USA Trouser, S.A. De C v. v. Williams

USA Trouser, S.A. de C.V. v. Williams, 2016 NCBC 54.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

COUNTY OF GUILFORD 14 CVS 790

USA TROUSER, S.A. de C.V., )

)

Plaintiff, )

)

v. )

)

JAMES A. WILLIAMS; ) ORDER & OPINION

NAVIGATORS INSURANCE )

COMPANY; and NAVIGATORS )

MANAGEMENT COMPANY, INC., )

)

Defendant. )

)

{1} THIS MATTER is before the Court on three motions to dismiss: (1)

Defendant James A. Williams’s Motion to Dismiss Plaintiff’s Amended Complaint

(“Williams’s Motion to Dismiss”); (2) Defendant Navigators Insurance Company’s

Motion to Dismiss (“Navigators Insurance’s Motion to Dismiss”); and (3) Defendant

Navigators Management Company, Inc.’s Motion to Dismiss (“Navigators

Management’s Motion to Dismiss”). For the reasons expressed below, Williams’s

Motion to Dismiss is GRANTED in part and DENIED in part, Navigators

Insurance’s Motion to Dismiss is GRANTED, and Navigators Management’s Motion

to Dismiss is GRANTED.

Law Offices of Matthew K. Rogers, PLLC by Matthew K. Rogers, and Nexsen

Pruet, PLLC by Christine L. Myatt for Plaintiff USA Trouser, S.A. de C.V.

Bradley Arant Boult Cummings LLP by Dana C. Lumsden and Katherine M.

Kliebert for Defendant James A. Williams.

Cozen O’Connor by Tracy L. Eggleston and Angelo G. Savino (pro hac vice)

for Defendants Navigators Insurance Company and Navigators Management

Company, Inc.

Gale, Chief J.

I. INTRODUCTION

{2} Plaintiff USA Trouser, S.A. de C.V. (“USA Trouser”) brings multiple

claims against Defendants James A. Williams (“Williams”), Navigators Insurance,

Company (“Navigators Insurance”) and Navigators Management Company, Inc.

(“Navigators Management”). The claims arise out of a relationship between USA

Trouser and International Legwear Group, Inc. (“ILG”), a company for which

Williams served as CEO and director and for which Navigators Insurance provided

director and officer liability insurance. In part, USA Trouser seeks to compel

Navigators Insurance and Navigators Management to pay the amount of a default

judgment entered against ILG in USA Trouser’s favor in a prior federal action.

{3} USA Trouser is a Mexican textile company that had contracted to

supply socks to ILG for resale in the United States. USA Trouser claims that ILG,

without disclosing its dire financial situation, induced USA Trouser to continue

supplying socks to ILG on credit. ILG ultimately sold many of its assets, delivered

the proceeds to its secured creditors, and failed to honor its commitments to pay

USA Trouser. USA Trouser sued ILG and three individuals that had served as

ILG’s directors or officers in the United States District Court for the Western

District of North Carolina. USA Trouser obtained a default judgment against ILG,

and claims against the individual defendants in that action were either dismissed

by summary judgment or settled. Williams was not a party to that action.

{4} In this action, USA Trouser brings similar claims against Williams to

those that it brought in the federal case. USA Trouser also brings claims against

Navigators Insurance and Navigators Management that are related to the

insurance companies’ actions during the federal case and after the entry of default

judgment against ILG. Williams asserts that USA Trouser’s fraud claim is not

adequately alleged and that the rest of the claims against him are barred by

collateral estoppel. Navigators Insurance asserts that USA Trouser does not have

standing to bring its claim, and even if it did, ILG’s policy does not cover the

liability established by the default judgment. Navigators Management asserts that

it has no contractual obligation to USA Trouser.

{5} For the reasons expressed below, the Court limits certain claims but

allows them to proceed against Williams, dismisses USA Trouser’s claims against

Williams for actual fraud, negligent misrepresentation, fraudulent and/or negligent

failure to perform statutory duties, and conspiracy to defraud, and dismisses all

claims against Navigators Insurance and Navigators Management.

II. LEGAL STANDARD

{6} Under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure

(“Rules”), the Court assumes the facts alleged in USA Trouser’s First Amended

Complaint to be true and views them in the light most favorable to USA Trouser.1

See Tarrant v. Freeway Foods of Greensboro, Inc., 163 N.C. App. 504, 508, 593

S.E.2d 808, 811 (2004). Because the First Amended Complaint refers to and

depends on certain documents, the Court may consider those documents without

converting the Rule 12(b)(6) motions into motions for summary judgment. See

Schlieper v. Johnson, 195 N.C. App. 257, 261, 672 S.E.2d 548, 551 (2009). USA

Trouser may not recover if the First Amended Complaint lacks sufficient facts to

support its claims or discloses a fact that necessarily defeats its claims. See Pinney

v. State Farm Mut. Ins. Co., 146 N.C. App. 248, 253, 552 S.E.2d 186, 190 (2001).

III. THE PARTIES

{7} USA Trouser is a Mexican sock and hosiery manufacturing company

with a principal place of business in Mexico.

{8} Navigators Insurance is a New York company that has offices in New

York City, New York, and Stamford, Connecticut, Navigators Insurance and that

provides director and officer (“D&O”) liability insurance to North Carolina

residents.

1 Williams did not oppose USA Trouser amending its complaint to state its fraud and conspiracy-to-

defraud claims with greater specificity, subject to his right to challenge the claims after amendment.

The Court permitted USA Trouser to amend his fraud-based claims. USA Trouser then filed a

substantially altered Second Amended Complaint on May 11, 2015. Williams moved to strike the

Second Amended Complaint on the basis that the amendments exceeded the Court’s grant of

permission to USA Trouser to stating the fraud claims with greater specificity. The Court has today

granted Williams’s motion to strike by separate order and considers only the First Amended

Complaint when ruling on the pending motions in this Order & Opinion.

{9} Navigators Management is a New York company that has places of

business in New York City, New York, and Stamford, Connecticut, and that is

registered to do business in North Carolina.

{10} Williams is or was a resident of Guilford County, North Carolina, and

was formerly a director, the president, and the CEO of ILG.

{11} ILG was a Virginia corporation that had its principal place of business

in North Carolina before it was dissolved in 2012. Williams remains ILG’s

registered agent in North Carolina.

V. BACKGROUND

A. General Background

{12} USA Trouser manufactured and shipped socks to ILG, and ILG resold

the socks to Walmart and Payless Shoes.

{13} Williams became ILG’s CEO in September 2010. John Sanchez

(“Sanchez) was ILG’s chief financial officer and Bill Sheely (“Sheely”) was ILG’s

chief operating officer.

{14} ILG purchased D&O liability insurance from Navigators Insurance,

and Navigators Insurance issued policy number PH10DOL616113IV (the “ILG

Policy”), which insured ILG for the period of December 31, 2010, through December

31, 2017.

