Filed: Apr. 30, 2012
Latest Update: Mar. 26, 2017
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-2087 PAUL D. CARTY, Plaintiff - Appellant, v. WESTPORT HOMES OF NORTH CAROLINA, INC.; WPNC DEVELOPMENT, LLC; JOHN B. SCHEUMANN; STEVEN M. DUNN; CHARLES D. SCHEUMANN, Defendants - Appellees. Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Graham C. Mullen, District Judge. (3:08-cv-507-GCM-DCK) Argued: January 20, 2012 Decided: April 30, 2012 Before DUNCAN, WYNN, and DIAZ
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 10-2087 PAUL D. CARTY, Plaintiff - Appellant, v. WESTPORT HOMES OF NORTH CAROLINA, INC.; WPNC DEVELOPMENT, LLC; JOHN B. SCHEUMANN; STEVEN M. DUNN; CHARLES D. SCHEUMANN, Defendants - Appellees. Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Graham C. Mullen, District Judge. (3:08-cv-507-GCM-DCK) Argued: January 20, 2012 Decided: April 30, 2012 Before DUNCAN, WYNN, and DIAZ,..
More
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-2087
PAUL D. CARTY,
Plaintiff - Appellant,
v.
WESTPORT HOMES OF NORTH CAROLINA, INC.; WPNC DEVELOPMENT,
LLC; JOHN B. SCHEUMANN; STEVEN M. DUNN; CHARLES D.
SCHEUMANN,
Defendants - Appellees.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Graham C. Mullen,
District Judge. (3:08-cv-507-GCM-DCK)
Argued: January 20, 2012 Decided: April 30, 2012
Before DUNCAN, WYNN, and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Duncan and Judge Diaz concur.
ARGUED: Katherine Freeman, KATHERINE FREEMAN, PLLC, Charlotte,
North Carolina, for Appellant. Michael A. Wukmer, ICE MILLER,
LLP, Indianapolis, Indiana, for Appellees. ON BRIEF: Stephen
W. Kearney, Charlotte, North Carolina, for Appellant. Scott M.
Tyler, Neil T. Bloomfield, MOORE & VAN ALLEN, PLLC, Charlotte,
North Carolina; George A. Gasper, ICE MILLER, LLP, Indianapolis,
Indiana, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
WYNN, Circuit Judge:
Plaintiff Paul D. Carty brought numerous causes of
action against two businesses in which he had been involved and
the businesses’ other owners. The district court dismissed
Carty’s suit. Because all of Carty’s claims fail, as a matter
of law, to state a claim upon which relief can be granted, we
affirm the district court.
I.
In September 2004, Carty and Defendants John B.
Scheumann, Charles D. Scheumann, and Steven M. Dunn
(collectively “Individual Defendants”) formed two businesses,
Westport Homes of North Carolina, Inc. (“Westport”) and WPNC
Development, LLC (“WPNC”). * The two businesses, which developed
and sold real estate in North Carolina, essentially employed
Carty as an officer. Upon the formation of the businesses,
Carty and the Individual Defendants entered into two agreements:
a Shareholders Agreement relating to Westport (“Westport
Shareholders Agreement”), and an Operating Agreement relating to
WPNC (“WPNC Operating Agreement”).
*
The Individual Defendants and Westport and WPNC are
referred to collectively as “Defendants.”
2
Per the Westport Shareholders Agreement, Carty was
given 225 common shares of the total 1500 common shares of
Westport stock. The Westport Shareholders Agreement gave
Westport the right to purchase some or all of any shareholder’s
stock involuntarily. The Westport Shareholders Agreement
further allowed the purchase price for such an involuntary share
transfer to be paid in all cash, or twenty percent in cash and
eighty percent in the form of a promissory note. Notably, such
a note would be, among other things, “subordinated to all debts
and liabilities that are owed by the Corporation to a third
party.” J.A. 168. The Westport Shareholders Agreement also
designated Indiana law as controlling.
