Brakebush Brothers, Inc. v. Certain Underwriters at Lloyd's of London - Novae 2007 Syndicate Subscribing to Pol'y No. 93prx17f157

Brakebush Brothers., Inc. v. Certain Underwriters at Lloyd’s of London -

Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2022 NCBC 23.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

DAVIE COUNTY 20 CVS 367

BRAKEBUSH BROTHERS, INC.

AND HOUSE OF RAEFORD

FARMS,

Plaintiffs,

v.

CERTAIN UNDERWRITERS AT

LLOYD’S OF LONDON - NOVAE

2007 SYNDICATE SUBSCRIBING

TO POLICY WITH NUMBER

93PRX17F157, HALLMARK

SPECIALTY INSURANCE CO., ORDER AND OPINION ON

EVANSTON INSURANCE CO., DEFENDANTS’ JOINT MOTION TO

MAXUM INDEMNITY CO., DISMISS AND CERTAIN

HUDSON SPECIALTY INSURANCE DEFENDANTS’ MOTION TO

CO., LIBERTY SURPLUS RECONSIDER

INSURANCE CORPORATION,

IRONSHORE SPECIALTY

INSURANCE CO., AND CERTAIN

UNDERWRITERS AT LLOYD’S OF

LONDON -BRIT SYNDICATE

2987 SUBSCRIBING TO POLICY

WITH NUMBER PD-10972-00,

Defendants.

THIS MATTER comes before the Court on Defendants’ Joint Motion to Dismiss

Amended Complaint (“Motion to Dismiss”) (ECF No. 112) and on Defendants Maxum,

Ironshore, Novae, Hallmark, and Hudson’s Motion to Reconsider (“Motion to

Reconsider”) (ECF No. 114).

The Court, having considered the motion, the briefs of the parties, the

arguments of counsel, and all applicable matters of record, CONCLUDES, for the

reasons set forth below, that (1) Defendants’ Motion to Dismiss should be GRANTED,

in part, and DENIED, in part; and (2) the Motion to Reconsider should be DENIED

as moot.

Kilpatrick Townsend & Stockton LLP, by Susan Boyles, and Dorsey &

Whitney LLP, by Eric Weisenburger, Vernle C. Durocher, and Kathryn

Ann Johnson, for Plaintiffs Brakebush Brothers Inc. and House of

Raeford Farms.

Nelson Mullins Riley & Scarborough LLP, by G. Gray Wilson and Stuart

H. Russell, and Tressler, LLP, by Timothy Jabbour, Anthony Tessitore,

and Kiera Fitzpatrick, for Defendants Certain Underwriters at Lloyd’s of

London – Brit Syndicate 2987, Evanston Insurance Company, Maxum

Indemnity Company, Hudson Specialty Insurance Company, Liberty

Surplus Insurance Corporation, and Ironshore Specialty Insurance

Company.

Butler Weihmuller Katz Craig LLP, by Clark Schirle, Khrystyne Smith,

and L. Andrew Watson, for Defendant Certain Underwriters at Lloyd’s

of London Novae 2007 Syndicate.

Akerman, LLP, by Bryan G. Scott, for Defendant Hallmark Specialty

Insurance Company.

Davis, Judge.

INTRODUCTION

1. The present motions raise two primary issues. First, the Court must

determine when a new plaintiff may be substituted under N.C. R. Civ. P. 17 as the

real party in interest and allowed to bring certain claims against the named

defendants under a “relation back” theory where the assertion of those claims would

otherwise be barred by the statute of limitations. Second, the Court has been asked—

based on the existence of new case law—to revisit its prior ruling on the issue of

whether North Carolina law allows an assignee of the right to receive proceeds under

an insurance policy to sue the assignor’s insurer on theories of bad faith and unfair

and deceptive trade practices.

FACTUAL AND PROCEDURAL BACKGROUND

2. The Court does not make findings of fact on a motion to dismiss under

Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites those

facts contained in the complaint (and in documents attached, referred to, or

incorporated by reference in the complaint) that are relevant to the Court’s

determination of the motion. See, e.g., Window World of Baton Rouge, LLC v. Window

World, Inc., 2017 NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 12, 2017).

3. On 14 December 2017, a fire caused substantial damage to a chicken

processing facility located in Mocksville, North Carolina. (Amended Complaint, ECF

No. 100, at ¶ 2.) At the time of the fire, the facility was owned by Plaintiff House of

Raeford Farms, Inc. (“Raeford”), but Plaintiff Brakebush Brothers Inc. (“Brakebush”)

“was in the process of purchasing the [facility] from Raeford when the fire occurred.”

