Crescent Foods, Inc. v. Evason Pharmacies, Inc.

Crescent Foods, Inc. v. Evason Pharmacies, Inc., 2016 NCBC 73.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAYNE 15 CVS 1852

CRESCENT FOODS, INC., )
Plaintiff, )
) OPINION AND ORDER ON
) DEFENDANT’S MOTION TO
v. ) DISMISS
)
)
EVASON PHARMACIES, INC., )
Defendant. )

THIS CAUSE, designated a mandatory complex business case by Order of the

Chief Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-

45.4(b) (hereinafter, references to the North Carolina General Statutes will be to

“G.S.”), and assigned to the undersigned Special Superior Court Judge for Complex

Business Cases, comes before the Court upon Defendant Evason Pharmacies, Inc.’s

Motion to Dismiss (“Defendant’s Motion to Dismiss”) pursuant to Rule 12(b)(6) of the

North Carolina Rules of Civil Procedure (“Rule(s)”).

THE COURT, having considered Defendant’s Motion to Dismiss, the briefs in

support of and in opposition to Defendant’s Motion to Dismiss, the arguments of

counsel, and other appropriate matters of record, concludes that the Defendant’s

Motion to Dismiss should be GRANTED, in part, and DENIED, in part, for the

reasons set forth below.

Everett, Womble & Lawrence, LLP by Ronald T. Lawrence, II, Esq., for
Plaintiff.

The Law Office of John T. Benjamin, Jr., P.A. by John T. Benjamin, Jr., Esq.
and Paula M. Shearon, Esq., for Defendant.
McGuire, Judge.

FACTUAL AND PROCEDURAL BACKGROUND

1. Plaintiff Crescent Foods, Inc. (“Plaintiff”) is a North Carolina

corporation that owns and operates Piggly Wiggly grocery stores, including stores in

Mount Olive and Faison, North Carolina. (Compl. ¶¶ 1, 3.) Defendant Evason

Pharmacies, Inc. (“Defendant”) is also a North Carolina corporation, and is in the

business of operating and managing pharmacies. On October 1, 2001, Plaintiff and

Defendant entered into a Management Agreement (“Management Agreement” or

“Agreement”), pursuant to which Defendant would manage Plaintiff’s pharmacies in

the Faison and Mount Olive stores. (Id. ¶ 4, Ex. A.) The Management Agreement

expired by its own terms on April 30, 2013, and was not renewed. (Id. ¶ 4.)

2. The parties’ respective rights and duties were outlined in the

Management Agreement. The Agreement provided that Defendant’s duties included

“managing the [pharmacies], including supervision of all employees of the Store

providing services thereto” and the “ordering of all the prescription drugs and health

and beauty care products for the [pharmacies].” (Management Agreement ¶ 3.) Under

the Agreement, Plaintiff was required to provide to Defendant “at no charge,” inter

alia, the following: “the facilities and fixtures . . . necessary to operate the

[pharmacies]”; “computer software required for pharmacy operations”; and,

“computer equipment, printer[s], copier[s], and facsimile machine[s].” (Id. ¶ 4). The

Management Agreement also provided that Plaintiff “shall employ or engage the

pharmacists and other staff . . . necessary to operate the [pharmacies]” and that “[a]ny
such employees shall be considered employees of the [Plaintiff] and shall participate

in all employee benefits offered by the [Plaintiff] to its employees.” (Id.)

3. The Management Agreement provided the following regarding

Defendant’s compensation for its services:

Compensation: As compensation for [Defendant’s] services
hereunder, [Defendant] shall be entitled to fifty percent
(50%) of the Gross Profit (as defined hereinbelow) from the
[pharmacies’] prescription sales calculated on a quarterly
basis. For purposes of this Agreement, Gross Profit shall
be calculated using the cash basis method of accounting
and shall mean total gross [ ] prescription sales less the
following expenses: cost of goods sold, supplies, sales taxes,
and salaries, compensation (including employer
contributions for employment taxes) and employee fringe
benefits (such as [Plaintiff’s] insurance plan and
retirement plan) payable to any pharmacists and other
employees required to operate the [pharmacies].

(Id. ¶ 5.)

4. Finally, the Management Agreement provided that Defendant’s

“relation to the [Plaintiff] . . . shall during the period or periods of its engagement and

service hereunder be that of an independent contractor.” (Id. ¶ 14.)

5. Defendant was a member of, and owned stock in, North Carolina Mutual

Drug Company (“Mutual Drug”) (Id. ¶ 10.) As a stockholder, Defendant was able to

buy the prescription medications for the pharmacies from Mutual Drug at a

preferred, or discounted, price. The Management Agreement specifically provided

that Plaintiff agreed “to stock the [pharmacies’] prescription inventory and health

and beauty care products through [Defendant’s] membership in [Mutual Drug].”
(Management Agreement, pmbl.) Plaintiff alleges that the reason for doing so was to

take advantage of the competitive pricing offered by Mutual Drug. (Compl. ¶ 11.)

