MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE IUDGE This matter is befote the court upon Thfud-Patty Defendants Gary David Mcl(night, Raymond P. Perkins, \ü7ei Xu, Eco Ago Resources, LLC ("Eco Agro"), Vasto Chemical Company, Inc. ('"V-asto"), and l(adi Resources, LLC's ("I(adi") (hereinafter refened to as "Thitd-Party Defendants") motion to dismiss (Docket Etttry 55) the Third-Patty Complaint filed by Third-Patty Plaintiff Shangyu Sunfit Chemical Company, Ltd. ('SunfiC'). The motion has been fully bdefed and is ripe for disposition. For the teasons that follow, the Coutt will recommend that the motion be granted in part and denied in part. Dockets.Justia.com I. PROCEDURAL BACKGROUND Plaintiffs Hongda Chemical USA, LLC ("Hongda Chem") and Hongda Group Limited, LLC ("Hongda Group") (collectively "Hongda") filed suit against Sunfit alleging sevetal causes of action adsing from Sunfit's alleged intentional breach provision in a sales contÍact executed by the patties. (See of ar exclusivity generalþComplaint, Docket Entry 1.) Sunfit filed an,\nswer and asserted counterclaims against Hongda. Q)ocket Entry 8.) n Amended Complaint was subsequendy filed adding Defendant YMS ,\gticulture International Cotporation ('YMS') to this action.l (Am. Compl., Docket Entry 37.) Sunfit filed an Answer to the amended Complaint, alleging counterclaims against Hongda. (Am. ns., Docket Entty 38.) On March 2,201,5, Sunfit filed amended counterclaims against Hongda and aThird-Party Complaint against Gary David Mclfuight, Raymond P. Petkins, !Øei Xu, Eco Agro Resources LLC, Vasto Chemical Company, Inc., and l(adi Resources LLC, Q)ocket Entry 48.) On Match 4, 201.5, Sunift agun amended its countetclaims and amended its Third-Patty Complaint. (Docket E.rt"y 51.) Third-Party Defendants thereafter filed a motion to dismiss the Third-Party Complaint for failure to state a claim. (Docket Entry 55.) Sunfit has filed a response. (Docket Entry 58.) (A4inute II. A hearing was held in this matter on December 8, 201,5. Entry dated 12/8/20"15.) FACTUAL BACKGROUND2 Viewing the evidence in the light most favorable to Sunfit, the material facts may be summatized as follows. Sunfìt is a manufacturer that specialized in the "research, production 1 YMS also filed an Answer. (Docket F,n:rry 44.) z The facts summanzed herein ate material to the pending motion. 2 ^nd ttade of fertilizet additives , phatmaceutical intermediates and food additives, including N- (n-Butyl) thiophosphodc Triamide ('NBPT")." (Am. Countetcl. 1T 13, Docket Entry 51.) Hongda Chem is a Notth Carohna limited liability company that sells chemical products. (1/. I113, 11.)3 Third-Party Defendants in the present proceeding ate: three of Hongda's principals named GaryDavíd McKnight (President and CEO of Hongda), Raymond P. Petkins (Hongda Officer and also a managrngmember of Eco Agro Resources) and \)Øei Xu (Hongda Officet); Eco Agto Resource, LLC, Vasto Chemical Company Inc., and l(adi Resouces LLC. (A-. Compl. IlT 11-15, Docket Entty 51.) In pertinent part, Sunfit alleges the following: 37.Prior to entering into the Agency Contact, Hongda and its principals, Gary David Mcl(night (Àdclfuight"), Raymond P. Petkins ("Petkins') and Wei Xu ("Xr"), entities used by these individuals including Eco Agto Resources LLC, Vasto Chemical Company, Inc. ("Vasto"), KaDi Resoutces LLC and othet, as yet unnamed, conspirators (collectively with Hongda, the "Hongda r\ffiliates'), conspired to create a competing venture in violation of both its agteements with Sunfit and with Albemade Corporation and to impropedy retain ftaudulently ttansfered funds belonging to Sunfit. 41. Worse yet, the Hongda Affiliates devised a scheme wheteby they would induce Sunfit to manufacture and ship NBPT to Hongda, which would in turn sell this NBPT to Albemade and, rather than pay Sunfit for this NBPT on the tetms agreed, the Hongda ,\ffiliates would fraudulently transfet the proceeds from these sales out of Hongda and then impropetly invest the proceeds of these sales into the scheme, essentially using Sunfit's funds to build this new, competing distribution system for the sale of NBPT from Chin to the United States. 