(Id.)

4. As of the date of the fire, Raeford had obtained two layers of commercial

property insurance coverage for the facility: (1) a primary insurance policy issued by

“Certain Underwriters at Lloyd’s, London and various syndicates subscribing to that

policy” with a limit of $20,000,000 (“the Primary Policy”); and (2) eight excess

insurance policies that provided, in total, limits of $30,000,000 in “excess of the $20

million primary limits.” (Id. at ¶¶ 33–34.) 1

1In this opinion, these eight policies are at times referred to collectively as the “Excess

Policies.”

5. The insurers who issued the Excess Policies were all originally named

as Defendants in this action: Certain Underwriters at Lloyd’s of London – Novae 2007

Syndicate Subscribing to Policy With Number 93PRX17F157 (“Novae”), Hallmark

Specialty Insurance Co. (“Hallmark”), Evanston Insurance Co. (“Evanston”), Maxum

Indemnity Co. (“Maxum”), Hudson Specialty Insurance Co. (“Hudson”), Liberty

Surplus Insurance Corporation (“Liberty”), Ironshore Specialty Insurance Co.

(“Ironshore”), and Certain Underwriters at Lloyd’s of London – Brit Syndicate 2987

Subscribing to Policy With Number PD-10972-00 (“Brit”). (Complaint, ECF No. 3, at

¶ 31.) 2

6. Brakebush and Raeford executed an Asset Purchase Agreement

(“A.P.A.”) on 3 July 2018. (ECF No. 100, at ¶ 30.) As a part of the transaction,

Raeford “attempted to assign Raeford’s right to all insurance benefits, including all

rights and proceeds under its excess property insurance policies relating to the loss”

resulting from the fire. (Id. at ¶ 2.) Approximately five days before the A.P.A. was

executed, the insurers who had issued the Primary Policy gave written consent to this

assignment. (Id. at ¶ 31.)

7. Neither Brakebush nor Raeford, however, obtained consent from any of

the Excess Insurers prior to the assignment of Raeford’s right to collect insurance

proceeds under these policies to Brakebush. (Id.)

8. On 3 February 2020, Brakebush submitted a report to Crawford and

Company, a claims management company hired by one or more of the insurers,

2 Defendants are at times referred to collectively in this opinion as the “Excess Insurers.”

claiming that the overall fire damage loss to the insured property totaled $41,274,429.

(Id. at ¶¶ 35–38.) As Raeford had already received $4,241,277.18 under the Primary

Policy prior to the sale, Brakebush asserted that it was entitled to the remaining

$15,758,722.82 of the policy limits under the Primary Policy “for amounts it incurred

after the sale was completed.” (Id. at ¶ 39.) On or about 29 April 2020, Brakebush

received a final payment exhausting the $20 million in coverage under the Primary

Policy. (Id. at ¶ 39.) Brakebush then “contacted counsel for the Excess Insurers and

demanded payment of insurance proceeds for the remainder” of the loss. (Id. at ¶ 40.)

9. The Excess Insurers refused to pay the full amount demanded by

Brakebush, instead offering only a combined $4,221,465.83, a substantially smaller

amount than Brakebush’s demand. (Id. at ¶ 41.) The Excess Insurers initially took

the position that they would make this smaller payment only if Brakebush agreed

that said payment constituted “full and final payment for all covered damages.” (Id.)

10. Since 1 May 2020, Brakebush has repeatedly requested that the Excess

Insurers explain why they refused to pay the remaining $21 million that Brakebush

had demanded. (Id. at ¶ 43.) At some point, the Excess Insurers provided Brakebush

with “Claim Work Papers,” which Brakebush alleges “showed that the Excess

Insurers owed at least $5,782,089.14 to [Brakebush].” (Id. at ¶¶ 44–45.)

11. The Excess Insurers ultimately agreed to pay $4,221,465.83 to

Brakebush without requiring Brakebush to stipulate that this payment constituted

a “full and final payment,” thereby allowing Brakebush to continue pursuing the total

amount it sought under the Excess Policies for the fire damage. (Id. at ¶ 44.)

12. On 8 October 2020, Brakebush filed its original Complaint initiating this

action in Davie County Superior Court against the Excess Insurers. In its Complaint,

Brakebush asserted a claim for a declaratory judgment regarding the obligations of

the Excess Insurers along with claims for breach of contract, bad faith, and unfair or

deceptive trade practices (UDTP). (ECF No. 3, at ¶¶ 47–79.) This case was

designated a mandatory complex business case on 2 December 2020 and assigned to

the Honorable Gregory P. McGuire. (ECF Nos. 1, 2.)

