eNotes: Liability – April 2023 – North Carolina

SIGNIFICANT CASE SUMMARIES

North Carolina Case Summaries

Pregel Am., Inc. v. Casol
United States District Court for the Western District of North Carolina
No. 3:20-cv-470

Decided: March 10, 2023

U.S. citizenship controls for jurisdictional analysis.

Background

A North Carolina company sued two former employees for fraud, breach of contract, and other state law claims. The former employees were citizens of both the United States and Italy and reside in Italy. The lawsuit was filed in federal court, with the Plaintiff invoking jurisdiction under 28 U.S.C. § 1331(a)(2), which gives the federal courts jurisdiction over cases between citizens of a state and citizens of a foreign country.

Holding

Federal courts are courts of limited jurisdiction. When it comes to dual citizens, U.S. citizenship controls and the foreign citizenship is disregarded. This is due to the fact that the underlying purpose of alienage jurisdiction is to promote international relations and to allay any fears that foreign subjects will experience any bias in the state courts. Moreover, when dual citizens are domiciled in the foreign country, they are deemed “stateless” for the purpose of diversity jurisdiction. Without a federal question, diversity jurisdiction, or alienage jurisdiction, the Court granted the Motion to dismiss.

Questions about this case can be directed to Patrick O’Grady at (804) 566-3570 or pogrady@tthlaw.com.

Great W. Cas. Co. v. Ace Am. Ins. Co.
United States District Court for the Middle District of North Carolina
No. 1:21-cv-338

Decided: March 3, 2023

Indemnification agreement gives rise to third-party claim.

Background

In 2007, a paper and corrugated box manufacturer and a trucking company entered into an annually-renewing contract for delivery services. The contract required the trucking company to defend and indemnify the manufacturer against any personal injury claims arising out of the shipping of the manufacturer’s goods by the trucking company. The indemnification agreement contained a carve-out for losses due to the sole negligence of the manufacturer.

On the date of loss, the trucking company maintained two insurance policies. The trucking company maintained a commercial auto policy written by Great West Casualty Company. The manufacturer was named as an additional insured. The trucking company also maintained a commercial umbrella policy issued by Gemini Insurance Company. The Great West policy was listed as “underlying insurance.” The manufacturer maintained a commercial auto policy written by Ace American Insurance Company.

The loss occurred when an employee of the trucking company opened the door of the trailer, and a 500 pound pallet fell and struck her causing injuries. The trailer was owned by the trucking company. The injured trucking company employee filed suit against the manufacturer for her personal injuries, but – as she had made a worker’s compensation claim against her employer – she did not name the trucking company as a defendant. Great West provided a defense to the manufacturer in the underlying lawsuit. The manufacturer, Ace, and Great West settled the underlying matter subject to a settlement funding agreement and preserving their rights to pursue declaratory relief.

Great West brings the instant declaratory judgment action seeking a ruling that it owed neither a duty to defend nor a duty to indemnify the manufacturer in the underlying lawsuit, or, in the alternative, Ace is liable for a pro-rata share of the defense costs and settlement payment. Ace filed a Third-Party Complaint against the trucking company and Gemini seeking a declaration that it had no duty to defend or indemnify its insured and that the trucking company and its insurers owed a duty to the manufacturer to defend and indemnify it in the underlying lawsuit. In its Third-Party Complaint, Ace alleged that the trucking company failed to inspect the cargo after it had been loaded into the trailer, failed to insure it was properly secured, and failed to comply with the Federal Motor Carrier Safety Regulations. The matter is before the Court on Motions to dismiss the Third-Party Complaint filed by the trucking company and Gemini.

Holding

The Federal Rules of Civil Procedure permit third-party claims only when the third-party’s liability is in some way dependent upon the outcome of the main claim and when the third-party’s liability is derivative. The trucking company and Gemini argued their liability – if any – would only be derivative as to the manufacturer, not its insurer, Ace. The Court rejected this argument holding that the issue in the main claim and in the third-party claim were one and the same – whether the trucking company was negligent thereby falling within the exclusion of the indemnification clause.

Questions about this case can be directed to Patrick O’Grady at (804) 566-3570 or pogrady@tthlaw.com.