{15} ILG was in breach of its loan agreements with CapitalSource Finance,

LLC (“CapSource”) and was operating under a forbearance agreement with

CapSource when Williams became ILG’s CEO. ILG’s financial position declined

after Williams became CEO, and by February 2011, ILG was in default of at least

one of its forbearance covenants. CapSource notified ILG on March 8, 2011, that it

would no longer continue to fund ILG’s operations. ILG and its officers did not

disclose ILG’s financial situation to USA Trouser.

{16} By the end of May 2011, ILG was behind in its payments to USA

Trouser for shipments that ILG had already received. Sanchez and Sheely traveled

to Mexico to meet with USA Trouser executives on June 2, 2011, at which time they

promised that ILG would make minimum weekly payments of $100,000.00 to pay

down past-due invoices and that ILG would pay the additional amount necessary to

cover new invoices. ILG did not honor this promise.

{17} On July 18 or 19, 2011, Williams told ILG employees that ILG was

unable to meet its financial obligations and that CapSource would not continue to

finance ILG. On August 11, 2011, Williams signed an asset-purchase agreement to

sell all of ILG’s assets. The asset-purchase agreement specified that the asset

purchaser would not assume any of ILG’s contractual liabilities. USA Trouser

received no proceeds from the sale of ILG’s assets. The Virginia State Corporation

Commission terminated ILG’s corporate existence on April 30, 2012.

B. The Federal Lawsuit and the ILG Default Judgment

{18} On September 6, 2011, USA Trouser initiated a lawsuit in North

Carolina superior court (the “ILG Lawsuit”) against ILG, Sheely, Sanchez, and the

former chairman of ILG’s board of directors, Scott Andrews (“Andrews”). USA

Trouser brought eight claims: (1) breach of contract, (2) breach of fiduciary

duty/constructive trust, (3) fraud/fraudulent concealment/negligent

misrepresentation, (4) unfair and deceptive trade practices, (5) breach of implied

covenants of good faith and fair dealing, (6) fraudulent and/or negligent failure to

perform statutory duties, (7) conversion, and (8) fraudulent conveyance. See USA

Trouser, S.A. de C.V. v. Int’l Legwear Grp. Inc., No. 1:11-cv-00244-MR-DLH, 2012

U.S. Dist. LEXIS 177456, at *1–2 (W.D.N.C. Dec. 13, 2012), aff’d in part, vacated in

part, and remanded sub nom. USA Trouser, S.A. de C.V. v. Andrews, 612 F. App’x

158 (4th Cir. 2015), reh’g denied, No. 14-402 (4th Cir. July 17, 2015). On September

21, 2011, the case was removed to the United States District Court for the Western

District of North Carolina. See id. at *2.

{19} ILG, Andrews, Sanchez, and Sheely each submitted the claims brought

against them to Navigators.

{20} Navigators engaged Bradley Arant Boult Cummings LLP (“Bradley

Arant”) to represent all of the defendants in the ILG Lawsuit and initially paid for

the defense of all of the defendants.

{21} On December 27, 2011, with ILG’s authorization, Bradley Arant moved

to withdraw as ILG’s counsel. The district court granted the motion and directed

ILG to retain new counsel within ten days. When ILG failed to comply, the district

court struck ILG’s Answer. The district court entered default against ILG on

February 2, 2012, and the ILG Lawsuit continued against the individual

defendants.

{22} USA Trouser and the individual defendants filed cross-motions for

summary judgment in the ILG Lawsuit on September 4, 2012.

{23} On December 13, 2012, United States District Judge Martin Reidinger

issued an opinion on the various motions for summary judgment (“District Court

Order”). See Int’l Legwear Grp., Inc., 2012 U.S. Dist. LEXIS 177456. In that

opinion, he denied USA Trouser’s motions for summary judgment in their entirety;

granted summary judgment in favor of Andrews and dismissed all claims against

him; denied summary judgment on USA Trouser’s claims against Sanchez and

Sheely for fraud and unfair-and-deceptive trade practices based on fraud; and

granted summary judgment in favor of Sanchez and Sheely, dismissing the non-

fraud-based claims brought against them. Id. at *36–37.

{24} Later, Sanchez and Sheely made an offer of judgment to USA Trouser,

which USA Trouser accepted, resulting in entry of judgment against Sanchez and

Sheely in the amount of $277,185.82. Navigators Insurance paid the judgment.

{25} On March 25, 2014, the district court entered default judgment against

ILG totaling $1,993,856.48. See USA Trouser, S.A. de C.V. v. Int’l Legwear Grp.,

Inc., No. 1:11-cv-00244-MR-DLH, 2014 U.S. Dist. LEXIS 39271, at *35–37

(W.D.N.C. Mar. 25, 2014). In that order, Judge Reidinger found that USA Trouser

was entitled to damages of $655,256.16 on its breach of contract and fraud claims

and that the damages arising from ILG’s “fraudulent and deceptive acts” should be

trebled to $1,965,768.48 under N.C. Gen. Stat. § 75-16 (2015). Id. at *26–27. Judge

Reidinger also awarded $27,858.00 in attorneys’ fees and $230.00 for costs. Id. at

*37.

{26} On April 29, 2015, USA Trouser appealed the District Court Order’s

dismissal of all claims against Andrews.

C. Proceedings in the Present Action and Further Developments in the ILG

Lawsuit.

{27} USA Trouser filed its original Complaint in this action on

June 2, 2014, initially bringing claims against only Williams.

{28} On June 20, 2014, USA Trouser sent Navigators a letter demanding

that Navigators pay the default judgment plus any accrued post-judgment interest.

Navigators received the demand letter on June 23, 2014. Navigators has not

responded to the demand letter and has not paid the default judgment.

{29} The case was designated as a complex business case on July 3, 2014,

and assigned to the undersigned on July 7, 2014.

{30} USA Trouser filed its First Amended Complaint on August 14, 2014,

bringing the following claims against Williams: (1) breach of fiduciary duty and

constructive fraud, (2) fraud, (3) fraudulent concealment, (4) negligent

misrepresentation, (5) conspiracy to defraud, and (6) fraudulent and/or negligent

failure to perform statutory duties. The First Amended Complaint also added

Navigators Insurance and Navigators Management as Defendants, alleging claims

against them for conspiracy to defraud, bad-faith claims-settlement practices, and

unfair-and-deceptive trade practices (“UDTP”).

{31} Williams’s filed his motion to dismiss on September 15, 2014.

Navigators Insurance and Navigators Management filed their motions to dismiss on

October 17, 2014.

{32} The Court heard argument on the motions to dismiss on April 9, 2015.

On April 21, 2015, the Court issued an Order permitting USA Trouser to amend its

First Amended Complaint to state its fraud-based claims with greater particularity

(“Amendment Order”).

{33} On May 5, 2015, the Fourth Circuit issued its opinion on USA

Trouser’s appeal of the District Court Order (“Fourth Circuit Opinion”), vacating

Judge Reidenger’s dismissal of USA Trouser’s fiduciary duty and constructive trust

claims, but affirming Judge Reidinger’s dismissal of all of USA Trouser’s other

claims. Andrews, 612 Fed. App’x at 162.2

{34} USA Trouser filed its Second Amended Complaint in the present

action on May 11, 2015.