Similarly, the WPNC Operating Agreement allowed an
eighty-percent supermajority of WPNC’s members to involuntarily
remove a manager. The WPNC Operating Agreement also allowed
WPNC to purchase, forcibly, the membership interest of any
member. And, like the Westport Shareholders Agreement, the
purchase price for that interest could take the form of all
cash, or twenty percent in cash and eighty percent in the form
of a promissory note. Again, such a note would be, among other
things, “subordinated to all debts and liabilities that are owed
by the Company to a third party.” J.A. 57. The WPNC Operating
Agreement also designated Indiana law as controlling. And the
3
WPNC Operating Agreement included a clause stating that the
parties had had the opportunity to seek the advice of counsel.
In late 2006/early 2007, Westport and WPNC removed
Carty from the companies. Specifically, pursuant to the
Westport Shareholders Agreement and the WPNC Operating
Agreement, a supermajority of Westport’s and WPNC’s owners
removed Carty from his managerial roles and forced an
involuntary purchase of his ownership interests. Per the 2004
agreements, the involuntary purchases took place in the form of
twenty percent in cash and eighty percent in a promissory note
subordinated to all other debt. Also at that time, Carty
entered into a Termination Agreement, pursuant to which he
received $75,000 for, among other things, a release of “any and
all claims, actions, causes of action or demands against the
Companies . . . .” J.A. 220.
In October 2008, Carty filed a lawsuit, which
Defendants removed to federal district court and then moved to
dismiss. In response, Carty filed an Amended Complaint in the
district court in January 2009. In the Amended Complaint, Carty
stated eight causes of action: breach of the WPNC promissory
note; breach of the Westport promissory note; unjust enrichment;
constructive fraud; breach of fiduciary duty; a claim under
North Carolina’s Unfair and Deceptive Trade Practices Act;
tortious interference with Carty’s agreements with WPNC and
4
Westport; and economic duress. Defendants again moved to
dismiss.
In May 2010, a magistrate judge issued a memorandum
and recommendation that the motions to dismiss be granted.
Carty filed various objections to the memorandum and
recommendation. Nevertheless, in August 2010, the district
court entered an order granting the motions and dismissing the
case. Carty appeals.
II.
On appeal, Carty argues that the district court erred
in dismissing all of his claims and in denying him leave to
further amend his complaint. We review de novo the district
court’s dismissal. Sucampo Pharm., Inc. v. Astellas Pharma,
Inc., 471 F.3d 544, 550 (4th Cir. 2006). When ruling on a Rule
12(b)(6) motion to dismiss, “a judge must accept as true all of
the factual allegations contained in the complaint.” Erickson
v. Pardus,
551 U.S. 89, 94 (2007). Nevertheless, to survive the
motion, a complaint must contain sufficient facts to state a
claim that is “plausible on its face.” Bell Atl. Corp. v.
Twombly,
550 U.S. 544, 570 (2007). Further, “[w]e review the
district court’s denial of leave to amend the complaint for an
abuse of discretion.” US Airline Pilots Ass’n v. Awappa, LLC,
615 F.3d 312, 320 (4th Cir. 2010) (quotation marks omitted).
5
A.
As an initial matter, we note that, at the time his
employment and ownership interests were severed, Carty entered
into a Termination Agreement with Westport and WPNC. Pursuant
to that agreement, he received $75,000 for, among other things,
a release of “any and all claims, actions, causes of action or
demands against the Companies . . . .” J.A. 220. The
Termination Agreement would appear to bar, at a minimum, Carty’s
claims against Westport and WPNC. See, e.g., Ind. Bell Tel.
Co., Inc. v. Mygrant, 471 N.E.2d 660, 664 (Ind. 1984) (noting
“the important policy of upholding releases in order to
facilitate the orderly settlement of disputes”); McGladrey,
Hendrickson & Pullen v. Syntek Fin. Corp.,
92 N.C. App. 708,
710-11,
375 S.E.2d 689, 691 (1989) (“[A] comprehensively phrased
‘general release,’ in the absence of proof of contrary intent,
is usually held to discharge all . . . claims between the
parties.”). However, Carty alleges, among other things, that he
entered into the Termination Agreement under coercion amounting
to economic duress. We therefore look beyond the Termination
Agreement to the individual claims to determine whether each was
properly dismissed.
6
B.
With his first two causes of action, for breach of
contract, Carty contends that Westport and WPNC breached their
contracts by refusing to pay as required by the promissory
notes. Specifically, Carty alleges that WPNC and Westport
relied upon the promissory notes’ subordination clauses to
refuse payment but that those clauses, which are identical, are
vague, unconscionable, and invalid.
