USA Trouser, S.A de C.V. v. Williams

2016 NCBC 54

USA TROUSER, S.A. de C.V., Plaintiff, v. JAMES A. WILLIAMS; NAVIGATORS INSURANCE COMPANY; and NAVIGATORS MANAGEMENT COMPANY, INC., Defendant.

No. 14 CVS 790

Superior Court of North Carolina, Guilford

July 21, 2016

Law Offices of Matthew K. Rogers, PLLC by Matthew K. Rogers, and Nexsen Pruet, PLLC by Christine L. Myatt for Plaintiff USA Trouser, S.A. de C.V.

Bradley Arant Boult Cummings LLP by Dana C. Lumsden and Katherine M. Kliebert for Defendant James A. Williams.

Cozen O'Connor by Tracy L. Eggleston and Angelo G. Savino (pro hac vice) for Defendants Navigators Insurance Company and Navigators Management Company, Inc.

ORDER & OPINION

James L. Gale Chief Special Superior Court Judge for Complex Business Cases

I. INTRODUCTION

{1} THIS MATTER is before the Court on three motions to dismiss (1) Defendant James A. Williams's Motion to Dismiss Plaintiff's Amended Complaint ("Williams's Motion to Dismiss"); (2) Defendant Navigators Insurance Company's Motion to Dismiss ("Navigators Insurance's Motion to Dismiss"); and (3) Defendant Navigators Management Company, Inc.'s Motion to Dismiss ("Navigators Management's Motion to Dismiss"). For the reasons expressed below, Williams's Motion to Dismiss is GRANTED in part and DENIED in part, Navigators Insurance's Motion to Dismiss is GRANTED, and Navigators Management's Motion to Dismiss is GRANTED.

{2} Plaintiff USA Trouser, S.A. de C.V. ("USA Trouser") brings multiple claims against Defendants James A. Williams ("Williams"), Navigators Insurance, Company ("Navigators Insurance") and Navigators Management Company, Inc. ("Navigators Management"). The claims arise out of a relationship between USA Trouser and International Legwear Group, Inc. ("ILG"), a company for which Williams served as CEO and director and for which Navigators Insurance provided director and officer liability insurance. In part, USA Trouser seeks to compel Navigators Insurance and Navigators Management to pay the amount of a default judgment entered against ILG in USA Trouser's favor in a prior federal action.

{3} USA Trouser is a Mexican textile company that had contracted to supply socks to ILG for resale in the United States. USA Trouser claims that ILG, without disclosing its dire financial situation, induced USA Trouser to continue supplying socks to ILG on credit. ILG ultimately sold many of its assets, delivered the proceeds to its secured creditors, and failed to honor its commitments to pay USA Trouser. USA Trouser sued ILG and three individuals that had served as ILG's directors or officers in the United States District Court for the Western District of North Carolina. USA Trouser obtained a default judgment against ILG, and claims against the individual defendants in that action were either dismissed by summary judgment or settled. Williams was not a party to that action.

{4} In this action, USA Trouser brings similar claims against Williams to those that it brought in the federal case. USA Trouser also brings claims against Navigators Insurance and Navigators Management that are related to the insurance companies' actions during the federal case and after the entry of default judgment against ILG. Williams asserts that USA Trouser's fraud claim is not adequately alleged and that the rest of the claims against him are barred by collateral estoppel. Navigators Insurance asserts that USA Trouser does not have standing to bring its claim, and even if it did, ILG's policy does not cover the liability established by the default judgment. Navigators Management asserts that it has no contractual obligation to USA Trouser.

{5} For the reasons expressed below, the Court limits certain claims but allows them to proceed against Williams, dismisses USA Trouser's claims against Williams for actual fraud, negligent misrepresentation, fraudulent and/or negligent failure to perform statutory duties, and conspiracy to defraud, and dismisses all claims against Navigators Insurance and Navigators Management.

II. LEGAL STANDARD

{6} Under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rules"), the Court assumes the facts alleged in USA Trouser's First Amended Complaint to be true and views them in the light most favorable to USA Trouser.^[1]See Tarrant v. Freeway Foods of Greensboro, Inc., 163 N.C.App. 504, 508, 593 S.E.2d 808, 811 (2004). Because the First Amended Complaint refers to and depends on certain documents, the Court may consider those documents without converting the Rule 12(b)(6) motions into motions for summary judgment. See Schlieper v. Johnson, 195 N.C.App. 257, 261, 672 S.E.2d 548, 551 (2009). USA Trouser may not recover if the First Amended Complaint lacks sufficient facts to support its claims or discloses a fact that necessarily defeats its claims. See Pinney v. State Farm Mut. Ins. Co., 146 N.C.App. 248, 253, 552 S.E.2d 186, 190 (2001).