43. Once Sunfit reahzed that Hongda had deftauded it and did not intend to pay over the many millions of dollars collected on Sunfit's behalf, it sent a demand letter thteatening the present litigation absent paymerit. $Tithin minutes Accotding to Sunfit, Hongda Gtoup is the alter ego of Hongda Chem. (,{,m. Compl. Entry 51.) 3 J I 11, Docket of the deadline established by Sunfit for payment of these funds, Hongda sued Sunfit claiming falsely that there was no obligation to p^y over Sunfit's money because Sunfit had been selling NBPT into the North American market in violation of the Agency Contact. 44. Thereafter, once this litigation commenced, Petkins sent a December 20, 201.2 e-mul where he set out the basic structute through which the Hongda affiliates would begin to operate now that they had taken everything they could from Sunfit; they would orgarize a new entity, which ultimately became Eco ,{.gro on Decembet 31.,201,2, and this new entitywould take ovet the sale of NBPT in Noth America on behalf of the Hongda Affiliates. 2. More specifically, the Third-Parq Defendants aided, abetted and were, in many cases, the recipients of . . . fraudulent transfers . . The Third-Party Defendants are necessary parties in that, as benefìciaries of the ftaud alleged in the Countetclaims, and given that all of the Hongda assets have been siphoned off to the Thitd-Patty Defendants or their designees, recovery ftom Hongda undet the Counterclaims would ultimately be a pyric victory. 3. Putsuant to the Agency Contract, Hongda was appointed agent fot Sunfit with respect to sales of a certain Sunfit chemical product in the United States and, upon receiving pyment for the products sold in the United States, Hongda was to take a thtee petcefi (3o/o) commission and remit the balance of the funds paid to Sunfit within ninety (90) days from the date shipment. 4. Since.August of 201,2, Hongda has defaulted in the payment of material sums due under the Agency Contract. 5. Specifically, no payment has been teceived from Hongda since August, 201,2, despite the fact that Hongda has been paid by the ultimate consumers of the Sunfit ptoduct; past due payments from Hongda undet the Contact have now accumulated to an te in the principal sum of $5,770,050, plus intetest ^ggteg since date of breach. Qd.ffi 1-5; Am. Countercl.ll1l37, 41,-44, Docket Entty 51.) Sunñt brought this action alleging that Thfud-Party Defendants conspfued to take Sunfit's ptoceeds to finance their own NBPT distribution system in violation of the Noth Carolsna Unfait and Deceptive Trade Practices 4 Act ("UDT?,{.') and the North Carchna Unifotm Ftaudulent Transfer Act ("UFTA"). (A-. Countetcl. III. II37, 41,-44;m. Compl. fl6, Docket Entry 51.) DISCUSSION A. Standard of Review Third-Party Defendants argue that dismissal is appropnate pursuant to Federal Rule of Civil Ptocedure 12þ)(6). ,{ motion to dismiss pursuant to Rule 12þ)(6) tests the "sufficiency of a complaint." Edwards u. CiE of Goldsboro, 178 F.3d 231,,243 (1999). ,{. motion to dismiss a complaint should be granted if the complaint does not meet the requirements of Rule 8. Bell Atl. Corp. u. Twombþ,550 U.S. 544,555 Q007). The Supreme Court has explained that "Federal Rule of Civil Ptocedure 8(a)(2) tequires only'a short and plain statement of the claim showing that the pleader is entitled to relief,'in order to þive the defendantfau notice of what the . . claim is and the grounds upon which it rests."' Twonbþ, 550 U.S. at 555 (citations . and quotations omitted). A complaint that does not "contain sufficient factual matter, accepted as true, to 'state a claim to telief that is plausible on its face