Noble Bottling, LLC v. Reinhart Holdings, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

CIVIL ACTION NO. 3:22-CV-00083-KDB-DCK

NOBLE BOTTLING, LLC, AND

RAYCAP ASSET HOLDINGS

LTD.,

Plaintiffs,

v. ORDER

ARTHUR SHERMAN, ET AL.,

Defendant.

THIS MATTER is before the Court on Defendant Arthur Sherman’s Motion to Dismiss,

(Doc. No. 55). The Court has reviewed this motion, the parties’ briefs and exhibits, and other

relevant pleadings of record. For the reasons discussed below, the Court will DENY the motion.

I. FACTUAL BACKGROUND1

This matter arises out of a business transaction between Plaintiffs and Reinhart Holdings,

LLC in which Reinhart was to lend Noble Bottling, LLC approximately fifty-five-million-dollars

for its formation and start-up. The loan agreement required Noble to provide a $2,765,000 deposit.

To fund the deposit, Noble entered into a separate loan agreement with Plaintiff Raycap Asset

Holding, Ltd. (“Raycap”) to obtain the $2,765,000, which was then transferred to an allegedly

“restricted” bank account at Bank of America. After Noble made the required deposit, Reinhart

failed to timely fund the loan. Noble sent Reinhart formal demands to return the full deposit in

1 Consistent with the 12(b)(6) standard, the facts have been drawn from the Amended Complaint

and taken as true.

accordance with the restricted bank account parameters. Yet these demands failed and Noble never

recovered the $2,765,000 deposit, which had been withdrawn from the bank account.

Relevant to this motion, Plaintiffs allege that throughout this transaction, Arthur Sherman

failed to disclose that: (1) the brokerage firm, Mayfair Capital Investment Management, Ltd., was

owned and operated by known fraudster Jordana Weber; (2) he did not have any prior dealings

with “Mark Williams” of Reinhart; and (3) he did not perform any due diligence regarding this

investment source. See Doc No. 11 at ¶ ¶ 19, 21, 74. Instead, Sherman, acting in his capacity as a

broker, allegedly claimed to be a Mayfair Capital partner and introduced Noble to Reinhart to

initiate the loan agreement. See Doc. No. 11 at ¶ 18.

On March 2, 2022, Plaintiffs filed their original complaint. Plaintiffs later filed a “First

Amended Complaint,” which is now the operative complaint. See Doc. No. 11. In their Amended

Complaint, Plaintiffs allege claims for negligence, fraud, negligent misrepresentation, and breach

of fiduciary duty against Sherman. See Doc. No. 11 at ¶ 50- 82. Sherman has now moved to dismiss

all claims against him. See Doc. No. 55. The matter is now ripe for the Court’s consideration.

II. DISCUSSION

Sherman makes three arguments in support of his Motion. He first argues that the Court

lacks personal jurisdiction over him because he has no ties to North Carolina. Second, he claims

that Plaintiffs failed to properly serve him with a copy of the summons. And third, he argues the

Amended Complaint fails to state any actionable claim against him. See id. The Court will address

each argument in turn.

A. Personal Jurisdiction

A party invoking federal jurisdiction has the burden of establishing that personal

jurisdiction exists over the defendant. New Wellington Fin. Corp. v. Flagship Resort Dev. Corp.,

416 F.3d 290, 294 (4th Cir. 2005); Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). When

“the court addresses the question [of personal jurisdiction in a Rule 12(b)(2) motion] on the basis

only of motion papers, supporting legal memoranda and the relevant allegations of a complaint,

the burden on the plaintiff is simply to make a prima facie showing of a sufficient jurisdictional

basis to survive the jurisdictional challenge. In considering a challenge on such a record, the court

must construe all relevant pleading allegations in the light most favorable to the plaintiff, assume

credibility, and draw the most favorable inferences for the existence of jurisdiction.” Combs, 886

F.2d at 676 (internal citations omitted). “Mere allegations of in personam jurisdiction are sufficient

for a party to make a prima facie showing.” Barclays Leasing Inc. v National Bus. Sys., Inc., 750

F. Supp. 184, 186 (W.D.N.C. 1990). The plaintiff, however, “may not rest on mere allegations

where the defendant has countered those allegations with evidence that the requisite minimum

contacts do not exist.” IMO Indus., Inc. v. Seim S.R.L., 2006 U.S. Dist. LEXIS 92554, 2006 WL

3780422, at *1 (W.D.N.C. Dec. 20, 2006). “Rather, in such a case, the plaintiff must come forward

with affidavits or other evidence to counter that of the defendant . . . factual conflicts must be

resolved in favor of the party asserting jurisdiction....” Id.