The notes’ subordination provisions state that “the
payment of the principal of and interest on this Note shall be
subordinated in right of payment . . . to the prior payment in
full of all debt, including debt owed to John B. Scheumann.”
J.A. 227, 232. There is nothing vague or unclear about these
provisions. This Court is thus not free to re-write them.
First Nat’l Bank & Trust v. Indianapolis Pub. Hous. Agency, 864
N.E.2d 340, 350 (Ind. Ct. App. 2007) (“When the language of a
contract is clear and unambiguous, the intent of the parties is
determined from the four corners of the instrument. In such a
situation, the terms are conclusive and we will not construe the
contract or look at extrinsic evidence, but will merely apply
the contractual provisions.”) (citation omitted); Weaver v. St.
Joseph of the Pines, Inc.,
187 N.C. App. 198, 207,
652 S.E.2d
701, 709 (2007) (“When the language of the contract is clear and
unambiguous, construction of the agreement is a matter of law
7
for the court, and the court cannot look beyond the terms of the
contract to determine the intentions of the parties.”)
(quotation marks and brackets omitted).
Further, almost identical provisions exist in the
Westport Shareholders Agreement and the WPNC Operating
Agreement. Yet Carty never claimed that those agreements, or
their subordination clauses, were somehow vague or unclear.
Moreover, under those agreements, which Carty does not
challenge, WPNC and Westport are entitled to do precisely what
Carty is disputing here: subordinate his note to all other debt.
Additionally, Carty does not allege that all debt, to
John Scheumann or otherwise, has been paid. Indeed, Carty does
not even allege generally that “all conditions precedent have
been performed, have occurred, or have been excused.” Ind.
Trial P. R. 9. See also N.C. R. Civ. P. 9 (“In pleading the
performance or occurrence of conditions precedent, it is
sufficient to aver generally that all conditions precedent have
been performed or have occurred.”). Carty therefore fails to
allege that this condition precedent in the notes has been
satisfied.
Finally, to the extent that Carty claims that he
signed the WPNC and Westport promissory notes only under
coercion and that the notes’ subordination language should
therefore be disregarded, that argument necessarily fails
8
because a promissory note recipient need not sign the note. See
Ind. Code § 26-1-1-201; N.C. Gen. Stat. § 25-1-201; Ind. Code §
26-1-3.1-104, cmt. 1; N.C. Gen. Stat. § 25-3-104, cmt. 1.
In essence, we agree with the magistrate judge’s
observation in his memorandum and recommendation that Carty
“seeks to have terms of agreements he does not like nullified by
the Court.” J.A. 310. Because Carty failed to sufficiently
plead a breach of contract, we conclude that the district court
properly dismissed his first two causes of action.
C.
With his third cause of action, for unjust enrichment,
Carty claims that all Defendants purposefully overstated
distributions to Carty for 2006 and 2007 in Form K-1s, making
Carty’s tax liability appear greater than it should have.
However, it is well-established that “[t]he doctrine
of unjust enrichment is based on ‘quasi-contract’ or contract
‘implied in law’ and thus will not apply here where a contract
exists between two parties.” Atl. & E. Carolina R. Co. v.
Wheatly Oil Co., Inc., 163 N.C. App. 748, 753,
594 S.E.2d 425,
429 (2004); see also Sapp v. Flagstar Bank, FSB,
956 N.E.2d 660,
667 (Ind. Ct. App. 2011) (holding that a bank could not assert
an unjust enrichment claim against a customer arising out of the
customer’s allegedly improper withdrawal where the bank’s and
9
the customer’s relationship was governed by contract). Here,
several detailed agreements exist between the parties,
governing, among other things, the ownership and employment
relationships.
Further, to successfully state a claim for unjust
enrichment, a plaintiff must allege that (1) he conferred a
benefit on the defendant, (2) the benefit was not conferred
officiously or gratuitously, (3) the benefit is measurable, and
(4) the defendant consciously accepted the benefit. Booe v.