must be dismissed."' Ashcroft Iqbal, 556 U.S. 662, 678 (2009) (quoting Twonbþ,550 U.S. ^t u. 570). '.A claim has facial plausibility when the plaintiff pleads factual content that allows the court teasonable infetence that the defendant is liable for the misconduct alleged." to draw the Id. The "court accepts all well-pled facts as true and construes these facts in the light most favorable to the plainttff," but does not considet "legal conclusions, elements of a cause of action, . . . barc assettions devoid of furthet factual enhancementlJ . . . unwarranted inferences, unÍeasonable conclusions, or atgumerìts." Nemet Cherolet, Ltd. a. Conrumerffiirs.clm, Lnc.,591 F.3d 250,255 (4th Cir. 2009) (quotations and citations omitted). In other words, the standard "requires the 5 plaintiff to atticulate facts, when accepted as true, that 'show' that the plaintiff has stated a claim entitling him to relief." Francis u. Giacornelli,5SS F.3d 1,86, 1,93 (4th Cir. 2009) (quoting Iqbal,556 U.S. àt 557) B. ANAYLSIS Sunfit's UDTPA Claim Sunfit argues that Thitd-Party Defendants'acts of withholding Sunfìt's ptoceeds and using them to finance a competing venture were deceptive and unfair so as to place ThitdParty Defendants' conduct within the scope of the UDTP. (Pl.'s Resp . ^t 15, Docket Etrtty 58.) The North CarcltnaUDTPA is intended to prevent "unfah or deceptive acts ot ptactices in ot affecting commerce." Becker u. Graber Bøilders, Inc., 149 N.C. '\pp. 905, 910 Q002) (citation and quotation omitted). A plaintiff asserting an show: "(1) defendant committed an unfau or deceptive question was ^ct 787 ,794,561 S.E.2d UDTP,\ claim must ot ptactice; (2) the action in in ot affecting cornmerce; and (3) the act proximately caused injury to the plaintiff." Id. An unfair practice is one that "offends established public policy or is immotal, unethical, opptessive, unscrupulous, ot substantially injutious to consumers." McDonald Bros. a. Tinder Wholesale, 11,C,395 F. Srrpp. 2d 255,269 QvI.D.N.C. 2005) (internal citations and quotation omitted). "An actis deceptive if it has the capacity or tendency to deceive[.]" Bailel u. L.eBeaa,79 N.C. App. 345, 352,339 S.E.2d 460,464 (1986) (quoting L¿e u. Pa1ton,67 N.C. App. 480, 482 (1,984)). "[A] mete breach of contract, even if intentional, is not sufficiently unfair ot deceptive to sustain an action under [the UDTPA]." Brvussard u. Meineke Discount Mffir Shops, Inc., 1,55 tr.3d 331,, 347 (4th Cir. 1998) (citing Branch Thompson,107 N.C. ,{.pp, 53, 62,4'18 S.E.2d 694,700 (1992)). 6 Ban,Þ.ing dv Tru¡t Co. u. Third-Party Defendants contend that Sunfit "has not alleged thatany of the Third Parg Defendants made any representations to it." (Third-Party Defs.'Reply Br. at 8, Docket E.rtry 56.) Flowever, "fw]hether a tade practice is unfait ot deceptive usually depends upon the facts of each case and the impact the practice has in the marketplace." Il/hite u. Thonþs0n,1.96 N.C. App. 568, 578, 676 S.E.2d 104, (citations and quotations omitted). 1,1,1, (2009) af|d, 364 N.C. 47, 691 S.E.2d 676 Q01,0) ,\ review of the complaint here shows that Sunfit has alleged substantial aggravattngcircumstances sufficient to state a UDTP,{. claim. Sunfit alleges that Third-Pafty Defendants conspited to retain funds belonging to Plaintiff competing venture which would manufactute and sell NBTP. (A-. to create a" Countercl. 