6. Mutual Drug provided quarterly and annual “rebates” to its

stockholders based on the prescription drugs purchased by the stockholder. (Id. ¶¶

12–13.) Plaintiff alleges that the amount paid to a stockholder was calculated based

on the amount of prescription drugs ordered, not on the amount of stock owned in the

company, and were not “dividends” paid by Mutual Drug. (Id.) Plaintiff also alleges

that the rebates paid to Defendant by Mutual Drug were for prescription drugs

Defendant purchased for Plaintiff’s pharmacies and “should not have been kept by

Defendant but should have been deposited into the accounts of the stores and

accounted for in the calculation of the gross profit of each store.” (Id. ¶ 12.) The

rebates were a “dollar-for-dollar reduction of the ‘cost of goods sold,’” and Plaintiff

claims that it had a right under the Management Agreement to a 50% share of the

rebates. (Id. ¶¶ 11, 16.)

7. Plaintiff further alleges that despite the provision of the Management

Agreement stating that Defendant was an independent contractor of Plaintiff, the

relationship created by the Agreement functioned like a partnership and created a

fiduciary relationship between the parties. (Id. ¶¶ 14–17.) Plaintiff claims that

Defendant had a fiduciary duty to share the rebates with Plaintiff or should have

accounted for the rebates in calculating the Gross Profit. (Id.)

8. Plaintiff did not know that Defendant was receiving the rebates from

Mutual Drug during the 12 years that the parties operated under the Management
Agreement. (Id. ¶ 14.) Defendant did not inform Plaintiff about the rebates, or include

the rebates in the calculation of Gross Profits. (Id.) Plaintiff only learned about the

rebates after the expiration of the Management Agreement, when Plaintiff purchased

stock in Mutual Drug and started receiving the annual rebates from Mutual Drug.

(Id.)

9. On October 27, 2015, Plaintiff filed this lawsuit in the Superior Court of

Wayne County. The Complaint does not separately set out causes of action in

separate counts, but appears to assert the following claims: breach of contract (Id. ¶

18); breach of fiduciary duty (Id. ¶ 19); fraud and constructive fraud (Id. ¶ 21); and

unfair and deceptive trade practices (Id. ¶ 33.)

10. On November 25, 2015, Defendant filed a Notice of Designation to the

North Carolina Business Court. On December 2, 2015, the Chief Justice of the North

Carolina Supreme Court, issued an Order, pursuant to G.S. § 7A-45.4(b), designating

this case as a mandatory complex business case, and the case was assigned to the

undersigned.

11. On January 15, 2016, Defendant filed Defendant’s Motion to Dismiss in

which it contends that the Complaint should be dismissed in its entirety pursuant to

Rule 12(b)(6). The Court held a hearing on Defendant’s Motion to Dismiss and it is

now ripe for determination.

DISCUSSION

12. Defendant moves to dismiss Plaintiff’s claim under Rule 12(b)(6). In

deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, the Court must
determine “whether, as a matter of law, the allegations of the complaint . . . are

sufficient to state a claim upon which relief may be granted under some legal theory

whether properly labeled or not.” Harris v. NCNB Nat'l Bank, 85 N.C. App. 669, 670,

355 S.E.2d 838, 840 (1987). In making this determination, the Court must take all

well-pleaded allegations of the complaint as true. Sutton v. Duke, 277 N.C. 94, 98,

176 S.E.2d 161, 163 (1970). Nonetheless, the Court is not required “to accept as true

allegations that are merely conclusory, unwarranted deductions of fact, or

unreasonable inferences.” Strickland v. Hedrick, 194 N.C. App. 1, 20, 669 S.E.2d 61,

73 (2008). A complaint can be dismissed under Rule 12(b)(6) if: (a) the complaint on

its face reveals that no law supports plaintiff's claim; (b) the complaint reveals on its

face the absence of fact sufficient to make a good claim; or (c) some fact disclosed in

the complaint necessarily defeats the plaintiff's claim. Mileski v. McConville, 199

N.C. App. 267, 269, 681 S.E.2d 515, 517 (2009) (citing Oates v. Jag, Inc., 314 N.C.

276, 278, 333 S.E.2d 222, 224 (1985)).

a. Claim One — Breach of Contract.

13. As its first claim, Plaintiff alleges that Defendant breached the

Management Agreement by failing to share the rebates Defendant received and

failing to account for the rebates in determining Gross Profit. Defendant contends

the breach of contract claim fails because the Management Agreement does not give

Plaintiff a right to a share in the payments Defendant received from Mutual Drug.

In addition, Defendant argues that the breach of contract claim is barred by the three

year statute of limitations applicable to contract claims. See G.S. § 1-52(1).
“The statute of limitations may provide the basis for dismissal on a motion pursuant

to . . . Rule 12(b)(6) if the face of the complaint establishes that [a] plaintiff's claim is

barred.” Liptrap v. City of High Point, 128 N.C. App. 353, 355, 496 S.E.2d 817, 818

(1998).