13. On 6 January 2021, Defendants filed a Joint Motion to Dismiss in which

they asserted various legal grounds for the dismissal of the claims asserted by

Brakebush. (ECF No. 42.)

14. On 1 July 2021, this matter was reassigned to the undersigned. (ECF

No. 79.)

15. On 1 November 2021, the Court issued an Order and Opinion (ECF No.

93) concluding that Brakebush possessed standing to assert its claims for breach of

contract and declaratory judgment under the policies issued by Maxum, Ironshore,

Novae, Hallmark, and Hudson (collectively, the “Assigned Insurers”), but not under

the policies issued by Brit, Evanston, or Liberty (collectively, the “Unassigned

Insurers”). (ECF No. 93, at ¶ 66.)3 The Court also declined to dismiss Brakebush’s

claims for bad faith and UDTP against the Assigned Insurers but dismissed those

claims as to the Unassigned Insurers pursuant to Rule 12(b)(1) for lack of standing.

3

In essence, the basis for the Court’s ruling was that specific language in the Brit, Evanston,

and Liberty policies required the consent of the insurer (which was never obtained) before

the assignment from Raeford to Brakebush could become legally effective.

(Id. at ¶¶ 68, 83.) Additionally, the Court denied Defendants’ Motion to Dismiss

under 12(b)(6) as to all claims against the Assigned Insurers. (Id. at p. 37.)

16. Following the issuance of the Court’s Order and Opinion and prior to the

filing of any responsive pleading by Defendants, Brakebush filed an Amended

Complaint on 10 December 2021, which added Raeford as an additional named

plaintiff alongside Brakebush. (ECF No. 100.) The Amended Complaint asserted the

following claims: declaratory judgment by Brakebush against the Assigned Insurers;

declaratory judgment by Raeford against the Unassigned Insurers; breach of contract

by Brakebush against the Assigned Insurers; breach of contract by Raeford against

the Unassigned Insurers; bad faith denial and handling of claims by Brakebush

against the Assigned Insurers; UDTP by Brakebush against the Assigned Insurers;

and unjust enrichment by Raeford against the Unassigned Insurers. (Id. at ¶¶ 51–

105.)

17. On 31 January 2022, Defendants filed a Joint Motion to Dismiss

Amended Complaint, seeking dismissal of (1) all claims asserted by Raeford; and (2)

Brakebush’s reasserted claims for bad faith and UDTP. (ECF No. 112.) On that same

day, the Assigned Insurers filed a Motion to Reconsider in which they seek

reconsideration of the portion of the Court’s 1 November 2021 Order and Opinion

holding that Brakebush possessed standing to assert bad faith and UDTP claims

against them. (ECF No. 114.)

18. A hearing was held on 14 April 2022. The motions are now ripe for

decision.

LEGAL STANDARD

19. Defendants’ motion to dismiss implicates both N.C.R. Civ. P. 12(b)(1)

and 12(b)(6). Defendants argue that Brakebush lacks standing to assert its bad faith

and UDTP claims under Rule 12(b)(1). They contend that all of Raeford’s claims

should be dismissed pursuant to 12(b)(6) based on the statute of limitations.

20. “A plaintiff’s standing to assert its claims may be challenged under

either Rule 12(b)(1) or Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.”

Raja v. Patel, 2017 NCBC LEXIS 25, at *11 (N.C. Super. Ct. Mar. 23, 2017) (citations

omitted). A Rule 12(b)(1) motion challenges a court’s jurisdiction over the subject

matter of the plaintiff’s claims. N.C.R. Civ. P. 12(b)(1). “Subject matter jurisdiction

is the indispensable foundation upon which valid judicial decisions rest,” In re T.R.P.,

360 N.C. 588, 590 (2006), and “has been defined as ‘the power to hear and to

determine a legal controversy; to inquire into the facts, apply the law, and to render

and enforce a judgment,’ ” High v. Pearce, 220 N.C. 266, 271 (1941) (citations

omitted). “[T]he proceedings of a court without jurisdiction of the subject matter are

a nullity.” Burgess v. Gibbs, 262 N.C. 462, 465 (1964) (citation omitted).

21. “As the party invoking jurisdiction, plaintiff[] ha[s] the burden of

establishing standing.” Queen’s Gap Cmty. Ass’n v. McNamee, 2011 NCBC LEXIS

37, at **4 (N.C. Super. Ct. Sept. 23, 2011) (cleaned up). In determining the existence

of subject matter jurisdiction, the Court may consider matters outside the pleadings.