1Tll37-38, 56, Docket Entry 51.) Sunfit alleges that an email "from Perkins to Mcl{night and Xu" suggest that the officets were upset that the agreement between Sunfit and Hongda would not allow Hongda to bring NBTP into the United States unless purchased from Sunfitandthat someone had leaked their secret plan. (Id. n 40.) Sunfit also indicates that thete were emails suggesting that the Third-Party Defendants' plans fot Eco Atgo had to be accelerated because of litigation. (Id. 11 45.) The alleged egregious factors highlighted in Sunfit's Third-Party Complaint elevate the matter from a mere breach of contract to a violation of the UDTPI{,. McDonald Bros., 395 F. S.tpp. 2d at269 (stating that"a bteach must be particulady egregious to permit recovery under S 75-1.1'). Essentially, Sunfit alleges that, from the start, the officers planned to pretend to comply with the agreement between Hongda and Sunfit in otder to tetain proceeds to finance a new competing venture to sell NBTP. (,\m. Countetcl. lffl 37-45,56, Docket Entry Concerning the officers' alleged acts, scheming to enter into 7 ^ 51.) coîttact fot the purpose of using Sunfit's proceeds to finance new venture is cleady unethical, immotal, and unsctupulots. McDonald Bros.,395 F. Srrpp. 2d at 270 (concluding that the defendant violated the UDTPA because it told the plaintiff that a watta;nty would be honored in bad faith and subsequently asserted that the express ot implied waranties wete waive d); Pedwell u. Firct Union Nat Ban,ëofN. Carolina 51 N.C. App.236,237-38,2755.8.2d565,567 (1981) (reasoningthat two patties conspiring to prevent another from performing undet ^ cotftract is consideted unfair and affec:jrng commerce undet the UDTP,A.). Eco Agto, Vasto, and Kadi's conduct of conspiring unscrupulous. In re EBIY to receive Sunfit's ptoceeds L^aser, is alleged also unethical, immoral, atd Inc., No. 05-10220C-7G,2008 WL 1805575, ú*2-3 @ankr. M.D.N.C. Apr.21.,2008) (concluding that a company's UDTPA claim was sufficient to survive a motion fot judgment on the pleadings because the defendants allegedly violated their fiduciary duty by tansferring funds belonging to the company to a third pmty to hindet, delay and deftaud creditots of the company); Pedwe/1,51 N.C. App. at 237-38,275 S.F,.2d at567. In sum, the unfairness prong of the UDTPA is satisfied. Next, Third-Patty Defendants' allegedly unfair and deceptive acts affect conunerce. Commetce has been defined as "the exchange of goods and services or trade and othet business activities." Country Vintner of N. Carolina 't .-t .C u. E. dy J. Gallo lWiruery, Inc., No. 509CV3268R, 2010 \)fL 4105455, at x3 (E.D.N.C. Oct. 18,2010) afd sub non. 461, F. App'x 302 (4th Ctt. 2012) (internal citations and quotations omitted). Third-Party Defendants' alleged acts affect coÍunerce because the acts concern a controversy over ptoceeds amounting to at least 5.7 million dollars fot the exchange of NBPT, a chemical good, between two companies. Thetefore, the second element is satisfied. I Third-Party Defendants' alleged conduct would be the ptoximate cause of Sunfit's injury. Proximate cause is defined as: a cause which in natural and continuous sequence, unbtoken by any new and independent cause, produced the plaintiffs injuries, and without which the injuries would not have occutted, and one from which a petson of ordinary prudence could have reasonably foreseen that such a result, or consequences of a generally injurious nature, was probable undet all the facts as they existed. Strate¡Shows,Inc.u.Ama¡ement¡0fArn.,lnc.,1.84N.C.App.455,462,6465.F,.2d418,424Q007) (internal quotations and citations omitted). Accotding to Sunfit's allegations, Third-Party Defendants are the "but-for" cause of Sunfit's injury because no independent intervening act interrupted Third-Party Defendant's actions that caused Sunfit's alleged injuties. Id. at 46365. (stating that the plaintiffs claim did not meet the ptoximate cause standard because the plaintiff failed to establish "that but fot the defendant's illegal conduct fthey] would have been awarded a conttac('); Hnl r. Autos Unlimited, Inc., 1.24 N.C. App. 410, 41,4, 477 S.E .2d 86, 89 (1996) writ denied, reuiew denied,346 N.C. 279,487 S.E.2d 546,547(1,997) (teasoning that the defendant was the ptoximate cause of the plaintiffs injuries resulting from purchasing a damaged vehicle because she "purchased th[e] car based on the assurances of defendant . . and would not have purchased