Colorado Bankers Life Insurance Company v. GBIG Holdings, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

No. 5:22-CV-212-D

COLORADO BANKERS LIFE )

INSURANCE COMPANY, and )

SOUTHLAND NATIONAL ) .

REINSURANCE CORPORATION, _ )

Plaintiffs,

v. ORDER .

GBIG HOLDINGS, LLC, □

Defendant.

On May 26, 2022, Colorado Bankers Life Insurance Company and Southland National

Reinsurance Corporation (collectively, “plaintiffs”) filed a complaint against GBIG Holdings, LLC □

(“defendant” or “GBIG”) alleging breach of contract, conversion, embezzlement, and violations of

North Carolina’s Unfair and Deceptive Trade Practices Act “UDTPA”) [D.E. 1]. On July 21, 2022,

GBIG moved to dismiss the conversion, embezzlement, and UDTPA claims [D.E. 13] and filed a

memorandum in support [D.E. 14]. See Fed. R. Civ. P. 12(b)(6). On September 13, 2022, plaintiffs

responded in opposition [D.E. 16]. On September 27, 2022, GBIG replied [D.E. 17]. As explained □

below, the court grants GBIG’s motion to dismiss the conversion, embezzlement, and UDTPA

claims.

This case concerns a Tax Sharing Agreement TSA”) between GBIG, the parent company,

and its subsidiaries, plaintiffs. See Compl. | 6. The TSA and associated consolidated tax return

allowed GBIG and its subsidiaries, including plaintiffs, “to combine, share, or consolidate profits

and losses in order to minimize GBIG’s consolidated tax liability.” Id. The TSA created

an “equitable basis for determining the tax amount to be paid by or owed to the parties to the TSA

on account of their inclusion in GBIG’s consolidated tax return.” Id. at J 10.

Plaintiffs allege that the TSA requires “[a]ny payments or refunds due to a party by reason

of amendment to, or examination of, a previously filed tax return, shall be remitted tothe appropriate

party no later than 45 days from the receipt of the funds or credit by GBIG.” Id. at { 19 (alteration

in original) (quotation omitted). “Where GBIG receives a tax refund, that tax refund amount should

be distributed among the Members according to their tax share.” Id. at 720. Plaintiffs allege that

in its 2019 Tax Return, GBIG used “Plaintiffs’ tax losses of more than $83 million collectively to

reduce its $3,058,932 tax liability to zero.” Id. at 126. Plaintiffs also allege that GBIG failed to

make any payments required under the TSA to plaintiffs following the 2019 Tax Return. See id. at

{ 27. Instead, GBIG took the funds provided by the tax return and distributed them to an affiliated

entity, Global Growth. Id. at J 52.

In January 2021, “Plaintiffs communicated with GBIG that the Tax Refund belonged to and

was owed to Plaintiffs. Plaintiffs’ representatives had numerous telephone and email

communications with GBIG concerning the return of the Tax Refund and payment of the Tax Loss

Receivable.” Id. at | 39. During the communications, “GBIG made various excuses for its failure

to pay the Tax Refund and Tax Loss Receivable between the time the Tax Return was filed” and the

filing of this anon Id. at | 40. Plaintiffs allege that “GBIG’s excuses were made merely to delay

payment of the Tax Refund and Tax Loss Receivable so that GBIG could use the funds for its own

purposes.” Id, at 141. GBIG “has not paid Plaintiffs the Tax Refund” or the “Tax Loss Receivable.”

Id. 48-49. Accordingly, plaintiffs filed this action.

I.