Emory v. Jackson Chapel First Missionary Baptist Church, 165 N.C. App. 489, 491

(2004) (citation omitted). “However, if the trial court confines its evaluation [of

standing] to the pleadings, the court must accept as true the [claimant]’s allegations

and construe them in the light most favorable to the [claimant].” Munger v. State,

202 N.C. App. 404, 410 (2010) (quoting DOT v. Blue, 147 N.C. App. 596, 603 (2001)).

22. “It is well-established that dismissal pursuant to Rule 12(b)(6) is proper

when ‘(1) the complaint on its face reveals that no law supports the plaintiff’s claim;

(2) the complaint on its face reveals the absence of facts sufficient to make a good

claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s

claim.’ ” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood

v. Guilford Cnty., 355 N.C. 161, 166 (2002)). The Court may also “reject allegations

that are contradicted by the documents attached, specifically referred to, or

incorporated by reference in the complaint.” Laster v. Francis, 199 N.C. App. 572,

577 (2009) (cleaned up).

23. Finally, Defendants’ Motion to Reconsider is brought pursuant to Rule

54(b). “This Court has summarized the grounds upon which a trial court will

generally grant a motion to reconsider an interlocutory order as follows: (1) the

discovery of new evidence, (2) an intervening development or change in the

controlling law, or (3) the need to correct a clear error or prevent manifest injustice.”

Pender Farm Dev., LLC v. NDCO, LLC, 2020 NCBC LEXIS 110, at *5 (N.C. Super.

Ct. Sept. 25, 2020) (cleaned up).

ANALYSIS

I. Validity of Claims Asserted by Raeford

24. In their first argument, Defendants contend that the claims Raeford

seeks to assert are time-barred because they were not asserted until the Amended

Complaint was filed, which was more than three years after the date of the fire. In

response, Plaintiffs argue as follows: (1) the Court’s 1 November 2021 Order and

Opinion holds that the purported assignment from Raeford to Brakebush was invalid

as to the Unassigned Insurers; (2) the implication of the Court’s ruling on that issue

is that Raeford is the real party in interest to assert the breach of contract and

declaratory judgment claims against the Unassigned Insurers set out in the original

Complaint; and (3) Rule 17 allows a real party in interest to be substituted in place

of the original plaintiff under such circumstances and for the claims asserted by the

real party in interest to relate back to the date the Complaint was originally filed.

Alternatively, Plaintiffs argue that the statute of limitations should be equitably

tolled to preserve Raeford’s right to bring these claims or that Defendants should be

equitably estopped from asserting a statute of limitations defense.

25. Fire insurance policies are governed by a three-year statute of

limitations. N.C.G.S. § 58-44-16(f)(18) (2021) (“No suit or action on this policy for the

recovery of any claim shall be sustainable in any court of law unless all the

requirements of this policy have been complied with and unless commenced within

three years after inception of the loss.”).

26. It is undisputed that the fire giving rise to this lawsuit occurred on 14

December 2017, meaning that the claims seeking proceeds for fire damage under

Defendants’ policies were required to be brought within three years of that date.

Although Brakebush’s original Complaint was filed within that time period, the

Amended Complaint was not. Under North Carolina law, “[c]laims included in an

amended pleading relate back to the filing of the original pleading when the original

pleading gives sufficient ‘notice of the transactions, occurrences, or series of

transactions or occurrences, to be proved pursuant to the amended pleading.’ ”

Cabrera v. Hensley, 2012 NCBC LEXIS 42, at **10 (N.C. Super. Ct. July 16, 2012)

(quoting N.C. R. Civ. P. 15(c)). However, “while Rule 15 of the North Carolina Rules

of Civil Procedure permits the relation-back doctrine to extend periods for pursuing

claims, it does not apply to parties.” Estate of Fennell v. Stephenson, 354 N.C. 327,

334–35 (2001) (emphasis added) (citation omitted).

27. As noted above, Plaintiffs contend that Raeford’s claims are

nevertheless timely pursuant to Rule 17 based on its status as the real party in

interest as to these claims. 4 Rule 17 states in pertinent part as follows:

Every claim shall be prosecuted in the name of the real party in interest

. . . . No action shall be dismissed on the ground that it is not prosecuted

in the name of the real party in interest until a reasonable time has been

allowed after objection for ratification of commencement of the action

by, or joinder or substitution of the real party in interest; and such

4 Although Rule 17 is the basis for Plaintiffs’ argument that Raeford’s claims are timely,

Plaintiffs never actually filed a motion based on Rule 17 seeking leave from the Court to file

the Amended Complaint naming Raeford as an additional plaintiff. The Court observes that

this would have been the better practice instead of unilaterally filing the Amended

Complaint. Nevertheless, the Court, in its discretion, will consider the merits of Plaintiffs’

Rule 17 argument.

ratification, joinder, or substitution shall have the same effect as if the

action had been commenced in the name of the real party in interest.

