Brakebush Brothers., Inc. v. Certain Underwriters at Lloyd’s of London - Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2022 NCBC 23.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION DAVIE COUNTY 20 CVS 367
BRAKEBUSH BROTHERS, INC. AND HOUSE OF RAEFORD FARMS,
Plaintiffs,
v.
CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON - NOVAE 2007 SYNDICATE SUBSCRIBING TO POLICY WITH NUMBER 93PRX17F157, HALLMARK SPECIALTY INSURANCE CO., ORDER AND OPINION ON EVANSTON INSURANCE CO., DEFENDANTS’ JOINT MOTION TO MAXUM INDEMNITY CO., DISMISS AND CERTAIN HUDSON SPECIALTY INSURANCE DEFENDANTS’ MOTION TO CO., LIBERTY SURPLUS RECONSIDER INSURANCE CORPORATION, IRONSHORE SPECIALTY INSURANCE CO., AND CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON -BRIT SYNDICATE 2987 SUBSCRIBING TO POLICY WITH NUMBER PD-10972-00,
Defendants.
THIS MATTER comes before the Court on Defendants’ Joint Motion to Dismiss
Amended Complaint (“Motion to Dismiss”) (ECF No. 112) and on Defendants Maxum,
Ironshore, Novae, Hallmark, and Hudson’s Motion to Reconsider (“Motion to
Reconsider”) (ECF No. 114).
The Court, having considered the motion, the briefs of the parties, the
arguments of counsel, and all applicable matters of record, CONCLUDES, for the
reasons set forth below, that (1) Defendants’ Motion to Dismiss should be GRANTED, in part, and DENIED, in part; and (2) the Motion to Reconsider should be DENIED
as moot.
Kilpatrick Townsend & Stockton LLP, by Susan Boyles, and Dorsey & Whitney LLP, by Eric Weisenburger, Vernle C. Durocher, and Kathryn Ann Johnson, for Plaintiffs Brakebush Brothers Inc. and House of Raeford Farms.
Nelson Mullins Riley & Scarborough LLP, by G. Gray Wilson and Stuart H. Russell, and Tressler, LLP, by Timothy Jabbour, Anthony Tessitore, and Kiera Fitzpatrick, for Defendants Certain Underwriters at Lloyd’s of London – Brit Syndicate 2987, Evanston Insurance Company, Maxum Indemnity Company, Hudson Specialty Insurance Company, Liberty Surplus Insurance Corporation, and Ironshore Specialty Insurance Company.
Butler Weihmuller Katz Craig LLP, by Clark Schirle, Khrystyne Smith, and L. Andrew Watson, for Defendant Certain Underwriters at Lloyd’s of London Novae 2007 Syndicate.
Akerman, LLP, by Bryan G. Scott, for Defendant Hallmark Specialty Insurance Company.
Davis, Judge.
INTRODUCTION
1. The present motions raise two primary issues. First, the Court must
determine when a new plaintiff may be substituted under N.C. R. Civ. P. 17 as the
real party in interest and allowed to bring certain claims against the named
defendants under a “relation back” theory where the assertion of those claims would
otherwise be barred by the statute of limitations. Second, the Court has been asked—
based on the existence of new case law—to revisit its prior ruling on the issue of
whether North Carolina law allows an assignee of the right to receive proceeds under an insurance policy to sue the assignor’s insurer on theories of bad faith and unfair
and deceptive trade practices.
FACTUAL AND PROCEDURAL BACKGROUND
2. The Court does not make findings of fact on a motion to dismiss under
Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites those
facts contained in the complaint (and in documents attached, referred to, or
incorporated by reference in the complaint) that are relevant to the Court’s
determination of the motion. See, e.g., Window World of Baton Rouge, LLC v. Window
World, Inc., 2017 NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 12, 2017).
3. On 14 December 2017, a fire caused substantial damage to a chicken
processing facility located in Mocksville, North Carolina. (Amended Complaint, ECF
No. 100, at ¶ 2.) At the time of the fire, the facility was owned by Plaintiff House of
Raeford Farms, Inc. (“Raeford”), but Plaintiff Brakebush Brothers Inc. (“Brakebush”)
“was in the process of purchasing the [facility] from Raeford when the fire occurred.”
(Id.)