{35} Williams filed his Motion to Strike on May 15, 2015, arguing that the

Second Amended Complaint exceeded the scope of any amendment the Court

allowed by the Amendment Order.

{36} On October 7, 2015, two weeks before the remaining claims in the ILG

Lawsuit were scheduled for trial in federal court, USA Trouser moved to remand

those claims to North Carolina state court, to dismiss those claims with prejudice,

or alternatively to consolidate the federal action with the present action before this

Court. See USA Trouser, S.A. de C.V. v. Int’l Legwear Grp., Inc., No. 1:11-cv-00244-

MR-DLH, 2015 U.S. Dist. LEXIS 145517, at *2 (W.D.N.C. Oct. 27, 2015), appeal

docketed, No. 16-1144 (4th Cir. Feb. 11, 2016). Judge Reidinger denied USA

Trouser’s motion in its entirety on October 27, 2015. See id.

{37} Then, on October 30, 2015, the parties represented to the federal court

that the remaining claims in the ILG Lawsuit had been settled, at the same time

filing a memorandum of understanding (“MOU”) that indicated that the parties also

intended to settle the claims brought against Williams in this action. See USA

Trouser, S.A. de C.V. v. Andrews, No. 1:11-cv-00244-MR-DLH, 2016 U.S. Dist.

LEXIS 3038, at *1 (W.D.N.C. Jan. 11, 2016). A dispute arose regarding the parties’

performance under the agreement, and Andrews filed a motion to enforce the MOU.

See id. Judge Reidinger granted that motion on January 11, 2016. Id. at *4–5.

2 Andrews subsequently petitioned the Fourth Circuit to rehear his appeal, and that petition was

denied on July 17, 2015. See Andrews, No. 14-402.

USA Trouser then appealed that ruling and several others to the Fourth Circuit,

where the appeal is still pending as of the date of this Order & Opinion.

{38} All motions have been fully briefed and are ripe for decision.

IV. ANALYSIS

{39} The Court first addresses the motions made by Navigators Insurance

and Navigators Management and then addresses Williams’s Motion to Dismiss.

{40} USA Trouser makes three claims against Navigators Insurance and

Navigators Management: (1) conspiracy to defraud, (2) bad-faith claims-settlement

practices, and (3) UDTP. Navigators Management and Navigators Insurance have

made separate motions to dismiss the claims.

A. Navigators Management’s Motion to Dismiss

{41} Navigators Management’s Motion to Dismiss, brought pursuant to

Rule 12(b)(6), argues that USA Trouser’s claims for bad-faith claims-settlement

practices and UDTP should be dismissed because Navigators Management was not

a party to the ILG Policy, nor did it have any role in issuing the ILG Policy.

Navigators Management also argues that the only other claim against it, conspiracy

to defraud, has not been pleaded with adequate specificity to meet the requirements

of Rule 9(b).

{42} USA Trouser has not responded to Navigators Management’s

argument that it did not issue the ILG Policy, had no role in issuing the ILG Policy,

and was not a party to the ILG Policy. Rather, both in pleading and in briefing,

USA Trouser mostly groups together its allegations against the two Navigators

entities, referring to both simply as “Navigators.” Although the First Amended

Complaint alleges a relationship between Navigators Insurance and Navigators

Management, USA Trouser fails to plead or argue any basis as to why this

relationship leads to Navigators Management’s liability for bad-faith claims-

settlement practices or UDTP. Accordingly, Navigators Management’s Motion to

Dismiss should be granted as to those claims on this ground alone.

{43} Alternatively, the grounds that the Court discusses below, which

justify the dismissal of all claims against Navigator’s Insurance, including the claim

for conspiracy to defraud, would also inure to the benefit of Navigator’s

Management. Hereafter, the Court refers to Navigators Insurance and Navigators

Management collectively as “Navigators.”

B. Navigators Insurance’s Motion to Dismiss

1. Conspiracy to Defraud

{44} To successfully plead a conspiracy claim, a plaintiff must allege “an

agreement between two or more individuals to do an unlawful act or to do a lawful

act in an unlawful way.” Muse v. Morrison, 234 N.C. 195, 198, 66 S.E.2d 783, 784

(1951) (quoting State v. Dalton, 168 N.C. 204, 205, 83 S.E. 693, 694 (1914)). With

respect to USA Trouser’s conspiracy-to-defraud claim against Navigators, USA

Trouser alleges the following in its First Amended Complaint:

228. Navigators conspired with ILG’s officers and directors to commit

fraud on the court by intending to cause default to be entered

against ILG purportedly for non-payment of legal fees, when

Navigators intended to pay for the defense of co-defendants and

when the ILG Policy covered ILG with regard to the acts and

omissions of ILG’s officers including Williams, and Navigators

conspired to dissolve ILG without disposing of contingent or

known liabilities of which Navigators was aware or reasonably

should’ve been aware.

...

230. Navigators are conspiring with Williams to avoid paying the

[Default] Judgment despite facts that already establish liability of

both be established and Trouser is entitled to attorney fees as

damages relating thereto.

231. Navigators Insurance is conspiring with Navigators Management

to avoid paying the Judgment in violation of North Carolina law.

(First Am. Compl. ¶¶ 228, 230–31.) It is not clear whether USA Trouser predicates

its conspiracy claim on constructive fraud, actual fraud, or fraudulent concealment,

however “[a] claim for conspiracy to defraud cannot succeed without a successful

underlying claim for fraud.” Jay Grp., Ltd. v. Glasgow, 139 N.C. App. 595, 599, 534

S.E.2d 233, 236 (2000).

{45} A constructive-fraud claim requires “(1) facts and circumstances

creating a relation of trust and confidence; (2) which surrounded the consummation

of the transaction in which the defendant is alleged to have taken advantage of the

relationship; and (3) the defendant sought to benefit himself in the transaction.”

Marketplace Antique Mall, Inc. v. Lewis, 163 N.C. App. 596, 599, 594 S.E.2d 121,

124 (2004). To establish a claim for actual fraud, a plaintiff must show “(1) that

defendant made a false representation or concealment of a material fact; (2) that

the representation or concealment was reasonably calculated to deceive him; (3)

that defendant intended to deceive him; (4) that plaintiff was deceived; and (5) that

plaintiff suffered damage resulting from defendant’s misrepresentation or

concealment.” Jay Grp. Ltd., 139 N.C. App. at 599, 534 S.E.2d at 236 (emphasis

omitted) (quoting Claggett v. Wake Forest Univ., 126 N.C. App. 602, 610, 486

S.E.2d 443, 447 (1997)). A fraud claim that is based on the concealment of a

material fact requires that the defendant have a duty to disclose that fact. See

Griffin v. Wheeler-Leonard & Co., 290 N.C. 185, 198, 225 S.E.2d 557, 565 (1976).

{46} Because USA Trouser alleges only that Navigators was involved in a

civil conspiracy directly related to events that occurred during and after the ILG

Lawsuit, the Court examines that timeframe and the circumstances surrounding

the ILG Lawsuit to determine if the elements of a claim for fraudulent

representation, fraudulent omission, or constructive fraud have been adequately

pleaded.