N.C. R. Civ. P. 17(a).

28. Our Supreme Court applied Rule 17(a) in Burcl v. North Carolina

Baptist Hosp., Inc., 306 N.C. 214, 228 (1982). The plaintiff in Burcl initiated a

wrongful death action within the two-year limitations period “in her capacity as a

foreign administrator of [the] decedent’s estate[.]” Id. at 215–16. The plaintiff alleged

that she was duly qualified to serve as the administrator of the plaintiff’s estate but

was unaware that she was likewise required to be appointed in North Carolina as the

administrator of the estate. Id. at 216. She subsequently obtained the necessary

qualification and moved to file a new pleading but did not do so until after the

expiration of the applicable limitations period. Id. at 216–17. The Supreme Court

held that pursuant to Rule 15 and Rule 17, the plaintiff’s supplemental pleading

related back to the filing date of her original pleading. Id. at 230. The Supreme Court

noted that the “Defendants had full notice of the transactions and occurrences upon

which this wrongful death claim is based” and would not be prejudiced by a new

pleading establishing the plaintiff’s proper qualifications. Id.

29. Although there is no genuine dispute as to the fact that Raeford is the

real party in interest to assert declaratory judgment and breach of contract claims

against the Unassigned Insurers in light of the Court’s 1 November 2021 Order and

Opinion, this case nevertheless presents a unique procedural scenario regarding the

application of Rule 17. At issue here are claims that were asserted against multiple

defendants in the original Complaint, and the Court has previously ruled that some

of those claims were properly asserted by the original named plaintiff (Brakebush)

whereas others could only be asserted by Raeford. As such, Plaintiffs do not seek to

simply substitute Raeford for Brakebush as the sole plaintiff in this lawsuit. Rather,

they seek leave to have Brakebush and Raeford serve as co-plaintiffs for the

remainder of this action. In addition, the Court must determine whether the

circumstances surrounding Plaintiffs’ failure to name Raeford as a plaintiff—or as a

co-plaintiff—in the original Complaint precludes the application of Rule 17.

30. Neither the parties’ briefs nor the Court’s own research has disclosed

any North Carolina case that has addressed the applicability of Rule 17 on facts

similar to those presented here. Our Supreme Court has stated that the

consideration of federal cases may be helpful to North Carolina courts in interpreting

Rule 17. See Burcl, 306 N.C. at 224; see also N.C. R. Civ. P. 17, Comment (“The rule

as presented here tracks the federal rule[.]”). For this same reason, it is likewise

instructive to examine relevant cases from other states that have enacted similar or

identical versions of Rule 17. Holloway v. Wachovia Bank & Trust Co., N.A., 339 N.C.

338, 346 (1994) (citation omitted) (“[A]s our rules are derived from the federal rules,

which have been adopted by several other states as well, we look for guidance to

authorities on the federal rules and decisions from other jurisdictions using the same

rules.”).

31. As an initial matter, the Court notes that the Advisory Committee for

the Federal Rules of Civil Procedure has stated that Rule 17 “is intended to prevent

forfeiture when determination of the proper party to sue is difficult or when an

understandable mistake has been made.” Fed. R. Civ. P. 17 Advisory Committee

Notes (1966).

32. Courts in other jurisdictions that have determined whether to apply

Rule 17 in somewhat analogous circumstances have looked at factors such as whether

the plaintiff’s actions were the result of a tactical decision as opposed to a genuine

oversight and whether allowing the substitution of the real party in interest would

prejudice the defendant. See, e.g., Esposito v. United States, 368 F.3d 1271, 1276

(10th Cir. 2004) (cleaned up) (“[O]ur cases focus primarily on whether the plaintiff

engaged in deliberate tactical maneuvering (i.e. whether his mistake was ‘honest’),

and on whether the defendant was prejudiced thereby.”); Wieburg v. GTE Southwest,

Inc., 272 F.3d 302, 308 (5th Cir. 2001) (cleaned up) (“[M]ost courts have interpreted

the last sentence of Rule 17(a) as being applicable only when the plaintiff brought the

action in her own name as the result of an understandable mistake, because the

determination of the correct party to bring the action is difficult.”)