4. As of the date of the fire, Raeford had obtained two layers of commercial
property insurance coverage for the facility: (1) a primary insurance policy issued by
“Certain Underwriters at Lloyd’s, London and various syndicates subscribing to that
policy” with a limit of $20,000,000 (“the Primary Policy”); and (2) eight excess
insurance policies that provided, in total, limits of $30,000,000 in “excess of the $20
million primary limits.” (Id. at ¶¶ 33–34.) 1
1In this opinion, these eight policies are at times referred to collectively as the “Excess Policies.” 5. The insurers who issued the Excess Policies were all originally named
as Defendants in this action: Certain Underwriters at Lloyd’s of London – Novae 2007
Syndicate Subscribing to Policy With Number 93PRX17F157 (“Novae”), Hallmark
Specialty Insurance Co. (“Hallmark”), Evanston Insurance Co. (“Evanston”), Maxum
Indemnity Co. (“Maxum”), Hudson Specialty Insurance Co. (“Hudson”), Liberty
Surplus Insurance Corporation (“Liberty”), Ironshore Specialty Insurance Co.
(“Ironshore”), and Certain Underwriters at Lloyd’s of London – Brit Syndicate 2987
Subscribing to Policy With Number PD-10972-00 (“Brit”). (Complaint, ECF No. 3, at
¶ 31.) 2
6. Brakebush and Raeford executed an Asset Purchase Agreement
(“A.P.A.”) on 3 July 2018. (ECF No. 100, at ¶ 30.) As a part of the transaction,
Raeford “attempted to assign Raeford’s right to all insurance benefits, including all
rights and proceeds under its excess property insurance policies relating to the loss”
resulting from the fire. (Id. at ¶ 2.) Approximately five days before the A.P.A. was
executed, the insurers who had issued the Primary Policy gave written consent to this
assignment. (Id. at ¶ 31.)
7. Neither Brakebush nor Raeford, however, obtained consent from any of
the Excess Insurers prior to the assignment of Raeford’s right to collect insurance
proceeds under these policies to Brakebush. (Id.)
8. On 3 February 2020, Brakebush submitted a report to Crawford and
Company, a claims management company hired by one or more of the insurers,
2 Defendants are at times referred to collectively in this opinion as the “Excess Insurers.” claiming that the overall fire damage loss to the insured property totaled $41,274,429.
(Id. at ¶¶ 35–38.) As Raeford had already received $4,241,277.18 under the Primary
Policy prior to the sale, Brakebush asserted that it was entitled to the remaining
$15,758,722.82 of the policy limits under the Primary Policy “for amounts it incurred
after the sale was completed.” (Id. at ¶ 39.) On or about 29 April 2020, Brakebush
received a final payment exhausting the $20 million in coverage under the Primary
Policy. (Id. at ¶ 39.) Brakebush then “contacted counsel for the Excess Insurers and
demanded payment of insurance proceeds for the remainder” of the loss. (Id. at ¶ 40.)
9. The Excess Insurers refused to pay the full amount demanded by
Brakebush, instead offering only a combined $4,221,465.83, a substantially smaller
amount than Brakebush’s demand. (Id. at ¶ 41.) The Excess Insurers initially took
the position that they would make this smaller payment only if Brakebush agreed
that said payment constituted “full and final payment for all covered damages.” (Id.)
10. Since 1 May 2020, Brakebush has repeatedly requested that the Excess
Insurers explain why they refused to pay the remaining $21 million that Brakebush
had demanded. (Id. at ¶ 43.) At some point, the Excess Insurers provided Brakebush
with “Claim Work Papers,” which Brakebush alleges “showed that the Excess
Insurers owed at least $5,782,089.14 to [Brakebush].” (Id. at ¶¶ 44–45.)
11. The Excess Insurers ultimately agreed to pay $4,221,465.83 to
Brakebush without requiring Brakebush to stipulate that this payment constituted
a “full and final payment,” thereby allowing Brakebush to continue pursuing the total
amount it sought under the Excess Policies for the fire damage. (Id. at ¶ 44.) 12. On 8 October 2020, Brakebush filed its original Complaint initiating this
action in Davie County Superior Court against the Excess Insurers. In its Complaint,
Brakebush asserted a claim for a declaratory judgment regarding the obligations of
the Excess Insurers along with claims for breach of contract, bad faith, and unfair or
deceptive trade practices (UDTP). (ECF No. 3, at ¶¶ 47–79.) This case was
designated a mandatory complex business case on 2 December 2020 and assigned to
the Honorable Gregory P. McGuire. (ECF Nos. 1, 2.)