Shadrick, 322 N.C. 567, 570,
369 S.E.2d 554, 556 (1988); see
also Fiederlein v. Boutselis,
952 N.E.2d 847, 858 (Ind. Ct. App.
2011) (“To prevail on a claim of unjust enrichment, a claimant
must establish that a measurable benefit has been conferred on
the defendant under such circumstances that the defendant’s
retention of the benefit without payment would be unjust.”).
Here, Carty has failed to allege that he paid any taxes owed by
Defendants or otherwise conferred on the Defendants any benefit.
For these reasons, Carty’s unjust enrichment claim therefore
fails.
D.
With his fourth cause of action, for constructive
fraud, Carty claims that the Individual Defendants made material
misrepresentations regarding the subordination clauses in the
10
promissory notes and regarding Westport’s and WPNC’s intent and
ability to pay the notes. Carty alleges that the Individual
Defendants had a fiduciary duty to be open with Carty due to his
minority ownership and special relationship, and that he
reasonably relied on the misrepresentations to his detriment.
Carty fails, however, to allege any specifics about
the purported misrepresentations. Further, the Westport
Shareholders Agreement and the WPNC Operating Agreement made
clear that the promissory notes would be subordinated to all
other debt. And as already noted, Carty has made no allegation
that the Westport Shareholders Agreement and the WPNC Operating
Agreement were objects of constructive or other fraud. So the
promissory notes’ being consistent with the 2004 agreements—
which they are—cannot, as a matter of law, constitute fraud.
See Shortridge v. Platis, 458 N.E.2d 301, 304 (Ind. Ct. App.
1984) (“There can be no recovery in fraud for a deception by
which a person is induced to do something which he is already
bound to do.”). Carty’s constructive fraud claim therefore
fails.
E.
With his fifth cause of action, Carty alleges that the
Individual Defendants breached their fiduciary duties to Carty.
Specifically, Carty alleges that, as majority owners of Westport
11
and WPNC, the Individual Defendants owed Carty a fiduciary duty,
but that they acted to their benefit and Carty’s detriment in
forcing him from his ownership interest in WPNC and Westport,
causing him economic harm. Carty contends that this constituted
a breach of the Individual Defendants’ duty of loyalty.
Here again, the Individual Defendants’ actions fully
comport with the 2004 contracts, which expressly allowed for
involuntary share transfers, i.e., ousting owners from their
interests. This is what happened to Carty. Yet Carty nowhere
challenges either the Westport Shareholders Agreement or the
WPNC Operating Agreement. The Individual Defendants’ forcing
Carty from his ownership interest therefore cannot serve as the
basis for a breach of fiduciary duty claim. See MFP Eagle
Highlands, LLC v. Am. Health Network of Indiana, LLC, No. 1:07-
cv-0424-DFH-WGH, 2009 WL 77679, at *6 (S.D. Ind. Jan. 9. 2009)
(“Quite simply, [the party] was completely within its
contractual rights to [engage in the disputed transaction], so
it was not violating other legal duties in doing so.”); Regan v.
Natural Res. Grp., Inc.,
345 F. Supp. 2d 1000, 1011-13 (D. Minn.
2004) (holding that terminated shareholder’s breach of fiduciary
claim must fail where shareholders’ agreement explicitly allowed
shareholder to be terminated without cause).
12
F.
Carty’s sixth cause of action, for unfair and
deceptive trade practices in violation of N.C. Gen. Stat. § 75-
1.1, essentially boils down to a claim that Defendants used a
straw man to qualify as general contractors in North Carolina
and engaged in unspecified “other fraudulent acts and
omissions.” J.A. 144.
Notably, “[i]t is well recognized . . . that actions
for unfair or deceptive trade practices are distinct from
actions for breach of contract, and that a mere breach of
contract, even if intentional, is not sufficiently unfair or
deceptive to sustain an action under [Chapter 75].” Eastover
Ridge, L.L.C. v. Metric Constructors, Inc., 139 N.C. App. 360,
367-68,
533 S.E.2d 827, 832-33 (2000) (quotation marks omitted).
To become an unfair trade practice, a breach of contract must be
“characterized by some type of egregious or aggravating
circumstance . . . .” Norman Owen Trucking, Inc. v. Morkoski,
131 N.C. App. 168, 177,
506 S.E.2d 267, 273 (1998). Further,
there exists a “longstanding presumption against unfair and
deceptive practices claims as between employers and employees.”