the car had she known Funhermote, it it . was a reconsftucted vehicle"). could be reasonably foreseen that Third-Party Defendants' alleged act of conspiring to breach the contract to confiscate Sunfit's proceeds would cause Sunfit's injury. Il/ltatt u. Gilmore,57 N.C. -{pp. 57, 58,290 S.E.2d 790,791, (1,982) (concluding that "^ tott- feasor is liable if, by the exetcise of reasonal:'le care, he might have foreseen that some injury would tesult from his conduct or that consequences of 9 a genetally injurious nature might have been expected"). Thus, Sunfit's claim sufficiendy satisfies the ptoximate cause element. In sum, Sunfit's UDTPA claim should not be dismissed. Sunfit's UFTA Claim Next, Thitd-Party Defendants also argue that Sunfìt's UFTA claim should be dismissed. (Thitd-Party Defs.' Br. at 12, Docket Entry 56.) Thitd-Party Defendants' sole argumenr is that Sunfit's UFTA claim is not pled with particuladty. Qd.) meeting the plausibility standard of Iqbal, ftaud-based claims must particulatity putsuant to Rule 9þ) . . ;' "In addition to be pleaded with In re ll/hitley No. 10-10426,201.3 !øL 486782, at*9 @ankr. M.D.N.C. Feb. 7, 2013) (intetnal quotation omitted). Sunfit asserts both actual and consúuctive fraud claims under the UFTA. (Ä-. Countercl. 1TI60-65, Docket Entry 51.) Actual Fraud First, Sunfit's allegations are sufficient to plausibly establish an actual fraud claim that meets the requirements of Rule 8. "Undet fNotth Caro]ina's Uniform Fraudulent Ttansfer Act], a transfer is actually fraudulent if it is made with the intent to hindet, delay, ot deftaud cteditot of the debtor." Thimbler Inc. u. Uniqae Sols. Design, a Ltd., No. 5:1,2-CY-695-BR, 2013 lfl.4854514,at*7 (E.D.N.C. Sept. 11,,2013) (citingN.C. Gen. Stat. $ 39a3.4(a)(1)). Sunfit alleges that Third-Party Defendants conspired to teceive fraudulent ttansfets new venture for the putpose of manufacturing and selling 56-57, Docket Entry 51.) Sunfit furthet hinder, delay, or deftaud Plaintiff . . . (Id. a NBPT. (Am. Countercl. tflf 37-38, alleges that the transfers were "made ." to establish n 60.) "pflhile with intent to each fact does rtot have to demonstrate actual fraud, the facts taken together must lead to the conclusion that actual ftaud existed," In re Tanglewood Fanøs,Iruc. of E,lirybeth Cit14 10 No. 10-06719-8-JRL, 201,3WL 1405129, at x9 (Bankt. E.D.N.C. nfT- 4854514, at Apr. 8, 201,3) (internal citations and quotations omitted);Thimbler,201,3 *8. The alleged collect Sunfit's proceeds act of entering the contract in bad faith and conspiring to to fund another venture is sufficient Defendants' intent to deftaud Plaintiff undet the UF'TA. Tauenner to establish Third-Patty u. Smoot, 257 F.3d 401,, 404- 05, 408 (4th Cir. 2001) (concludingthat the evidence suppotted intent to defraud because the defendant ttansfetted $200,000 to a corporation owned "entirely by members of defendant's] immediate family, and received no consideration fthe in" return after two entities obtained judgments against the defendant); Nytco Itasing Inc. u. Se. Motels, Inc.,40 N.C. App. 120,"1.22,131,252 S.E.2d 826,829,833-34 (1,979) (concluding that the defendant's attempt to convey ten patcels of land to his wife for 100 dollars after the plaintiff filed suit against the defendant to recover alarge sum money was sufficient fot a jury to infer that defendant and his wife intended to defraud the plaintiff). Therefore, Sunfit's actual ftaud claim meets the Rule 8 plausibility standard. Secondly, Sunfit's acttal ftaud claim must be pled with particularity. In re lf,/hitley 2013 ffT- 486782, at *1,3. With respect to ftaudulent ttansfet claims, both the Noth Caroltna Middle District Bankruptcy Court and the North Carohna Eastetn Distict Coutt have applied a parttculadty test detived from the Bankruptcy Code concetning ftaudulent ttansfets and obligations. Id. at 12 (teasoning that following the Banktuptcy Code "in