13. On 6 January 2021, Defendants filed a Joint Motion to Dismiss in which
they asserted various legal grounds for the dismissal of the claims asserted by
Brakebush. (ECF No. 42.)
14. On 1 July 2021, this matter was reassigned to the undersigned. (ECF
No. 79.)
15. On 1 November 2021, the Court issued an Order and Opinion (ECF No.
93) concluding that Brakebush possessed standing to assert its claims for breach of
contract and declaratory judgment under the policies issued by Maxum, Ironshore,
Novae, Hallmark, and Hudson (collectively, the “Assigned Insurers”), but not under
the policies issued by Brit, Evanston, or Liberty (collectively, the “Unassigned
Insurers”). (ECF No. 93, at ¶ 66.)3 The Court also declined to dismiss Brakebush’s
claims for bad faith and UDTP against the Assigned Insurers but dismissed those
claims as to the Unassigned Insurers pursuant to Rule 12(b)(1) for lack of standing.
3 In essence, the basis for the Court’s ruling was that specific language in the Brit, Evanston, and Liberty policies required the consent of the insurer (which was never obtained) before the assignment from Raeford to Brakebush could become legally effective. (Id. at ¶¶ 68, 83.) Additionally, the Court denied Defendants’ Motion to Dismiss
under 12(b)(6) as to all claims against the Assigned Insurers. (Id. at p. 37.)
16. Following the issuance of the Court’s Order and Opinion and prior to the
filing of any responsive pleading by Defendants, Brakebush filed an Amended
Complaint on 10 December 2021, which added Raeford as an additional named
plaintiff alongside Brakebush. (ECF No. 100.) The Amended Complaint asserted the
following claims: declaratory judgment by Brakebush against the Assigned Insurers;
declaratory judgment by Raeford against the Unassigned Insurers; breach of contract
by Brakebush against the Assigned Insurers; breach of contract by Raeford against
the Unassigned Insurers; bad faith denial and handling of claims by Brakebush
against the Assigned Insurers; UDTP by Brakebush against the Assigned Insurers;
and unjust enrichment by Raeford against the Unassigned Insurers. (Id. at ¶¶ 51–
105.)
17. On 31 January 2022, Defendants filed a Joint Motion to Dismiss
Amended Complaint, seeking dismissal of (1) all claims asserted by Raeford; and (2)
Brakebush’s reasserted claims for bad faith and UDTP. (ECF No. 112.) On that same
day, the Assigned Insurers filed a Motion to Reconsider in which they seek
reconsideration of the portion of the Court’s 1 November 2021 Order and Opinion
holding that Brakebush possessed standing to assert bad faith and UDTP claims
against them. (ECF No. 114.)
18. A hearing was held on 14 April 2022. The motions are now ripe for
decision. LEGAL STANDARD
19. Defendants’ motion to dismiss implicates both N.C.R. Civ. P. 12(b)(1)
and 12(b)(6). Defendants argue that Brakebush lacks standing to assert its bad faith
and UDTP claims under Rule 12(b)(1). They contend that all of Raeford’s claims
should be dismissed pursuant to 12(b)(6) based on the statute of limitations.
20. “A plaintiff’s standing to assert its claims may be challenged under
either Rule 12(b)(1) or Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.”
Raja v. Patel, 2017 NCBC LEXIS 25, at *11 (N.C. Super. Ct. Mar. 23, 2017) (citations
omitted). A Rule 12(b)(1) motion challenges a court’s jurisdiction over the subject
matter of the plaintiff’s claims. N.C.R. Civ. P. 12(b)(1). “Subject matter jurisdiction
is the indispensable foundation upon which valid judicial decisions rest,” In re T.R.P.,
360 N.C. 588, 590 (2006), and “has been defined as ‘the power to hear and to
determine a legal controversy; to inquire into the facts, apply the law, and to render
and enforce a judgment,’ ” High v. Pearce, 220 N.C. 266, 271 (1941) (citations
omitted). “[T]he proceedings of a court without jurisdiction of the subject matter are
a nullity.” Burgess v. Gibbs, 262 N.C. 462, 465 (1964) (citation omitted).
21. “As the party invoking jurisdiction, plaintiff[] ha[s] the burden of
establishing standing.” Queen’s Gap Cmty. Ass’n v. McNamee, 2011 NCBC LEXIS
37, at **4 (N.C. Super. Ct. Sept. 23, 2011) (cleaned up). In determining the existence
of subject matter jurisdiction, the Court may consider matters outside the pleadings.