III. THE PARTIES

{7} USA Trouser is a Mexican sock and hosiery manufacturing company with a principal place of business in Mexico.

{8} Navigators Insurance is a New York company that has offices in New York City, New York, and Stamford, Connecticut, Navigators Insurance and that provides director and officer ("D&O") liability insurance to North Carolina residents.

{9} Navigators Management is a New York company that has places of business in New York City, New York, and Stamford, Connecticut, and that is registered to do business in North Carolina.

{10} Williams is or was a resident of Guilford County, North Carolina, and was formerly a director, the president, and the CEO of ILG.

{11} ILG was a Virginia corporation that had its principal place of business in North Carolina before it was dissolved in 2012. Williams remains ILG's registered agent in North Carolina.

V. BACKGROUND

A. General Background

{12} USA Trouser manufactured and shipped socks to ILG, and ILG resold the socks to Walmart and Payless Shoes.

{13} Williams became ILG's CEO in September 2010. John Sanchez ("Sanchez) was ILG's chief financial officer and Bill Sheely ("Sheely") was ILG's chief operating officer.

{14} ILG purchased D&O liability insurance from Navigators Insurance, and Navigators Insurance issued policy number PH10DOL616113IV (the "ILG Policy"), which insured ILG for the period of December 31, 2010, through December 31, 2017.

{15} ILG was in breach of its loan agreements with CapitalSource Finance, LLC ("CapSource") and was operating under a forbearance agreement with CapSource when Williams became ILG's CEO. ILG's financial position declined after Williams became CEO, and by February 2011, ILG was in default of at least one of its forbearance covenants. CapSource notified ILG on March 8, 2011, that it would no longer continue to fund ILG's operations. ILG and its officers did not disclose ILG's financial situation to USA Trouser.

{16} By the end of May 2011, ILG was behind in its payments to USA Trouser for shipments that ILG had already received. Sanchez and Sheely traveled to Mexico to meet with USA Trouser executives on June 2, 2011, at which time they promised that ILG would make minimum weekly payments of $100, 000.00 to pay down past-due invoices and that ILG would pay the additional amount necessary to cover new invoices. ILG did not honor this promise.

{17} On July 18 or 19, 2011, Williams told ILG employees that ILG was unable to meet its financial obligations and that CapSource would not continue to finance ILG. On August 11, 2011, Williams signed an asset-purchase agreement to sell all of ILG's assets. The asset-purchase agreement specified that the asset purchaser would not assume any of ILG's contractual liabilities. USA Trouser received no proceeds from the sale of ILG's assets. The Virginia State Corporation Commission terminated ILG's corporate existence on April 30, 2012.

B. The Federal Lawsuit and the ILG Default Judgment

{18} On September 6, 2011, USA Trouser initiated a lawsuit in North Carolina superior court (the "ILG Lawsuit") against ILG, Sheely, Sanchez, and the former chairman of ILG's board of directors, Scott Andrews ("Andrews"). USA Trouser brought eight claims: (1) breach of contract, (2) breach of fiduciary duty/constructive trust, (3) fraud/fraudulent concealment/negligent misrepresentation, (4) unfair and deceptive trade practices, (5) breach of implied covenants of good faith and fair dealing, (6) fraudulent and/or negligent failure to perform statutory duties, (7) conversion, and (8) fraudulent conveyance. See USA Trouser, S.A. de C.V. v. Int'l Legwear Grp. Inc., No. 1:11-cv-00244-MR-DLH, 2012 U.S. Dist. LEXIS 177456, at *1–2 (W.D. N.C. Dec. 13, 2012), aff'd in part, vacated in part, and remanded sub nom. USA Trouser, S.A. de C.V. v. Andrews, 612 F.App'x 158 (4th Cir. 2015), reh'g denied, No. 14-402 (4th Cir. July 17, 2015). On September 21, 2011, the case was removed to the United States District Court for the Western District of North Carolina. See id. at *2.

{19} ILG, Andrews, Sanchez, and Sheely each submitted the claims brought against them to Navigators.

{20} Navigators engaged Bradley Arant Boult Cummings LLP ("Bradley Arant") to represent all of the defendants in the ILG Lawsuit and initially paid for the defense of all of the defendants.

{21} On December 27, 2011, with ILG's authorization, Bradley Arant moved to withdraw as ILG's counsel. The district court granted the motion and directed ILG to retain new counsel within ten days. When ILG failed to comply, the district court struck ILG's Answer. The district court entered default against ILG on February 2, 2012, and the ILG Lawsuit continued against the individual defendants.

{22} USA Trouser and the individual defendants filed cross-motions for summary judgment in the ILG Lawsuit on September 4, 2012.

{23} On December...