14. To state a claim for breach of contract, a plaintiff must allege the “(1)

existence of a valid contract and (2) breach of the terms of that contract.” See Poor v.

Hill, 138 N.C. App. 19, 26, 530 S.E.2d 838, 843 (2000). Defendant does not contend

that the Management Agreement was not a contract. Instead, Defendant argues that

the Management Agreement does not expressly require that the “dividends”1 received

by Defendant from Mutual Drug were to be included in the calculation of gross profits,

and, accordingly, Defendant’s failure to account for the payments was not a breach of

the Agreement. (Def.’s Br. Supp. Mot. Dismiss 17–18.) Plaintiff contends that Mutual

Drug’s payments to Defendant were rebates on the prescription drugs purchased by

Defendant for Plaintiff’s pharmacies, and must be accounted for in calculating the

“costs of goods sold” as that term is used in the Agreement. (Pl.’s Br. Opp. Mot.

Dismiss 18.)

15. The Management Agreement is a contract, and its meaning must be

determined from within its four corners. Ussery v. Branch Banking & Trust Co., 368

N.C. 325, 336, 777 S.E.2d 272, 279 (2015); Lynn v. Lynn, 202 N.C. App. 423, 431, 689

S.E.2d 198, 205 (2010). When a contract is clear and unambiguous, “construction of

1 The parties dispute whether the payments by Mutual Drug to Defendant were dividends or

rebates. (Def.’s Br. Supp. Mot. Dismiss 2–3; Compl. ¶ 13.) For purposes of this motion, the
Court must accept as true Plaintiff’s allegations that the payments were rebates, and not
dividends.
the agreement is a matter of law for the court . . . and the court cannot look beyond

the terms of the contract to determine the intentions of the parties.” Lynn, 202 N.C.

App. at 432, 689 S.E.2d at 205. The question of whether contractual language is

ambiguous is a question for the court to determine. Id. “A contract that is plain and

unambiguous on its face will be interpreted by the court as a matter of law. When an

agreement is ambiguous and the intention of the parties is unclear, however,

interpretation of the contract is for the jury.” Commscope Credit Union v. Butler &

Burke, LLP, 237 N.C. App. 101, 111, 764 S.E.2d 642, 651 (2014), rev’d, in part, on

other grounds, 2016 N.C. LEXIS 812 (2016). “An ambiguity exists in a contract when

either the meaning of words or the effect of provisions is uncertain or capable of

several reasonable interpretations.” Variety Wholesalers, Inc. v. Salem Logistics

Traffic Servs., LLC, 365 N.C. 520, 525, 723 S.E.2d 744, 748 (2012).

16. The Management Agreement does not provide for how the “costs of goods

sold” shall be determined. Even if the term has a generally accepted meaning that

makes it unambiguous, however, the parties dispute the nature of the payments by

Mutual Drug to Defendant. A “rebate” determined as a percentage of the dollar

amount of prescription drugs purchased might need to be accounted for in calculating

the costs of goods sold, but a dividend paid to the purchaser based on stock ownership

might not. In other words, the resolution of that dispute may very well determine

whether such payment would, or would not, be included in the “cost of goods sold.”

Taking Plaintiff’s allegation that the payments to Defendant were rebates as true,

the Court concludes that the Management Agreement is at least susceptible of an
interpretation that would require accounting for rebates in calculating cost of goods

sold, and that Plaintiff's breach of contract claim cannot be dismissed based on

interpretation of the Management Agreement at this stage of the proceedings.

17. Defendant also contends that the breach of contract claim is barred by

the three-year statute of limitations in G.S. § 1-52(1). Plaintiff alleges that Defendant

began to receive the rebates “immediately upon entering the [M]anagement

[A]greement” but did not disclose the rebates or account for them in determining

Gross Profits. (Compl. ¶ 14.) Accordingly, Defendant contends that the first

accounting, and first alleged breach of the Management Agreement, would have

occurred “in or about January, 2002.” (Def.’s Br. Supp. Mot. Dismiss 9.) Since

Plaintiff did not file the Complaint until October 27, 2015, its claim for breach of

contract is outside the statute of limitations. (Id. at 9–10.) In its brief, Plaintiff

argues that the continuing wrong doctrine applies to the breach of contract claim.

Plaintiff contends that since the Management Agreement did not expire until April,

2013, and Plaintiff filed this action within three years of that expiration, it should be

permitted to reach back and recover for all breaches from October 2001 forward. (Pl.’s

Br. Opp. Mot. Dismiss 7–9.)

