JOHN E. WAITES, US Bankruptcy Judge, District of South Carolina
Based on the findings of fact and conclusions of law set forth in the attached Order, the Court hereby
Defendants' motion is
If it is determined that this Court does not have authority to enter this Judgment as a final judgment, the Court submits the attached determination as proposed findings of fact and conclusions of law to the United States District Court for review.
This matter is before the Court on cross motions for summary judgment filed by Plaintiffs Arabi Gin Company, BCT Gin Company, Inc., Coley Gin & Fertilizer Company, Jones County Cotton Gin, Inc., and Henry County Gin, LLC ("Plaintiffs"); and Defendants Plexus Cotton, Ltd., Plexus Cotton USA, Inc., Nicholas Peter Francis Earlam, Forester Adams, Edward Clarke, Laurence Kirby, and Mark English. After a hearing and consideration of the record, applicable law, and arguments of counsel, the Court denies Plaintiffs' motion and grants Defendants' motion in part and denies it in part for the reasons set forth below.
This Court has jurisdiction over the proceeding pursuant to 28 U.S.C. §§ 1334, 157 (2012). This matter is a non-core proceeding under 28 U.S.C. § 157(b)(2), as it is "otherwise related to" the Chapter 7 bankruptcy case of Joseph Walker & Company, Inc. ("Debtor"). See 28 U.S.C. § 157(c)(1) (2012). The parties have expressly consented to this Court's entry of final orders or judgments and, therefore, the Court is permitted "to hear and determine and to enter appropriate orders and judgments."
1. On March 23, 2011, Plaintiffs commenced this adversary proceeding by filing a complaint ("Original Complaint") asserting personal, state-law based claims against Defendants for piercing Debtor's corporate veil, alter ego, breach of fiduciary duty to creditors, breach of contract, fraud, negligent misrepresentation, civil conspiracy, tortious interference, promissory estoppel, and constructive trust.
2. On August 1, 2011, Defendants filed their Answer to the Original Complaint.
3. Following the filing of the Original Complaint and after the Court inquired about the Chapter 7 Trustee for Debtor's case, Michelle L. Vieira's ("Trustee"), view of this litigation, counsel for Plaintiffs entered into negotiations with the Trustee about acquiring any interest in the Original Complaint's claims possessed by Debtor's bankruptcy estate. On September 29, 2011, the Trustee filed a Notice and Application for Sale of Property, which sought approval to sell to Plaintiffs the "Estate's interest in the causes of action enumerated in the [Original Complaint]." On November 21, 2011, this Court entered, with the parties' consent, an Order Authorizing Sale of Asset ("Order of Sale"), which held that the Trustee was authorized to sell "the Estate's interest in the nine causes of action asserted in the Adversary Proceeding No. 11-80023-jw [pending at the time]."
4. On November 10, 2011, Plaintiffs filed an Amended Complaint, which removed Dave McCarthy, J. Walker Clarke, Jr., Lawrence Fritz, and Joseph Pearson as Defendants and added Laurence Kirby and Mark English to reflect the composition of Debtor's board of directors at the times relevant to Plaintiffs' claims. Neither Plaintiffs' Original nor Amended Complaint contained an allegation of a derivative claim for breach of the fiduciary duties owed by directors and officers to the corporation and/or shareholders they serve.
5. On November 23, 2011, Defendants filed their Answer to the Amended Complaint.
6. After considerable discovery, a number of amended scheduling orders, and discovery disputes relating to the deposition of Nicholas Peter Francis Earlam and Plexus Cotton, Ltd., Plaintiffs filed a Motion to Intervene on October 8, 2012 to allow Debtor to intervene as a plaintiff and
7. By order entered November 21, 2012, the Court denied the Motion to Intervene, holding that the causes of action set forth in the Proposed Intervenor Complaint did not fall within the scope of the Order of Sale because the claims alleged were not part of the original pleading and therefore Plaintiffs, as opposed to the Trustee, were not the proper parties in interest and lacked standing to assert the proposed claims against Defendants on Debtor's behalf. Plaintiffs did not pursue additional sales or assignments by the Trustee and the Trustee, on behalf of Debtor, has not asserted the new claims as a party to this lawsuit.
8. After additional discovery and a further amended scheduling order, Defendants' Motion for Summary Judgment on all causes of action in the Amended Complaint was filed on August 30, 2013.
9. Plaintiffs filed their Motion for Partial Summary Judgment on their claims of breach of fiduciary duty to creditors and tortious interference on September 27, 2013.
10. After the hearing on the summary judgment motions, the parties entered into a Stipulation of Dismissal of Certain Defendants, filed February 3, 2014, which dismissed with prejudice the following former directors of Debtor: Forester Adams, Edward Clarke, J. Walker Clarke, Sr., and Mark English. The remaining Defendants include only Nicholas Peter Francis Earlam, Laurence Kirby, Plexus Cotton, Ltd., and Plexus Cotton USA, Inc.
11. Plaintiffs are five cotton gins located in Alabama, Georgia, and North Carolina:
13. Debtor was added by Plaintiffs as a nominal defendant in this adversary proceeding. Debtor, as a corporation organized under South Carolina law with its principal place of business located in Columbia, South Carolina, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on March 18, 2010. As of the date of this Order, Debtor's bankruptcy case is still pending.
14. Nicholas Peter Francis Earlam ("Earlam") and Laurence Kirby ("Kirby") are the two remaining individual Defendants and both are residents of Liverpool, United Kingdom. During the time period relevant to this proceeding, Earlam served Plexus Cotton, Ltd. as the chairman of its board of directors and as a high-level executive manager. Earlam also served on Debtor's board of directors, becoming its chairman on or around October 6, 2008.
15. Defendant Plexus Cotton, Ltd. ("Plexus Limited") is a foreign corporation organized under the laws of the United Kingdom with its principal place of business located in the United Kingdom, and is engaged in the international cotton trade. Plexus Limited was the majority shareholder of Debtor prior to its bankruptcy filing and Debtor functioned as its overseas subsidiary. Additionally, three representatives of Plexus Limited — Mark English, Earlam, and Kirby — served on Debtor's five-person board of directors.
16. Defendant Plexus Cotton USA, Inc. ("Plexus USA") is a corporation organized under South Carolina law with its principal place of business located in Columbia, South Carolina. Prior to Debtor's bankruptcy filing, it was a wholly-owned subsidiary of Debtor.
17. Debtor, Plexus Limited, and Plexus USA were members of a cooperative of businesses referred to by the parties as the Plexus Group. The entities also participated in a joint marketing effort which has been referred to as the Cotton Alliance.
18. Albrecht Mueller-Pearse ("Albrecht") was a German corporation which shared an established business relationship with the Plexus Group from prior dealings. Albrecht went into German insolvency proceedings and receivership in February of 2009 and its assets have since been liquidated. Two of Albrecht's subsidiaries, Friedrich W. Kaemena & Company ("Kaemena") and Hong Kong Cotton Company ("HKC"), remained viable enterprises after the liquidation.
20. Between July 10, 2007 and March 5, 2008,
21. According to the Ginner Contracts, the price of the cotton was to be set at a later point in time.
22. The following provision was included in each of the Ginner Contracts:
The form of offsetting contractual commitment to which these provisions refer is known as a hedge.
23. In the spring of 2008, Debtor incurred multiple margin calls
24. The occurrence of margin calls was not unique to Debtor; the extreme volatility of the cotton markets in 2008 affected various merchants across the globe. In March 2008, cotton futures prices rose to practically unprecedented levels which, in turn, resulted in a disconnect between physical cotton prices and futures prices. As prices fluctuated from their March high, brokerage firms were prompted to make margin calls on their customers.
25. On March 23, 2008, around the same time Debtor received the margin calls discussed above, Earlam received an email from a member of Debtor's board, Forester Adams ("Adams"), about impending financial troubles and the state of Debtor's business. Earlam responded the next day, raising the idea that Debtor consider moving the Ginner Contracts to "another company within the [Plexus] group." Shortly thereafter, Adams began discussing with Albrecht the possibility of arranging a sale of cotton from Debtor to Albrecht which would function as a physical hedge to offset Debtor's obligations under the Ginner Contracts.
26. Adams emailed Earlam on April 1, 2008 to confirm the execution of a forward contract
27. Contract 8001 provided for "prompt delivery" of the cotton, which required Debtor to deliver the contracted cotton to Albrecht within two to three weeks after Debtor obtained warehouse receipts from the Ginners for the cotton purchased under the Ginner Contracts.