Questions of jurisdiction are answered by a two-step analysis: (1) the Court must determine

whether the North Carolina long-arm statute confers personal jurisdiction; and (2) the Court must

determine whether the exercise of that statutory power will violate the due process clause of the

U.S. Constitution. Gen Latex & Chem. Corp. v. Phoenix Med. Tech., 765 F. Supp. 1246, 1248-49

(W.D.N.C. 1991). Because the North Carolina long-arm statute extends jurisdiction to the bounds

of due process, the statutory inquiry ultimately merges with the constitutional inquiry, becoming

one. See ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 623 (4th Cir. 1997).

To satisfy the constitutional due process requirement, a defendant must have sufficient

“minimum contacts” with the forum state such that “the maintenance of the suit does not offend

traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Wash., 326 U.S. 310, 316,

66 S. Ct. 154, 90 L. Ed. 95 (1945) (quotation and citation omitted). The minimum contacts test

requires the plaintiff to show that the defendant “purposefully directed his activities at the residents

of the forum” and that the plaintiff's cause of action “arise[s] out of” those activities. Burger King

Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985) (citation and

quotation omitted). This test seeks to ensure that the defendant is not “haled into a jurisdiction

solely as a result of random, fortuitous, or attenuated contacts.” Burger King, 471 U.S. at 475

(quotations and citations omitted).

The Fourth Circuit has synthesized the due process requirements for asserting specific2

personal jurisdiction in a three-prong test in which courts “consider (1) the extent to which the

defendant purposefully availed itself of the privilege of conducting activities in the State; (2)

whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the

exercise of personal jurisdiction would be constitutionally reasonable.” ALS Scan, Inc. v. Digital

Serv. Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002) (quotations and citations omitted).

Sherman’s personal jurisdiction argument can be condensed into a simple articulation: he

does not engage in business in North Carolina, live in North Carolina, nor did he agree to be bound

by North Carolina courts. From this, Sherman concludes that this Court cannot exercise personal

jurisdiction over him. He is mistaken. This is not to say that Sherman’s factual assertions are

2 Under the due process clause, a court can exercise personal jurisdiction over a defendant by either

“general” or “specific” personal jurisdiction. See Tire Eng'g & Distribution, LLC v. Shandong

Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012) Plaintiffs do not allege that the Court has

“general” jurisdiction over Sherman and therefore the Court need not address it.

wholly incorrect. Rather, despite the absence of “boots on the ground” contacts with North

Carolina, this Court may still exercise personal jurisdiction over him because he allegedly

participated in a scheme to defraud North Carolina residents in North Carolina using a North

Carolina bank.

During the course of this alleged scheme, Sherman substantially collaborated with Noble,

a North Carolina business, as a broker for the loan agreement. See Doc. No. 11 at ¶ ¶ 5, 18. A

foreign defendant purposefully avails himself of the privilege of conducting business in North

Carolina when he “substantially collaborates” with a North Carolina resident and that collaboration

is an integral element of the dispute. See Tire Eng’g & Distribution, LLC, 682 F.3d at 302. Here,

Sherman allegedly : (1) introduced Noble to Reinhart; (2) lied about his past dealings with “Mark

Williams” and Williams’ reliability as an investor; and (3) continued to assure Plaintiffs of the

deal’s, and Williams’, propriety after the loan amount was not funded. See Doc. No. 11 at ¶ ¶ 5,

18, 63, 65. These contacts were significant impactful interactions that induced Noble to enter into

the loan agreement and delayed Plaintiffs’ realization that the deal was fraudulent. For that reason,

Sherman’s substantial collaboration with a North Carolina business and resident form the crux of

this dispute as it relates to Sherman.

Likewise, Plaintiffs’ claims against Sherman arise directly out of Sherman’s conduct

directed at North Carolina. Sherman acted as a conduit for “Mark Williams” and fielded questions

on his behalf to draft and finalize the loan agreement. See Doc. No. 11 at ¶ 22. In answering the

Plaintiffs’ questions, Sherman continually assured Plaintiffs that “Mark Williams” was a

legitimate investor and that the loan agreement was legitimate. Id. at ¶ 40. This conduct, along

with Sherman’s concealment of his actual position and relationship with Mayfair Capital, caused

Plaintiffs to move forward with funding the Deposit and signing the loan agreement. See id. at ¶ ¶

63, 66, 74. Put another way, Sherman’s conduct was part of “a seamless series of business

transactions” that led to the filing of the Amended Complaint. See CFA Inst. v. Inst. of Chartered

Fin. Analysts of India, 551 F.3d 285, 295 (4th Cir. 2009).