33. A number of courts have adopted the framework employed by the Second

Circuit in Advanced Magnetics v. Bayfront Partners, 106 F.3d 11 (2nd Cir. 1997). In

that case, a corporation brought a lawsuit, in part, in its capacity as an assignee of

claims from the corporation’s shareholders. Id. at 14. The corporation subsequently

moved to amend its complaint to add the individual shareholders as plaintiffs when

it became apparent that the defendants intended to challenge the effectiveness of the

assignment of claims to the corporation. Id. at 14. The trial court denied the motion

to amend and held that the attempted assignment of claims had no legal effect. Id.

at 14–15.

34. The Second Circuit agreed that the assignments had not been properly

effectuated but held that the trial court had improperly denied the motion to amend

because Rule 17(a) allowed for a substitution of the parties under these

circumstances. Id. at 18–21. The Second Circuit noted that “[a]lthough the district

court retains some discretion to dismiss an action where there was no semblance of

any reasonable basis for the naming of the incorrect party . . . there should plainly be

no dismissal where substitution of the real party in interest is necessary to avoid

injustice.” Id. at 20 (cleaned up). In reaching this result, the Second Circuit relied

upon the fact that the amendment itself was merely a technical substitution of the

proper plaintiffs, the absence of bad faith or any deliberate or tactical strategy in the

plaintiff’s failure to originally name the proper party, and the lack of prejudice to the

defendants. Id. at 20–21.

35. Here, the Court concludes that a consideration of these same factors

supports a finding that the substitution of Raeford for Brakebush is proper as to the

breach of contract and declaratory judgment claims alleged in the original Complaint

against the Unassigned Insurers. The legal theory and factual basis for the breach

of contract and declaratory judgment claims brought against the Unassigned

Insurers remain unchanged. Indeed, the substitution of Raeford as a plaintiff is

wholly consistent with the position that Defendants have taken throughout this

litigation—namely, that Raeford, rather than Brakebush, is the real party in interest

as to these claims given Brakebush’s failure to obtain written consent to the

assignment from the Excess Insurers. Moreover, Brakebush was not dilatory in filing

its Amended Complaint, doing so only 39 days after the Court’s 1 November 2021

Order and Opinion.

36. In addition, the Court is unpersuaded that Plaintiffs acted in bad faith

by naming Brakebush as the sole Plaintiff in the original Complaint. The legal

validity of the assignments was vigorously litigated by the parties in the original

motion to dismiss. In ultimately ruling on this issue in its 1 November 2021 Order

and Opinion, the Court was required to resolve a number of complex issues in order

to reach its determination as to the effectiveness of the assignment. In so doing, the

Court rejected the categorical arguments asserted by Defendants that the assignment

was invalid under all of the policies at issue and ultimately was required to conduct

a separate analysis of the pertinent language contained in each of the eight policies

at issue in order to conclude whether the assignment was valid under each respective

policy. Thus, the Court finds there was clearly a “semblance of [a] reasonable basis”

for only suing in Brakebush’s name. See Advanced Magnetics, 106 F.3d at 20 (cleaned

up).

37. The Court is also unable to discern any prejudice to Defendants by

allowing Raeford to be substituted for Brakebush as the plaintiff as to the breach of

contract and declaratory judgment claims against the Unassigned Insurers. As noted

above, the factual and legal basis for these claims remains unchanged, and

Defendants have failed to make any plausible argument how they are prejudiced.

38. However, the Court agrees with Defendants that Raeford is not entitled

to assert new claims against the Unassigned Insurers—that is, claims that were not

contained in the original Complaint and therefore cannot logically be deemed to

“relate back” to that pleading. For this reason, the new unjust enrichment claim

contained in the Amended Complaint would subject Defendants to a new theory of

liability and will not be permitted. 5 Therefore, that claim is dismissed. 6

39. In sum, the Court is satisfied that allowing Raeford to assert the

declaratory judgment and breach of contract claims originally brought by Brakebush

against the Unassigned Insurers is consistent with the purposes underlying Rule 17

and with principles of fairness. The Court therefore concludes, in its discretion under

Rule 17, that Raeford’s claims for declaratory judgment and breach of contract shall

be allowed to proceed. Defendants’ Motion to Dismiss those claims is therefore

DENIED. However, Defendants’ Motion to Dismiss Raeford’s claim for unjust

enrichment is GRANTED.