28. Around the same time Contract 8001 was executed, a cooperative of businesses including Albrecht — referred to by the parties as the Albrecht Group — engaged in merger discussions with the Plexus Group. A formal meeting to discuss a potential merger between the Albrecht and Plexus Groups took place in late April 2008.
29. On April 9, 2008, after Debtor entered into Contract 8001, Earlam sent an email to Fritz Grobien ("Grobien"), a managing partner at Albrecht. Earlam's email stated in pertinent part that "Plexus will write a letter to [Albrecht] saying that they take over all obligations of this contract...." The promise was formally memorialized on April 15, 2008 in a writing
Earlam's fellow dual-director, Kirby, was the only other member of Debtor's board who was aware of the Plexus Limited Agreement. The parties agree that the language of the Plexus Limited Agreement, at a minimum, constituted a promise that Plexus Limited would cover any financial disadvantages suffered by Albrecht as a result of its performance under Contract 8001.
30. At some point after the Plexus Limited Agreement was memorialized but before the end of 2008, Earlam learned from Kirby that the Plexus Limited Agreement would need to be reflected as a contingent liability on Plexus Limited's books unless it was replaced with a new agreement under which liability for losses would be placed on an individual or entity other than Plexus Limited. According to Earlam, this was accomplished by a verbal agreement between himself and Grobien of Albrecht as early as September 2008 and prior to October 6, 2008 ("Earlam Agreement"), under which Earlam agreed to be personally responsible for any losses incurred by Albrecht as the result of having entered into Contract 8001.
31. The evidence indicates that as early as September 27, 2008 Debtor was aware of Albrecht's desire to renegotiate Contract 8001. On October 6, 2008, Albrecht formally communicated to Debtor via email that its performance under Contract 8001 was no longer possible. Albrecht sought to modify Contract 8001 to transfer and split its purchase obligations between two of Albrecht's Subsidiaries, Kaemena and HKC, and include an extended delivery timeframe. At the time of these communications and proposals, evidence shows that Albrecht may have had adequate financing to make the purchases under Contract 8001, but doing so would have placed it into extreme economic hardship by straining its credit lines.
32. Debtor convened a special meeting of its board on October 6, 2008 to consider Albrecht's proposed modifications to Contract 8001.
33. At the meeting, Earlam, Kirby, Adams, and Edward Clarke ("E. Clarke") unanimously voted to modify Contract 8001 under the terms proposed by Albrecht.
34. It appears that the actions of Debtor's board, as evidenced through the October 6th vote, were intended to release Albrecht from Contract 8001. The Subsidiary Contracts dealt with substantially the same collateral that was the subject of Contract 8001. Further, the Subsidiary Contracts' execution was initiated by Debtor's board at Albrecht's request with the implicit aim of substituting Albrecht's previously existing contractual obligations with those agreed to by the Subsidiaries.
35. At the time of the October 6th board meeting, only two members of Debtor's board — Earlam and Kirby — knew of the Plexus Limited and Earlam Agreements provided to Albrecht (collectively, "Agreements"). The deposition testimony of Adams and E. Clarke, the participating board members unaware of the Agreements at the time of the vote, indicates that both would have appreciated learning of the Agreements prior to the vote. However, Adams and E. Clarke have also provided affidavits stating that their decisions would have been the same even if the Agreements had been disclosed.
36. During the fall of 2008, Earlam and other members of Debtor's board communicated with representatives of the Ginners in an attempt to restructure the terms of the Ginner Contracts. Specifically, around the same time as the October 6th board meeting, Earlam and other board members
37. Near the time of Earlam's meetings with representatives of the Ginners, Debtor circulated a proposed addendum to the Ginner Contracts that, if accepted, would delay performance and shift the Ginners' delivery timeframe forward to January through July 31, 2009.
38. On or around October 26, 2008, the Ginners attended a meeting at Debtor's Columbia, South Carolina headquarters. At or around this time, the Ginners were informed that Debtor would be withdrawing its proposed addendum. No party adopted the addendum prior to it being withdrawn.
39. The record reflects that at least one Plaintiff, BCT, may have attempted to deliver a portion of the cotton it contracted to sell to Debtor prior to the Ginner Contracts' January 15, 2009 deadline for delivery and was turned away. After Debtor accepted and paid for 100 bales from BCT, Debtor subsequently rejected a second shipment of another 100 bales.
40. On December 17, 2008, Debtor's primary lender, BB & T, asserting default, forced Debtor to begin liquidating some of its assets and wind-down its business. According to Dave McCarthy, Debtor's default under the terms of its credit line with BB & T came about as a result of Debtor's failure to maintain its physical cotton inventory with no more than 10,000 unhedged bales.
41. On December 23, 2008, the Earlam Agreements were memorialized in two separate writings. Earlam provided promises to Albrecht, the Subsidiaries, and the Subsidiaries' directors consisting of language of similar effect to that of the Plexus Limited Agreement. The Earlam Agreements were secured by shares of Plexus Limited stock owned by Earlam and his wife, who together stood as its majority shareholders.
42. The Earlam Agreement with Albrecht stated, in pertinent part:
Similarly, the Earlam Agreement with the Subsidiaries and their directors stated, in pertinent part:
The Earlam Agreements also provide that no third party would be entitled to enforce any rights or remedies under their terms.
43. On January 12, 2009 — three days before the Ginner Contracts' deadline for delivery — the Ginners received notice from Debtor that it would not be able to perform.
44. Sometime between January 12, 2009 and February 25, 2009, it appears that certain Ginners sold some of the cotton that was the subject of the Ginner Contracts to other parties. Other Ginners delayed their efforts to sell the contracted cotton to others until the summer of 2009 following further efforts to seek performance by Debtor or the Subsidiaries.
45. On or around February 25, 2009, the Ginners filed an arbitration complaint with the American Cotton Shippers Association ("ACSA") against Debtor and Plexus Limited claiming a loss of $11,973,472.67 arising from Debtor's non-performance of the Ginner Contracts. ACSA determined it did not have jurisdiction over Plexus Limited, but continued in the proceedings against Debtor. Debtor filed a response to the Ginners' complaint, admitting liability but disputing the amount of damages sought.
46. On or around March 6, 2009, Arabi, BCT, Coley, and Jones County filed individual complaints against Debtor in South Carolina state court for collection, constructive trust, and injunctive relief. Henry County filed a complaint alleging the same claims on June 15, 2009. The complaints filed by Plaintiffs in March and June (collectively, "State Court Complaints") sought to preserve and enforce the Subsidiary Contracts and contended that "these contracts were specifically intended to cover and provide security for the purchase of Plaintiff[s'] cotton" under the Ginner Contracts.
47. While the ACSA arbitration was pending, Debtor remained in contact with Albrecht in an attempt to receive assurances of performance from its Subsidiaries, Kaemena and HKC, under the Subsidiary Contracts. Sometime in March of 2009, Grobien of Albrecht informed Debtor that Kaemena and HKC were solvent, despite Albrecht commencing an insolvency proceeding in February of 2009, but had no intentions of taking the Subsidiary Contracts' cotton for shipment at that time. Kaemena and HKC planned to rely on the Contracts' terms which allowed shipment to be requested from Debtor as late as October of 2009 at the Subsidiaries' option. The Ginners also attempted, albeit unsuccessfully, to directly contact the Subsidiaries about their intent to perform. Later, in October of 2009, Grobien, with the input of Earlam, informed Debtor that Albrecht was unwilling to entertain any further discussion with the Ginners about the performance of the Subsidiary Contracts.
48. The ACSA arbitration committee ("Committee") rendered a damages award on or around May 8, 2009 of $10,687,356.42 upon its finding that Debtor breached the Ginner Contracts on January 12, 2009. The Committee's award took into account the cotton the Ginners successfully sold on the open market subsequent to Debtor's breach.
49. Each Plaintiff and Assignor-Gin filed a Proof of Claim in Debtor's bankruptcy proceeding using the Committee's award as the basis for its claim. The parties filed their Proofs of Claims on May 27, 2010 for the following amounts, which total to the award provided by the Committee: Arabi (Claim 12-1), $4,688,402.00; BCT (Claim 11-1), $493,809.94; Coley (Claim 10-1), $381,800.00; Henry County (Claim 6-1), $1,718,659.80; Jones County (Claim 8-1), $1,210,050.00; Tri-County (Claim 7-1), $188,294.98; and Roanoke Tar (Claim 9-1), $2,006,339.70.