And finally, the exercise of personal jurisdiction would be constitutionally reasonable. This

prong “ensures that litigation is not ‘so gravely difficult and inconvenient’ as to place the

defendants at a ‘severe disadvantage in comparison to his opponent.’” Id. at 296. The Court’s

inquiry is guided by the burden on the defendant, interest of the forum state, and the plaintiffs’

interest in obtaining relief. Id. Weighing these interests, the Court finds that the exercise of

personal jurisdiction over Sherman in this forum is constitutionally permissible. North Carolina

has a substantial interest in protecting its residents and businesses from fraudulent conduct and the

burden on Sherman does not rise to the level necessary to overcome that substantial interest.

In sum, the Court finds that it may constitutionally exercise personal jurisdiction over

Sherman and will deny the Motion as to that ground.

B. Insufficient Service

A motion to dismiss under Rule 12(b)(4) challenges the sufficiency or "form" of the process

itself, while a motion to dismiss under Rule 12(b)(5) challenges the sufficiency of the act of

"service" of process. See Fed. R. Civ. P. 12(b)(4), (b)(5); Washington v. Cedar Fair, L.P., 2023

U.S. Dist. LEXIS 16559, at *5. In other words, a Rule 12(b)(4) motion to dismiss objects to a

defect in the content of the documents served, while a Rule 12(b)(5) motion to dismiss objects to

a defect in the act of delivery. Id.

When service of process is challenged, the plaintiff bears the burden of establishing that

process was sufficient, and that service of process was carried out in accordance with Rule 4 of

the Federal Rules of Civil Procedure. Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993)

(holding the plaintiff must prove service of process if challenged); see also Scott v. Md. State Dep't

of Labor, 673 F. App’x 299, 304 (4th Cir. 2016) (per curiam) (unpublished). In determining

whether a plaintiff has satisfied his burden, the court must interpret the technical requirements

liberally "as long as the defendant had actual notice of the pending suit." Id. "When the process

gives the defendant actual notice of the pendency of the action, the rules ... are entitled to a liberal

construction" and "every technical violation of the rule or failure of strict compliance may not

invalidate the service of process." Armco, Inc. v. Penrod-Stauffer Bldg. Sys., Inc., 733 F.2d 1087,

1089 (4th Cir. 1984). Still, "the rules are there to be followed, and plain requirements for the means

of effecting service of process may not be ignored." Id.

Both parties have submitted affidavits to support their position on the delivery of the

summons. In their affidavit, Plaintiffs describe their diligence in serving Sherman, FedEx’s

confirmation of delivery, and the nearly ten months they waited for his response. See Doc. No. 56-

1. On the other hand, both Sherman and his wife affirm that they did not receive a summons along

with the Amended Complaint. See Doc. Nos. 55-1, 55-2. These dueling affidavits are at

loggerheads. That said, Sherman does not dispute that he received a copy of the Amended

Complaint. See Doc. No. 55-1. Sherman’s receipt of the Amended Complaint necessarily made

him aware of the Plaintiffs’ allegations against him.3,4 While he may have been “hopeful” that

Plaintiffs would “come to understand” that he was an innocent party, Sherman had actual notice

of this matter for almost a year. See id. Thus, in light of the irreconcilability of the affidavits, the

Court’s strong preference to decide matters on their merits, and Sherman’s actual notice of this

3 Sherman concedes that he knew of the ongoing criminal investigation. See Doc. No. 55-1.

4 The Court also issued an electronic summons to Sherman on March 30, 2022. See Doc. No. 10.

suit, the Court finds that dismissal under Rules 12(b)(4) and (5) would be inappropriate. 5 See, e.g.,

Lerma v. Sylistics Los Angeles Car Club, Inc., No. CV 12-06704 DDP JEMX, 2015 WL 349310,

at *3 (C.D. Cal. Jan. 23, 2015) (finding that a defendant’s affidavit stating that he was never

personally handed papers did not constitute strong and convincing evidence to establish that he

was not properly served).

C. Failure to State a Claim

Along with his jurisdictional arguments, Sherman moves to dismiss all of Plaintiffs’ claims

under Rule 12(b)(6). A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for

“failure to state a claim upon which relief can be granted” tests whether the complaint is legally

and factually sufficient. See Fed. R. Civ. P. 12(b)(6); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); Coleman v. Md. Court of Appeals, 626 F.3d

187, 190 (4th Cir. 2010), aff'd, 566 U.S. 30 (2012). A court need not accept a complaint's “legal

conclusions, elements of a cause of action, and bare assertions devoid of further factual

enhancement.” Nemet Chevrolet Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.