ordet to give meaning to state statutes" is in hatmony with what several coutts have done in the past); Thinbler,201,3 WL 4854514, at *7 (upplyt"g the Bankruptcy Code fraudulent transfer test for patticularity). The test requires that the complaint allege "(1) the property subject to the transfet, (2) the timing and, if applicable, frequency of the transfers and (3) the considetation 1,1, paid u/ith respect thereto." Thinbler, 201,3 WL 485451,4, at *7 ; In re IY/hitley 201,3 WL 4867 82, *.x1.3. Sunfit satisfies the ftst prong of the test. It states that "Hongda intended to imptopedy retain and use some or all of the revenues that were intended to be delivered to Sunfit upon a sale of NBPT, notwithstanding the obligation to remit these revenues to Sunfit." (A*. Countetcl. tf 56, Docket Entry 51.) Sunfit further states that"a portion of the tevenues due to be temitted to Sunfit were used to finance the establishment of [a] new Chinese manufacturer," aÍrd some portions were taken by Third-Party Defendants. (1/ 11 58.) This puts Third-Party Defendants on notice that the property subject to the transfer is the proceeds allegedly confi scated by Third-Patty Defendants. Regatding timing and frequency, the Fourth Citcuit has not addressed what is sufficient to satisfy the Rule (9Xb) timing prong in fraudulent transfer cses. Moreover, district courts in North Caroltna have tately addressed this issue. InTltimbler, the Court found that the timing prong was not satisfied because the "complaint [did] not identiSr the date of the transfer . . . or the relationship between the timing of the transfer and the date that fthe plaintiffls] ctaim arose." 201,3 WL 485451,4, ú*7. To the contÍat!, in F.D.I.C. u. Mingo TribalPres. Trast, the Court found that although the plaintiff did not identi$' the date of the rransfer, the complaint satisfied Rule (9)þ) because "[d]efendants þadl notice of the time pedod of the alleged tortious activities, namely the years of the lending relationship." No. 5:13-CV-1 1.3,201.5 WL 1.646751, at *5 CX/.D.N.C. Apr 14, 201,5). Additionally, in In re ll/hitley the Middle District Bankruptcy Coutt found that "[w]hile the complaint [did] not 12 . . . give the date of each deposit/transfer," alleging that all transfets made between 2008 and 2010 were fraudulent satisfied the timing prong. 201,3WL 486782, at*13. The Coun fìnds that this case is distinguishable fuomThimbler,becatse unlike this case, the plaintiff in Thinbler, "failed to inject any measure of substantiation into its allegations regarding the factual circumstances surrounding the fraud." 2013 ìøL 4854574,atx7. Here, Sunfit's Thfud-Paty Complaint ptovides information regatding the Third-Party Defendants' alleged scheme to take Sunfit's proceeds to fund a new business venture. (Am. Countercl. tlffl 37-45, Docket Etttty 51.) Sunfit's Thitd-Party Complaint does not identiSr the year, or how many üansfets were made; howevet, it In re ll/hitlejt, the Bankruptcy Court in this district held that the paticularity requirements my be telaxed in situations in which the information tegarding the fraudulent act is only in the hands the defendant. 201,3 WL 486782, at *1.3 (concluding that "Rule 9þ) may be relaxed when aplainttff alleges facts particularþ within the knowledge of the defendant"); see also DiMare 2010) (stating that a plaintiff is not requfued u. MeîUfe Ins. Co.,369 F. App'" 324,330 (3d Cir. "to have personal knowledge of the details of corporate intetnal affairs" and thetefore the de is relaxed "when factual information is peculiatþ within the defendant's knowledge or conffol") (internal citation and quotation omitted); Michøels Bldg. Ca "in à case a. Aneritru¡t Co.,848 tr.2d 674,680 (6th Cir. 1988) (reasoning that in which there has been no discovely, courts have been reluctant to dismiss the action whete the facts underþing the claims are within the defendnt's control"). Under the circumstances, there is no way for Sunfit to discover details regarding the date, amount, and how much of the ptoceeds wete allegedly ttansferred to each Third-Party Defendant. Thus, with tespect to timing, Sunfit has satisfied the relaxed particularity standard. 