50. Plexus Limited also filed a Proof of Claim in Debtor's bankruptcy for the amount of $123,181.00,
51. On June 28, 2010, the Trustee, on behalf of Debtor's bankruptcy estate, initiated additional arbitration proceedings before the International Cotton Association ("ICA") which related to the Ginners' claims. With supporting affidavits provided by representatives of the Ginners, the Trustee sought to enforce the Subsidiary Contracts. Documents provided by the Trustee in support of the ICA claims against the Subsidiaries revealed repeated attempts by Debtor and the Ginners to enforce the Subsidiary Contracts and communicate with Albrecht, Kaemena, and HKC about the performance of the Subsidiary Contracts. With respect to the Ginners' efforts to enforce the Subsidiary Contracts, these supporting documents show that an individual "well known in the U.S. and international cotton merchandising community," Stuart Frazer of Production Marketing, L.L.C., "attempted to communicate with [the Subsidiaries] for the purpose of arranging for delivery of cotton on behalf of [Debtor]" pursuant to the terms of the Subsidiary Contracts. Mr. Frazer did so "on behalf of [Debtor] pursuant to an agreement between [Debtor] and Production Marketing, [L.L.C.], acting as representative of a coalition of U.S. cotton ginners [the Ginners] who agreed to provide sufficient 2008/2009 crop cotton to [Debtor] to enable it to fulfill the [Subsidiary] Contract[s]."
52. On June 17, 2011, the ICA arbitration panel rendered an award and held that the Subsidiary Contracts were valid and enforceable. Because cotton was never actually delivered to the Subsidiaries by Debtor, the ICA panel did not issue a monetary award and instead required the Subsidiaries to "invoice back" to Debtor the cotton pledged to be purchased.
Under Rule 56(c) of the Federal Rules of Civil Procedure, as adopted and applied to this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). A genuine dispute of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden of demonstrating the absence of a genuine issue of material fact rests on the party seeking summary judgment; this must be accomplished through the moving party's identification of the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate such an absence. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The nonmoving party must respond with production of "specific facts showing that there is a genuine issue for trial." Fed.
In the instant case, cross motions for summary judgment have been filed. "When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits `to determine whether either of the parties deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n.4 (1st Cir.1997)) (citation and internal punctuation omitted). "[T]he court must take care to `resolve all factual disputes and any competing, rational inferences in the light most favorable' to the party opposing that motion." Rossignol, 316 F.3d at 523 (quoting Wightman v. Springfield Terminal Ry. Co., 100 F.3d 228, 230 (1st Cir.1996)).
The motions before the Court address numerous state law claims, thereby requiring analysis of relevant choice of law principles. "Bankruptcy courts adjudicating a state law claim should apply the choice of law rules of the forum state in the absence of federal policy concerns." In re Hydrogen, L.L.C., 431 B.R. 337, 346 (Bankr.S.D.N.Y.2010); see also In re Merritt Dredging Co., Inc., 839 F.2d 203, 205-06 (4th Cir.1988). South Carolina is the forum state; therefore, South Carolina choice of law principles must be applied. Plaintiffs have brought veil piercing and alter ego causes of action in addition to others which sound in contract, equity, and tort.
"When a court considers disregarding the corporate entity, i.e., `piercing the corporate veil,' the court applies the law of the state of incorporation." In re Cambridge Biotech Corp., 186 F.3d 1356, 1376 n.11 (Fed.Cir.1999); see, e.g., CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987) ("No principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations...."). In the instant case, Debtor is incorporated in South Carolina. Therefore, Plaintiffs' requests for a declaratory judgment piercing the corporate veil of Debtor and additionally, or in the alternative, that Plexus Limited be deemed the alter ego of Debtor, must be governed by South Carolina law.
"Generally, under South Carolina choice of law principles, if the parties to a contract specify the law under which the contract shall be governed, the court will honor this choice of law." Nucor Corp. v. Bell, 482 F.Supp.2d 714, 728 (D.S.C.2007). Here, the Ginner Contracts contain choice
Plaintiffs have brought claims of promissory estoppel and breach of fiduciary duty to creditors. As to promissory estoppel, the laws of Alabama, Georgia, and South Carolina are consistent as to the cause of action's elements. See, e.g., Trident Const. Co., Inc. v. Austin Co., 272 F.Supp.2d 566, 576-77 (D.S.C.2003), aff'd sub nom., Trident Constr. Co., Inc. v. Austin Co., 93 Fed.Appx. 509 (4th Cir.2004); Ford v. Jackson Square, Ltd., 548 So.2d 1007, 1012-13 (Ala.1989); U.S. Foodservice, Inc. v. Bartow Cnty. Bank, 300 Ga.App. 519, 685 S.E.2d 777, 780 (2009); Rushing v. McKinney, 370 S.C. 280, 295, 633 S.E.2d 917, 925 (Ct.App.2006). Therefore, the result does not change based on which state's law is applied. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 838 n.20, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). North Carolina, on the other hand, does not recognize promissory estoppel as an affirmative cause of action. See, e.g., Rudolph v. Buncombe Cnty. Gov't, 846 F.Supp.2d 461, 477 (W.D.N.C.2012), aff'd, 474 Fed.Appx. 931 (4th Cir.2012).
As to Plaintiffs' claims that Defendants Earlam and Kirby, as corporate officers of Debtor, breached their fiduciary duties to Plaintiffs, as creditors of Debtor, South Carolina law controls because Debtor is incorporated in this State. See In re Infinity Bus. Grp., Inc., 497 B.R. 794, 804 (Bankr.D.S.C.2013) ("[C]laims concerning fiduciary duties of corporate officers [are] governed by the state of incorporation."); see also Restatement (Second) of Conflict of Laws § 309 (1971) ("The local law of the state of incorporation will be applied to determine the existence and extent of a director's or officer's liability to the corporation, its creditors and shareholders....").
Plaintiffs have pled the following tort-based causes of action: (1) fraud; (2) tortious interference of contract; and (3) negligent misrepresentation. "Under traditional South Carolina choice of law principles, the substantive law governing a tort action is determined by the lex loci delicti, the law of the state in which the injury occurred." Nash v. Tindall Corp., 375 S.C. 36, 39, 650 S.E.2d 81, 83 (Ct.App. 2007) (quoting Boone v. Boone, 345 S.C. 8, 13, 546 S.E.2d 191, 193 (2001)); see also Infinity, 497 B.R. at 804 ("In South Carolina, the law governing an action in tort is the law of the forum in which the injury occurred."). "According to this rule, the substantive rights and liabilities of the parties are to be determined in accordance with the law of the place of injury...." Mizell v. Eli Lilly & Co., 526 F.Supp. 589, 595 (D.S.C.1981). Therefore, Plaintiffs' respective tort claims must be reviewed under the law of the state in which each Plaintiff allegedly suffered the financial losses claimed in the Amended Complaint.
As an initial matter, the Court finds that summary judgment should be granted in favor of Plexus USA on all claims based upon the absence of evidence in the record indicating it was in any way involved with the Ginner Contracts. To the extent it is alleged that "Plexus" acted or failed to act to the detriment of the Ginners, the evidence before the Court indicates that such allegations must logically refer only to Debtor's parent corporation, Plexus Limited, for which Earlam and Kirby served as managers and directors.
A general summary of the allegations in the Amended Complaint regarding Plaintiffs' personal and direct claims against Defendants is as follows:
Defendants request summary judgment on all aforementioned claims brought by Plaintiffs.
Plaintiffs seek to impose personal liability on Defendants as shareholders and board members of Debtor by piercing the corporate veil. Plaintiffs assert that the alleged undercapitalization of Debtor, disregard for corporate formalities, absence of an independent and functioning corporate structure, commingling of funds between Debtor and Plexus Limited, and lack of independent control should equitably estop Defendants from utilizing Debtor's formal corporate status as a shield from personal liability. Plaintiffs further argue that Plexus Limited functioned as the alter ego of Debtor, and therefore request that this Court hold Plexus Limited liable for Debtor's breach of the Ginner Contracts.