Emory v. Jackson Chapel First Missionary Baptist Church, 165 N.C. App. 489, 491
(2004) (citation omitted). “However, if the trial court confines its evaluation [of standing] to the pleadings, the court must accept as true the [claimant]’s allegations
and construe them in the light most favorable to the [claimant].” Munger v. State,
202 N.C. App. 404, 410 (2010) (quoting DOT v. Blue, 147 N.C. App. 596, 603 (2001)).
22. “It is well-established that dismissal pursuant to Rule 12(b)(6) is proper
when ‘(1) the complaint on its face reveals that no law supports the plaintiff’s claim;
(2) the complaint on its face reveals the absence of facts sufficient to make a good
claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s
claim.’ ” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood
v. Guilford Cnty., 355 N.C. 161, 166 (2002)). The Court may also “reject allegations
that are contradicted by the documents attached, specifically referred to, or
incorporated by reference in the complaint.” Laster v. Francis, 199 N.C. App. 572,
577 (2009) (cleaned up).
23. Finally, Defendants’ Motion to Reconsider is brought pursuant to Rule
54(b). “This Court has summarized the grounds upon which a trial court will
generally grant a motion to reconsider an interlocutory order as follows: (1) the
discovery of new evidence, (2) an intervening development or change in the
controlling law, or (3) the need to correct a clear error or prevent manifest injustice.”
Pender Farm Dev., LLC v. NDCO, LLC, 2020 NCBC LEXIS 110, at *5 (N.C. Super.
Ct. Sept. 25, 2020) (cleaned up). ANALYSIS
I. Validity of Claims Asserted by Raeford
24. In their first argument, Defendants contend that the claims Raeford
seeks to assert are time-barred because they were not asserted until the Amended
Complaint was filed, which was more than three years after the date of the fire. In
response, Plaintiffs argue as follows: (1) the Court’s 1 November 2021 Order and
Opinion holds that the purported assignment from Raeford to Brakebush was invalid
as to the Unassigned Insurers; (2) the implication of the Court’s ruling on that issue
is that Raeford is the real party in interest to assert the breach of contract and
declaratory judgment claims against the Unassigned Insurers set out in the original
Complaint; and (3) Rule 17 allows a real party in interest to be substituted in place
of the original plaintiff under such circumstances and for the claims asserted by the
real party in interest to relate back to the date the Complaint was originally filed.
Alternatively, Plaintiffs argue that the statute of limitations should be equitably
tolled to preserve Raeford’s right to bring these claims or that Defendants should be
equitably estopped from asserting a statute of limitations defense.
25. Fire insurance policies are governed by a three-year statute of
limitations. N.C.G.S. § 58-44-16(f)(18) (2021) (“No suit or action on this policy for the
recovery of any claim shall be sustainable in any court of law unless all the
requirements of this policy have been complied with and unless commenced within
three years after inception of the loss.”). 26. It is undisputed that the fire giving rise to this lawsuit occurred on 14
December 2017, meaning that the claims seeking proceeds for fire damage under
Defendants’ policies were required to be brought within three years of that date.
Although Brakebush’s original Complaint was filed within that time period, the
Amended Complaint was not. Under North Carolina law, “[c]laims included in an
amended pleading relate back to the filing of the original pleading when the original
pleading gives sufficient ‘notice of the transactions, occurrences, or series of
transactions or occurrences, to be proved pursuant to the amended pleading.’ ”
Cabrera v. Hensley, 2012 NCBC LEXIS 42, at **10 (N.C. Super. Ct. July 16, 2012)
(quoting N.C. R. Civ. P. 15(c)). However, “while Rule 15 of the North Carolina Rules
of Civil Procedure permits the relation-back doctrine to extend periods for pursuing
claims, it does not apply to parties.” Estate of Fennell v. Stephenson, 354 N.C. 327,
334–35 (2001) (emphasis added) (citation omitted).
27. As noted above, Plaintiffs contend that Raeford’s claims are
nevertheless timely pursuant to Rule 17 based on its status as the real party in
interest as to these claims. 4 Rule 17 states in pertinent part as follows:
Every claim shall be prosecuted in the name of the real party in interest . . . . No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of the real party in interest; and such
4 Although Rule 17 is the basis for Plaintiffs’ argument that Raeford’s claims are timely,
Plaintiffs never actually filed a motion based on Rule 17 seeking leave from the Court to file the Amended Complaint naming Raeford as an additional plaintiff. The Court observes that this would have been the better practice instead of unilaterally filing the Amended Complaint. Nevertheless, the Court, in its discretion, will consider the merits of Plaintiffs’ Rule 17 argument. ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.