II. Standing of Brakebush to Assert Bad Faith and UDTP Claims

40. In their second argument, Defendants seek dismissal of Brakebush’s

claims for bad faith and unfair and deceptive trade practices (Counts V and VI) in the

Amended Complaint. Because their argument is based on the same grounds that

5

However, Defendants have failed to convince the Court that the damages sought by Raeford

in the Amended Complaint associated with the breach of contract cause of action likewise

constitute a new “claim” that should not be deemed to relate back under Rule 17.

6

To the extent Plaintiffs contend that Raeford’s claim for unjust enrichment should

nevertheless be allowed to proceed under theories of either equitable tolling or equitable

estoppel, the Court has carefully considered Plaintiffs’ arguments and concludes that these

arguments lack merit.

they asserted in seeking identical relief in their motion to dismiss Brakebush’s

original Complaint, Defendants have also filed a Motion to Reconsider pursuant to

Rule 54(b).

41. As an initial matter, the Court notes that the Motion to Reconsider is

technically moot. This is so because the Court’s prior ruling on this issue addressed

the legal sufficiency of the claims for bad faith and unfair and deceptive trade

practices contained in Brakebush’s original Complaint. Based on the filing of

Plaintiffs’ Amended Complaint, the claims contained in Brakebush’s original

pleading no longer have any legal significance. Defendants’ Motion to Reconsider is

therefore DENIED as moot. See Krawiec v. Manly, 2015 NCBC LEXIS 85, at **5

(N.C. Super. Ct. Aug. 24, 2015) (citations omitted) (“[T]he filing of [an] Amended

Complaint renders moot Defendants’ Motions to Dismiss the Original Complaint.”).

42. In their Motion to Dismiss, Defendants contend that new case law

demonstrates Brakebush’s lack of standing to assert claims for bad faith and UDTP

against the Assigned Insurers.

43. In its 1 November 2021 Order and Opinion, the Court concluded that

Brakebush did, in fact, possess standing to assert these claims. (ECF No. 93, at ¶ 83.)

In its analysis, the Court examined the relevant cases decided under North Carolina

law in existence at that time. (ECF No. 93, at ¶¶ 73–81.) The Court noted that the

few cases addressing the issue of when an insurer can be sued for bad faith or UDTP

by a party other than the named insured in connection with the handling of an

insurance claim had all arisen in the context of third-party—rather than first-party—

coverage. 7 (ECF No. 93, at ¶ 76.) Given (1) Defendants’ inability to cite case law on

this issue from North Carolina courts similarly rejecting a plaintiff’s standing

argument in the context of first-party insurance coverage (which is the type of

coverage that exists in the present case); and (2) the absence of public policy reasons

to deny Brakebush standing under these circumstances, the Court concluded that

Brakebush possessed standing to bring these claims. (ECF No. 93, at ¶¶ 76–83.) The

Court further noted that “to the extent that privity between Brakebush and the

Excess Insurers is required in order for Brakebush to possess standing to assert a

bad faith or UDTP claim, such privity arguably exists as a result of the assignment

from Raeford to Brakebush.” (ECF No. 93, at ¶ 79 n.10.)

44. Since the Court issued its prior Order and Opinion, however, the United

States Court of Appeals for the Fourth Circuit issued its opinion in Skyline

Restoration, Inc. v. Church Mut. Ins. Co., 20 F.4th 825 (4th Cir. 2021), which analyzes

this same legal issue on facts very similar to those in the present case.

45. Federal decisions on an issue of North Carolina law are, of course, not

binding on this Court. Nevertheless, North Carolina courts are permitted to consider

such decisions to the extent they are instructive. Sykes v. Health Network Solutions,

Inc., 2013 NCBC LEXIS 50, at **19 (N.C. Super. Ct. Nov. 25, 2013) (citing Rose v.

7 “In the first-party situation, the insurance covers a claim directly made by the insured and

examples of first-party coverage are life, health, disability, property, and fidelity insurance.

In the third-party situation, a liability claim is brought by a third party which triggers the

insurer’s duty to defend and indemnify. Examples of third-party coverage are professional

malpractice insurance and commercial liability insurance.” 8 NEW APPLEMAN ON INSURANCE

LAW LIBRARY EDITION § 90.1 (2021).