"[I]n an appropriate case and in furtherance of the ends of justice, the corporate veil will be pierced and the corporation and its stockholders will be treated as identical[.]" DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir.1976) (applying South Carolina law to determine whether to "impose individual liability on the president
Defendants have met their burden by showing an absence of genuine issues of material fact as to the first part of the DeWitt test and Plaintiffs have failed to respond with more than a "scintilla of evidence" that a genuine dispute does in fact exist. See Anderson, 477 U.S. at 252, 106 S.Ct. 2505; Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. Through affidavits and depositions, Defendants have produced ample evidence showing Debtor's adherence to corporate formalities, maintenance of books and records, and the existence of bank accounts and lines of credit owned and controlled exclusively by Debtor and not its individual members. Debtor held its own board meetings and recorded minutes of these meetings, maintained an organized employee and management structure, and entered into legitimate business relationships with companies other than those with an ownership interest in Debtor. Further, the report of Defendants' solvency expert, Loretta Cross, shows that Debtor was not grossly undercapitalized during the time relevant to Plaintiffs' claims and was capable of paying its operating expenses until BB & T called it into default on its credit line covenants and began forcing liquidation of certain assets of Debtor in December of 2008. This evidence is supported by additional facts showing that prior to December of 2008, Debtor was able to obtain lines of credit based on its own finances and creditworthiness.
Plaintiffs have not provided any evidence to counter that presented by Defendants aside from unsupported and generalized statements in their memoranda and briefs. See, e.g., Martin v. Cavalier Hotel Corp., 48 F.3d 1343, 1358 (4th Cir.1995) (noting that counsel's statements do not constitute evidence). Plaintiffs have regularly relied on official minutes from Debtor's properly conducted board meetings in formulating their arguments, thereby implicitly recognizing Debtor's adherence to certain corporate formalities. Furthermore, Plaintiffs' evidence of management fees paid to Plexus Limited by Debtor, Debtor's receipt of a loan from Plexus Limited to meet its margin calls, and Debtor's involvement in the Plexus Group do not constitute grounds sufficient to otherwise indicate Debtor's ignorance of corporate formalities. "Indeed, far from suggesting any domination or control of a corporate subsidiary, intercompany transactions may establish the independence of corporate entities." Douglas G. Smith, Piercing the Corporate Veil in Regulated
For Plaintiffs to prevail at summary judgment on their claims that Plexus Limited functioned as the alter ego of Debtor, it must be shown that a genuine issue of material fact exists as to whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. See Oskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) ("An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (2) inequitable consequences caused thereby"). "`Control may be shown where the subservient entity manifests no separate interest of its own and functions solely to achieve the goals of the dominant entity.'" Id. (quoting Colleton Cnty. Taxpayers Ass'n v. Sch. Dist. of Colleton Cnty., 371 S.C. 224, 237, 638 S.E.2d 685, 692 (2006)).
While Plaintiffs have provided evidence showing that Debtor: (1) paid Plexus Limited management fees for the advice and experience of its directors; (2) received loans from Plexus Limited for the purpose of meeting margin calls; (3) employed as directors several individuals who also served as directors for Plexus Limited; and (4) participated in the Plexus Group and Cotton Alliance with Plexus Limited, Plaintiffs' evidence, without more, is insufficient to demonstrate the "total domination and control" necessary for application of the alter ego doctrine. Id.; see also United States v. Bestfoods, 524 U.S. 51, 69, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998) ("`[I]t is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts.'") (quoting Am. Protein Corp. v. AB Volvo, 844 F.2d 56, 57 (2d Cir.1988), cert. denied, 488 U.S. 852, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988)); Piercing the Corporate Veil in Regulated Industries, 2008 B.Y.U. L.Rev. at 1177 ("Courts have held, for example, that `[t]he fact that [a parent corporation] requires the subsidiaries to pay a fee' for services actually `supports [the parent's] argument that it is not the alter ego of any of its subsidiaries.'") (quoting Joiner v. Ryder Sys. Inc., 966 F.Supp. 1478, 1489 (C.D.Ill.1996)).
Furthermore, in light of evidence showing Debtor maintained separate bank accounts, obtained credit lines based solely upon its own assets and liabilities, obtained and possessed its own federal tax identification number and accordingly paid taxes when they became due, employed legal counsel and accounting firms separate of those used by Plexus Limited, and maintained the same general management and employee structure both before and after Plexus Limited became its majority shareholder, the alter ego doctrine will not apply to impose liability on Plexus Limited for Debtor's breach of the Ginner Contracts. Without evidence from Plaintiffs to rebut Debtor's independent existence, the Court must grant Defendants' motion for summary judgment on this cause of action.
Plaintiffs have advanced two theories for the imposition of liability on Defendants for Debtor's breach of the Ginner Contracts. First, Plaintiffs argue that Defendants,
The Court finds that both of Plaintiffs' theories of liability for breach of contract fail and summary judgment is appropriate in favor of Defendants on Plaintiffs' breach of contract claims.
It is well-settled under the law that directors cannot be held personally liable for a corporation's obligations and debts solely by their membership on its board.
Similarly, Plexus Limited, as majority shareholder, cannot be held liable for breach of contract as it also stood in the position of a third-party to the Ginner Contracts, and the mere presence of dual-directors such as Earlam and Kirby
"Ratification, as it relates to the law of agency, means the express or implied adoption and confirmation by [a principal] of an act or contract performed or entered into in his behalf by another who at the time assumed to act as his agent." Lincoln v. Aetna Cas. & Sur. Co., 300 S.C. 188, 191, 386 S.E.2d 801, 803 (Ct.App.1989) (citing Barber v. Carolina Auto Sales, 236 S.C. 594, 115 S.E.2d 291 (1960)). "Ratification exists upon the concurrence of three elements; (1) acceptance by the principal of the benefits of the agent's acts, (2) full knowledge of the facts, and (3) circumstances or an affirmative election indicating an intention to adopt the unauthorized arrangements." Id. (citing 2A C.J.S. Agency § 71 (1972)). Inherent in the act of ratification of a contract is the existence of an agency relationship. Plaintiffs allege that Debtor functioned as the agent of Defendants and Defendants, in turn, acted as Debtor's principal.
"Agency is the fiduciary relationship resulting from the manifestation of consent by one person to another that the other shall act on behalf of and subject to the control of the first, and of consent by the other so to act." 23 S.C. Jur. Agency § 2 (2014) (citing Restatement (Second) of Agency § 1 (1958)); see also Peoples Fed. Sav. & Loan Ass'n v. Myrtle Beach Golf & Yacht Club, 310 S.C. 132, 425 S.E.2d 764 (Ct.App.1992). "To determine whether the subsidiary is functioning as a mere agent of the parent company, the courts look at four factors: `(1) common ownership, (2) financial independence, (3) degree of selection of executive personnel and failure to observe corporate formalities, and (4) the degree of control over marketing and operational policies.'" ScanSource, Inc. v. Mitel Networks Corp., 6:11-CV-00382-GRA, 2011 WL 2550719, at *6 (D.S.C. June 24, 2011) (citing Builder Mart of Am., Inc. v. 1st Union Corp., 349 S.C. 500, 511, 563 S.E.2d 352, 358 (Ct.App. 2002), overruled on unrelated grounds, Farmer v. Monsanto Corp., 353 S.C. 553, 579 S.E.2d 325 (2003)). These elements are similar to the factors discussed at length above in relation to Plaintiffs' veil piercing and alter ego claims. As noted in the prior discussion, Plaintiffs have failed to provide evidence of a genuine issue of material fact as to whether Debtor functioned independent of Plexus Limited; the mere fact that Plexus Limited at times loaned Debtor money to meet margin calls does not in and of itself signal financial dependence. Additionally, the evidence previously discussed shows Debtor's adherence to corporate formalities, independent employee and management structure, and autonomous execution of contracts and lending agreements separate and apart from the control of Plexus Limited and Earlam and Kirby as agents of Plexus Limited. Absent an agency relationship, Plaintiffs' ratification argument fails as a matter of law and summary judgment is appropriate in favor of Defendants on this issue.
Plaintiffs claim that Defendants breached their fiduciary duties to the Ginners, as creditors of Debtor, during a period when Debtor was insolvent through their actions in relation to the Ginner Contracts, Contract 8001, and the Subsidiary Contracts. From the outset, Plaintiffs' claims on this issue present two fundamental flaws: (1) Plaintiffs refer to the allegedly at-fault
As to the first matter, in regard to Plexus Limited, no applicable authority extends corporate fiduciary duties — whether owed to the corporation and its shareholders, creditors, or other parties — to an entity positioned as a majority shareholder. Individuals are capable of serving as members of corporate boards; the same cannot be said for a corporate entity. Any and all fiduciary duties owed in the corporate context flow from a corporation's officers and directors. Therefore, Plexus Limited is entitled to summary judgment on Plaintiffs' claims for breach of fiduciary duty to creditors.