GBIG concedes that plaintiffs plausibly allege a breach of contract claim, but moves to

dismiss the conversion, €mbezzlement, and UDTPA claims under Rule 12(b)(6). See [D.E. 13]. A

motion to dismiss under Rule 12(b)(6) tests the complaint’s legal and factual sufficiency. See

Ashcroft v. Iqbal, 556 U.S. 662, 677-80 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554-63

(2007); Coleman v. Md. Court of Appeals, 626 F.3d 187, 190 (4th Cir. 2010), aff'd, 566 U.S. 30

(2012); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). To withstand a Rule 12(b)(6)

motion, a pleading “must contain sufficient factual matter, accepted as true, to state a claim to relief

that is plausible on its face.” Iqbal, 556 U.S. at 678 (quotation omitted); see Twombly, 550 U.S. at

570; Giarratano, 521 F.3d at 302. In considering the motion, the court must construe the facts and

reasonable inferences “in the light most favorable to the [nonmoving party].” Massey v. Ojaniit, 759

F.3d 343, 352 (4th Cir. 2014) (quotation omitted); see Clatterbuck v. City of Charlottesville, □□□

F.3d 549, 557 (4th Cir. 2013), abrogated on other grounds by Reed v. Town of Gilbert, 576 U.S. 155

(2015). A court need not accept as true a complaint’s legal conclusions, “unwarranted inferences,

unreasonable conclusions, or arguments.” Giarratano, 521 F.3d at 302 (quotation omitted); see Iqbal,

556 U.S. at 678-79. Rather, a plaintiffs factual allegations must “nudge[ ] [its] claims,” Twombly,

550 U.S. at 570, beyond the realm of “mere possibility” into “plausibility.” Iqbal, 556 U.S. at

678-79. □

When evaluating a motion to dismiss, a court considers the pleadings and any materials

“attached or incorporated into the complaint.” E.L du Pont de Nemours & Co. v. Kolon Indus., Inc.,

637 F.3d 435, 448 (4th Cir. 2011); see Fed. R. Civ. P. 10(c); Goines v. Valley Cmty. Servs. Bd., 822

F.3d 159, 166 (4th Cir. 2016); Thompson v. Greene, 427 F.3d 263, 268 (4th Cir. 2005). court may

also consider a document submitted by a moving party if it is “integral to the complaint and there

.

\

is no dispute about the document’s authenticity.” Goines, 822 F.3d at 166. Additionally, a court

may take judicial notice of public records without converting the motion to dismiss into a motion

for Saar judgment. See, e.g., Fed. R. Evid. 201; Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551

US. 308, 322 (2007); Philips v. Pitt Cnty. Mem’] Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

A.

GBIG contends that the economic loss rule bars plaintiffs’ conversion claim. See [D.E. 14]

4. Plaintiffs respond that the economic loss rule does not bar their conversion claim [D.E. 16] 6-8.

Under the economic loss rule, “[o]rdinarily, a breach of contract does not give rise to a tort action

by the promisee against the promisor.” N.C. State Ports Auth. v. Lloyd A. Fry Roofing Co., 294

N.C. 73, 81, 240 S.E.2d 345, 350 (1978), rejected in part on other grounds by Trs. of Rowan Tech.

Coll. v. J. Hyatt Hammond Assocs., Inc., 313 N.C. 230, 328 S.E.2d 274 (1985); Braswell Egg Co.

v. Poultry Mgmt. Sys., Inc., 481 F. Supp. 3d 528, 542 (E.D.N.C. 2020); Gen. Cas. Co. of Wis. v.

Murphy-Hoffman Co., No. 5:20-CV-376, 2020. WL 6173547, at *2 (E.D.N.C. Oct. 21, 2020)

(unpublished); CDI Corp. v. HCL Am., Inc., No. 5:17-CV-550, 2019 WL 1083775, at *3 (E.D.N.C.