{47} Viewing the facts in the light most favor to USA Trouser, the Court

concludes that USA Trouser has not alleged facts that support that ILG, Williams,

or Navigators owed a duty to disclose to USA Trouser any material facts pertaining

to the ILG litigation, or that Navigators had any role, involvement in, or knowledge

of ILG’s dissolution. USA Trouser alleges no statements made by any of the

Defendants during the relevant period upon which a claim for affirmative fraud

might rest. Accordingly, USA Trouser has failed to adequately allege the

underlying fraudulent conduct required to state a claim for conspiracy to defraud

against Navigators and these claims must be dismissed.

2. Bad-Faith Claims-Settlement Practices and UDTP Claims

{48} Navigators’s primary argument is that USA Trouser’s claims were not

covered by the ILG Policy. Additionally, Navigators asserts that North Carolina,

except in limited circumstances not present in this case, does not recognize a cause

of action for UDTP brought by a third-party to an insurance contract against the

liability insurer of an opposing party. The Court concludes that USA Trouser’s

UDTP claim against Navigators is not recognized in North Carolina and should

therefore be dismissed.3

{49} USA Trouser seeks to assert both a claim under section 58-63-15(11) of

the General Statutes and a UDTP claim. A violation of section 58-63-15(11)

constitutes an unfair and deceptive trade practice under section 75-1.1 as a matter

of law. See Gray v. N.C. Ins. Underwriting Ass’n, 352 N.C. 61, 70–71, 529 S.E.2d

676, 682–83 (2000). North Carolina does not recognize a standalone private action

against an insurance company for violations of section 58-63-15(11). See Country

Club of Johnston Cty, Inc. v. U.S. Fid. & Guar. Co., 150 N.C. App. 231, 246, 563

S.E.2d 269, 279 (2002).

{50} USA Trouser asserts that it may maintain its UDTP claim against

Navigators because it was placed in privity of contract with Navigators as a result

of securing a default judgment against ILG. The Court must reconcile two cases

from the North Carolina Court of Appeals to determine whether USA Trouser may

bring its claim. See Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 472

S.E.2d 358 (1996); Wilson v. Wilson, 121 N.C. App. 662, 468 S.E.2d 495 (1996).

{51} In the first case, Wilson v. Wilson, an injured third party to a

tortfeasor’s insurance contract brought a UDTP claim against the tortfeasor’s

3 The Court need not consider circumstances from other cases where a judgment creditor may have

taken steps to bring a claim in the right of the policyholder, such as requesting assignment or

initiating other legal proceeding. The Court also need not reach the issue of whether the policy’s

insuring provisions extend to the liability on which the default judgment is based.

insurer, before judgment in the underlying action between the injured third party

and the tortfeasor, for bad-faith refusal to settle. 121 N.C. App. at 663, 468 S.E.2d

at 496. Proceeding on the earlier version of North Carolina’s UDTP statute, in

determining that “a private right of action under [section 58-63.15] and [section 75-

1.1] may not be asserted by a third-party claimant against the insurer of an adverse

party,” the North Carolina Court of Appeals noted that the plaintiff was a third-

party stranger to the insurance contract and was not in privity with the insured.

Id. at 665, 468 S.E.2d at 497. The court further noted that most states that have

considered this issue have not allowed that type of claim. Id. at 665–66, 468 S.E.2d

at 497–98. The court of appeals summarized the two primary reasons for its

decision:

First, allowing such third-party suits against insurers would encourage

unwarranted settlement demands, since plaintiffs would be able to

threaten a claim for an alleged violation of [section 58-63-15(11)] in an

attempt to extract a settlement offer.

...

Second, allowing a third-party claim against the insurer of an adverse

party for violating [section 58-63-15(11)] may result in a conflict of

interest for the insurance company. Upon defending its insured, the

insurer has a duty to act diligently and in good faith to its insured.

The insurer has a duty to safeguard the interests of its insured.

Allowing a third-party action because of a violation of [section 58-63-

15(11)] would require the insurer to also act in the best interests of the

party adverse to its insured. Such a result would likely put the insurer

in a position of conflict with its insured—the party adverse to the third

party.

Id. at 666–67, 468 S.E.2d at 498.

{52} That same year, in Murray v. Nationwide Mutual Insurance Co., the

court of appeals created a carve-out to the Wilson prohibition on third-party UDTP

claims against insurers. See 123 N.C. App. at 14–16, 472 S.E.2d at 365–66. In

Murray, the plaintiff obtained a judgment against a tortfeasor for injuries resulting

from a car accident and then, after the tortfeasor’s insurer repeatedly placed

conditions on its payment of the judgment, pursued a claim against the insurer

based on section 58-63-15(11). Id. at 4–7, 472 S.E.2d at 359–61. There was no

dispute in Murray that the claim underlying the judgment fell within the insuring

provisions of the insurance contract.

{53} The court of appeals held that the Wilson rule, which prohibits a

UDTP action against an insurer by a stranger to the insurance contract, did not

preclude the Murray plaintiff’s claim because the Murray plaintiff was an intended

third-party beneficiary of the insurance contract, placing the plaintiff in contractual

privity with the insurer. Id. at 14–15, 472 S.E.2d at 365–66.

{54} In reaching this result, the court of appeals, recited the well-settled

rule in North Carolina that a party injured in an automobile accident is an intended

third-party beneficiary of the tortfeasor’s automobile insurance policy, which is

issued with the express contemplation that the mandatory liability insurance

coverage inures to the benefit of other motorists. Id. at 15, 472 S.E.2d at 366; see

also Nationwide Mut. Ins. Co. v. Chantos, 293 N.C. 431, 440–41, 238 S.E.2d 597,

603–04 (1977) (holding that a car-accident victim’s rights against an insurer are

statutory and become absolute when the victim is injured by the insured).

Accordingly, the judgment claimant in Murray was deemed to have sufficient

privity of contract as an intended third-party beneficiary to assert a claim arising

under the insurance contract. See Murray, 123 N.C. App. at 15, 472 S.E.2d at 366

(“Therefore, the instant plaintiff is in contractual privity with [the insurer], and for

this reason alone, is not bound by the third-party restrictions set forth in Wilson.”);

see also Prince v. Wright, 141 N.C. App. 262, 269–70, 541 S.E.2d 191, 197 (2000)

(noting that a third party generally cannot directly sue the insurer of an opposing

party unless that third party is an intended beneficiary of the insurance contract).

The court of appeals noted that its holding was strengthened by the fact that the

conduct underlying the UDTP claim occurred post-judgment. Id. at 16, 472 S.E.2d

at 366.

{55} Murray’s reliance on a finding that the claimant had rights as an

intended third-party beneficiary comports with general contract doctrine, which

allows a third party to bring suit on a contract if the party shows “(1) the existence

of a contract between two other persons; (2) that the contract was valid and

enforceable; and (3) that the contract was entered into for his direct, and not

incidental, benefit.” Raritan River Steel Co. v. Cherry, Bekaert & Holland, 79 N.C.

App. 81, 86, 339 S.E.2d 62, at 66 (1986) (quoting Leasing Corp. v. Miller, 45 N.C.