13 Regarding consideration, Sunfit states that Third-Pafty Defendants transferred the ptoceeds "without teceiving a reasonably equivalent value in exchange for the tansfet." Qd.l 60). In its complaint, Sunfit does not ptovide facts to support this assertion. However, stated above, "[t]he tequirements of Rule 9þ) may be relaxed when a plaintiff alleges facts paticularly within the knowledge of the defendant." In re lØhitley 2013 WL 486782, In the instant case, Hongda ^t*1.3. and Third-Party Defendants are the only patties that could whether consideration was given by Third-Party Defendants as know in exchange for the alleged fraudulent tansfets. Thus, because Rule 9þ) is telaxed under the circumstances, Sunfit's claim is sufficient to survive Rule 9þ). In re lVhitley 201,3 WL 486782, ú*73. Furthermore, Rule (9)þ) is intended to be analyzed in harmony with the theory of Rule 8 which only requires "simple, concise, and direct allegations." Id. The claim must make Third-Party Defendants "^ware of the partcular circumstances for which [they] will have to prepare a defense at tÅal, and" the court must be satisfied "that plaintiff has substantial pte-discovery evidence of those facts." Id. overcome." Rule 9þ) "is not intended to be an insutmountable hutdle for claimants Id. Here, Third-Paty Defendants are aware of the circumstances to needed to prepare for trial including the alleged conspirators, the general scheme, when Third-Party Defendants allegedly decided to implement the scheme, and the property at issue. (A-. Countetcl. 111137-45, Docket Entry 51.) Thus, Rule 9þ) is satisfied with respect to Sunfit's actval fraud claim. Constuctive Ftaud Next, Sunfit alleges that Third-Party Defendants' acts constitute consffuctive ftaud. "Constructively fraudulent transfers, in conttast to those based on actual fraud, focus on the 1,4 effect the ransfer had on the debtot's financial condition without regard for the debtor's state of mind ot intentions." Thimbler,2013IfL 4854514, at *8 (citation omitted). Constructive ftaud can be established under two separate statutes.4 N.C. Gen. Stat. 23.5. "To establish a claim under "N.C. Gen. Stat. S SS 39-23.4(a)Q),39- 39-23.4(^)(2), fSunfit] must allege facts showing that fHongda] was either engaged in a business ttansaction fot which its remaining assets were unreasonably small in telation to the transaction or tht [Hongda] knew þhe] debt incurred was beyond its ability to pay)' Id. Moreover, "[t]o plead a clair.r, for constructive fraudulent ttansfet under N.C. Gen. Stat. $ 39-23.5, fSunût] must allege facts showing that [Hongda] was insolverftat the time of the transfer ot that [Hongda] became insolvent as a result of the transfer." Id. (cittngMilleru. FirstBank,206 N.C. App. 1,66,1,69,6965.8.2d824, 827 Q01,0)). Sunfit fails to state a plausible claim to establish relief for constructive fraud under either statute.s Accotding to lqbal, "ft]hreadbare recitals of the elements of a cause of action, suppoted by mete conclusory statements, do not suffice . . . . Second, only states a plausible claim for relief survives a motion to dismiss." In a re Batenan, complaint that No. 10-06206- 8-RDD, 201,2WL 1110080, at*2 @ankr. E.D.N.C. Apr. 2,2012) (quoting Iqbal,556 U.S. at 678). In its complaint, Sunfit merely recites the elements needed to establish a claimpursuant +A fraudulent transfet claim can be brought under N.C. Gen. Stat. 39-23.5 if the claim arose before $ the ftansfer was made. N.C. Gen. Stat. $ 39-23.5. A fraudulent transfer claim ca¡ be brought under N.C. Gen. Stat. $ 39a3.a@)Q) whethet the creditor's claim atose before ot after the üansfer. N.C. Gen. Stat. $ 39a3A@)Q). 