As to the second matter, the Court agrees with Defendants' position that Plaintiffs have not alleged and do not possess the right to allege a claim against Defendant-directors Earlam and Kirby for an alleged breach of their fiduciary duties owed to Debtor and its shareholders. The cause of action pled by Plaintiffs is expressly listed in the Amended Complaint as: "COUNT II, BREACH OF FIDUCIARY DUTY TO CREDITORS." Further, as discussed in the Court's factual findings above, the Order of Sale gave Plaintiffs only the Trustee's interest (if any) in "the nine causes of action asserted in the Adversary Proceeding...." As expressly declared by Plaintiffs' own description of the cause of action and the specific facts set forth in association with that cause of action,
"When a corporation becomes insolvent, [the] fiduciary duty of the directors shifts to the creditors of the corporation." In re BHB, 1998 WL 2016846, at *13 (citing Fed. Deposit Ins. Corp. v. Sea Pines Co., 692 F.2d 973 (4th Cir.1982) and Davis v. Woolf, 147 F.2d 629 (4th Cir. 1945)). But the duties owed to creditors upon insolvency are limited:
Sea Pines, 692 F.2d at 977 (quoting Woolf, 147 F.2d at 633).
A director's fiduciary duties to a corporation's creditors are triggered upon insolvency. See, e.g., In re BHB, 1998 WL 2016846, at *13. According to the testimony of Defendants' solvency expert, Loretta Cross, Debtor became insolvent sometime between September 30, 2008 and October 31, 2008.
It appears that both Debtor and the Ginners expected the Ginner contracts to be offset by a hedge, either in the form of a physical sale or through a position held by Debtor in the futures market. After Debtor borrowed money from Plexus Limited to meet margin calls as a result of the volatile futures market in the spring of 2008, Debtor sought out a physical hedge (rather than positions in the futures market) to offset its purchase obligations under the Ginner Contracts. Through Contract 8001, Debtor had secured a buyer (Albrecht) to purchase the Ginners' 2008/2009 new crop cotton from Debtor
The evidence, when viewed in the light most favorable to Plaintiffs, gives rise to the reasonable inference that the October 6th board vote effectively eliminated Debtor's ability to receive payment upon Albrecht's acceptance of Debtor's shipments under the aforementioned two to three week timeframe. Instead, after substituting Albrecht's purchase obligations with those of its Subsidiaries, Debtor would be unable to receive payment until as early as March or as late as October of 2009 — the precise date of shipment could be set only at Kaemena and HKC's option, even though the cotton was expected to be delivered to Debtor by the Ginners prior to January 15, 2009. Thus, Debtor's expectation of performance on the Ginners Contracts through an offsetting sale was substantially delayed. As to Plaintiffs' breach of fiduciary duty to creditors claims, the relevant question in light of these facts is not whether the substitution of Contract 8001 was approved for the purpose of impairing Debtor's ability to perform the Ginner Contracts; this is an inquiry better suited for Plaintiffs' tortious interference claims. Instead, on this cause of action, the Court must determine if there is a genuine issue of material fact as to whether Earlam and Kirby effectuated the delay in Debtor's offsetting sale for the purpose of preferring either themselves or another creditor of Debtor, namely Plexus Limited.
"When there is a question as to whether a director has fulfilled his fiduciary obligations to creditors, the issues of the director's reasonableness and good faith are irrelevant, as is the severity of the breach; the only issue is whether there has been a breach at all." In re BHB, 1998 WL 2016846, at *13 (citing Anthony v. Padmar, Inc., 320 S.C. 436, 465 S.E.2d 745 (Ct.App.1995)). The evidence suggests that Defendant-directors Earlam and Kirby may have voted in favor of Albrecht's proposed modifications to Contract 8001 for the purpose of limiting the liability of Plexus Limited or Earlam under whichever Agreement was effective at the time of the vote,
Drawing all reasonable inferences in the light most favorable to Plaintiffs, the existing evidence, including the delayed memorialization of the Earlam Agreements, suggests that Defendant-directors Earlam and Kirby acted in favor of substituting Contract 8001 for the purpose of protecting and preferring Plexus Limited over other creditors. Furthermore, the evidence also suggests that Earlam preferred himself over the creditors of Debtor, including Plexus Limited, by taking steps to insulate himself from liability under the Earlam Agreements, if they were in fact effective as of October 6th. Defendants argue that even if Earlam and Kirby's actions are viewed as effectuating a preference for themselves or Plexus Limited, Plaintiffs cannot show such acts caused damage to the Ginners. "[W]ant of causation must not be determined as a matter of law unless, from the evidence, the only reasonable hypothesis is that such want exists; if reasonable minds may differ, it is a jury question." 75A Am.Jur.2d Trial § 657 (2014). When drawing all reasonable inferences in the light most favorable to Plaintiffs, the Court finds that a genuine issue of material fact exists as to the relation between the Defendant-directors' vote to substitute Contract 8001 with the Subsidiary Contracts and Debtor's ultimate inability to perform the Ginner Contracts. Although Earlam and Kirby may not have voted in favor of the substitution with an intent to induce Debtor's breach, the evidence, when viewed in the light most favorable to Plaintiffs, suggests that the Subsidiary Contracts' delayed delivery dates may have contributed to Plaintiffs' damages. Therefore, for the reasons discussed above, the Court hereby denies Earlam and Kirby's motion for summary judgment on this claim.
Plaintiffs allege that Defendants, without privilege or justification, engaged in a
Although the elements for tortious interference vary slightly between the Plaintiffs' home states, among the common elements is the requirement that the defendant took some action for the purpose of inducing the related breach of contract. See, e.g., Coloplast Corp. v. Am. Breast Care, L.P., 209 Fed.Appx. 945, 946 (11th Cir.2006) (applying Georgia law to plaintiff's tortious interference claim, including the requirement of evidence that "`defendant acted purposely'" and "`induced a breach of contractual obligations or caused a party or third parties to discontinue or fail to enter into an anticipated business relationship with the plaintiff'") (quoting Disaster Serv., Inc. v. ERC P'ship, 228 Ga.App. 739, 492 S.E.2d 526, 528-29 (1997)); Bill Fitzgibbons, L.L.C v. REV Birmingham, Inc., No. 2:14-CV-268-VEH, 2014 WL 1923813, at *6 (N.D.Ala. May 12, 2014) ("To establish the tort of interference with contractual or business relationships a plaintiff must prove ... [that] the defendant intentionally interfered....") (internal quotation marks omitted); King v. N.C. Dep't of Transp., Div. of Motor Vehicles, 121 N.C. App. 706, 468 S.E.2d 486, 490 (1996) (requiring proof that defendant was an outsider to plaintiff's contract with a third party and "intentionally induced the third person not to perform"). Defendants have shown an absence of genuine issues of material fact as to this element and Plaintiffs have failed to produce more than a scintilla of evidence to contradict that which has been provided by Defendants.
Under the breach of fiduciary duty to creditors claims, Plaintiffs assert that Earlam, Kirby, and Plexus Limited acted to modify Contract 8001 in order to escape or limit liability under the Agreements. However, it is also undisputed that the modification of Contract 8001, by substituting the Subsidiary Contracts, was also due to Albrecht's indication that it could not perform and this preserved, albeit delayed, Debtor's ability to perform. It is inconsistent and contradictory for Plaintiffs to then assert in this cause of action for tortious interference that the same Defendants additionally desired Debtor not to perform. In the event Debtor failed to perform the Ginner Contracts, Defendants would be exposed to liability under the Agreements — contrary to the goal on which the prior cause is based. In fact, there is no evidence indicating that Defendants had any intent or desire for Debtor not to perform the Ginner
Accepting as true the facts of Plaintiffs' Complaints and construing the evidence in the light most favorable to Plaintiffs as the nonmoving parties, the reasonable inference is that Defendants did not act to purposefully induce Debtor's breach of the Ginner Contracts, whether acting individually or on behalf of and for the benefit of Plexus Limited. Therefore, in the absence of evidence showing that Earlam and Kirby's approval of Contract 8001's substitution with the Subsidiary Contracts was an action taken for the purpose of inducing Debtor's breach of the Ginner Contracts, summary judgment is appropriate in favor of all Defendants.