App. 400, 405–06, 263 S.E.2d 313, 317 (1980)), rev’d on other grounds, 322 N.C. 200,

367 S.E.2d 609 (1988). Anyone for whose direct benefit a liability insurance policy

is issued may maintain an action directly against the insurer for any loss suffered.

Carolina Transp. & Distrib. Co. v. Am. Alliance Ins. Co., 214 N.C. 596, 601, 200 S.E.

411, 414 (1938).

{56} However, it does not follow that everyone seeking benefits under an

insurance policy qualifies as an intended third-party beneficiary, even where a

judgment against an insured has been obtained. To qualify as an intended third-

party beneficiary, “[i]t is not enough that the contract, in fact, benefits the [third

party], if, when the contract was made, the contracting parties did not intend it to

benefit the [third party] directly.” Country Boys Auction & Realty Co. v. Carolina

Warehouse, Inc., 180 N.C. App. 141, 146, 636 S.E.2d 309, 313 (2006) (quoting

Holshouser v. Shaner Hotel Grp. Props., 134 N.C. App. 391, 399–400, 518 S.E.2d 17,

25 (1999)). North Carolina courts have determined that certain parties are

intended third-party beneficiaries of certain types of insurance contracts as a

matter of law, because those parties were intended to benefit from the insurance.

See, e.g., Chantos, 293 N.C. at 440–41, 238 S.E.2d at 604 (holding that the

automobile insurance required by the Financial Responsibility Act is intended for

the direct benefit of the injured victims); Carolina Transp. & Distrib. Co., 214 N.C.

at 601, 200 S.E. at 414 (holding that an insurance policy covering goods held by a

common carrier in a bailor–bailee-type relationship is intended for the direct benefit

of the owner of the insured goods).

{57} The express terms of an insurance policy may also convey a right to a

third party to bring an action on the contract. See Hall v. Harleysville Mut. Cas.

Co., 233 N.C. 339, 340, 64 S.E.2d 160, 161 (1951) (permitting a third party to bring

a claim against the insurer of an adverse party when the terms of the insurance

policy allowed a third-party cause of action to be brought against the insurer after

the third party has first obtained a judgment against the insured).

{58} Applying these principles, the Court concludes that USA Trouser was

neither the insured nor an intended third-party beneficiary of the ILG Policy. The

Court is not aware of a policy justification that would require a court to deem that a

company’s general liability or D&O liability insurance coverage inures to the direct

benefit of injured trade creditors like USA Trouser. The policy considerations

pertaining to automobile liability insurance policies do not apply in this commercial

context.

{59} The Court concludes that USA Trouser’s UDTP claim against

Navigators is not a recognized claim in North Carolina.

C. Williams’s Motion to Dismiss

{60} Williams’s Motion to Dismiss is brought pursuant to Rules 9(b) and

12(b)(6). Williams first disputes whether USA Trouser has alleged a minimal basis

on which to pierce ILG’s veil so as to impose personal liability on him for the default

judgment entered against ILG. Williams further argues that the following claims

against him are, in any event, barred by collateral estoppel: (1) breach of fiduciary

duty, (2) constructive fraud, (3) fraudulent concealment, (4) negligent

misrepresentation, and (5) fraudulent and/or negligent failure to perform statutory

duties. Alternatively, Williams argues USA Trouser has failed to plead its fraud

claim with sufficient particularity to inform Williams of the basis of the claim made

against him and that the doctrine of intracorporate immunity bars USA Trouser’s

conspiracy-to-defraud claim. Finally, Williams seeks to dismiss the UDTP claim

against him because it is derivative of the other claims that should be dismissed.

1. USA Trouser Has Failed to Allege a Basis on Which to Impose Personal

Liability on Williams for the Default Judgment Against ILG.

{61} USA Trouser has not directly responded to Williams’s assertion that it

has failed to plead a basis for piercing ILG’s corporate veil. “The doctrine of

piercing the corporate veil is not a theory of liability. Rather, it provides an avenue

to pursue legal claims against corporate officers or directors who would otherwise be

shielded by the corporate form.” Green v. Freeman, 367 N.C. 136, 146, 749 S.E.2d

262, 271 (2013). USA Trouser argues that the default judgment against ILG

collaterally estops Williams from disputing his liability for USA Trouser’s claims

and alternatively that Williams is responsible for the liability established by the

default judgment as a tortfeasor.

{62} USA Trouser argues that the default judgment against ILG estops

Williams from arguing against his liability, even though Williams was not a party

to the federal action in which the default judgment was entered. The collateral

estoppel doctrine does not permit the liability established by the default judgment

against ILG to be imputed to Williams without Williams first having had an

opportunity to defend against that liability. See Rymer v. Estate of Sorrells, 127

N.C. App. 266, 269, 488 S.E.2d 838, 840 (1997) (noting that nonmutual, offensive

collateral estoppel applies where “a plaintiff seeks to foreclose a defendant from

relitigating an issue that the defendant has previously litigated unsuccessfully in

another action against a different party”); see also Sartin v. Macik, 535 F.3d 284,

289 (4th Cir. 2008) (holding that, under North Carolina law, a default judgment

does not have collateral estoppel effect, even though it might have res judicata

effect). Even if the corporation’s liability has been established by judgment, if the

officer’s liability to the injured party has not already been established, the injured

party cannot assert collateral estoppel against the officer based on the judgment

against the corporation. See State Farm Mut. Auto. Ins. Co. v. Holland, 324 N.C.

466, 471, 380 S.E.2d 100, 103 (1989).

{63} USA Trouser separately argues that it has alleged a basis for finding

Williams liable for the judgment because ILG and Williams were joint tortfeasors.

An officer of a corporation may be held individually liable for his own torts. Forbes

v. Par Ten Grp., Inc., 99 N.C. App. 587, 596, 394 S.E.2d 643, 648 (1990). The

injured party may hold either the corporation or the officer liable for the wrongful

acts or omissions an officer acting within the scope of his authority, or the party

may hold them both liable as joint tortfeasors. Id. But a determination that a

corporation is liable does not necessarily also indicate that the corporation’s officer

committed a separate tort for which personal liability should be imposed against the

officer. See Holland, 324 N.C. at 471, 380 S.E.2d at 103 (noting that collateral

estoppel did not establish a defendant’s joint and several liability where the

defendant’s liability had never been established because he was not a party to the

earlier action and had not been made a third-party defendant by the original

defendant). USA Trouser must first prove that Williams committed a tortious act.

Id. Without more, the entry of default judgment against ILG does not meet the

required showing.

2. Collateral Estoppel Bars or Limits Most of USA Trouser’s Claims Against

Williams.

{64} Williams argues that collateral-estoppel effect of the District Court

Order precludes USA Trouser’s claims for breach of fiduciary duty, constructive

fraud, fraudulent concealment, negligent misrepresentation, and fraudulent or

negligent failure to perform statutory duties against him individually. The basis of

Williams’s argument was undercut, in part, when the Fourth Circuit Opinion

vacated Judge Reidinger’s grant of summary judgment on certain of USA Trouser’s

claims that are based on a finding that ILG’s directors owed USA Trouser a limited

duty.