Mar. 7, 2019) (unpublished); Wilkins v. Wachovia Corp., No. 5:10-CV-249, 2011 WL 1134706, at

*2 (E.D.N.C. Mar. 24, 2011) (unpublished). The economic loss rule arises because “parties to a

contract do not thereby become each others’ fiduciaries; [therefore,] they generally owe no special

duty to one another beyond the terms of the contract[.]” Broussard v. Meineke Disc. Muffler Shops,

Inc., 155 F.3d 331, 347 (4th Cir. 1998) (quotation omitted); Branch Banking & Tr. Co. v. Thompson,

107 N.C. App. 53, 61, 418 S.E.2d 694, 699 (1992). .

To pursue a tort claim and a breach of contract claim concerning the same conduct, “a

plaintiff must allege a duty owed him by the defendant separate and distinct from any duty owed

under a contract.” Kelly v. Ga.-Pac., LLC, 671 F, Supp. 2d 785, 791 (E.D.N.C. 2009) (quotation

omitted); see Broussard, 155 F.3dat 346; Strum v. Exxon Co., 15 F.3d 327, 330-31 (4th Cir. 1994);

Vanwyk Textile Sys., B.V. v. Zimmer Mach. Am., Inc., 994 F. Supp. 350, 362 (W.D.N.C. 1997);

Paine, Webber, Jackson & Curtis, Inc. v. Stanley, 60 N.C. App. 511, 516-17, 299 S.E.2d 292,

295—96 (1983). Moreover, North Carolina courts have “carefully circumscribed” this independent

duty requirement. Strum, 15 F.3d at 331. In so doing, North Carolina courts have strived to keep

tort and contract law (including law related to warranties) within their separate spheres. Cf. East

River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871 (1986); Kelly, 671 F. Supp. 2d

at 791.

North Carolina courts have developed (and the Fourth Circuit has applied) the economic loss

rule, which prohibits recovery for purely economic loss in tort when a contract, a warranty, or the

UCC operates to allocate risk. See, e.g., 2000 Watermark Ass’n v. Celotex Corp., 784 F.2d 1183,

1186 (4th Cir. 1986) (applying South Carolina law); Kelly, 671 F. Supp. 2d at 791-96 (applying

North Carolina law); Wilson v. Dryvit Sys., Inc., 206 F. Supp. 2d 749, 753-54 (E.D.N.C. 2002)

(applying North Carolina law); N.C. State Ports Auth., 294 N.C. at 81, 240 S.E.2d at 350. A loss

falls into this rule when the only alleged damage or injury is to the product itself and not to any

person or separate property. See B & B Crane Serv., LLC v. Dragados USA, Inc., No. 7: 19-CV-98,

2019 WL 5295731, at *4 (E.D.N.C. Oct. 18, 2019) (unpublished); Kelly, 671 F. Supp. 2d at 791;

Wilson, 206 F. Supp. 2d at 753.

Plaintiffs argue a “under North Carolina law, a promisee may maintain a tort action against

the promisor if the injury was ‘a conversion of the property of the promisee, which was the subject

of the contract, by the promisor.’” [D.E. 16] 6 (quoting Ellis v. La.-Pac. Corp., 699 F.3d 778,

783-84 (4th Cir. 2012)); see Definitive Staffing Sols., Inc. v. Staffing Advantage, LLC, No. 7:18-

CV-187, 2019 WL 3660878, at *6 (E.D.N.C. Aug. 6, 2019) (unpublished); Ada Liss Grp. v. Sara

Lee Corp., No. 06CV610, 2010 WL 3910433, at *10 (M.D.N.C. Apr. 27, 2010) (unpublished).

‘However, the Fourth Circuit’s decision in Legacy Data Access, Inc. v. Cadrillion, LLC, 889 F.3d 158

(4th Cir. 2018), forecloses plaintiffs’ argument.

In Legacy Data, the Fourth Circuit analyzed whether “North Carolina’s economic loss rule

bars Plaintiffs from asserting conversion, a tort claim, for what is nothing more than a breach of

contract.” Id. at 164. The Fourth Circuit explicitly rejected the argument that North Carolina law

exempted a conversion claim from the economic loss rule. See id. at 165-66. According to the

Fourth Circuit, North Carolina case law established that “the economic loss rule does not prohibit

tort claims against a defendant who, in addition to and independent of his contractual duty, is

charged by law, as a matter of public policy, with the duty to use care in the safeguarding of the

property .. . as in the case of a common carrier, an innkeeper, or other bailee.” Id. at 165 (quotation .