2009). The court, however, “accepts all well-pled facts as true and construes these facts in the light

most favorable to the plaintiff in weighing the legal sufficiency of the complaint.” Id. Construing

the facts in this way, a complaint must contain “sufficient factual matter, accepted as true, to state

a claim to relief that is plausible on its face.” Id. Thus, a motion to dismiss under Rule 12(b)(6)

determines only whether a claim is stated; “it does not resolve contests surrounding the facts, the

merits of a claim, or the applicability of defenses.” Republican Party v. Martin, 980 F.2d 943, 952

(4th Cir. 1992).

5 Plaintiffs filed a motion under Federal Rules of Civil Procedure 4(m) in the alternative to extend

time to re-serve the summons. See Doc. No. 57. However, because the Court finds that the initial

service of process was sufficient that motion will be denied as moot.

1. Fraud

To allege fraud under North Carolina law, “the plaintiff must establish that the defendant

(1) made a false representation of material fact, (2) knew it was false (or made with reckless

disregard of its truth or falsity), and (3) intended that the plaintiff rely upon it. In addition, (4) the

plaintiff must be injured by reasonably relying on the false representation.” Food Lion, Inc. v.

Capital Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir. 1999) (citing Ragsdale v. Kennedy, 286 N.C.

130, 209 S.E.2d 494, 500 (N.C. 1974)). Also, to satisfy Fed.R.Civ.P. 9(b)’s particularity

requirement, a plaintiff must “at a minimum [] describe 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.” United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379

(4th Cir. 2008) (internal quotations and citations omitted). The Fourth Circuit has held that “[a]

court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the

defendant has been made aware of the particular circumstances for which she will have to prepare

a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts.”

Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999).

Sherman argues that Plaintiffs have failed to allege that he had the “necessary state of mind

for fraud” or that he knew the transaction was fraudulent. See Doc No. 55. Additionally, relevant

to Rule 9(b)’s particularity requirement, Sherman contends that Plaintiffs have failed to plead the

time, place, manner, and the recipients of the alleged fraudulent communications. See id. These

arguments are unpersuasive.

Plaintiffs have pled facts, which taken as true, establish Sherman’s “necessary state of mind

for fraud” and his awareness of the fraudulent nature of the transaction. Sherman represented to

Noble that he was a partner at Mayfair Capital. See Doc. No. 11 at ¶ 18. Yet Nasar Aboubakare,

who was brought into the negotiations as an additional broker by Sherman, admitted to Noble that

Sherman was not a partner with Mayfair Capital. See Doc. No. 11 at ¶ ¶ 20, 68-69. Among the

other false representations made to Noble, Sherman allegedly vouched for Williams and Reinhart

as legitimate funding sources, a falsity which would have been uncovered with a simple internet

search if Sherman had done the necessary due diligence as he alleged he did to Plaintiffs. See Doc.

No. 11, ¶ ¶ 18-19, 58, 63. These alleged misrepresentations, taken as true, are sufficient, at this

stage, to establish Sherman’s fraudulent intent and awareness of the fraudulent nature of the

transaction.

In addition, Plaintiffs have met Rule 9(b)’s heightened pleading requirement. Plaintiffs

have alleged a continuous sequence of events from October 2018 through July 2019 where

Sherman’s conduct was an integral part of the fraud. See United States ex rel. Grant v. United

Airlines, Inc., 912 F.3d 190, 197 ( 4th Cir. 2018) (explaining that a plaintiff can allege a pattern of

conduct that would “necessarily have led [] to submission of false claims.”). In brief, around

October 2018 Noble engaged Sherman, who then introduced Noble to Reinhart. Doc. No. 11 at ¶

18. Sherman then made misrepresentations and assurances to Plaintiffs that the agreement was not

a fraud even after Reinhart materially breached the agreement in April 2019. See id. at ¶ ¶ 31, 40.

These misrepresentations were allegedly made to the principals of Noble and benefited Sherman

and the other fraudsters. Id. This continuous sequence of events satisfies the requirements of Rule

9(b). See Nahigian v. Juno Loudon, LLC, 684 F.Supp.2d 731, 738 (E.D.Va. 2010) (“the exact date

and time” of each misrepresentation claim is not needed where Plaintiffs alleged that the

misrepresentations were made throughout the spring of 2007).

In sum, taking the allegations in the Amended Complaint as true together with all

reasonable inferences, the Court finds that Plaintiffs have adequately pled their fraud claim and

Sherman has been adequately appraised of the facts needed to prepare a defense. Accordingly,

dismissal under Rule 12(b)(6) and Rule 9(b) would be inappropriate.