Plaintiffs have set forth claims for fraud, negligent misrepresentation, and promissory estoppel which arise at least in part from statements Plaintiffs contend Earlam made when visiting the Ginners at their respective places of business.
Contrary to the testimony of the Ginners' representatives, Earlam testified that his conversations with the Ginners were limited to talk of volatile market conditions and that "[a]t no stage did [he] ever say Plexus [Limited] would guarantee the contracts of [Debtor]."
In considering the contents of the statements provided above from the Ginners' representatives in light of Earlam's competing testimony, there are genuine issues of material fact as to the extent of representations made by Earlam. As to
Plaintiffs allege that Defendants should be held liable for fraud because they: (1) failed to disclose Debtor's solvency issues in the spring of 2008; (2) entered into Contract 8001 and the Subsidiary Contracts, which Plaintiffs assert were "sham" contracts; and (3) made false representations to Plaintiffs about Debtor's ability to perform its obligations under the Ginner Contracts.
As to the first allegation of fraud, Plaintiffs have failed to present evidence demonstrating Debtor's insolvency in the spring of 2008. The evidence before the Court shows that Debtor remained solvent until at least the end of September of 2008. Therefore, Plaintiffs' claims that Defendants made fraudulent misrepresentations as to Debtor's solvency in the spring of 2008 fail as a matter of law.
As to the second allegation of fraud, in this proceeding Plaintiffs have argued that the substitution of Contract 8001 with the Subsidiary Contracts by Debtor's board constituted a breach of the Defendant-directors' fiduciary duties to creditors of Debtor. Alleging a loss of benefits under Contract 8001 necessarily presumes that it was enforceable. Additionally, the parties agree that the Subsidiary Contracts came into existence as a result of transferring and splitting Contract 8001's purchase obligations; this too acknowledges that Contract 8001's terms were valid, enforceable, and therefore able to be modified. Furthermore, Plaintiffs asserted the enforceability of the Subsidiary Contracts — the direct byproducts of Contract 8001 — in a prior state court proceeding, as evidenced in Plaintiffs' State Court Complaints,
Plaintiffs' third and final remaining allegation of fraud is related to representations allegedly made to the Ginners by Earlam, either in his individual capacity or on behalf of Plexus Limited, regarding Debtor's ability to perform the Ginner Contracts, including statements that he or Plexus Limited "stood behind" the Ginner Contracts. Plaintiffs have presented the Court with two separate representations made to the Ginners by Earlam: (1) assurances as to Debtor's performance; and (2) statements related to Earlam and/or Plexus Limited's support of the Ginner Contracts.
Although the law within each Plaintiff's home state varies to a degree as to the elements of fraud based upon promises of future performance such as those allegedly made by Earlam, all require a threshold showing of the existence of a false representation made by a defendant with the intent to deceive. See, e.g., Olympus Managed Health Care, Inc. v. Am. Housecall Physicians, Inc., 662 F.Supp.2d 427, 438 (W.D.N.C.2009) ("A promissory misrepresentation may constitute actionable fraud when it is made with intent to deceive the promisee, and the promisor, at the time of making it, has no intent to comply.") (citing Leftwich v. Gaines, 134 N.C. App. 502, 521 S.E.2d 717, 723 (1999)); Super Valu Stores, Inc. v. 1st Nat'l Bank of Columbus, Ga., 463 F.Supp. 1183, 1195 (M.D.Ga.1979) (holding that allegations of promises to pay in the future require evidence "that the promisor at the time of the promise knows that the corporation cannot or will not fulfill the promise") (citing Nixon v. Brown, 223 Ga. 579, 157 S.E.2d 20, 22-23 (1967)); ExxonMobil Corp. v. Ala. Dep't of Conservation & Natural Res., 986 So.2d 1093, 1114 (Ala.2007) ("The elements of fraud are (1) a false representation (2) of a material existing fact (3) reasonably relied upon by the plaintiff (4) who suffered damage as a proximate consequence of the misrepresentation.") (quoting Saia Food Distribs. & Club, Inc. v. SecurityLink from Ameritech, Inc., 902 So.2d 46, 57 (Ala.2004)) (internal quotation marks omitted); Baker v. Hanks, 661 So.2d 1155,
The assurances provided by Earlam relating to Debtor's performance of the Ginner Contracts, as set forth above, do not rise to the level of actionable fraud. Plaintiffs have failed to provide evidence suggesting falsity regarding Debtor's desire to stand behind the Ginner Contracts and, with optimistic hopes for the cotton market, its intention to perform if the Ginners could provide flexibility as to delivery dates. "The existence of actual fraud is not deducible from facts and circumstances which would be equally consistent with honest intentions" such as these. White v. Nat'l Steel Corp., 938 F.2d 474, 490 (4th Cir.1991); see also In re Shadinger, 357 B.R. 158, 167 (Bankr.N.D.Ala.2006) (stating that "overly optimistic" representations cannot rise to the level of fraud where there is "no credible evidence the representations were made to intentionally mislead ... or that the [d]ebtor did not honestly believe his representations were true"); Fuller v. Perry, 223 Ga.App. 129, 476 S.E.2d 793, 796 (1996) ("`Representations concerning expectations and hopes are not actionable.'") (quoting Smith v. McClung, 215 Ga.App. 786, 452 S.E.2d 229, 231 (1994)). Furthermore, as to the requirement that the representations at issue be made with an intent to deceive, the evidence before the Court is insufficient to create a genuine issue of material fact as to whether Earlam genuinely believed Debtor would perform the Ginner Contracts. No evidence in the record indicates that Earlam, at the time of these October visits to the Ginners, either intended or knew that Debtor would ultimately breach the Ginner Contracts. At the time of Earlam's statements, Debtor was operating and its credit line with BB & T remained in place. The evidence indicated that in his discussions with the Ginners, Earlam openly discussed the deterioration of the global cotton market and Debtor's cash flow problems, encouraged placing the farmers in the loan program to mitigate against their losses in the event the Contracts were not performed, indicated the need for delay to allow performance, and offered additional assurances that Debtor's performance would be supported. Moreover, as discussed in relation to Plaintiffs' tortious interference claims, the evidence does not suggest that Earlam engaged in a course of conduct designed to induce Debtor's breach of the Ginner Contracts. The absence of a genuine issue of material fact as to that element of tortious interference only further supports Defendants'
As to statements made by Earlam that Earlam, Plexus Limited, or both "stood behind" the Ginner Contracts, Plaintiffs have provided evidence sufficient to show genuine issues of material fact as to each element required for fraud. Defendants have not produced evidence indicating a contrary meaning of the alleged statements that Earlam, Plexus Limited, or both would stand behind the Ginners Contracts.
Initially, Defendants argue that the Court should find in their favor on this cause of action pursuant to the common law statute of frauds. Although it is true that Alabama, Georgia, and North Carolina require a promise to answer for the debts of another to be in writing to be enforceable, the three states also recognize the "main purpose" exception to the statute of frauds. This exception "states that `if it is concluded that a promisor has the requisite personal, immediate, and pecuniary interest in the transaction in which a third party is the primary obligor, then the promise is said to be original rather than collateral and therefore need not be in writing to be binding.'" FRS, Inc. v. Cox, 3:05-CV-00521, 2008 WL 2635488, at *2 (W.D.N.C. July 1, 2008) (quoting Terrell v. Kaplan, 170 N.C. App. 667, 613 S.E.2d 526, 528 (2005)); see also Alexander, Corder, Plunk, Baker & Shelly, P.C v. Jackson, 811 So.2d 506, 513 (Ala.2001) (stating that a promise to pay the debts of another "`is not within the Statute of Frauds as a promise to answer for the duty of another if the consideration for the promise is in fact or apparently desired by the promisor mainly for his own economic advantage, rather than in order to benefit the third person'") (citing Restatement (Second) of Contracts § 116 (1981)); Howard, Weil, Labouisse, Fredericks, Inc. v. Abercrombie, 140 Ga.App. 436, 231 S.E.2d 451, 454 (1976) ("[I]f the agreement of the third party guarantor is an original undertaking; that is, one furthering his own interests rather than underwriting the debt of another, it is not within the Statute of Frauds...."). When viewing the evidence in the light most favorable to Plaintiffs, genuine issues of material fact exist as to whether Earlam and Plexus Limited had personal, immediate, and pecuniary interests in the performance of the Ginner Contracts. As discussed above in regard to the Plaintiffs' breach of fiduciary duty to creditor claims, the evidence could be construed to indicate that Earlam, Plexus Limited, or both stood to benefit financially from Debtor's performance of the Ginner Contracts by way of a reduction in liability under whichever Agreement(s) were valid and enforceable. Therefore, granting summary judgment in favor of Defendants through an application of the statute of frauds, in light of the foregoing exception, would be inappropriate.
As testified to by the representatives of the Ginners, various experts, and Earlam himself, the cotton trade is and continues to be a business in which oral agreements are commonplace.
Actionable fraud for representations relating to promises to pay in the future, such as Earlam's, which Plaintiffs understood to be a promise that Plexus Limited and/or Earlam would financially support Debtor in its performance of the Ginner Contracts, requires evidence of the speaker's intent to deceive by knowing at the time of the representations that the future payor did not intend to or was not capable of performing. "Intent to deceive is one of the more difficult elements to prove in a fraud action since it involves the defendant's state of mind." In re Chesson, B-09-81328C-7D, 2012 WL 4794148, at *5 (Bankr.M.D.N.C. Oct. 15, 2012). "Because it is nearly impossible to obtain direct proof of a debtor's state of mind, a creditor may present evidence of the surrounding circumstances from which such intent may be inferred." Id.; see also Marshall Durbin Farms, Inc. v. Landers, 470 So.2d 1098, 1101 (Ala.1985) ("Since present intent not to perform a future act is difficult to prove by direct evidence of a defendant's state of mind, a plaintiff may meet this burden by circumstantial evidence."); John W. Rooker & Assocs. v. Wilen Mfg. Co., 211 Ga.App. 519, 439 S.E.2d 740, 742 (1993) ("`Intent, good faith, motive, and other such matters relating to the state of a person's mind are usually not easily susceptible of direct proof'") (quoting Tapley v. Youmans, 95 Ga.App. 161, 97 S.E.2d 365, 374 (1957)); Canady v. Mann, 107 N.C. App. 252,419 S.E.2d 597, 601 (1992) ("The intent of a party is a state of mind
Plaintiffs have provided circumstantial evidence sufficient to survive summary judgment as to this element. There is no evidence in the record to date that either Earlam or Plexus Limited has made any effort to directly assist the Ginners following Debtor's breach. Plaintiffs argue that the evidence shows Earlam was aware of Albrecht's issues with performance of Contract 8001 and knew that Debtor's board intended to or already had modified the Contract's terms.
Drawing all reasonable inferences in the light most favorable to Plaintiffs, the circumstantial evidence before the Court leaves open a genuine issue of material fact as to whether Earlam made these "stand behind" representations for the purpose of instilling a sense of security in the Ginners while never actually intending to offer the support his words suggested.
With regard to causation and damages, the final elements of fraud, Plaintiffs have presented evidence sufficient to show a genuine issue of material fact. Plaintiffs have presented testimony of the Ginners' representatives showing that their decisions to delay delivery, forego earlier arbitration or litigation, and continue working with Debtor caused damages, including the loss of sales and profits and were brought about in large part due to their belief that Plexus Limited, Earlam, or both stood behind the Ginner Contracts.
Plaintiffs allege that they justifiably relied on express and implied representations made by Defendants Earlam and Plexus Limited
Under the state law of each Plaintiff's home state, liability for negligent misrepresentation is predicated upon the existence of a duty. Privity of contract may give rise to this duty, but absent privity of contract, recovery is limited in a business context to foreseeable plaintiffs affected by the misrepresentations of defendants that make "`it a part of their business or profession to supply information for the guidance of others in their business transactions.'" Fisher v. Comer Plantation, Inc., 772 So.2d 455, 461 (Ala. 2000); see also Carolina Cas. Ins. Co. v. R.L. Brown & Assocs., Inc., No. 1:04-CV-3537-GET, 2006 WL 2842733, at *6 (N.D. Ga. Sept. 29, 2006); Abraham v. Jauregui, No. 09 CVS 3608, 2012 WL 2052691, at *4 (NCBC June 7, 2012) (quoting Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 367 S.E.2d 609, 612 (1988), rev'd on other grounds, 329 N.C. 646, 407 S.E.2d 178 (1991)). The Original and Amended Complaints allege facts showing privity of contract between Debtor and the Ginners only and that Earlam made the representations at issue to further his own best interests or those of Plexus Limited, and not while acting on Debtor's behalf. Therefore, for liability for negligent misrepresentation to attach to Earlam or Plexus Limited, there must be evidence showing a genuine issue of material fact as to whether Earlam and Plexus Limited owed Plaintiffs a duty of
When considering whether a party may be liable for negligent misrepresentation where the parties do not share privity of contract, Alabama, Georgia, and North Carolina have each adopted the approach embodied in Restatement (Second) of Torts. See, e.g., Fisher, 772 So.2d at 461; Robert & Co. Assocs. v. Rhodes-Haverty P'ship, 250 Ga. 680, 300 S.E.2d 503, 504 (1983) ("We think the best rule for resolution... is the one enunciated in the Restatement of Torts 2d, § 552 (1977)."); Powell v. Wold, 88 N.C. App. 61, 362 S.E.2d 796, 799 (1987) ("North Carolina has adopted the Restatement of Torts definition of the requirements for an action based on negligent misrepresentation.") (citing Stanford v. Owens, 76 N.C. App. 284, 332 S.E.2d 730, 731-32 (1985)). Subsection (1) of § 552 reads as follows:
Restatement (Second) of Torts § 552(1) (1977) (emphasis added). "[T]he liability stated in Subsection (1) is limited to loss suffered ... by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information ... and ... through reliance upon it in a transaction that he intends the information to influence ... or in a substantially similar transaction." Id. at (2)(a)-(b).
In comparison to Alabama and North Carolina, Georgia has adopted a slightly broader scope for the class of persons to whom liability for negligent misrepresentation may attach under § 552. The Court addresses the relevant distinctions below.
In Alabama and North Carolina, a defendant that is not in privity of contract with a plaintiff can only be held liable for negligent misrepresentation if it, in the course of its business, profession, or employment, engages in an activity that meets the requirements set forth in Subsection (1) of Restatement (Second) of Torts § 552. To survive Earlam and Plexus Limited's motion for summary judgment on this claim, the Alabama and North Carolina Plaintiffs must show that, at the time of the representations, Earlam and Plexus Limited made "`it a part of [their] business or profession to supply information for the guidance of others in their business transactions.'" Fisher, 772 So.2d at 462 (quoting Restatement (Second) of Torts § 552 cmt. c (1977)).
"Although Alabama's Supreme Court has made clear that its `application of the Restatement approach' is not `restrict[ed]... to ... one class of professionals,' it has
Henry County and Jones County have not provided sufficient evidence to create a genuine issue of material fact as to whether Earlam, Plexus Limited, or both are of the class of professionals to which liability for negligent misrepresentation can attach absent privity of contract. Although Plaintiffs have pled that Plexus Limited had a pecuniary interest in the Ginner Contracts and the related Agreements provided by Earlam and Plexus Limited, there is no evidence suggesting that Plexus Limited or Earlam were or are in the business of providing "guidance of others in their business transactions." Id.; see also Mosley, 719 F.Supp.2d at 1345. Therefore, absent the requisite duty under Alabama and North Carolina law, summary judgment is appropriate in favor of Earlam and Plexus Limited as to the negligent misrepresentation claims brought by Henry County and Jones County.
As adopted by the Georgia Supreme Court in Rhodes-Haverty, the rule for negligent misrepresentation resulting in economic loss provided by § 552 is interpreted under Georgia state law to provide the following:
Wingate Land, LLC v. ValueFirst, Inc., 314 Ga.App. 24, 722 S.E.2d 868, 869-70 (2012) (quoting Rhodes-Haverty, 300 S.E.2d at 504). Unlike Alabama and North Carolina, Georgia courts have not interpreted § 552 as a limitation on the class of persons to whom liability can attach absent privity of contract — instead, the important limiting factor under Georgia law is that of reliance by the plaintiff. Therefore, Arabi, BCT, and Coley must provide evidence showing a genuine issue of material fact as to whether their "reliance was the desired result of the representation[s]"
The Court finds that upon review of the evidence and drawing all reasonable inferences therefrom in the light most favorable to Plaintiffs, the Georgia Plaintiffs were both reasonable and justified in their reliance on Earlam's statements as to Debtor's ability to perform the Ginner Contracts. Earlam traveled from England to the United States to visit the Georgia Plaintiffs with the hope that they would act or refrain from acting as a result of his representations. Unlike Plaintiffs' fraud claims, actionable negligent misrepresentation does not require proof that Earlam intended to deceive the Ginners with his assurances of future performance; Earlam's honest intentions do not insulate him from liability for negligent misrepresentation. The more relevant focus, particularly under Georgia law, is whether the Ginners' reliance by way of withholding delivery and foregoing earlier arbitration or litigation was Earlam's desired result of his representations. The evidence suggests that it was. Therefore, applying Georgia's interpretation of § 552, a genuine issue of fact exists regarding reliance by Arabi, BCT, and Coley on Earlam's representations.