{65} Williams acknowledges that the Fourth Circuit Opinion precludes his

ability to rely on collateral estoppel regarding USA Trouser’s claims for breach of

fiduciary duty, fraud, and constructive fraud, as well as the UDTP claim to the

extent that it relies on those underlying claims. On the other hand, it is difficult to

discern the scope of USA Trouser’s various arguments. It appears that USA

Trouser seeks to avoid Williams’s defensive use of collateral estoppel through an

effort to distinguish Thomas M. McInnis & Associates, Inc. v. Hall, the case in

which the North Carolina Supreme Court adopted nonmutual collateral estoppel.

318 N.C. 421, 428, 349 S.E.2d 552, 557 (1986). USA Trouser also argues that the

ILG Lawsuit should have no preclusive effect on USA Trouser’s claims against

Williams because he remained ILG’s CEO and president for nine months after USA

Trouser filed its complaint in the federal action. Finally, USA Trouser alleges that

it did not have a full and adequate opportunity to litigate the issues in the ILG

Lawsuit and that Judge Reidinger’s opinion was flawed as to both the law and the

facts of the federal case. As a result, USA Trouser argues, it should not be estopped

from litigating those issues in this matter. The Court has fully considered USA

Trouser’s arguments as the Court understands them, and finds them to be without

merit.

a. General Principles Regarding Collateral Estoppel

{66} The doctrine of collateral estoppel serves to prevent relitigation of

issues that were actually litigated and necessary to the outcome of a prior-litigated

action. Id. at 428, 349 S.E.2d at 557. The doctrine applies where issues that have

been fully litigated in a federal court are presented in a subsequent state court

action. Nicholson v. Jackson Cty. Sch. Bd., 170 N.C. App. 650, 654–55, 614 S.E.2d

319, 322 (2005). The party asserting collateral estoppel bears the burden of proving

that the elements of collateral estoppel have been met. Powers v. Tatum, 196 N.C.

App. 639, 642, 676 S.E.2d 89, 92 (2009).

To carry this burden, the moving party must show: (1) a prior suit

resulting in a final judgment or decree; (2) between identical parties or

those in privity; (3) involving one or more identical issues; (4) that the

specific issue was litigated and necessary to the prior judgment; and

(5) that the specific issue was actually determined.

Id.

{67} It is now well established in North Carolina that the parties to the two

actions need not be identical when estoppel is asserted defensively. See Mays v.

Clanton, 169 N.C. App. 239, 241, 609 S.E.2d 453, 455 (2005).

b. Williams Has Met His Initial Burden of Proving the Elements of

Collateral Estoppel.

{68} The Court concludes that Williams has met his burden of establishing

the required elements of collateral estoppel.

{69} First, the District Court Order as to the individual defendants became

a final order when Judge Reidinger entered default judgment against ILG, resolving

all remaining claims. See Fed. R. Civ. P. 54(b); N.C. R. Civ. P. 54(b).

{70} Second, even though Williams was not a party to the ILG Lawsuit,

USA Trouser had a full and fair opportunity during the ILG Lawsuit to litigate the

issues related to any liability of ILG’s officers and directors. See Mays, 169 N.C.

App. at 241, 609 S.E.2d at 455 (noting that application of nonmutual collateral

estoppel is proper, even by a party that was not a party or in privity with a party in

the prior action, when the party against whom collateral estoppel is asserted had a

full and fair opportunity to litigate the same issues). USA Trouser cannot avoid

application of estoppel by arguing in this separate action that it did not have fair

opportunity to litigate in the federal action. “An issue is ‘actually litigated,’ for the

purposes of collateral estoppel or issue preclusion, if it is properly raised in the

pleadings or otherwise submitted for determination and is in fact determined.”

Propst v. N.C. Dep’t Health & Human Servs., 234 N.C. App. 165, 168, 758 S.E.2d

892, 895 (2014) (quoting Williams v. Peabody, 217 N.C. App. 1, 6, 719 S.E.2d 88, 93

(2011)). Judge Reidinger’s discussion and findings regarding the nature of the

business relationship between USA Trouser and ILG are too numerous to recount,

but they make clear that issues USA Trouser now raises against Williams were

actually litigated.

{71} Third, USA Trouser is attempting to relitigate issues in this action

that are identical to those presented to Judge Reidinger, solely because Williams

was not a defendant in the ILG Lawsuit. Many of USA Trouser’s claims in this

matter against Williams hinge on an alleged duty between ILG and its directors

and officers, and USA Trouser. The issues that Judge Reidinger and the Fourth

Circuit decided related primarily to the duty, or lack of duty, owed by ILG’s

directors and officers to USA Trouser. See Andrews, 612 Fed. App’x. at 160–61;

Int’l Legwear, 2012 U.S. Dist. LEXIS 177456, at *22–26. Those issues were

necessary to the District Court Opinion, and were “in fact, determined” by Judge

Reidinger. Propst, 234 N.C. App. at 168, 758 S.E.2d at 895 (citation omitted).

Though the Fourth Circuit subsequently determined that certain of USA Trouser’s

claims should instead proceed to trial, such a holding does not prevent Judge

Reidinger’s decision from having a preclusive effect as to other issues underlying

USA Trouser’s claims. See Thomas M. McInnis & Assocs., 318 N.C. at 431, 349

S.E.2d at 558.

{72} Neither can USA Trouser avoid the preclusive effect of the District

Court Order by arguing that the district court erred in its decision. Even if a

judgment contains errors of fact or law, the judgment maintains its collateral-

estoppel effect until it is reversed or vacated. See State v. Summers, 351 N.C. 620,

623, 528 S.E.2d 17, 20 (2000) (“[W]hen a fact has been agreed upon or decided in a

court of record, neither of the parties shall be allowed to call it in question, and have

it tried over again at any time thereafter, so long as the judgment or decree stands

unreversed.” (alteration in original) (quoting King v. Grindstaff, 284 N.C. 348, 355,

200 S.E.2d 799, 804 (1973))).

{73} USA Trouser’s argument that Williams remained CEO and President

for nine months after USA Trouser filed its complaint is irrelevant to the estoppel

effect of the federal judgment, at least to the extent that USA Trouser’s claims are

predicated on actions taken by Williams and ILG before USA Trouser filed its

complaint in the ILG Lawsuit. Any allegations against Williams that are based on

actions that have occurred since that time relate to a conspiracy claim arising from

Navigators’s failure to pay the default judgment, but the Court has dismissed that

claim for other reasons.

{74} Having concluded that Williams has met his burden of proving the

elements of collateral estoppel, the Court now analyzes each claim individually to

determine that collateral estoppel serves to limit certain claims and bar others.

c. USA Trouser’s Breach-of-Fiduciary-Duty and Constructive-Fraud

Claims Must Be Limited as to Their Potential Scope.

{75} USA Trouser’s claims for breach of fiduciary duty and constructive

fraud both rely on Williams owing a fiduciary duty to USA Trouser. See Dalton v.

Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001) (“For a breach of fiduciary

duty to exist, there must first be a fiduciary relationship between the parties.”);

Highland Paving Co., LLC v. First Bank, 227 N.C. App. 36, 42, 742 S.E.2d 287, 292

(2013) (noting that, to establish constructive fraud, the plaintiff must show that the

defendant owes the plaintiff a fiduciary duty, breached that duty, and sought to

benefit himself in the transaction).

{76} In the District Court Order, Judge Reidinger noted that, “[a]t best,

USA Trouser was an unsecured creditor of ILG,” and that “[g]enerally, corporate

directors do not owe a fiduciary duty to creditors of the corporation.” Int’l Legwear

Grp., Inc., 2012 U.S. Dist. LEXIS 177456, at *22. Judge Reidinger continued,

noting that courts have recognized an exception to that general rule and have found

that directors owe a fiduciary duty to creditors under circumstances amounting to a

dissolution of the corporation. Id. at *23. However, Judge Reidinger next found

that ILG’s directors and officers were “prosecuting ILG’s business in good faith,”

and that a consideration of those actions superseded other factors that indicated

that ILG was dissolving. See id. at *23–24 (quoting Keener Lumber Co. v. Perry,

149 N.C. App. 19, 31, 560 S.E.2d 817, 825 (2002)). Judge Reidinger further found

that, even if Sanchez, Sheely, and Andrews owed a fiduciary duty to USA Trouser,

there was no breach of that duty, because they were permitted to prefer ILG’s

secured creditors over USA Trouser, which was an unsecured creditor. Id. at *24–

25. On these bases, Judge Reidinger dismissed USA Trouser’s claims for breach of

fiduciary duty and constructive fraud, which were based on the existence of a

fiduciary duty. Id. at *26.

{77} On appeal, the Fourth Circuit found that “genuine issues of material

fact remain concerning whether ILG was winding-up or dissolving and, thus,

whether a creditor–director fiduciary relationship existed.” Andrews, 612 F. App’x.

at 161. The Fourth Circuit agreed with Judge Reidinger that the forced liquidation

of ILG’s assets and distribution of the proceeds to ILG’s primary lender could not

form the basis of any breach. Id. The Fourth Circuit then noted that summary

judgment on USA Trouser’s constructive fraud claim was inappropriate because

USA Trouser might be able to provide evidence that the directors owed a director–

creditor fiduciary duty, and Judge Reidinger had dismissed the claim for lack of

that duty. Id. at 161. The Fourth Circuit affirmed the remainder of Judge

Reidinger’s order. Id. at 162.

{78} The effect of the two federal judgments serves to limit any fiduciary

duty that Williams might owe to USA Trouser to such a duty that might exist if

USA Trouser can prove that ILG was in the process of winding-up or dissolution.

The Fourth Circuit did not address whether specific actions by the directors

constituted breaches of the director–creditor fiduciary duty, but it did determine

that one action could not constitute breach:

[T]he forced liquidation of ILG’s assets and distribution of the proceeds

to ILG’s primary lender could not form the basis of a breach because,

“even after the fiduciary duty arises, directors of a corporation may

prefer secured creditors over unsecured creditors” by paying all debts

to the former before paying any debts to the latter.

Id. at 161 (quoting Keener Lumber, 149 N.C. App. at 33, 560 S.E.2d at 827).

Therefore, USA Trouser’s breach of fiduciary duty and constructive fraud claims in

this matter have not been finally adjudicated in the ILG action and might survive

beyond estoppel, but those claims are limited to the extent of USA Trouser’s ability

to prove that ILG was in the process of winding up or dissolution, which may create

a creditor–director fiduciary relationship between Williams and USA Trouser.

Further, ILG’s decision to pay its secured creditors before paying USA Trouser, as a

matter of law, cannot now constitute a breach of that duty.

d. USA Trouser’s Fraudulent Concealment Claim Survives but Must Be

Limited to the Same Degree as Its Breach of Fiduciary Duty and

Constructive Fraud Claim.

{79} To state a claim for fraudulent concealment, USA Trouser must show

that that there is a relationship of trust and confidence between the parties and

that Williams has failed to disclose all material facts. Stamm v. Salomon, 144 N.C.

App. 672, 680, 551 S.E.2d 152, 157–58 (2001).

{80} USA Trouser’s fraudulent-concealment claim in this action is

presented in a different-enough manner from the fraudulent-concealment claim in

the ILG Lawsuit so as to prevent the Court from dismissing the claim due to

collateral estoppel.

{81} Judge Reidinger dismissed USA Trouser’s fraudulent-concealment

claim on two grounds: (1) that Andrews, Sanchez, and Sheely did not owe a

fiduciary duty to USA Trouser, and (2) that USA Trouser did not act in reliance on

any failure to disclose by Andrews, Sanchez, or Sheely related to the sale of ILG’s

sock inventory to a third party. Int’l Legwear Grp., Inc., 2012 U.S. Dist. LEXIS

177456, at *30. Even though the Fourth Circuit vacated Judge Reidinger’s holding

that the officers owed no fiduciary duty, it nevertheless upheld Judge Reidinger’s

dismissal of USA Trouser’s claim for fraudulent concealment, because there was no

evidence of an action taken in reliance of a breach of that duty. Andrews, 612 Fed.

App’x. at 162. In the present action, USA Trouser’s fraudulent concealment claim is

premised on William’s concealment of ILG’s financial status from USA Trouser.

USA Trouser alleges that it would have stopped shipping socks to ILG had it known

of ILG’s tenuous financial status. Neither Judge Reidinger nor the Fourth Circuit

decided this issue, and as such, it was not “actually determined” so as to preclude

the claim based on collateral estoppel. Powers, 196 N.C. App. at 642, 676 S.E.2d at

92.

{82} Therefore, Williams’s Motion to Dismiss is DENIED as to USA

Trouser’s fraudulent concealment claim, but proof of the existence of a duty upon

which a concealment claim may be pursued must be limited to the same degree as

USA Trouser’s breach-of-fiduciary-duty and constructive-fraud claims.

e. USA Trouser’s Claim of Fraudulent and/or Negligent Failure to

Perform Statutory Duties Is Barred by Collateral Estoppel.

{83} In support of its claim for “fraudulent and/or negligent failure to

perform statutory duties,” USA Trouser alleges, inter alia, that Williams failed to

perform his duties as a CEO, failed to inform himself regarding ILG’s financial

status, failed to schedule meetings of director or shareholders, and failed to wind

down the business in an orderly manner. In support, USA Trouser states that

Williams was in breach of sections 55-7-01, 55-14-05, and 55-14-06 of the North

Carolina General statutes, as well as “applicable or equivalent Virginia statutes.”

(First Am. Compl. ¶¶ 251–52.)

{84} In the District Court Order, Judge Reidinger held that USA Trouser

lacked standing to bring a claim of failure to perform statutory duties, as ILG’s

officers and directors owed a statutory duty to ILG rather than to USA Trouser.