U.S. Med. Supplies, LLC v. Geri-Care Pharms. Corp.
United States District Court for the Eastern District of North Carolina
No. 5:20-cv-67

Decided: February 23, 2023

Not every failed business venture is actionable.

Background

In 2015, a North Carolina pharmaceutical distributor and a Saudi pharmaceutical distributor entered into a Memorandum of Understanding, whereby they agreed to work together to market certain U.S. made pharmaceuticals to the Saudi Ministry of Health and the Saudi health system. The Memorandum of Understanding provided that the North Carolina distributor could only do business in Saudi Arabia through the Saudi distributor.

The Saudi distributor learned of a potential opportunity for a sizeable quantity of Calcium Carbonate to be sold to the Saudi Ministry of Health. The North Carolina distributor would not enter into a contract with the manufacturer until the Saudi distributor was awarded a purchase order from the Ministry of Health. In pursuit of the purchase order, the North Carolina distributor requested the manufacturer to draft a letter confirming that the North Carolina distributor was, in fact, an authorized distributor of its products. The requested letter was provided and included a statement that all of the manufacturer’s sales to Saudi Arabia would be handled by the North Carolina distributor or one of its affiliates. A second letter reiterating the agreement was also provided that all sales of the manufacturer’s Calcium Carbonate intended for sale in Saudi Arabia would be handled by the North Carolina distributor or one of its affiliates for the period of one year. No deal was ever made between the parties and the Saudi Ministry of Health.

Later that year and again in 2017, the manufacturer entered into contracts with other distributors for various quantities of Calcium Carbonate, some of which was shipped to Saudi Arabia after sale. Also in 2017, the North Carolina distributor assisted another Saudi distributor win a contract from the Ministry of Health for Calcium Carbonate to be delivered in 2018.

In January 2020, the North Carolina distributor brought suit against the manufacturer and the Saudi distributor alleging: (1) breach of contract, (2) fraud/intentional misrepresentation, (3) constructive fraud, (4) breach of fiduciary duty, and (5) violation of North Carolina’s Unfair and Deceptive Trade Practices Act.

Holding

The Court held that the first letter between the manufacturer and the North Carolina distributor was insufficient to constitute a contract. Specifically, the Court noted that by including the language “[manufacturer] will contract,” the first letter was not a contract, but a promise to contract which is unenforceable. In contrast, the second letter was sufficient to survive a motion for summary judgment as the language stated that the North Carolina distributor “is the exclusive and sole agent for export to Saudi Arabia” for the manufacturer’s Calcium Carbonate.

Despite finding that the second letter was a contract, the Court dismissed the North Carolina distributor’s claim against the manufacturer. North Carolina has a three-year statute of limitations for breach of contract claims, and the cause of action accrues on the date of breach. While North Carolina does have a “discovery rule” that operates to toll the statute of limitations until the injured party learns of the error, the Court held that the discovery rule is limited to personal injury and property damage claims and did not operate to toll the statute of limitations for the breach of contract claim. The Court found that the Plaintiff’s failure to file suit within three years of that date was fatal to its claim because the exclusivity clause of the second letter was limited to one year and would have expired on September 1, 2016, if not renewed.

The Court similarly dismissed the fraud, constructive fraud, intentional misrepresentation and UDTPA claims. North Carolina law only allows for fraud claims predicated on misstatements of a past or existing facts. The only permissible claims for fraud based on a promissory representation are those where the aggrieved party can show that the promisor had no intention of fulfilling the promise when it was made. The Court found that there were no facts to support the claim that the manufacturer had no intention of fulfilling its promise at the time it was made. They were dismissed summarily because the UDTPA claims were based on the same alleged fraud.

Finally, the Court reiterated longstanding North Carolina law that parties to a contract that is negotiated at arm’s length cannot be each other’s fiduciary. Moreover, the Memorandum of Understanding between the North Carolina distributor and the Saudi distributor did not restrict the Saudi distributor’s ability to contract with others, so there could be no tortious interference based upon the manufacturer’s actions.

Questions about this case can be directed to Patrick O’Grady at (804) 566-3570 or pogrady@tthlaw.com.