. omitted) (emphasis in original). The Fourth Circuit, however, found no support in North Carolina

law for the position that “[e]very simple failure to pay an‘amount due under a contract, such as a

monthly mortgage payment, would potentially give rise to a conversion claim.” Id. at 166.

In opposition, plaintiffs cite Foodbuy, LLC v. Gregory Packaging, Inc., 987 F.3d 102, 121

(4th Cir. 2021), and argue that the Fourth Circuit supposedly has now recognized that “the North

Carolina Court of Appeals has limited the application of the [economic loss rule] to negligence

claims.” [D.E. 16] 7 n.3 (cleaned up). In support, plaintiffs cite Bradley Woodcraft, Inc. v. Bodden,

251 N.C. App. 27, 795 S.E.2d 253, 258 (2016).

InFoodbuy, the Fourth Circuit noted that Legacy Data specifically “dismiss[ed] the tort claim

for conversion under the” economic loss rule. Id. Moreover, in Foodbuy, the Fourth Circuit did not

hold that Legacy Data was wrongly decided or question the dismissal of the conversion claim.

Foodbury, 987 F.3d at 121. Indeed, in Legacy Data, the Fourth Circuit addressed Bradley

Woodcraft. See Legacy Data, 889 F.3d at 166. Furthermore, in Foodbuy, the Fourth Circuit simply

declined to extend Legacy Data’s holding to bar a UDTPA claim under the economic loss rule.

Foodbuy, 987 F.3d at 121-22. Because the Fourth Circuit in Foodbuy applied the holding in Legacy

Data and did not overrule or abrogate Legacy Data’s conclusion regarding a materially

indistinguishable conversion claim, Legacy Data controls the outcome of the conversion claim in this

case. .

The complaint alleges that “GBIG wrongfully converted the Tax Refund by refusing to remit

the Tax Refund to Plaintiffs.” Compl. { 74. GBIG’s underlying duty to remit the Tax Refund,

however, arose solely from the TSA. Moreover, the complaint alleges that GBIG “instead

distributed, loaned, or otherwise transferred the Tax Refund to Global Growth for that affiliate’s

use.” Id. at As in Legacy Data, plaintiffs’ conversion i arises from GBIG’s duties under

the contract. Absent the TSA, there was no duty of GBIG to refrain from making payments or

transfers to Global Growth. Therefore, plaintiffs have failed to plausibly allege that GBIG breached

an additional or independent duty beyond the TSA. Thus, the economic loss rule bars plaintiffs’

conversion claim, and the court dismisses it. See, e.g., Legacy Data, 889 F.3d at 165-66.

B.

Plaintiffs assert an embezzlement claim. See Compl. {] 79-86. N.C. Gen. Stat. § 1-538.2

creates civil liability for “[a]ny person, other than an unemancipated minor, who commits an act that

is punishable under,” among other things, North Carolina’s criminal embezzlement statute, N.C,

Gen. Stat.§ 14-90. GBIG responds that N.C. Gen. Stat. § 14-90 (through N.C. Gen. Stat. 5 1-538.2)

does not apply to GBIG in this case. See [D.E. 14] 5—7.

According plaintiffs, general principles of statutory interpretation extend civil liability for

embezzlement to GBIG. See [D.E. 16] 8-11; Compl. 7 81 (“GBIG is a ‘person’ as set forth in N.C.

Gen. Stat. § 14-90.”). In support, plaintiffs note that the “word ‘person’ shall extend and be applied

to bodies politic and corporate, as well as to individuals, unless the context clearly shows to the

contrary.” [D.E. 16] 8 (quoting N.C. Gen. Stat. § 12-3(6)) (emphasis omitted); see also N.C. Gen.