5 "Federal Rule of Civil Procedure 9þ), which requires the circumstances of fraud to be stated with patticularity, is not applicable to claims of constructive fraudulent transfer. " Thinbler, 2013 WL 4854514, at x8 n.5. See al¡o In re Caremerica,Inc.,409 B.R. 737,755 (Bankr. E.D.N.C. 2009) ('Rule 9þ) does not apply to claims fot avoidance of constructively fraudulent transfers because such claims are not based on actual ftaud but instead tely on the debtor's financial condition and the sufficiency of consideration provided by the transferee.") 15 to N.C. Gen. Stat. \ 39-n.a@)Q) and S 39-23.5. Sunfit states that "lelach of these ttansfers by Hongda w[ere] made at a ttme when Hongda did not have temaining assets sufficient to pay the amounts owed to Sunfit." (Am. Countercl. fl 61, Docket Entty 51.) Next, Sunfit states that Hongda intended to incur debts beyond its ability to pay. (1d.n62.) Subsequently, Sunfit states that "[a]s a tesult of the ttansfers at issue Hongda became insolvent." Qd. T 65.) However, Sunfit failed to plead facts regatding Hongda's financial condition to allow the Coun to dtaw teasonable inferences that Hongda was insolvent ot that its remaining unreasonably small in relation to the transaction. See id.; Thinbler, 201.3 WL assets were 485451.4, at *8 (holding that the plaintiff failed to plead facts about the defendant's finances other than two conclusory statements that mirrored the language of the UFT,\). lthough Sunfit alleged facts that would support its constructive fraud claim in its response, these facts were not in its amended complaint. (Sunfit Response Bl at 19, Docket Entry 58.) Therefote, although Sunfit's actual fraud claim survives Thitd-Patty Defendant's motion to dismiss, established a plausible constructive fraud claim. In re Operation¡ it has not NY I t C.,490 B.R. 84, 95-96, 98 (Bankr. S.D.N.Y. 2013) (concluding that one of the plaintiffs intentional ftaudulent üansfet claims was sufficient to survive a motion to dismiss, while two of the plaintifls constuctive ftaudulent trans fer claims wete "legally insufficient"). C. Leave to Amend Third-Party Complaint Sunfit contends that it should be granted leave to amend its complaint if Third-Party Defendant's motion is granted. "This district's LocaI Rules require a proposed amended pleading to be attached Pepsi Bottling to any motion for leave to amend a pleading." L.R. 15.1,; Robinson u. Gp., No. 1:1,3CY729,201,4WL 20481,27, at x4 (À{.D.N.C. May 1.9,201,4). "The r6 obvious purpose is to avoid having cases thrust into limbo on such generalized requests that may later prove unsupported." Robinson,201.4WL 20481,27, at *4. FIete, Sunfit did not file a motion for leave to amend the complaint; nor has it attached to its response. L.R. 1.5.1,; 1989)(concluding that opposition a proposed amended complaint Morgan Distrìb. Co. u. Unidlnamic Corp.,868 F.2d 992,995 (8th Cir. "it is axiomatic tht a complaint m y not be amended by the briefs in to a motion to dismiss. To hold otherwise would mean that a party could unilatetally amend a complaint atwill, even without filing an amendment, and simply by raising a point in a brief') (citations and quotatìons omitted). T'herefore, Sunfìt's request to amend the constructive ftaud complaint should be denied. IV. CONCLUSION For the reasons stated herein,IT IS HEREBY Defendants' Motion RECOMMENDED thatThird-Patty to dismiss (Docket Entry 55) be GRANTED IN PART AND DENIED IN PART. Third-Party Defendant's motion should be gtanted as to Sunfit's claim fot constuctive ftaud. As to Sunfit's remaining claims (UDTPA claim and UFTA actual ftaud claim), Third-Paty Defendant's motion should be denied. To the extent Sunfit seeks to amend its Third-Party Complaint, IT RECOMMENDED that Sunfit's tequest be denied. ster Magistrate Judge United States Jo. Durham, North Carolina February 18,201,6 17 IS
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