2. Negligence and Negligent Misrepresentation

To make out a prima facie case of negligence, “a plaintiff must show that: (1) the defendant

owed the plaintiff a duty of care; (2) the defendant's conduct breached that duty; (3) the breach

was the actual and proximate cause of the plaintiff's injury; and (4) damages resulted from the

injury.” Parker v. Town of Erwin, 776 S.E.2d 710 (N.C. App. 2015) Similarly, negligent

misrepresentation “occurs when a party justifiably relies to his detriment on information prepared

without reasonable care by one who owed the relying party a duty of care.” Raritan River Steel

Co. v. Cherry, Bekaert & Holland, 367 S.E.2d 609, 612 (N.C. 1988). The heightened requirements

for allegations of fraud apply equally to a claim for negligent misrepresentation. Topshelf Mgmt.,

Inc v. Campbell-Edwald Co., 117 F.Supp.3d 722, 727 (M.D.N.C 2015) (“Federal courts have

repeatedly found that the North Carolina tort of negligent misrepresentation sounds in fraud and

have applied Rule 9(b)[.]”).

Sherman argues that Plaintiffs do not allege any agreement, contract, or relationship

between the parties sufficient to support a finding that a broker-dealer relationship existed. See

Doc. No. 55. However, Sherman allegedly played a crucial role in initiating the loan agreement,

vouched for the credibility of “Mark Williams,” and introduced Noble to Reinhart, all while acting

as the broker for the loan agreement. See Doc. No. 11, ¶ ¶ 18-19, 63. Also, Sherman continually

assured Plaintiffs that the agreement was legitimate and allegedly made misrepresentations to

prevent Plaintiffs from discovering the fraud. See Doc. No. 11 at ¶ 78-80. Taking these allegations

as true, Sherman’s role in initiating the loan agreement, his “active lying” about his experience

with “Mark Williams,” and Plaintiffs’ justifiable reliance on his statements are sufficient for

Plaintiffs’ negligence claims to survive. See Raritan Steel Co., 367 S.E.2d at 617 (“liability should

extend not only to those with whom [the professional] is in privity or near privity, but also to those

persons, or class of persons, whom he knows and intends will rely on his opinion, or whom he

knows his client intends will so rely."). Accordingly, the Court will allow Plaintiffs’ negligence

claims to proceed.

3. Breach of Fiduciary Duty Claim

To plead a breach of fiduciary duty, a plaintiff must allege facts to show that: (1) the

defendant owed the plaintiff a fiduciary duty of care, (2) the defendant violated that fiduciary duty

of care, and (3) this breach of duty proximately caused injury to the plaintiff. Farndale Co., LLC

v. Gibellini, 628 S.E.2d 15, 20 (N.C. App. 2006). Under North Carolina law, fiduciary

relationships are characterized by “confidence reposed on one side and resulting domination and

influence on the other.” Dallaire v. Bank of Am., N.A., 760 S.E.2d 263, 266 (N.C. 2014).

Sherman contends that Plaintiffs cannot establish a broker-client relationship or that

Sherman “had all the cards” to breach his fiduciary duty. See Doc. No. 55. However, Plaintiffs’

breach of fiduciary duty claims survive for substantially the same reasons as their negligence

claims. Again, Sherman — acting as an alleged partner for Mayfair Capital and broker for the loan

agreement — allegedly introduced Noble to Reinhart. See Doc. No. 11 at ¶ 18. Plaintiffs contend

that they relied on Sherman to initiate the loan agreement and were induced by Sherman’s

credibility. Doc. No. 11 at ¶ 78-79. Plaintiffs also allege that they trusted Sherman when he

vouched for “Mark Williams” as a wealthy individual (a statement that Plaintiffs contend Sherman

neglected to verify) and that Sherman failed to do the required due diligence to verify the

agreement. See Doc. No. 11 at ¶ 64. Accordingly, viewing these facts and the inferences to be

drawn from them in the light most favorable to Plaintiffs, the Court finds that the complaint

contains sufficient facts that, if accepted as true, state a plausible claim for relief.

Il, ORDER

NOW THEREFORE IT IS ORDERED THAT:

1. Defendant’s Motion to Dismiss (Doc. No. 55) is DENIED; and

2. This case shall proceed to trial on the merits in the absence of a voluntary resolution

of the dispute among the parties.

SO ORDERED ADJUDGED AND DECREED.

Signed: July 13, 2023

| Ae) [ie Ka 7 LD. a

Kenneth D. Bell Vy,

United States District Judge i f

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