Vulcan Materials Co., 282 N.C. 643, 655 (1973) (“This court is not bound by federal

precedent, but may examine federal decisions in search of potentially persuasive

authority.”); see also Brown v. Centex Homes, 171 N.C. App. 741, 744 (2005) (citations

omitted) (“Although we are not bound by federal case law, we may find their analysis

and holdings persuasive.”). The Court deems the opinion in Skyline Restoration to be

helpful in its consideration of the unique issue presented here as to which—it bears

repeating—no North Carolina court has previously had occasion to address. Skyline

Restoration expressly rejects Plaintiffs’ theory of standing, holding that an assignee

of insurance proceeds arising out of a first-party insurance policy lacks the ability to

sue the assignor’s insurer for UDTP because the assignee under such circumstances

is neither the insured under the policy nor in privity with the insurer.

46. In Skyline Restoration, a church retained a remediation services

company, Skyline Restoration, Inc. (“Skyline”), after significant wind damage

occurred to the church’s property. Skyline Restoration, 20 F.4th at 827. As part of

the remediation agreement, Skyline received an assignment of the right to collect any

proceeds from the church’s insurance policy regarding the damage. Id. at 828.

Skyline subsequently billed the church for $75,000. Id. However, neither the church

nor the insurer paid Skyline for its services. Id. Skyline perfected a lien against the

church and submitted claims with the insurer, which were never paid. Id. The

church subsequently filed for bankruptcy and instituted an adversary proceeding

against Skyline. Id. Skyline brought a lawsuit against the church’s insurer in which

it asserted, inter alia, a claim for unfair claim settlement practices under Chapter 75.

Id.

47. The Fourth Circuit held that Skyline lacked the ability under North

Carolina law to assert its UDTP claim based on the general prohibition in this state

on such claims unless the plaintiff is either an insured or in privity with the insurer.

Id. at 834–35. The Fourth Circuit concluded that under the facts of the case no privity

existed between Skyline and the church. Id. at 835.

48. The Court deems Skyline Restoration to be instructive in several

respects. It is the first case applying North Carolina law that addresses the issue of

whether the general rule requiring that a party bringing such claims against an

insurer be either the insured itself or one in privity with the insurer applies equally

in the context of first-party coverage. Moreover, the Court likewise finds the Fourth

Circuit’s analysis helpful on the issue of whether privity exists between an assignee

in the position of Brakebush (who has merely been assigned the right to collect

insurance proceeds) and the insurers of its assignor (here, the Excess Insurers).

Indeed, a review of case law from other jurisdictions fails to show general support for

the proposition that privity exists under such circumstances where, as here, the

assignment is limited to the right to receive proceeds under the policy. Although

perhaps a different conclusion would result had Raeford assigned the entire

insurance policies to Brakebush, that is not what happened. 8

8

Plaintiffs contend that Skyline Restoration is inapposite because in that case an adversarial

relationship existed between the assignee and assignor whereas here the interests of

Brakebush and Raeford are not adverse. Although this is true, it does not affect the legal

49. A ruling that Brakebush possesses standing to bring bad faith and

UDTP claims against the Assigned Insurers under these circumstances would

constitute a significant expansion of the existing law in North Carolina. Although

admittedly the public policy concerns previously cited by North Carolina courts as

grounds for refusing to allow such claims by adverse third-party claimants do not

appear to exist on the present facts, the Court nevertheless concludes that any such

change in the law must come from North Carolina’s appellate courts.

50. Therefore, Defendants’ Motion to Dismiss Brakebush’s claims for bad

faith and UDTP is GRANTED, and those claims are DISMISSED without prejudice. 9

CONCLUSION

THEREFORE, it is hereby ORDERED that Defendants’ pending motions are

GRANTED, in part, and DENIED, in part, as follows:

1. Defendants’ Motion to Dismiss Raeford’s claims for declaratory judgment and

breach of contract is DENIED.

2. Defendants’ Motion to Dismiss Raeford’s claim for unjust enrichment is

GRANTED, and this claim is DISMISSED WITH PREJUDICE.

3. Defendants’ Motion to Dismiss Brakebush’s claims for bad faith and UDTP is

GRANTED, and those claims are DISMISSED WITHOUT PREJUDICE.

issue of whether privity exists between an assignor’s insurer and an assignee who has solely

been assigned the right to receive proceeds under the policy.

9 “A dismissal for lack of subject matter jurisdiction is generally a dismissal without

prejudice.” Button v. Level Four Orthotics & Prosthetics, Inc., 2020 NCBC LEXIS 30, at **21

fn. 6 (N.C. Super Ct. Mar. 13, 2020) (cleaned up).

4. Defendants Maxum, Ironshore, Novae, Hallmark, and Hudson’s Motion to

Reconsider is DENIED AS MOOT.

SO ORDERED, this the 11th day of May, 2022.

/s/ Mark A. Davis

Mark A. Davis

Special Superior Court Judge for

Complex Business Cases