N.C. R. Civ. P. 17(a).
28. Our Supreme Court applied Rule 17(a) in Burcl v. North Carolina
Baptist Hosp., Inc., 306 N.C. 214, 228 (1982). The plaintiff in Burcl initiated a
wrongful death action within the two-year limitations period “in her capacity as a
foreign administrator of [the] decedent’s estate[.]” Id. at 215–16. The plaintiff alleged
that she was duly qualified to serve as the administrator of the plaintiff’s estate but
was unaware that she was likewise required to be appointed in North Carolina as the
administrator of the estate. Id. at 216. She subsequently obtained the necessary
qualification and moved to file a new pleading but did not do so until after the
expiration of the applicable limitations period. Id. at 216–17. The Supreme Court
held that pursuant to Rule 15 and Rule 17, the plaintiff’s supplemental pleading
related back to the filing date of her original pleading. Id. at 230. The Supreme Court
noted that the “Defendants had full notice of the transactions and occurrences upon
which this wrongful death claim is based” and would not be prejudiced by a new
pleading establishing the plaintiff’s proper qualifications. Id.
29. Although there is no genuine dispute as to the fact that Raeford is the
real party in interest to assert declaratory judgment and breach of contract claims
against the Unassigned Insurers in light of the Court’s 1 November 2021 Order and
Opinion, this case nevertheless presents a unique procedural scenario regarding the
application of Rule 17. At issue here are claims that were asserted against multiple
defendants in the original Complaint, and the Court has previously ruled that some of those claims were properly asserted by the original named plaintiff (Brakebush)
whereas others could only be asserted by Raeford. As such, Plaintiffs do not seek to
simply substitute Raeford for Brakebush as the sole plaintiff in this lawsuit. Rather,
they seek leave to have Brakebush and Raeford serve as co-plaintiffs for the
remainder of this action. In addition, the Court must determine whether the
circumstances surrounding Plaintiffs’ failure to name Raeford as a plaintiff—or as a
co-plaintiff—in the original Complaint precludes the application of Rule 17.
30. Neither the parties’ briefs nor the Court’s own research has disclosed
any North Carolina case that has addressed the applicability of Rule 17 on facts
similar to those presented here. Our Supreme Court has stated that the
consideration of federal cases may be helpful to North Carolina courts in interpreting
Rule 17. See Burcl, 306 N.C. at 224; see also N.C. R. Civ. P. 17, Comment (“The rule
as presented here tracks the federal rule[.]”). For this same reason, it is likewise
instructive to examine relevant cases from other states that have enacted similar or
identical versions of Rule 17. Holloway v. Wachovia Bank & Trust Co., N.A., 339 N.C.
338, 346 (1994) (citation omitted) (“[A]s our rules are derived from the federal rules,
which have been adopted by several other states as well, we look for guidance to
authorities on the federal rules and decisions from other jurisdictions using the same
rules.”).
31. As an initial matter, the Court notes that the Advisory Committee for
the Federal Rules of Civil Procedure has stated that Rule 17 “is intended to prevent
forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made.” Fed. R. Civ. P. 17 Advisory Committee
Notes (1966).
32. Courts in other jurisdictions that have determined whether to apply
Rule 17 in somewhat analogous circumstances have looked at factors such as whether
the plaintiff’s actions were the result of a tactical decision as opposed to a genuine
oversight and whether allowing the substitution of the real party in interest would
prejudice the defendant. See, e.g., Esposito v. United States, 368 F.3d 1271, 1276
(10th Cir. 2004) (cleaned up) (“[O]ur cases focus primarily on whether the plaintiff
engaged in deliberate tactical maneuvering (i.e. whether his mistake was ‘honest’),
and on whether the defendant was prejudiced thereby.”); Wieburg v. GTE Southwest,
Inc., 272 F.3d 302, 308 (5th Cir. 2001) (cleaned up) (“[M]ost courts have interpreted
the last sentence of Rule 17(a) as being applicable only when the plaintiff brought the
action in her own name as the result of an understandable mistake, because the
determination of the correct party to bring the action is difficult.”)