18. As a preliminary matter, the Court must determine the appropriate

statute of limitations applicable to Plaintiff’s claim for breach of contract. At the

hearing on the Motion to Dismiss, Plaintiff’s counsel for the first time argued that the

Management Agreement was executed by the parties under seal. The statute of

limitations for instruments executed under seal is ten (10) years from the date of
breach. G.S. § 1-47(2). The Management Agreement was signed on behalf of

Defendant by, apparently, a corporate official.2 To the immediate left of the

Defendant’s signature are the typed words “Corporate Seal.” The words “Corporate

Seal” are contained within what appears to be a hand-drawn circle, and the words

“Evason Pharmacies, Inc.” are written inside of the circle. Below the words “Corporate

Seal,” and within the circle, is the word “Attest:,” and next to that the name “Belinda

English” is handwritten on the document. The Management Agreement contains no

other reference to the document being executed under seal.

19. “The seal of a corporation is not in itself conclusive of an intent to make

a specialty [sealed instrument]” and, “the determination of whether an instrument is

a sealed instrument, commonly referred to as a specialty, is a question for the court.”

Square D Co. v. C. J. Kern Contractors, Inc., 314 N.C. 423, 426, 334 S.E.2d 63, 65,

(1985). “[T]he question to be answered in order to determine whether the corporate

seal transforms the party's contract into a specialty is whether the body of the

contract contains any language that indicates that the parties intended that the

instrument be a specialty or whether extrinsic evidence would demonstrate such an

intention. Id. at 428, 334 S.E.2d at 66 (emphasis added). Here, although the body of

the Management Agreement does not contain language showing that the parties

intended it to be a sealed instrument, Plaintiff might be able to show such intent

through extrinsic evidence. Plaintiff’s allegations, including the signature page of the

2 The signature page of the Management Agreement states that it is being executed by the

parties’ “respective corporate officers.” The signature of Defendant’s representative is
illegible and the Complaint does not identify Defendant’s signatory.
Management Agreement, have raised a sufficient question as to whether the parties

intended to execute the Agreement under seal to make it inappropriate for the Court

to conclude, at this stage of the proceedings, that the breach of contract claim is

subject to the three year statute of limitations.3 Accordingly, the Court will apply the

ten-year limitations period in G.S. § 1-47(2) in deciding Defendant’s Motion to

Dismiss.

20. The statute of limitations for a breach of contract does not begin to run

until the alleged breach occurs and the cause of action accrues. Silver v. N.C. Bd. of

Transp., 47 N.C. App. 261, 266, 267 S.E.2d 49, 53–54 (1980); Liptrap, 128 N.C. App.

at 355, 496 S.E.2d at 819 (noting that the statute of limitations for a breach of

contract claim “begins to run on the date the promise is broken”). “The general rule

may be different for contracts which envision a continuum of payments or obligations

. . . . There, each failure to pay is considered a separate breach and a new limitations

period may commence each time a payment is not made.” GR&S Atl. Beach, LLC v.

Hull, 2012 NCBC LEXIS 54, at *27 (N.C. Super. Ct. 2012); Martin v. Ray Lackey

Enters., Inc., 100 N.C. App. 349, 357, 396 S.E.2d 327, 332 (1990) (noting that where

a contract imposes on a party an obligation to make periodic payments in

installments “the statute of limitations runs against each installment independently

as it becomes due”); U.S. Leasing Corp. v. Everett, Creech, Hancock & Herzig, 88 N.C.

3 The only published North Carolina appellate decisions the Court was able to locate in which

the Court determined whether an instrument was intended to be a sealed instrument as a
matter of law were decided on motions for summary judgment where the parties had an
opportunity to present extrinsic evidence. See generally Square D Co., 314 N.C. 423, 334
S.E.2d 63; Dunes S. Homeowners Ass'n v. First Flight Builders, 341 N.C. 125, 459 S.E.2d 477
(1995); Blue Cross and Blue Shield v. Odell Assocs., 61 N.C. App. 350, 301 S.E.2d 459 (1983).
App. 418, 426, 363 S.E.2d 665, 669 (1988) (same). “This principle has been applied to

annual tax obligations arising out of a contract, lease payments, a computer system

service contract, and improper overcharges for workers’ compensation

insurance.” Christenbury Eye Ctr., P.A. v. Medflow, Inc., 2015 NCBC LEXIS 64, at

*9 (N.C. Super. Ct. 2015); see also Jacobs v. Cent. Transp., Inc., 891 F. Supp. 1120

(E.D.N.C. 1995) (finding that periodic deductions from employee’s pay by employer

for workers’ compensation insurance each constituted a separate breach which

started new limitations period); Broadnax v. Associated Cab & Transp., Inc., 2016

NCBC LEXIS 29, at *17–19 (N.C. Super. Ct. 2016) (finding that deductions from

compensation payments for various business related fees started new limitations

periods).