Stat. § 12-3 (“In the construction of all statutes the following rules shall be observed, unless such

construction would be inconsistent with the manifest intent of the General Assembly, or repugnant

to the context of the same statute[.]”’); cf. State ex rel, Stein v. Kinston Charter Acad., 379 N.C. 560,

580, 866 S.E.2d 647, 662 (2021) (applying N.C. Gen. Stat. § 12-3(6) to hold a school liable under

the North Carolina False Claims Act); Jackson v. Housing Authority of High Point, 316 N.C. 259,

264, 341 S.E.2d 523, 526 (1986) (applying N.C. Gen. Stat. § 12-3(6) to North Carolina’s wrongful

death statute). Plaintiffs argue that this statutory language and these cases support reading

corporations into the class of persons included with N.C. Gen. Stat. § 14-90.

Plaintiffs also argue that excluding corporations from the definition of person under section

14-90 would conflict with North Carolina law. See [D.E. 16] 9-10. In support, plaintiffs cite N.C.

Gen. Stat. § 14-254(a), which criminalizes embezzlement and other forms of “[mlJalfeasance of

corporation officers and agents.” See N.C. Gen. Stat. § 14-254(a).! Moreover, plaintiffs note that

section 14-254(b) defines “person” to mean “a natural person, association, consortium, corporation,

body politic, partnership, or other group, entity, or organization.” Id. § 14-254(b). Plaintiffs reason

N.C. Gen. Stat § 14-254(a) provides:

If any president, director, cashier, teller, clerk or agent of any corporation shall

embezzle, abstract or willfully misapply any of the moneys, funds or credits of the

corporation, or shall, without authority from the directors, issue or put forth any

certificate of deposit, draw any order or bill of exchange, make any acceptance,

assign any note, bond, draft, bill ofexchange, mortgage, judgment or decree, or make

any false entry in any book, report or statement of the corporation with the intent in

either case to injure or defraud or to deceive any person, or if any person shall aid and

abet in the doing of any of these things, he shall be punished as a Class H felon.

that because “aiding and abetting liability does not . . . itself create a separate offense,” that aiding

and abetting and the offense of embezzlement under section 14-90 should not be subject to different

definitions. Cf. United States v. Day, 700 F.3d 713, 720 (4th Cir. 2012) (cleaned up) (analyzing

aiding and abetting under 18 U.S.C. § 2).

The parties have not cited a case where a court has applied N.C. Gen. Stat. § 14-90 to a

corporate defendant directly or through N.C. Gen. Stat. § 1-538.2. In support of not applying section

14-90 (through section 1-538.2) to GBIG, GBIG cites N.C. Gen. Stat. § 14-90(a); which states that

criminal liability for embezzlement is limited to “any person”:

(1) Exercising a public trust.

(2) Holding a public office.

(3) Whois a guardian, administrator, executor, trustee, or any receiver, or any

other fiduciary, including, but not limited to, a settlement agent, as defined

in [N.C. Gen. Stat. §] 45A-3.

(4). Who is an officer or agent of a corporation, or any agent, consignee, clerk,

' bailee or servant, except persons under the age of 16 years, of any person.

N.C. Gen. Stat. § 14-90(a). GBIG then argues that a “corporation cannot do or be any of those

things” listed in section 14-90(a). [D.E. 14] 6.

Section 14-90(a)(3) explicitly cross-references N.C. Gen. Stat. § 45A-3 to provide the

definition for the term “settlement agent” in section 14-90(a)(3). N.C. Gen. Stat. § 14-90(a)(3).

Section 45A-3(15) states that, “unless the context otherwise requires” a settlement agent “includes

any individual, corporation, [or] partnership ....” N.C. Gen. Stat. § 45A-3(15). Ata minimum, this

explicit cross reference clarifies that a corporation can be a settlement agent under section '

14-90(a)(3). But just because it is theoretically possible for a corporation to be held liable under

section 14-90(a)(3) as a “settlement agent” does not mean that the General Assembly intended for

a corporation such as GBIG to be liable under section 14-90 (through section 1-538.2) in this case.