33. A number of courts have adopted the framework employed by the Second
Circuit in Advanced Magnetics v. Bayfront Partners, 106 F.3d 11 (2nd Cir. 1997). In
that case, a corporation brought a lawsuit, in part, in its capacity as an assignee of
claims from the corporation’s shareholders. Id. at 14. The corporation subsequently
moved to amend its complaint to add the individual shareholders as plaintiffs when
it became apparent that the defendants intended to challenge the effectiveness of the
assignment of claims to the corporation. Id. at 14. The trial court denied the motion to amend and held that the attempted assignment of claims had no legal effect. Id.
at 14–15.
34. The Second Circuit agreed that the assignments had not been properly
effectuated but held that the trial court had improperly denied the motion to amend
because Rule 17(a) allowed for a substitution of the parties under these
circumstances. Id. at 18–21. The Second Circuit noted that “[a]lthough the district
court retains some discretion to dismiss an action where there was no semblance of
any reasonable basis for the naming of the incorrect party . . . there should plainly be
no dismissal where substitution of the real party in interest is necessary to avoid
injustice.” Id. at 20 (cleaned up). In reaching this result, the Second Circuit relied
upon the fact that the amendment itself was merely a technical substitution of the
proper plaintiffs, the absence of bad faith or any deliberate or tactical strategy in the
plaintiff’s failure to originally name the proper party, and the lack of prejudice to the
defendants. Id. at 20–21.
35. Here, the Court concludes that a consideration of these same factors
supports a finding that the substitution of Raeford for Brakebush is proper as to the
breach of contract and declaratory judgment claims alleged in the original Complaint
against the Unassigned Insurers. The legal theory and factual basis for the breach
of contract and declaratory judgment claims brought against the Unassigned
Insurers remain unchanged. Indeed, the substitution of Raeford as a plaintiff is
wholly consistent with the position that Defendants have taken throughout this
litigation—namely, that Raeford, rather than Brakebush, is the real party in interest as to these claims given Brakebush’s failure to obtain written consent to the
assignment from the Excess Insurers. Moreover, Brakebush was not dilatory in filing
its Amended Complaint, doing so only 39 days after the Court’s 1 November 2021
Order and Opinion.
36. In addition, the Court is unpersuaded that Plaintiffs acted in bad faith
by naming Brakebush as the sole Plaintiff in the original Complaint. The legal
validity of the assignments was vigorously litigated by the parties in the original
motion to dismiss. In ultimately ruling on this issue in its 1 November 2021 Order
and Opinion, the Court was required to resolve a number of complex issues in order
to reach its determination as to the effectiveness of the assignment. In so doing, the
Court rejected the categorical arguments asserted by Defendants that the assignment
was invalid under all of the policies at issue and ultimately was required to conduct
a separate analysis of the pertinent language contained in each of the eight policies
at issue in order to conclude whether the assignment was valid under each respective
policy. Thus, the Court finds there was clearly a “semblance of [a] reasonable basis”
for only suing in Brakebush’s name. See Advanced Magnetics, 106 F.3d at 20 (cleaned
up).
37. The Court is also unable to discern any prejudice to Defendants by
allowing Raeford to be substituted for Brakebush as the plaintiff as to the breach of
contract and declaratory judgment claims against the Unassigned Insurers. As noted
above, the factual and legal basis for these claims remains unchanged, and
Defendants have failed to make any plausible argument how they are prejudiced. 38. However, the Court agrees with Defendants that Raeford is not entitled
to assert new claims against the Unassigned Insurers—that is, claims that were not
contained in the original Complaint and therefore cannot logically be deemed to
“relate back” to that pleading. For this reason, the new unjust enrichment claim
contained in the Amended Complaint would subject Defendants to a new theory of
liability and will not be permitted. 5 Therefore, that claim is dismissed. 6
39. In sum, the Court is satisfied that allowing Raeford to assert the
declaratory judgment and breach of contract claims originally brought by Brakebush
against the Unassigned Insurers is consistent with the purposes underlying Rule 17
and with principles of fairness. The Court therefore concludes, in its discretion under
Rule 17, that Raeford’s claims for declaratory judgment and breach of contract shall
be allowed to proceed. Defendants’ Motion to Dismiss those claims is therefore
DENIED. However, Defendants’ Motion to Dismiss Raeford’s claim for unjust
enrichment is GRANTED.