21. The alleged breaches of the Management Agreement in this case fall

under the accrual rule applicable to installment-type contracts. The Agreement called

for a quarterly accounting of Gross Profits. The accountings would have occurred

each quarter from early 2002 through the expiration of the Management Agreement

in 2013. Each quarter that Defendant did not account for the rebates, it breached its

obligations under the Management Agreement and a new cause of action for breach

of contract accrued. Accordingly, Plaintiff’s claim for breaches of the Management

Agreement occurring on or after October 27, 2005, are timely raised.4 Defendant’s

4 Application of the continuing wrong doctrine leads to the same result. The doctrine applies

where a claim is based on “the result of ‘continual unlawful acts,’ each of which restarts the
running of the statute of limitations. . . .” Williams v. Blue Cross Blue Shield of N.C., 357
N.C. 170, 179, 581 S.E.2d 415, 423 (2003) (emphasis added); Marzec v. Nye, 203 N.C. App.
88, 95, 690 S.E.2d 537, 542 (2010) (holding that the plaintiff could pursue breach of fiduciary
duty claim based on controlling shareholder’s refusal to pay the plaintiff’s monthly salary
Motion to Dismiss as to claims for breach of contract occurring on or after October 27,

2005 should be DENIED, but with regard to claims arising before October 27, 2005,

should be GRANTED.

b. Claims Two and Four — Breach of Fiduciary Duty and Constructive Fraud.

22. Plaintiff alleges that the Management Agreement made Defendant

“essentially a ‘partner’ with Plaintiff in the businesses of the pharmacies,” and “that

Plaintiff trusted and relied upon Defendant in the management of the pharmacies.”

(Compl. ¶¶ 15, 17.) Plaintiff claims that “Defendant breached its fiduciary duty owed

to Plaintiff” and committed constructive fraud by not sharing and accounting for the

rebates from Mutual Drug. (Id. ¶¶ 19, 21.) Defendant contends that Plaintiff has

alleged nothing more than a contractual relationship between the parties that

expressly defined Defendant as an independent contractor, and not as a partner.

(Def.’s Br. Supp. Mot. Dismiss 11–13.)

23. Although partners in a general partnership owe one another fiduciary

duties, Plaintiff has not adequately alleged the existence of a partnership with

Defendant. Indeed, Plaintiff’s own allegations contradict such a conclusion. The

North Carolina Uniform Partnership Act, codified at Chapter 59 of our General

Statutes, provides the basis for the “legal concept” of partnership. To that end, the

Act defines a partnership as “an association of two or more persons to carry on as co-

owners of a business for profit.” G.S. § 59-36(1). Our Supreme Court has elaborated:

“during the three years preceding the filing of this action”). The continuing wrong doctrine
does not permit a party to pursue claims based on wrongs completed and accruing outside of
the limitations period.
To make a partnership, two or more persons should
combine their property, effects, labor, or skill in a common
business or venture, and under an agreement to share the
profits and losses in equal or specified proportions, and
constituting each member an agent of the others in matters
appertaining to the partnership and within the scope of its
business.

Johnson v. Gill, 235 N.C. 40, 44–45, 68 S.E.2d 788, 793 (1952).

24. Since a written or express partnership agreement is not required, and

none is alleged here, a “de facto partnership may be found by examination of a [sic]

parties’ conduct, which shows a voluntary association of partners.” Best Cartage,

Inc. v. Stonewall Packaging, LLC, 219 N.C. App. 429, 438, 727 S.E.2d 291, 299

(2012). Put another way, a partnership “may be inferred” where the “circumstances

demonstrate a meeting of the minds with respect to the material terms of the

partnership agreement.” Compton v. Kirby, 157 N.C. App. 1, 11, 577 S.E.2d 905, 912

(2003). In this case, the Management Agreement itself expressly states that

Defendant was an independent contractor. (Management Agreement ¶ 14.) This

strongly weighs against any contention that the parties had a “meeting of the minds”

as to the formation of a partnership.

25. Under North Carolina law, there are also two “indispensable”

requirements that must be met for a legal partnership to exist. Best Cartage, 219

N.C. App. at 438, 727 S.E.2d at 299 (quoting Wilder v. Hobson, 101 N.C. App. 199,

202, 398 S.E.2d 625, 627 (1990)). The first requirement is the “sharing of any actual

profits.” Id. The second requirement is co-ownership of the business. Id. The

Management Agreement provided that the parties would share the Gross Profits
from the sale of prescription drugs by the pharmacies, but only as a means of

compensating Defendant for its services under the agreement. North Carolina courts

have recognized that where the parties’ agreement to share profits was clearly

intended to compensate one party, no partnership exists. See Am. Tr. Co. v. Life Ins.

Co., 173 N.C. 558, 562, 92 S.E. 706, 708 (1917) (holding that “there is no partnership

if sharing in the profits is a mere means of ascertaining and determining the

compensation for the services rendered”). The Management Agreement makes clear

that the sharing of profits was intended only as a means of compensating Defendant

for its services. The sharing of profits does not support the existence of a partnership

under these circumstances.