Furthermore, with respect to the liability of Plexus Limited for Earlam's statements, Earlam was introduced to the Georgia Plaintiffs as a Plexus Limited executive. It was at this time that the Georgia Plaintiffs learned of Plexus Limited's majority ownership position with Debtor. A genuine issue of material fact remains as to whether the Georgia Plaintiffs were reasonable in their belief that Earlam made the alleged representations regarding Debtor's future performance while acting in his authority as an agent of Plexus Limited rather than on behalf of Debtor. See, e.g., 2A C.J.S. Agency § 421 (2014) ("If the agent is authorized to speak, an agent's statements are binding on the principal since when a principal gives a person authority, either actual or apparent, to do certain acts, those acts become binding on the principal as the acts of the principal.").
With regard to causation and damages, the final elements of negligent misrepresentation, Plaintiffs have presented evidence sufficient to show a genuine issue of material fact. Plaintiffs have presented testimony of the Ginners' representatives showing that their decisions to delay delivery, forego earlier arbitration or litigation, and continue working with Debtor caused damages, including the loss of sales and profits and were brought about in large part due to their belief that Plexus Limited, Earlam, or both stood behind the Ginner Contracts.
Plaintiffs contend that Plexus Limited should be required to perform certain promises allegedly made to the Ginners during various visits to the Ginners' places of business. Specifically, Plaintiffs argue that Earlam individually or Plexus Limited, through Earlam,
Promissory estoppel is a cause of action rooted in state law. See, e.g., Cohen v. Cowles Media Co., 501 U.S. 663, 672, 111 S.Ct. 2513, 115 L.Ed.2d 586 (1991); Long v. Lockheed Missiles & Space Co., 783 F.Supp. 249, 252 (D.S.C. 1992). Reaching conclusions of law on Defendants' motion for summary judgment on each Plaintiff's promissory estoppel cause of action requires application of the laws of the state in which each Plaintiff suffered its injury. Two of the three states represented by the Ginners share essentially identical elements for their respective state law cause of action for promissory estoppel — Alabama and Georgia require a plaintiff to prove: (1) the existence of an unambiguous promise; (2) reasonable reliance upon that promise by the party to whom the promise is made; (3) the party's reliance on the promise was both expected and foreseeable by the party making the promise; and (4) the party to whom the promise was made suffers injury or damage as a result of its reliance on the promise. See, e.g., Bush v. Bush, 278 Ala. 244, 177 So.2d 568, 570 (1964) ("`A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.'") (citing Restatement (First) of Contracts § 90 (1932)); U.S. Foodservice, Inc. v. Bartow Cnty. Bank, 300 Ga.App. 519, 685 S.E.2d 777, 780 (2009) ("The doctrine of promissory estoppel provides ... that `[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.'") (quoting Ga.Code Ann. § 13-3-44(a) (1981)).
"North Carolina, however, does not recognize promissory estoppel as an affirmative cause of action." Rudolph, 846 F.Supp.2d at 477 (citing Home Elec. Co. of Lenoir, Inc. v. Hall & Underdown Heating & Air Conditioning Co., 86 N.C. App. 540, 358 S.E.2d 539, 541 (1987), aff'd 322 N.C. 107, 366 S.E.2d 441 (1988) and Dealers Supply Co. v. Cheil Indus., 348 F.Supp.2d 579, 587 (M.D.N.C.2004)). As a result, the claims of promissory estoppel brought by Plaintiff Jones County and the Assignor-Gins fail as a matter of law. Summary judgment in favor of Defendants as to North Carolina Plaintiff Jones County and the Assignor-Gins will, therefore, be granted with respect to this claim.
As to the Alabama and Georgia Plaintiffs, "[t]he threshold requirement of a promissory estoppel claim is, of course, that there be some enforceable promise by the defendant." Foley Co. v. Warren Eng'g, Inc., 804 F.Supp. 1540, 1544 (N.D.Ga.1992). Although both states have adopted the same definition for promissory estoppel, the two differ on the class of actionable promises. Georgia law allows recovery only for express promises with definite terms. See, e.g., Ga. Invs. Int'l, Inc. v. Branch Banking & Trust Co., 305 Ga.App. 673, 700 S.E.2d 662, 675-76 (2010) (reviewing case law where courts
The Georgia Plaintiffs, Arabi, BCT, and Coley, have not met their burden of demonstrating the required element of an enforceable promise by Defendants. The promises and assurances in evidence as set forth by the Georgia Plaintiffs, while containing "promissory elements," lack the certainty and definiteness required to be actionable under Georgia law. The promises allegedly made by Earlam involved contingencies (i.e., that Debtor would perform if Plaintiffs delayed delivery and/or placed their cotton into a U.S. Department of Agriculture loan program) and lacked material terms (i.e., bare statements from Earlam "that Plexus [Limited] would stand behind the [Ginner] contracts").
Conversely, the Court is unable to conclude from the evidence presented regarding Earlam's statements to Alabama Plaintiff Henry County, even viewing such evidence in the light most favorable to Plaintiffs, that these statements qualify as unambiguous representations with at least "promissory elements." See, e.g., Sykes, 441 F.Supp.2d at 1224. According to his testimony, the representative for Alabama Plaintiff Henry County interpreted Earlam's statements as referring only to Plexus Limited. Therefore, absent an allegation that Earlam was speaking on his own behalf, summary judgment is appropriate in his favor against Henry County. The Court must proceed in reviewing Earlam's representations to Henry County which ensured performance by Debtor and pledged that Plexus Limited stood behind the Ginner Contracts as being provided by Earlam exclusively as an agent for Plexus Limited.
The evidence before the Court, when viewed in the light most favorable to Henry County, indicates that Henry County was justified in its reliance on Earlam's promises and representations made on behalf of Plexus Limited for the same reasons its reliance was validated in the Court's review of Henry County's fraud claims related to these "stand behind" representations.
With regard to causation and damages, the final elements of promissory estoppel, Plaintiffs have presented evidence sufficient to show a genuine issue of material fact. Plaintiffs have presented testimony of the Ginners' representatives showing that their decisions to delay delivery, forego earlier arbitration or litigation, and continue working with Debtor caused damages, including the loss of sales and profits and were brought about in large part due to their belief that Plexus Limited, Earlam, or both stood behind the Ginner Contracts.
Plaintiffs argue they are entitled to summary judgment on their claims against Defendants for breach of fiduciary duty to creditors and tortious interference of contract. For the reasons set forth above, the Court finds genuine issues of material fact remain as to Plaintiffs' breach of fiduciary duty to creditors claims against Earlam and Kirby. Furthermore, their motion for summary judgment on their tortious interference claims against Earlam and Kirby is moot in light of the Court's grant of summary judgment to in favor of the Defendant-directors as discussed above.
For the foregoing reasons, the Court hereby
Defendants' motion is
In addition to hedging in the futures market, several Ginner representatives testified about the practice of creating an offsetting commitment by way of a physical sale — Defendants have repeatedly used the term "physical hedge" in reference to such a sale whereas Linda Exum of BCT referred to it as a "physical sale" or "a back-to-back sale, where you buy it from me and sell it to somebody else, [and] that you were locked in." See Depo. of Linda Exum, P. 50, L. 1-8; P. 121, L. 23 — P. 122, L. 22. Hereinafter, the Court will use the term "physical hedge" when referring to such a transaction. The Ginners' representatives' deposition testimony indicates that Debtor at some point informed the Ginners that it had physical hedges via contracts with foreign buyers to purchase from Debtor the cotton that would be sold to it by the Ginners. See, e.g., Depo. of Thomas Waller, P. 91, 93, 117-18; Depo. of Van Murphy, P. 46, L. 3-17. These "foreign buyers" and the details of their contractual relationship with Debtor are discussed further herein.
The Ginner Contracts as well as Contract 8001 were, by definition, forward contracts.