II. Standing of Brakebush to Assert Bad Faith and UDTP Claims
40. In their second argument, Defendants seek dismissal of Brakebush’s
claims for bad faith and unfair and deceptive trade practices (Counts V and VI) in the
Amended Complaint. Because their argument is based on the same grounds that
5 However, Defendants have failed to convince the Court that the damages sought by Raeford in the Amended Complaint associated with the breach of contract cause of action likewise constitute a new “claim” that should not be deemed to relate back under Rule 17. 6 To the extent Plaintiffs contend that Raeford’s claim for unjust enrichment should nevertheless be allowed to proceed under theories of either equitable tolling or equitable estoppel, the Court has carefully considered Plaintiffs’ arguments and concludes that these arguments lack merit. they asserted in seeking identical relief in their motion to dismiss Brakebush’s
original Complaint, Defendants have also filed a Motion to Reconsider pursuant to
Rule 54(b).
41. As an initial matter, the Court notes that the Motion to Reconsider is
technically moot. This is so because the Court’s prior ruling on this issue addressed
the legal sufficiency of the claims for bad faith and unfair and deceptive trade
practices contained in Brakebush’s original Complaint. Based on the filing of
Plaintiffs’ Amended Complaint, the claims contained in Brakebush’s original
pleading no longer have any legal significance. Defendants’ Motion to Reconsider is
therefore DENIED as moot. See Krawiec v. Manly, 2015 NCBC LEXIS 85, at **5
(N.C. Super. Ct. Aug. 24, 2015) (citations omitted) (“[T]he filing of [an] Amended
Complaint renders moot Defendants’ Motions to Dismiss the Original Complaint.”).
42. In their Motion to Dismiss, Defendants contend that new case law
demonstrates Brakebush’s lack of standing to assert claims for bad faith and UDTP
against the Assigned Insurers.
43. In its 1 November 2021 Order and Opinion, the Court concluded that
Brakebush did, in fact, possess standing to assert these claims. (ECF No. 93, at ¶ 83.)
In its analysis, the Court examined the relevant cases decided under North Carolina
law in existence at that time. (ECF No. 93, at ¶¶ 73–81.) The Court noted that the
few cases addressing the issue of when an insurer can be sued for bad faith or UDTP
by a party other than the named insured in connection with the handling of an
insurance claim had all arisen in the context of third-party—rather than first-party— coverage. 7 (ECF No. 93, at ¶ 76.) Given (1) Defendants’ inability to cite case law on
this issue from North Carolina courts similarly rejecting a plaintiff’s standing
argument in the context of first-party insurance coverage (which is the type of
coverage that exists in the present case); and (2) the absence of public policy reasons
to deny Brakebush standing under these circumstances, the Court concluded that
Brakebush possessed standing to bring these claims. (ECF No. 93, at ¶¶ 76–83.) The
Court further noted that “to the extent that privity between Brakebush and the
Excess Insurers is required in order for Brakebush to possess standing to assert a
bad faith or UDTP claim, such privity arguably exists as a result of the assignment
from Raeford to Brakebush.” (ECF No. 93, at ¶ 79 n.10.)
44. Since the Court issued its prior Order and Opinion, however, the United
States Court of Appeals for the Fourth Circuit issued its opinion in Skyline
Restoration, Inc. v. Church Mut. Ins. Co., 20 F.4th 825 (4th Cir. 2021), which analyzes
this same legal issue on facts very similar to those in the present case.
45. Federal decisions on an issue of North Carolina law are, of course, not
binding on this Court. Nevertheless, North Carolina courts are permitted to consider
such decisions to the extent they are instructive. Sykes v. Health Network Solutions,
Inc., 2013 NCBC LEXIS 50, at **19 (N.C. Super. Ct. Nov. 25, 2013) (citing Rose v.
7 “In the first-party situation, the insurance covers a claim directly made by the insured and
examples of first-party coverage are life, health, disability, property, and fidelity insurance. In the third-party situation, a liability claim is brought by a third party which triggers the insurer’s duty to defend and indemnify. Examples of third-party coverage are professional malpractice insurance and commercial liability insurance.” 8 NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION § 90.1 (2021). Vulcan Materials Co., 282 N.C. 643, 655 (1973) (“This court is not bound by federal
precedent, but may examine federal decisions in search of potentially persuasive
authority.”); see also Brown v. Centex Homes, 171 N.C. App. 741, 744 (2005) (citations
omitted) (“Although we are not bound by federal case law, we may find their analysis
and holdings persuasive.”). The Court deems the opinion in Skyline Restoration to be
helpful in its consideration of the unique issue presented here as to which—it bears
repeating—no North Carolina court has previously had occasion to address. Skyline
Restoration expressly rejects Plaintiffs’ theory of standing, holding that an assignee
of insurance proceeds arising out of a first-party insurance policy lacks the ability to
sue the assignor’s insurer for UDTP because the assignee under such circumstances
is neither the insured under the policy nor in privity with the insurer.