Int’l Legwear Grp., 2012 U.S. Dist. LEXIS 177456, at *32. Judge Reidinger then

dismissed USA Trouser’s claims for failure to perform statutory duties against

Andrews, Sanchez, and Sheely. Id. This holding is binding against USA Trouser,

which is therefore collaterally estopped from arguing that it has standing to bring a

further claim for fraudulent and/or negligent failure to perform statutory duties.

Irrespective of the collateral estoppel effect of the District Court Order, this Court

independently reaches the same legal conclusion as Judge Reidinger regarding this

claim.

3. USA Trouser Has Failed to Adequately Allege in Support of Its Negligent

Misrepresentation and Fraud Claims that Williams Made an Affirmative

Representation to USA Trouser.

{85} Outside the context of collateral estoppel, Williams argues that USA

Trouser has failed to allege that he made an affirmative representation on which

USA Trouser may base a fraud or negligent misrepresentation claim.

{86} To plead a fraud claim, the essential elements include the following:

“(1) [a] false representation . . . of a [past or existing] material fact, (2) reasonably

calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive,

(5) resulting in damage to the injured party.” Hardin v. KCS Int'l, Inc., 199 N.C.

App. 687, 696, 682 S.E.2d 726, 733 (2009) (third alteration in original) (quoting

Phelps-Dickson Builders, L.L.C. v. Amerimann Partners, 172 N.C. App. 427, 437,

617 S.E.2d 664, 670 (2005)). It is well established that allegations of fraud must be

pleaded with greater particularity than other claims. See N.C. R. Civ. P. 9(b); see

also Terry v. Terry, 302 N.C. 77, 84, 273 S.E.2d 674, 678 (1981). A plaintiff may

meet this burden by “alleging time, place and content of the fraudulent

representation, identity of the person making the representation and what was

obtained as a result of the fraudulent acts or representations.” Terry, 302 N.C. at

85, 273 S.E.2d at 678.

{87} To successfully plead a negligent misrepresentation claim, a complaint

must allege that “(1) a party justifiably relie[d], (2) to his detriment, (3) on

information prepared without reasonable care, (4) by one who owed the relying

party a duty of care.” Walker v. Town of Stoneville, 211 N.C. App. 24, 30, 712

S.E.2d 239, 244 (2011) (quoting Simms v. Prudential Life Ins. Co. of. Am., 140 N.C.

App. 529, 532, 537 S.E.2d 237, 240 (2000)). In contrast to a fraudulent concealment

claim or other claim based on a failure to disclose, and similar to a claim of actual

fraud, “[f]or [a] negligent misrepresentation claim, the Court . . . must inquire

whether there has been an adequate allegation of an actual, affirmative

representation.” Loftin v. QA Invs., LLC, No. 03 CVS 16882, 2015 NCBC LEXIS 44,

at *25–26 (N.C. Super. Ct. Apr. 30, 2015).

{88} The First Amended Complaint is devoid of allegations that Williams

personally made any affirmative representations to USA Trouser, at most alleging

that “Williams led Trouser to believe ILG was financially sound and would be for

the future.” (First. Am. Compl. ¶ 81.) Such an allegation does not meet the

heightened pleading requirements of an actual fraud claim. Further, even under

the liberal Rule 12(b)(6) standard, when construing that statement in the light most

favorable to USA Trouser, this allegation does not give Williams “notice of the

transaction, occurrences, or series of transactions or occurrences, intended to be

proved showing that [USA Trouser] is entitled to relief” for its negligent

misrepresentation claim. N.C. R. Civ. P. 8(a)(1).

4. USA Trouser’s Civil Conspiracy Claim Against Williams Should Be

Dismissed.

{89} To state a claim for civil conspiracy, USA Trouser must plead that

there was an agreement between Williams and someone else to do a wrongful act,

that there was an act committed in furtherance of the agreement, and that USA

Trouser suffered damage from the act. Pleasant Valley Promenade v. Lechmere,

Inc., 120 N.C. App. 650, 657, 464 S.E.2d 47, 54 (1995). However, the doctrine of

intracorporate immunity, which is well established in North Carolina law, generally

prohibits making a conspiracy claim against a corporation and its agents because

“claiming that a corporation has conspired with its agents, officers, or employees . . .

is ‘tantamount to accusing a corporation of conspiring with itself.’” Kingsdown, Inc.

v. Hinshaw, No. 14 CVS 1701, 2015 NCBC LEXIS 30, at *35 (N.C. Super. Ct. Mar.

25, 2015) (quoting State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 184 N.C.

App. 613, 625, 646 S.E.2d 790, 799 (2007)).

{90} There is a narrow exception to this prohibition that applies in

instances where the alleged conspirator “has an ‘independent personal stake in

achieving the corporation’s illegal objective.’” Kingsdown, 2015 NCBC LEXIS 30, at

*36 (quoting Buschi v. Kirven, 775 F.2d 1240, 1252 (4th Cir. 1985)). But an interest

in the general profitability of the corporation is insufficient to establish that a party

has an independent personal stake in the corporation’s illegal objective. Garlock v.

Hilliard, No. 00 CVS 1018, 2000 NCBC LEXIS 6, at *17–18 (N.C. Super. Ct. Aug.

22, 2000).

{91} The allegations upon which USA Trouser premises its conspiracy claim

against Williams may fairly be grouped into two categories: (1) actions that

Williams undertook in concert with ILG and its other officers and directors to an

end that ultimately harmed USA Trouser, and (2) actions that Williams undertook

with Navigators to avoid paying the default judgment that USA Trouser obtained in

the ILG Lawsuit. The Court concludes that the doctrine of intracorporate immunity

bars claims based on the first category of allegations. Any conspiracy claim based

on the second category of allegations should fail for the same reasons that the Court

has determined that the conspiracy claim against Navigators fails.

5. The Court Must Defer Its Ruling on any UDTP Claim, but any Such

Claim Must Be Limited to the Same Extent as the Underlying Claims on

Which the UDTP Claim Rests.

{92} USA Trouser’s UDTP claim is predicated on the actions underlying its

other claims. Because the Court has found that several of USA Trouser’s other

claims, though limited, survive Williams’s Motion to Dismiss, USA Trouser’s UDTP

claim should also survive. C.f. Trantham v. Michael L. Martin, Inc., 228 N.C. App.

118, 125, 745 S.E.2d 327, 333 (2013) (indicating that conduct that constitutes a

breach of fiduciary duty and constructive fraud is also sufficient to support a UDTP

claim).

V. CONCLUSION

{93} In conclusion, Navigators Management’s Motion to Dismiss and

Navigators Insurance’s Motion to Dismiss are GRANTED. All claims against

Navigators Management and Navigators Insurance are DISMISSED WITH

PREJUDICE.

{94} Williams’s Motion to Dismiss is GRANTED IN PART and DENIED IN

PART. The following claims against Williams are DISMISSED WITH

PREJUDICE:

1. Actual fraud;

2. Negligent misrepresentation;

3. Fraudulent and/or negligent failure to perform statutory duties; and

4. Civil conspiracy.

USA Trouser’s other claims are limited as described above.

IT IS SO ORDERED, this the 21st day of July, 2016.

/s/ James L. Gale l

James L. Gale

Chief Special Superior Court Judge

for Complex Business Cases