Dalton v. Camp,
353 N.C. 647, 658,
548 S.E.2d 704, 712 (2001).
And “[m]atters of internal corporate management, such as the
manner of selection and qualifications for directors, do not
affect commerce as defined by Chapter 75 and our Supreme Court.”
13
Wilson v. Blue Ridge Elec. Membership Corp.,
157 N.C. App. 355,
358,
578 S.E.2d 692, 694 (2003).
Here, there exist contracts, an employment
relationship, and corporate management issues. Nothing alleged
anywhere in Carty’s complaint makes this case sufficiently
exceptional to jump the legal hurdles to a Chapter 75 claim.
Further, Carty’s “straw man” allegation is so bald that it
cannot survive a motion to dismiss. Carty alleges no facts
relating to his straw man claim, instead relying entirely on a
formulaic recitation of the elements of such a claim. He
therefore fails to plead sufficient facts to state a claim that
is “plausible on its face.” Twombly, 550 U.S. at 570. In sum,
Carty fails to successfully plead a Chapter 75 claim.
G.
With his seventh cause of action, for tortious
interference with contract, Carty contends that the Individual
Defendants “intentionally induced . . . Westport and/or WPNC[]
not to perform the contract, as described herein.” J.A. 145.
Carty alleges nothing more specific than this. Based on the
rest of the Amended Complaint, we assume that the contracts to
which Carty is referring are the Westport and WPNC promissory
notes.
14
As discussed above, Carty has failed to successfully
plead that the promissory notes have been breached. Under those
circumstances, there can be no tortious interference. See Ind.
Reg’l Recycling, Inc. v. Belmont Indus., Inc., 957 N.E.2d 1279,
1287 (Ind. App. 2011) (“The five elements necessary for tortious
interference with a contractual relationship are: (1) the
existence of a valid and enforceable contract; (2) defendant’s
knowledge of the existence of the contract; (3) defendant’s
intentional inducement of breach of the contract; (4) the
absence of justification; and (5) damages resulting from
defendants wrongful inducement of the breach.”); United Labs.,
Inc. v. Kuykendall,
322 N.C. 643, 662,
370 S.E.2d 375, 387
(1988) (same). This claim, too, therefore fails.
H.
With his eighth claim, for economic duress, Carty
alleges that Defendants prevented him from exercising his free
will regarding the promissory notes, the termination contract,
and the notice of buyout and release. Carty argues on appeal
that the “District Court erred when it determined that Indiana
law does not recognize claims for economic duress.” Appellant’s
Br. at 26. Defendants, in turn, argue that Carty failed to
object to this aspect of the magistrate’s memorandum and
recommendation and has therefore waived this issue on appeal.
15
We agree with Defendants: Carty’s objections to the
magistrate’s memorandum and recommendation do not address—or
even hint at—this argument. It is, therefore, waived. United
States v. Midgette, 478 F.3d 616, 621 (4th Cir. 2007) (“[A]
party . . . waives a right to appellate review of particular
issues by failing to file timely objections specifically
directed to those issues.”).
I.
Finally, the district court held that allowing Carty
to amend the Amended Complaint would be futile and therefore
denied leave to amend. Carty argues that this constituted an
abuse of discretion. See US Airline Pilots Ass’n, 615 F.3d at
320 (“We review the district court’s denial of leave to amend
the complaint for an abuse of discretion.”) (quotation marks
omitted). A number of the documents attached to, and thereby
incorporated into, the complaint (which had already been once
amended based on Defendants’ motions to dismiss) necessarily
defeat Carty’s claims. See Fed. R. Civ. P. 10(c) (“A copy of a
written instrument that is an exhibit to a pleading is a part of
the pleading for all purposes.”); US Airline Pilots Ass’n, 615
F.3d at 320 (“The district court does not abuse its discretion
in denying leave when amendment would be futile.”) (quotation
16
marks omitted). The district court’s refusal to allow amendment
therefore did not constitute an abuse of discretion.
III.
In sum, all of Carty’s causes of action in his Amended
Complaint fail, for one reason or another, as a matter of law.
We therefore affirm the district court’s grant of the motion to
dismiss. We also hold that the district court did not abuse its
discretion in refusing to allow Carty to again amend his
complaint.
AFFIRMED
17