46. In Skyline Restoration, a church retained a remediation services
company, Skyline Restoration, Inc. (“Skyline”), after significant wind damage
occurred to the church’s property. Skyline Restoration, 20 F.4th at 827. As part of
the remediation agreement, Skyline received an assignment of the right to collect any
proceeds from the church’s insurance policy regarding the damage. Id. at 828.
Skyline subsequently billed the church for $75,000. Id. However, neither the church
nor the insurer paid Skyline for its services. Id. Skyline perfected a lien against the
church and submitted claims with the insurer, which were never paid. Id. The
church subsequently filed for bankruptcy and instituted an adversary proceeding
against Skyline. Id. Skyline brought a lawsuit against the church’s insurer in which it asserted, inter alia, a claim for unfair claim settlement practices under Chapter 75.
Id.
47. The Fourth Circuit held that Skyline lacked the ability under North
Carolina law to assert its UDTP claim based on the general prohibition in this state
on such claims unless the plaintiff is either an insured or in privity with the insurer.
Id. at 834–35. The Fourth Circuit concluded that under the facts of the case no privity
existed between Skyline and the church. Id. at 835.
48. The Court deems Skyline Restoration to be instructive in several
respects. It is the first case applying North Carolina law that addresses the issue of
whether the general rule requiring that a party bringing such claims against an
insurer be either the insured itself or one in privity with the insurer applies equally
in the context of first-party coverage. Moreover, the Court likewise finds the Fourth
Circuit’s analysis helpful on the issue of whether privity exists between an assignee
in the position of Brakebush (who has merely been assigned the right to collect
insurance proceeds) and the insurers of its assignor (here, the Excess Insurers).
Indeed, a review of case law from other jurisdictions fails to show general support for
the proposition that privity exists under such circumstances where, as here, the
assignment is limited to the right to receive proceeds under the policy. Although
perhaps a different conclusion would result had Raeford assigned the entire
insurance policies to Brakebush, that is not what happened. 8
8 Plaintiffs contend that Skyline Restoration is inapposite because in that case an adversarial relationship existed between the assignee and assignor whereas here the interests of Brakebush and Raeford are not adverse. Although this is true, it does not affect the legal 49. A ruling that Brakebush possesses standing to bring bad faith and
UDTP claims against the Assigned Insurers under these circumstances would
constitute a significant expansion of the existing law in North Carolina. Although
admittedly the public policy concerns previously cited by North Carolina courts as
grounds for refusing to allow such claims by adverse third-party claimants do not
appear to exist on the present facts, the Court nevertheless concludes that any such
change in the law must come from North Carolina’s appellate courts.
50. Therefore, Defendants’ Motion to Dismiss Brakebush’s claims for bad
faith and UDTP is GRANTED, and those claims are DISMISSED without prejudice. 9
CONCLUSION
THEREFORE, it is hereby ORDERED that Defendants’ pending motions are
GRANTED, in part, and DENIED, in part, as follows:
1. Defendants’ Motion to Dismiss Raeford’s claims for declaratory judgment and
breach of contract is DENIED.
2. Defendants’ Motion to Dismiss Raeford’s claim for unjust enrichment is
GRANTED, and this claim is DISMISSED WITH PREJUDICE.
3. Defendants’ Motion to Dismiss Brakebush’s claims for bad faith and UDTP is
GRANTED, and those claims are DISMISSED WITHOUT PREJUDICE.
issue of whether privity exists between an assignor’s insurer and an assignee who has solely been assigned the right to receive proceeds under the policy. 9 “A dismissal for lack of subject matter jurisdiction is generally a dismissal without prejudice.” Button v. Level Four Orthotics & Prosthetics, Inc., 2020 NCBC LEXIS 30, at **21 fn. 6 (N.C. Super Ct. Mar. 13, 2020) (cleaned up). 4. Defendants Maxum, Ironshore, Novae, Hallmark, and Hudson’s Motion to
Reconsider is DENIED AS MOOT.
SO ORDERED, this the 11th day of May, 2022.
/s/ Mark A. Davis Mark A. Davis Special Superior Court Judge for Complex Business Cases