26. Plaintiff also has not alleged Defendant and Plaintiff were co-owners of

any business. To the contrary, under the Management Agreement, Plaintiff owned

but provided for Defendant’s use of all the facilities, fixtures, equipment, and

inventory necessary for the pharmacies. Defendant provided the management

services to operate the pharmacies. Plaintiff and Defendant did not share in the

overall profits from all sales by the pharmacies, but only in the profits generated from

prescription drug sales. Plaintiff has failed to allege the existence of a partnership

such that Defendant would owe Plaintiff a fiduciary duty.

27. Finally, to the extent Plaintiff contends that, even absent a partnership

between the parties, Defendant owed Plaintiff a fiduciary duty, such contention is

without merit. North Carolina law recognizes a fiduciary relationship under the

following circumstances:
[T]here has been a special confidence reposed in one who in
equity and good conscience is bound to act in good faith and
with due regard to the interests of the one reposing
confidence . . . [and] it extends to any possible case in which
a fiduciary relationship exists in fact, and in which there is
confidence reposed on one side, and resulting domination
and influence on the other.

Dalton v. Camp, 353 N.C. 647, 651–52, 548 S.E.2d 704, 707–08 (2001) (internal

quotations omitted) (citing Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906

(1931)). “[O]nly when one party figuratively holds all the cards—all the financial

power or technical information, for example—have North Carolina courts found that

the special circumstance of a fiduciary relationship has arisen.” Kaplan v. O.K.

Techs., L.L.C., 196 N.C. App. 469, 475, 675 S.E.2d 133, 138 (2009); HCW Ret. & Fin.

Servs., LLC v. HCW Emp. Benefit Servs., LLC, 2015 NCBC LEXIS 73, at *45–46

(N.C. Super. Ct. 2015).

28. Plaintiff has not alleged any facts to show that such a relationship

existed here. At bottom, Plaintiff alleges that it contracted with Defendant for

Defendant to operate part of Plaintiff's grocery business, and that Defendant did not

abide by the parties’ agreement. The allegations suggest that Plaintiff’s relationship

with Defendant was not that of contracting parties with relatively equal bargaining

power. The allegations do not establish a relationship in which Defendant dominated

Plaintiff or “held all the cards.” In the absence of any such facts, Plaintiff's allegations

that it trusted Defendant to honor the terms of the agreement do not transform its
relationship into a fiduciary one. Defendant’s Motion to Dismiss Plaintiff’s claims for

breach of fiduciary duty and constructive fraud5 should be GRANTED.

c. Claim Three — Fraud.

29. Plaintiff also alleges that Defendant’s failure to disclose the rebates and

to account for the rebates in calculating the Gross Profits constituted fraud. (Compl.

¶¶ 21–23.) More particularly, Plaintiff alleges that Defendant, “falsely and

fraudulently . . . fail[ed] to report the [rebates] to Plaintiff and represented to Plaintiff

that the revenues and expenses as reported by Defendant truly and accurately

reflected the actual revenues and expenses of the pharmacies for purposes of

calculating the gross profits of the pharmacies.” (Id. ¶ 21.) In order to state a claim

for fraud, “the complaint must allege with particularity: (1) that defendant made a

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

concealment was reasonably calculated to deceive; (3) that defendant intended to

deceive; (4) that plaintiff was deceived; and (5) that plaintiff suffered damage

resulting from defendant's misrepresentation or concealment.” Claggett v. Wake

Forest Univ., 126 N.C. App. 602, 610, 486 S.E.2d 443, 447 (1997). “A claim for fraud

may be based on an affirmative misrepresentation of a material fact, or a failure to

disclose a material fact relating to a transaction which the parties had a duty to

disclose.” Hardin v. KCS Int'l, Inc., 199 N.C. App. 687, 696, 682 S.E.2d 726, 733

(2009).

5 See White v. Consol. Planning, Inc., 166 N.C. App. 283, 294, 603 S.E.2d 147, 156 (2004)
(noting that a relationship of trust and confidence, or a fiduciary relationship, is an essential
element of a claim for constructive fraud).
30. Plaintiff’s fraud claim is based on precisely the same conduct underlying

its claim for breach of contract: Defendants failure to disclose and account for the

rebates in calculating the quarterly Gross Profit under the Management Agreement.

North Carolina courts, however, generally hold that the economic loss rule prevents

a party from pursuing a tort claim grounded in a breach of contract:

[A] tort action does not lie against a party to a contract who
simply fails to properly perform the terms of the contract,
even if that failure to properly perform was due to the
negligent or intentional conduct of that party, when the
injury resulting from the breach is damage to the subject
matter of the contract.

Spillman v. Am. Homes of Mocksville, Inc., 108 N.C. App. 63, 65, 422 S.E.2d 740,

741–42 (1992). See also Strum v. Exxon Co., USA, 15 F.3d 327, 330 (4th Cir.