Indeed, a corporation cannot legally hold public office or exercise a public trust as required by

sections 14-90(a)(1-2). See, e.g., N.C. Const. art. VI, § 6. Even if'a corporation could be liable as

a “settlement agent” under section 14-90(a)(3), the General Assembly did not extend criminal

liability to a corporation under every subsection of section 14-90.

Sections 14-90(a)(4) and (b)(2)(i) demonstrate that section 14-90 does not extend criminal

liability to GBIG in this case. Section 14-90(a)(4) covers a person “[wy]ho is an officer or agent of

a corporation, or any agent, consignee, clerk, bailee or servant, except persons under the age of 16

years, of any person.” N.C. Gen, Stat. § 14-90(a)(4). If the court considers a corporation to be a

under this subsection, the court would be creating a redundancy. Section 14-90(a)(4)

specifies two classes of agents who can potentially be liable: “agent of a corporation” or “any

agent ... of any person.” Id. Moreover, section 14-90(b)(2)() explicitly notes that the embezzled

goods can “belong[] to any other person or corporation.” Id. § 14-90(b)(2)(i). If the General

Assembly intended “person” to include a corporation in this specific context of section 14-90, there

would be no reason to explicitly include “agent of a corporation” or clarify that the goods may

belong to “any other person or corporation.” Id. §§ 14-90(a)(4), (b)(2)(i) (emphasis added).

The Supreme Court of North Carolina has explicitly instructed courts to avoid interpreting

North Carolina statutes in a way that makes certain sections redundant or meaningless. See HCA

Crossroads Residential Ctrs., Inc. v. N.C. Dep’t of Hum. Res., 327 N.C. 573, 578, 398 S.E.2d 466,

470 (1990); cf. Rimini St., Inc. v. Oracle USA, Inc., 139 S. Ct. 873, 881 (2019). The only way to

avoid creating aredundancy under section 14-90 and not render “agent of a corporation” meaningless

is to exclude GBIG from the definition of “person” under section 14-90 in this case.

The aiding and abetting reirence in N.C. Gen. Stat. §14-254(a) also undermines plaintiffs’

argument. AlthoughN.C. Gen. Stat. §14-25 4(b) explicitly includes corporations under its definition

of “person,” section 14-254(a) does not contemplate that the underlying embezzlement can be

10

committed by a “person.” Rather, section 14-254(a) applies only to embezzlement committed by □

any president, director, cashier, teller, clerk or agent of any corporation[.]” N.C. Gen. Stat.

§14-254(a). Section 14-254 uses the term “person” only to define the victim of embezzlement (i.e.,

“to injure or defraud or to deceive any person”) or a potential aider or abettor of embezzlement (i.e.,

“Gf any person shall aid and abet in the doing of any of these things”). Id. The General Assembly

intentionally included corporations as victims or potential aider or abettors and excluded

corporations from its definition of “any president, director, cashier, teller, clerk or Aeon of any

corporation[.]” Id.

Just as section 14-254(a) considers an “agent of any corporation” to be a potential principal

of embezzlement, section 14-90(a)(4) uses the phrase “agent of any corporation” in the same manner

If the court were to hold, as plaintiffs request, that a corporation can qualify as an “agent of any

corporation” under section 14-90(a)(4) while a corporation cannot qualify as an “agent of any

corporation” under section 14-254(a), the court would be “reading conflicts into statutes.” Epic Sys.

Corp. v. Lewis, 138 S. Ct. 1612, 1630 (2018). By holding that GBIG cannot be an “agent of any

corporation” under section 14-90 in this case, the court avoids a conflict with section 14-254(a).

In opposition to this conclusion, plaintiffs cite State ex rel. Stein for the proposition that “the

fact that the [embezzlement statutes] do[] not contain a definition of a ‘person’ is entitled to little

weight in our analysis given that such a definition, which is applicable to all statutory provisions,

appears in N.C.G.S. § 12-3(6).” [D.E. 16] 9 (alterations in original). Plaintiffs then argue that Stein

means that corporations are “persons” under section 14-90.

The court rejects plaintiffs’ argument. Notably, Stein did not involve section 14-90. Rather,

Stein concerned the North Carolina False Claims Act. Stein, 379 N.C. at 580, 866 S.E.2d at 662.

Even if Stein stands for the principle that N.C. Gen. Stat. § 12-3 applies to all North Carolina

11

statutes, section 12-3 merely instructs courts to include corporations under the definition of person

unless the context shows to the contrary. See N.C. Gen. Stat. § 12-3. Because the context of section

14-90 shows that GBIG does not fall within the definition of “person” under section 14-90 in this

case, the court rejects plaintiffs’ argument.

GBIG, as a corporation, cannot be liable for embezzlement under section 14-90 (through

section 1-538.2) as alleged in the complaint. Sitting in diversity, this court “should not create or

expand a State’s public policy.” Time Warner Ent.-Advance/Newhouse P’ship v. Carteret-Craven

Elec. Membership Corp., 506 F.3d 304, 314 (4th Cir. 2007) (alteration and quotation omitted); see

Day & Zimmermann, Inc. .v. Challoner, 423 U.S. 3, 4 (1975) (per curiam); First Protective Ins. Co.

v. Rike, 516 F. Supp. 3d 513, 524-25 (E.D.N.C. 2021). Thus, the court dismisses plaintiffs’

embezzlement claim.

C.

Plaintiffs assert a claim under North Carolina’s UDTPA. See Compl. ff 87-94. The

UDTPA provides that “[u]nfair methods of competition in or affecting commerce, and unfair or

deceptive acts or practices in or affecting commerce, are declared unlawful.” N.C. Gen. Stat. §

75-1.1(a). To state an unfair and deceptive trade practices claim, a plaintiff must plausibly allege:

(1) an unfair or deceptive act or practice, (2) in or affecting commerce, and (3) which proximately

caused injury to plaintiffs. See Barbour v. Fid. Life Ass’n, 361 F. Supp. 3d 565, 573 (EDN.C.

2019); Kelly, 671 F. Supp. 2d at 798; SciGrip, Inc. v. Osae, 373 N.C. 409, 426, 838 S.E.2d 334, 347

(2020); Walker v. Fleetwood Homes of N.C., Inc., 362 N.C. 63, 71-72, 653 S.E.2d 393, 399 (2007).

“A practice is unfair when it offends established public policy as well as when the practice is

immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers. A practice .

is deceptive if it has the capacity or tendency to deceive.” Walker, 362 N.C. at 72, 653 S.E.2d at 399

12

(cleaned up). “[I]t is not necessary for the plaintiff to show fraud, bad faith, deliberate or knowing

acts of deception, or actual deception, but plaintiff must show that the acts complained of possessed

the tendency or capacity to mislead, or created the likelihood of deception.” Gress v. Rowboat Co.,

190N.C. App. 773, 776, 661 S.E.2d 278, 281 (2008) (cleaned up); see Overstreet v. Brookland, Inc.,

52 N.C. App. 444, 452-53, 279 S.E.2d 1, 7 (1981). However, a “mere breach of contract, even if

intentional, is not an unfair or deceptive act[.]” Waddell v. U.S. Bank Nat’] Ass’n, 395 F. Supp. 3d

676, 684 (E.D.N.C. 2019) (collecting cases); PCS Phosphate Co. v. Norfolk S. Corp., 559 F.3d 212,

224 (4th Cir. 2009); Repress v. Crop Prod. Servs., Inc., No. 4:1 5-CV-00176, 2016 WL 3821163, at

*5 (E.D.N.C. July 13, 2016) (unpublished); see SciGrip, 373 N.C. at 427, 838 S.E.2d at 348;

Mitchell v. Linville, 148 N.C. App. 71, 75, 557 S.E.2d 620, 623-24 (2001).

GBIG contends that plaintiffs allege only a simple breach of contract and that there are not

sufficient aggravating circumstances to justify plaintiffs UDTPA claim. [D.E. 14] 7-9. Plaintiffs

respond that the complaint plausibly alleges “GBIG not only breached the TSA but subsequently

converted, embezzled, and transferred the funds at issue, despite Plaintiffs’ numerous demands for

the same, to a third-party entity.” [D.E. 16] 11.

Although plaintiffs have alleged facts suggesting that the alleged breach of contract was

intentional, plaintiffs do not plausibly allege any actionable aggravating circumstances beyond the

alleged intentional breach of the TSA. Moreover, the alleged conversion and embezzlement stem

directly from the alleged intentional breach of the TSA. See Compl. ff 79-86. Allegations that

GBIG knew the money belonged to plaintiffs simply support the inference that the breach was

intentional, not a separate aggravating circumstance. See Waddell, 395 F. Supp. 3d at 684; SciGrip,

373 N.C. at 427, 838 S.E.2d at 348.

13 .

In opposition, plaintiffs argue that GBIG took the tax return money and gave it to a “third

party,” Global Growth, which was “owned and controlled by indicted fraudster, Greg Lindberg[.]”

[D.E. 16] 2; see Compl. 88. Plaintiffs assert that GBIG and Global Growth should not be

considered a “single market participant” and appear to argue that this transfer is an aggravating factor

under the UDTPA. See [D.E. 16] 15 n.5 (quotation omitted). But the complaint alleges that Global □

Growth is an “affiliated entity” of GBIG and that the same owner controls both. Compl. ff 50, 54.

For a parent corporation to take funds, even those allegedly stemming from an intentional breach of

contract, and use them in an affiliated corporation is not an aggravating factor under the UDTPA.

Additionally, plaintiffs do not plausibly allege that GBIG transferred the funds to Global Growth to

somehow hide or mask its breach of contract or plausibly allege that the transfer was to hide the

funds or make them otherwise unreachable. Therefore, simply because GBIG allegedly used the tax.

refund proceeds to help fund an affiliated corporation does not constitute an aggravating factor under

the UDTPA.

Next, plaintiffs cite Makadia v. Cont’]1 Waste Mgmt., LLC, No. 5:16-CV-00257, 2016 WL

6601440, at *3 (E.D.N.C. Nov. 7, 2016) (unpublished), where the court found sufficient aggravating

- circumstances due to “both the existence of an independent intentional tort, conversion, as well as

intentional deception by Defendants.” However, as discussed, a simple conversion claim arising

from a breach of contract claim no longer constitutes an independent tort under Legacy Data. See -

Legacy Data, 889 F.3d at 165-66. Moreover, and in any event, the plaintiffs in Makadia plausibly

alleged that defendants intentionally lied to plaintiffs about the purchase of the property, intentionally

lied plaintiffs that all the supporting documentation for the purchase had been signed and

executed, and intentionally failed to enter a lien for plaintiffs despite repeated requests to do so. See

Makadia, 2016 WL 6601440, at *3.

14

Here, plaintiffs have failed to allege aggravating circumstances anywhere near Makadia.

Simply put, the general factual allegations in the complaint involve claims indistinguishable from

the underlying breach of contract, which cannot by themselves support a UDTPA claim. See PCS

Phosphate Co., 559 F.3d at 224; Repress, 2016 WL 3821 163, at *5; Rider v. Hodges, 255 N.C. App.

82, 90-91, 804 S.E.2d 242, 249 (2017); Mitchell, 148 N.C. App. at 75, 557 S.E.2d at 623-24. Thus,

the court dismisses plaintiffs’ UDTPA claim.

Ii.

In sum, the court GRANTS defendant’s motion to dismiss IDE. 13] and DISMISSES WITH

PREJUDICE plaintiffs’ conversion, embezzlement, and UDTPA claims. Plaintiffs can proceed with

their breach of contract claim.

SO ORDERED. This 23 day of January, 2023.

wom haves —__

J S C. DEVER II

United States District Judge