1994) (applying North Carolina law and reasoning that “[p]arties contract partly to

minimize their future risks. Importing tort law principles of punishment into contract

undermines their ability to do so.”). “Flowing from this rule, in order to maintain tort

claims for conduct also alleged to be a breach of contract, a plaintiff must identify a

duty owed by the defendant ‘separate and distinct from any duty owed under a

contract.’” Forest2Market, Inc. v. Arcogent, Inc., 2016 NCBC LEXIS 3, at *8 (N.C.

Super. Ct. 2016). “The economic loss rule, therefore, will bar [ ] tort claims if the

allegedly offending conduct is also a breach of the parties’ contract and Plaintiff fails

to identify a duty separate and distinct from [the defendant’s] contractual

obligations.” Id.
31. In Forest2Market, Inc., the plaintiff contracted with the defendant to

design and implement a software platform for the plaintiff’s business. Id. at *2–3.

The plaintiff subsequently became dissatisfied with the defendant’s work on the

platform and brought suit against the defendant for breach of contract, fraud, and

other torts alleging that defendant knowingly overbilled the plaintiff for work on the

project and concealed the overbilling. Id. at *6. The Court applied the economic loss

rule and dismissed the plaintiff’s tort claims, including the claim for fraud. Id. at *12.

The Court rejected the plaintiff’s argument that the defendant “owed a duty not to

provide deceptive or misleading information that is separate and distinct from any

contractual duties owed.” Id. at *11. Instead, the Court held that “[b]ecause [the

plaintiff] alleges that the parties were performing under the contract when the

purportedly tortious conduct occurred, the Court concludes that [the defendant] did

not owe [the plaintiff] a separate and distinct duty not to provide deceptive and

misleading information in these circumstances.” Id. at *11–12. Rather, the fraud and

other tort claims raised by the plaintiff “attempt to manufacture a tort dispute out of

what is, at bottom, a simple breach of contract claim,” and “[s]uch attempts are

inconsistent both with North Carolina law and sound commercial practice.” Id. at *12

(citation omitted).

32. Plaintiff fails to allege that Defendant owed Plaintiff a duty to disclose

the rebates outside of Defendant’s contractual obligations under the Management

Agreement, and makes no argument in its brief that Defendant had such a duty. (Pl.’s
Br. Opp. Mot. Dismiss 16–17.) Accordingly, Plaintiff’s claim for fraud should be

dismissed.

33. Defendant also argues that the claim for fraud must be dismissed

because Plaintiff has not alleged with sufficient particularity the facts underlying the

claim. (Def.’s Br. Supp. Mot. Dismiss 13–17.) Plaintiff bears the burden of satisfying

a heightened pleading standard under Rule 9(b). “A complaint charging fraud must

allege [the] elements with particularity.” Hunter v. Spaulding, 97 N.C. App. 372, 377–

78, 388 S.E.2d 630, 634 (1990). This standard is “met by alleging time, place and

content of the fraudulent representation, identity of the person making the

representation and what was obtained as a result of the fraudulent act or

representations.” Harrold v. Dowd, 149 N.C. App. 777, 782, 561 S.E.2d 914, 918

(2002).

34. The Court concludes that Plaintiff has failed to allege its claim for fraud

with sufficient particularity. The Complaint does not allege the identity of any

specific person who made misrepresentations or omissions, does not provide either

specific or even approximate dates and times of, or the places at which, such

misrepresentations were made. Plaintiff undoubtedly knows the identities of specific

individuals it communicated with at Defendant’s business. It also must have been

presented with the quarterly and other accountings prepared regarding the

pharmacies’ prescription drug sales, and should have been able to provide specific

dates on which those accountings were received and where such information was

provided or conveyed to Plaintiff. The Complaint contains none of this specific
information, but instead makes only conclusory allegations that Defendant failed to

disclose and account for rebates over the course of approximately 12 years. Hardin v.

York Mem'l Park, 221 N.C. App. 317, 329, 730 S.E.2d 768, 778 (2012) (“A trial court

properly dismisses a claim for failure to plead fraud with particularity ‘where there

are no facts whatsoever setting forth the time, place, or specific individuals who

purportedly made the misrepresentations.”) (quoting Bob Timberlake Collection, Inc.

v. Edwards, 176 N.C. App. 33, 39, 626 S.E.2d 315, 321 (2006)); accord Birtha v.

Stonemor, N.C., LLC, 220 N.C. App. 286, 297, 727 S.E.2d 1, 10 (2012); S.N.R. Mgmt.

Corp. v. Danube Partners, 141, LLC, 189 N.C. App. 601, 610, 659 S.E.2d 442, 449

(2008).

35. For the foregoing reasons, Defendant’s Motion to Dismiss Plaintiff’s

claim for fraud should be GRANTED.6

d. Claim Five — Unfair and Deceptive Trade Practices.

36. In Plaintiff's final claim, it alleges that the actions which form the basis

for its other claims also constitute a violation of North Carolina’s Unfair and

Deceptive Trade Practices Act (“UDTPA”), G.S. § 75-1.1. To state a claim for violation

of the UDTPA, a plaintiff must allege that: “(1) the defendant committed an unfair or

deceptive act or practice, (2) the action in question was in or affecting commerce, and

(3) the act proximately caused injury to the plaintiff.” Capital Res., LLC v. Chelda,

Inc., 223 N.C. App. 227, 239, 735 S.E.2d 203, 212 (2012). “A practice is unfair when

it offends established public policy as well as when the practice is immoral, unethical,

6 Because the Court concludes that Plaintiff failed to state a fraud claim, it needs not address

Defendant's statute of limitations argument regarding the fraud claim.
oppressive, unscrupulous, or substantially injurious to consumers.” Huff v. Autos

Unlimited, 124 N.C. App. 410, 413, 477 S.E.2d 86, 88 (1996). “A practice is deceptive

if it has the capacity or tendency to deceive; proof of actual deception is not required.”

Id. Whether a trade practice is unfair or deceptive depends upon the facts of each case

and their impact on the parties. Marshall v. Miller, 302 N.C. 539, 548, 276 S.E.2d

397, 403 (1981).

37. Plaintiff's UDTPA claim, both as pleaded in the Complaint and argued

in its response to the Motion to Dismiss, is premised entirely on the conduct that also

gives rise to its other claims. (See Compl. ¶ 33; Pl.’s Br. Opp. Mot. Dismiss 15

(describing the conduct giving rise to Plaintiff’s UDTPA claim as the same “conduct

which constitutes a breach of fiduciary duty and constructive fraud”).) The Court has

dismissed Plaintiff’s claims for breach of fiduciary duty and fraud. To the extent

Plaintiff's claim for violation of the UDTPA is predicated on these claims, it too should

be dismissed. This leaves only the allegations of breach of contract to support the

UDTPA claim.

38. It has long been recognized that a breach of contract, even if intentional,

“is not sufficiently unfair or deceptive to sustain an action under” the UDTPA.

Eastover Ridge, LLC v. Metric Constructors, Inc., 139 N.C. App. 360, 367–68, 533

S.E.2d 827, 832–33 (2000) (citing Branch Banking and Tr. Co. v. Thompson, 107 N.C.

App. 53, 62, 418 S.E.2d 694, 700 (1992)). “It is ‘unlikely that an independent tort could

arise in the course of contractual performance, since those sorts of claims are most

appropriately addressed by asking simply whether a party adequately fulfilled its
contractual obligations.’” Id. at 368, 533 S.E.2d at 833 (citation omitted). Instead, “[t]o

become an unfair trade practice, the breach of contract must be ‘characterized by

some type of egregious or aggravating circumstance.’” Akzo Nobel Coatings, Inc. v.

Rogers, 2011 NCBC LEXIS 42, at *61 (N.C. Super. Ct. 2011) (quoting Norman Owen

Trucking, Inc. v. Morkoski, 131 N.C. App. 168, 177, 506 S.E.2d 267, 273 (1998)).

39. To the extent Plaintiff asserts that the underlying breach of the

Management Agreement also constitutes a violation of the UDTPA, the Court

concludes that Plaintiff has failed to allege aggravating factors accompanying the

breach that would support a claim of unfair and deceptive trade practices. Rather,

Plaintiff merely alleges that Defendant failed to perform its obligations under the

agreement by not sharing with Plaintiff the rebates it received from Mutual Drug

and, ultimately, by not properly calculating the Gross Profit generated by the

prescription drug sales. Plaintiffs have not alleged any circumstance that would give

rise to a claim under the UDTPA. Forest2Market, Inc., 2016 NCBC LEXIS 3, at *19

(allegations that the defendant knowingly overbilled the plaintiff and concealed the

overbilling are not “aggravating circumstances” sufficient to create UDTPA claim).

The Court concludes that Defendant’s Motion to Dismiss Plaintiff’s claim for violation

of the UDTPA should be GRANTED.

THEREFORE, IT IS ORDERED that:

Defendant's Motion to Dismiss is GRANTED, in part, and DENIED in part as

follows.
40. Defendant’s Motion to Dismiss Plaintiff’s claims for breach of contract

arising on or after October 27, 2005 is DENIED, but Defendant’s Motion to Dismiss

Plaintiff’s claims for breach of contract arising before October 27, 2005, is GRANTED.

41. Defendant’s Motion to Dismiss Plaintiff’s claims for breach of fiduciary

duty, constructive fraud, fraud, and violation of the UDTPA is GRANTED.

42. Except as expressly granted above, Defendant's Motion to Dismiss is

DENIED.

This the 5th day of October, 2016.

/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases