JCG & Assocs., LLC v. Disaster Am. USA, LLC, 2022 NCBC 82.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION BRUNSWICK COUNTY 19 CVS 746
JCG & ASSOCIATES, LLC; MIP 1, LLC; JAMES BONICA; PATRICIA BONICA; and DAVID L. PETERSON, Trustee of the David L. Peterson Living Trust,
Plaintiffs and Counterclaim Defendants,
v.
DISASTER AMERICA USA, LLC; DA ROOFING SYSTEMS; ESTATE OF DONALD LEE HUSK, by and through KATHLEEN KAREN HUSK as executrix,
Defendants and Third-Party ORDER AND OPINION FOLLOWING Plaintiffs, SHOW-CAUSE HEARING and
DISASTER AMERICA OF NORTH CAROLINA, LLC,
Defendant, Counterclaim Plaintiff, and Third-Party Plaintiff,
v.
TERRY WILLIAMS; and AIRWARE TRANSPORTATION AND LOGISTICS, LLC,
Third-Party Defendants.
1. Defendants Disaster America USA, LLC, Disaster America of North
Carolina, LLC, DA Roofing Systems (collectively, “Disaster America”), and the Estate
of Donald Lee Husk have repeatedly failed to comply with the Business Court Rules
(“BCR”), the pretrial scheduling order, and other orders in this case. The Court
ordered them to show cause why they should not be sanctioned for their noncompliance and scheduled a hearing for Defendants to appear on 9 December
2022. Defendants did not submit a brief and supporting materials in response to the
show-cause order despite a warning that the Court would view their failure to do so
“as a decision not to contest an award of sanctions.” (Order Show Cause ¶ 6, ECF No.
150.) Nor did Defendants appear at the show-cause hearing.
2. Having considered all relevant matters of record, the Court concludes, in the
exercise of its discretion, that justice requires the entry of sanctions against
Defendants for their misconduct. For the reasons discussed below, the Court will
strike Defendants’ answers to the complaint and amendment to the complaint; enter
default judgment; and dismiss any remaining third-party claims and defenses.
Reiss & Nutt, PLLC, by W. Cory Reiss and Kyle J. Nutt, for Plaintiffs JCG & Associates, LLC, MIP 1, LLC, James Bonica, Patricia Bonica, and David L. Peterson, Trustee of the David L. Peterson Living Trust.
No counsel appeared for Defendants Disaster America USA, LLC, Disaster America of North Carolina, LLC, DA Roofing Systems, and the Estate of Donald Lee Husk.
No counsel appeared for Third-Party Defendants Terry Williams and Airware Transportation and Logistics, LLC.
Conrad, Judge.
I. FINDINGS OF FACT
3. These findings are tailored to the relevant procedural history leading up to
and following the Court’s show-cause order. Prior orders describe in detail the
allegations of the complaint, as amended, and the nature of the asserted claims. See
generally JCG & Assocs., LLC v. Disaster Am. USA, LLC, 2022 NCBC LEXIS 94 (N.C.
Super. Ct. Aug. 12, 2022); JCG & Assocs., LLC v. Disaster Am. USA, LLC, 2021 NCBC LEXIS 109 (N.C. Super. Ct. Dec. 9, 2021); JCG & Assocs., LLC v. Disaster Am. USA,
LLC, 2019 NCBC LEXIS 112 (N.C. Super. Ct. Dec. 19, 2019).
4. Plaintiffs JCG & Associates, LLC, MIP 1, LLC, and James and Patricia
Bonica initiated this action in April 2019, asserting numerous claims against
Disaster America, its CEO Donald Husk, and its COO Jason Husk. (See Compl., ECF
No. 2.) In addition to its answer, Disaster America asserted affirmative defenses as
well as counterclaims against MIP 1 and the Bonicas. (See Mot. Strike & Dismiss,
Affirmative Defenses, Answer, and Countercls., ECF No. 3.) Donald Husk separately
moved to dismiss the claims against him for lack of personal jurisdiction. (See Mot.
Dismiss, ECF No. 4.) After the Court denied Donald Husk’s motion to dismiss, see
JCG, 2019 NCBC LEXIS 112, at *11, he filed his answer to the complaint in January
2020, (see Def. Donald Husk’s Answer Pls.’ Compl., ECF No. 41). Jason Husk never
responded to the original complaint.
5. In February 2020, the Court granted leave to add David L. Peterson, trustee
of the David L. Peterson Living Trust, as a plaintiff. (See Order Mot. Amend, ECF
No. 68; Amendment Compl., ECF No. 70.) Disaster America, Donald Husk, and Jason
Husk timely filed their answer to Peterson’s claims. They also asserted affirmative
defenses, counterclaims against Peterson, and third-party claims against Terry
Williams and Airware Transportation and Logistics, LLC. 1 (See Defs.’ Answer
Amended Compl., Countercl., and Third-Party Compl., ECF No. 71.)
1 Williams and Airware have never participated in this action, nor has any counsel ever made
an appearance on their behalf. Although the third-party complaint contains a certificate of 6. In early 2021, counsel for Disaster America, Donald Husk, and Jason Husk
moved to withdraw. (See Mot. Withdraw, ECF No. 103.) The Court granted the
motion, stayed all deadlines for a month, and directed Disaster America, Donald
Husk, and Jason Husk to promptly retain new counsel. (See Order Mot. Withdraw
¶ 8, ECF No. 109.) The Court also reminded Disaster America that “ ‘a corporation
must be represented by a duly admitted and licensed attorney-at-law’ and cannot
represent itself.” (Order Mot. Withdraw ¶ 7 (quoting LexisNexis, Div. of Reed
Elsevier, Inc. v. TRaviSHan Corp., 155 N.C. App. 205, 209 (2002)).)
7. When the stay expired without an entry of appearance by new counsel, the
Court sent an e-mail, copying all counsel and unrepresented parties, that directed
Donald Husk and Jason Husk to individually create pro se user accounts for the
e-filing system. In response, Jason Husk reported that Donald Husk had died a few
weeks earlier.
8. The Court convened a status conference on 30 March 2021. Counsel for
Plaintiffs appeared. Jason Husk also appeared on his own behalf. But no counsel
appeared for Disaster America or the late Donald Husk. At the conference, Plaintiffs’
counsel and Jason Husk agreed to extend the discovery period by thirty days, and
Plaintiffs disclosed their intent to move to substitute Donald Husk’s estate as a party.
The Court then directed the parties to file a status report regarding the state of the
probate proceedings, the anticipated timeframe for a motion to substitute, whether
service on Williams and Airware, there is no evidence that either party was properly served with this pleading. any Defendant had retained or intended to retain counsel, and whether any party
wished to extend the discovery period again. The Court also ordered Jason Husk to
associate himself with the e-filing system as a pro se litigant and sent him a copy of
the relevant order via e-mail. (See Order Amending Case Management Deadlines
¶¶ 3, 5, 6, ECF No. 111.)
9. Plaintiffs’ counsel submitted a status report on 13 May 2021 via e-mail to
the Court’s law clerk and copying Jason Husk. No Defendant joined in that report or
submitted a separate report. Two weeks later, Plaintiffs’ counsel informed the Court
via e-mail, again copying Jason Husk, that Kathleen Husk had been appointed as
executrix of Donald Husk’s estate.
10. Plaintiffs then filed a motion to substitute the estate of Donald Husk, by and
through Kathleen Husk as executrix, as a party in place of Donald Husk. (See Mot.
Substitute Party 2, ECF No. 112.) Although Plaintiffs asked Jason Husk and
Kathleen Husk for their positions, as required by BCR 7.3, neither responded. In an
interim order, the Court shortened the time to respond to the motion to substitute
and directed Plaintiffs’ counsel to serve a copy of the order on Disaster America, Jason
Husk, and Kathleen Husk and to file a certificate of service. The interim order
reiterated that the Court had instructed Jason Husk orally, via e-mail, and via court
order to associate himself as a pro se litigant and that his failure to comply was a
violation of court orders and the BCRs. The Court stated that, going forward, it would
presume that Jason Husk had received “actual or constructive notice of all documents filed and served through the electronic-filing system.” (Interim Order Mot.
Substitute ¶¶ 2–5, ECF No. 113.)
11. Plaintiffs filed the certificate of service on 8 June 2021. (See Certificate Serv.
Interim Order, ECF No. 114.) No Defendant filed a response. On 29 June 2021, the
Court granted the motion to substitute, directing Plaintiffs’ counsel to serve a copy of
the order on Kathleen Husk and to file a certificate of service, (Order Mot. Substitute
Party ¶¶ 4, 5, ECF No. 117), which Plaintiffs timely filed on 8 July 2021, (Certificate
Serv. Order, ECF No. 118). The Court further directed Kathleen Husk, if she chose
not to retain counsel, to create a user account as a pro se litigant and to associate
herself to the case in the e-filing system. The order gave any party ten days to move
to modify any case management deadlines. (See Order Mot. Substitute Party ¶ 5.)
12. On 19 August 2021, having heard nothing from Defendants, the Court
entered a scheduling order and notice of status conference. The Court observed that
(i) Disaster America had not retained counsel and could not proceed pro se;
(ii) discovery had closed because no party had moved to extend the discovery
deadlines; (iii) Jason Husk had not complied with the order to associate himself to
the case; and (iv) Kathleen Husk had not created a user account, filed a notice of
association, or moved for relief from using the e-filing system. The Court ordered
Kathleen Husk to create a user account and associate herself as a pro se litigant and
indicated that the Court would presume that she had received “actual or constructive
notice of all [subsequent] documents filed and served through the electronic-filing
system.” The Court also ordered each side to file a status report regarding their availability for a hearing on a pending motion for summary judgment and directed
Jason Husk and Kathleen Husk to indicate whether they intended to retain counsel.
Once again, Plaintiffs were directed to file a certificate of service. (See Scheduling
Order and Notice Status Conf. ¶¶ 3–8, ECF No. 123.)
13. In compliance with the scheduling order, Plaintiffs filed both a certificate of
service, (Certificate Serv. Orders, ECF No. 124), and a status report, (Status Report
Pls., ECF No. 125). Nothing was filed by Defendants.
14. At the 20 September 2021 status conference, counsel for Plaintiffs appeared,
and Jason Husk appeared on his own behalf. Kathleen Husk did not appear. No
counsel appeared for Disaster America. The Court reiterated to those present the
importance of being associated with the case through the e-filing system and the risk
of missing court filings and notices.
15. On 4 November 2021, the Court noticed a jury trial to begin on 29 August
2022. (See Notice Jury Trial, ECF No. 129.) The Court entered a pretrial scheduling
order, reiterating that a limited liability company must be represented by counsel.
The Court also noted that many required pretrial submissions were “designed to be
prepared jointly by all the parties,” but “[i]f any party fail[ed] to cooperate . . . , the
other parties shall nonetheless prepare and file their own submissions . . . .” The
Court further advised that “failure to participate in the pretrial process or otherwise
comply with th[e] [o]rder may result in sanctions, including monetary sanctions and, if appropriate, dismissal of claims and defenses.” (Pretrial Scheduling Order ¶¶ 15,
16, ECF No. 130.) 2
16. In January 2022, Jason Husk filed a voluntary petition for relief under
Chapter 7 of the United States Bankruptcy Code but did not report it to the Court.
When the Court learned of the bankruptcy proceeding, it entered a stay of all claims
against Jason Husk. The Court also directed the parties to file a status report
regarding what effect, if any, the stay should have on the other pending claims, (see
Order Regarding Automatic Stay Claims Against Def. Jason Husk ¶¶ 2, 3, ECF No.
135), but no party submitted a filing. “[G]iven the lack of communication from all
parties,” the Court stayed all proceedings, vacated the pretrial scheduling order, and
canceled the jury trial. (Order Staying All Proceedings ¶ 2, ECF No. 136; Notice
Cancellation, ECF No. 137.) Plaintiffs then reported that Jason Husk had been
discharged from bankruptcy on 15 February 2022. (See Status Report Bankruptcy
Jason Husk ¶ 1, ECF No. 138.)
17. In July 2022, the Court lifted the stay and dismissed all claims against Jason
Husk following his bankruptcy. The Court also issued a new pretrial scheduling
order for the remaining claims and parties. This order again stated that LLCs may
2 Plaintiffs filed two timely summary judgment motions in this action. (See Mot. Partial Summ. J., ECF No. 98; Mot. Partial Summ. J., ECF No. 131.) The Court granted the first motion in part, entering judgment in favor of Plaintiffs on their claims for declaratory judgment and on Disaster America NC’s counterclaims for breach of contract and quantum meruit. The counterclaims were dismissed with prejudice. See JCG, 2021 NCBC LEXIS 109, at *13. The second motion was denied; in its opinion, the Court reiterated that Defendants had not been represented by counsel nor meaningfully participated in the litigation since the withdrawal of counsel in 2021 and that limited liability companies must be represented by counsel in litigation. See JCG, 2022 NCBC LEXIS 94, at *2–3, n.2. not proceed pro se and warned that “failure to participate in the pretrial process or
otherwise comply with th[e] [o]rder may result in sanctions, including monetary
sanctions and, if appropriate, striking of pleadings, dismissal of claims, and dismissal
of defenses.” (Order Mot. Lift Stay ¶ 4, ECF No. 141; Pretrial Scheduling Order
¶¶ 14, 15, ECF No. 142.)
18. On 27 September 2022, Plaintiffs reported that Defendants had “not
respond[ed] to any correspondence sent by the Plaintiffs, [had] not compl[ied] with
any of the deadlines established by the Court’s [pretrial scheduling order], and ha[d]
made no effort to participate in the [p]re-[t]rial process.” (Status Report Pretrial
Procs. 2, ECF No. 144.) In light of Plaintiffs’ representations, the Court ordered
Defendants to file a response to Plaintiffs’ report along with supporting materials no
later than 5 October 2022. (See Order Calling for Resp., ECF No. 148.)
19. Nothing was filed. As a result, on 9 October 2022, the Court ordered
Defendants to show cause why they should not be sanctioned for their repeated
noncompliance with its orders. The Court warned Defendants that it was
“considering severe sanctions, including but not limited to striking Defendants’
answer to the amended complaint; entering default judgment; dismissing any
remaining counterclaims, third-party claims, and defenses; and awarding reasonable
costs and fees, including attorneys’ fees, that Plaintiffs incurred because of
Defendants’ failure to comply with the pretrial scheduling order.” The Court ordered
Defendants to submit a brief and supporting materials by 1 November 2022, noting
that further noncompliance would be viewed as “a decision not to contest an award of sanctions.” (Order Show Cause ¶¶ 1, 3.) After Defendants missed this deadline, the
Court issued a notice of hearing. (See Notice Hearing, ECF No. 155; Amended Notice
Hearing, ECF No. 157.)
20. The Court held a show-cause hearing on 9 December 2022. Plaintiffs’
counsel appeared on behalf of their clients. Defendants did not appear, either in
person or through counsel.
II. CONCLUSIONS OF LAW
21. Trial courts have inherent authority “to do all things that are reasonably
necessary for the proper administration of justice,” Beard v. N.C. State Bar, 320 N.C.
126, 129 (1987), including “the power . . . to sanction parties for failure to comply with
court orders,” Daniels v. Montgomery Mut. Ins. Co., 320 N.C. 669, 674 (1987). The
“power to sanction disobedient parties, even to the point of dismissing their actions
or striking their defenses, . . . is longstanding and inherent,” Minor v. Minor, 62 N.C.
App. 750, 752 (1983), and the Court may address such misconduct on its own motion
or upon motion of a party, see Grubbs v. Grubbs, 2017 N.C. App. LEXIS 146, at *38
(N.C. Ct. App. Mar. 7, 2017) (unpublished). The imposition of sanctions is within the
sound discretion of the trial judge and is reviewed for abuse of discretion. See Red
Valve, Inc. v. Titan Valve, Inc., 2019 NCBC LEXIS 57, at *41 (N.C. Super. Ct. Sept.
3, 2019).
22. Severe sanctions—such as striking a party’s answer and entering default
judgment—“are appropriate when a party . . . abuses the process at a level that is
utterly inconsistent with the orderly administration of justice or undermines the integrity of the process.” Id. at *43 (quoting Projects Mgmt. Co. v. DynCorp Int’l LLC,
734 F.3d 366, 373 (4th Cir. 2013)). A trial court may impose severe sanctions only
after considering less severe sanctions. See id. at *61–62; Few v. Hammack Enters.,
Inc., 132 N.C. App. 291, 299 (1999). It is necessary to “weigh the circumstances of
each case and choose a sanction that, in the court’s judgment, ‘properly takes into
account the severity of the party’s disobedience.’ ” Out of the Box Devs., LLC v.
LogicBit Corp., 2014 NCBC LEXIS 7, at *10 (N.C. Super. Ct. Mar. 20, 2014) (quoting
Patterson v. Sweatt, 146 N.C. App. 351, 357 (2001)).
23. Dismissal of a third-party claim is allowed under Rule 41(b) for “failure to
prosecute the claim, failure to comply with the rules of civil procedure, or failure to
comply with a court order.” 3 Krawiec, 2018 NCBC LEXIS 86, at *7 (quoting McKoy
v. McKoy, 214 N.C. App. 551, 552–53 (2011)); see N.C. R. Civ. P. 41(c) (“The provisions
of [Rule 41(b)] apply to the dismissal of any . . . third-party claim.”). The trial court
must consider lesser sanctions before dismissing a claim and must consider
“(1) whether the [third-party] plaintiff acted in a manner which deliberately or
unreasonably delayed the matter; (2) the amount of prejudice, if any, to the
3 Although the language of Rule 41(b) appears to contemplate that the relief provided under
this Rule is triggered only upon motion of a party, see N.C. R. Civ. P. 41(b) (“For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim therein against him.”), it is clear that the Court may also dismiss an action or individual claims pursuant to Rule 41(b) on its own motion. See, e.g., Hebenstreit v. Hebenstreit, 240 N.C. App. 27, 31 (2015) (dismissing motion for contempt sua sponte pursuant to Rule 41(b) for plaintiff’s failure to prosecute); Rabinowitz v. Suvillaga, 2019 NCBC LEXIS 8, at *13–14 (N.C. Super. Ct. Jan. 28, 2019) (dismissing counterclaims sua sponte pursuant to Rule 41(b) for failure to comply with court orders); Krawiec v. Bogosavac, 2018 NCBC LEXIS 86, at *5, 7–9 (N.C. Super. Ct. Aug. 16, 2018) (dismissing action sua sponte pursuant to Rule 41(b) for plaintiffs’ failure to prosecute after show-cause hearing). [third-party] defendant; and (3) the reason, if one exists, that sanctions short of
dismissal would not suffice.” Brunner v. Lodge on Lake Lure, LLC, 2016 NCBC
LEXIS 86, at *4 (N.C. Super. Ct. Nov. 3, 2016) (quoting Wilder v. Wilder, 146 N.C.
App. 574, 578 (2001)).
24. Plaintiffs contend that ultimate sanctions are appropriate. They ask the
Court to strike Defendants’ answers to the complaint and the amendment to the
complaint and to enter default judgment against Defendants on all claims. (See Pls.’
Mem. Supp. Sanctions 6–7, ECF No. 156.)
25. The Court agrees. Since the withdrawal of their counsel in February 2021,
Defendants have repeatedly disregarded the Business Court Rules, willfully
disobeyed court orders, and completely failed to participate in this litigation. This
misconduct has caused prejudice to Plaintiffs, impeded the progress of the case, and
wasted judicial resources.
26. Indeed, Defendants have not taken even the most basic steps necessary to
participate in this case. The Court has cautioned Disaster America over and over
that “a corporation must be represented by a duly admitted and licensed
attorney-at-law and cannot procced pro se.” LexisNexis, 155 N.C. App. at 209. Even
so, it has not retained counsel. Likewise, the Court has informed Kathleen Husk that
the Business Court Rules require all parties, unless excused for good cause, to use
the e-filing system, see BCR 3, and has twice ordered her to retain counsel or create an e-filing user account and associate herself to this case as a pro se litigant. She has
yet to do either. 4
27. Nor have Defendants complied with any of their pretrial obligations. The
pretrial scheduling order required them to serve exhibits and witness designations,
participate in a conference with opposing counsel, jointly prepare a proposed pretrial
order, and jointly prepare tentative jury instructions. They have done none of these
things despite a warning that failure to participate would likely result in sanctions.
Such complete noncompliance is evidence of willfulness. And the persistent refusal
to respond to Plaintiffs’ communications, participate in joint filings, and file timely
responses in this matter undermines both the spirit and the letter of the Business
Court Rules. See BCR 1, 7, 12.
28. Moreover, Defendants have refused every invitation to explain their
conduct. The Court directed Defendants to respond to Plaintiffs’ representations that
they had not fulfilled their pretrial obligations. They did not. Given the lack of
response, the Court issued the show-cause order, directed Defendants to file a brief
and supporting materials, and made clear that failure to comply would be deemed “a
decision not to contest an award of sanctions.” (Order Show Cause ¶ 6.) Defendants
did not file a brief, submit supporting materials, or appear at the show-cause hearing.
Accordingly, the Court concludes that they have made deliberate decisions not to
comply with the show-cause order and not to contest an award of sanctions.
4 Although Jason Husk is no longer a party to this case, the Court notes that it also directed
him no fewer than five times to undertake similar actions to no avail. 29. By the Court’s count, some or all Defendants have failed to comply with at
least seven orders spanning some eighteen months. (See ECF Nos. 111, 117, 123,
135, 142, 148, 150.) They have also failed to file briefs in response to at least three
motions. And they have made no attempt at all to communicate with Plaintiffs or the
Court.
30. The Court has the inherent authority to sanction litigants who refuse to
comply with governing rules and orders. See Few, 132 N.C. App. at 298; Lomax v.
Shaw, 101 N.C. App. 560, 563 (1991); Out of the Box Devs., LLC, 2014 NCBC LEXIS
7, at *9. In addition, the Court has inherent authority under Rule 41(b) to dismiss
third-party claims for similar reasons. See Krawiec, 2018 NCBC LEXIS 86, at *7.
31. Here, in the exercise of its discretion, the Court concludes that sanctions are
warranted. The Court has considered lesser sanctions but finds them unsuited to the
conduct at issue. Defendants have willfully refused to comply with court orders, have
disregarded the Business Court Rules, have ignored all overtures from their
opponents and the Court, have not participated meaningfully in this case since early
2021, and show no signs that they will comply with their obligations in the future.
Their conduct has unreasonably delayed this matter and prevented the final
resolution of the claims at issue. And Defendants were given notice that their
noncompliance with court orders and rules could result in severe sanctions, including
the striking of pleadings, dismissal of claims, dismissal of defenses, and entry of
default judgment. Lesser sanctions would neither alleviate the prejudice suffered by Plaintiffs nor permit the orderly, just, and prompt resolution of this litigation. Only
the most severe sanctions will do.
32. Accordingly, the Court will dismiss Defendants’ third-party claims.
Defendants have failed to participate in this litigation since February 2021. Williams
and Airware, the third-party defendants, have never participated in this litigation.
It is a waste of judicial resources to maintain an action when neither side is
participating. This is especially so given that Defendants appear not to have served
Williams and Airware properly and, in any event, have deliberately and unreasonably
delayed final resolution of their third-party claims through their repeated failure to
comply with the pretrial scheduling order—including the failure to identify any
evidence or witnesses, prepare a proposed pretrial order, and prepare proposed jury
instructions related to the third-party claims. Defendants’ conduct “manifests an
intention to thwart the progress of the action to its conclusion.” Krawiec, 2018 NCBC
LEXIS 86, at *7 (quoting In re Will of Kersey, 176 N.C. App. 748, 751 (2006)). The
Court therefore concludes that lesser sanctions will not suffice and that it is
appropriate to dismiss Defendants’ third-party claims with prejudice for failure to
prosecute and for failure to comply with court orders.
33. In addition, the Court will strike Defendants’ answers and affirmative
defenses and enter default judgment in Plaintiffs’ favor on most remaining claims. 5
5 See, e.g., Kearney Mach. & Supply Inc. v. Shenyang Mach. Tool Co., 2022 U.S. Dist. LEXIS
118494, at *11 (N.D. Ala. July 6, 2022) (imposing default judgment as a sanction against a party who took “no steps to participate in this action in good faith”); Garnier-Thiebaut, Inc. v. Castello 1935 Inc., 2019 U.S. Dist. LEXIS 210474, at *23 (D. Md. Dec. 6, 2019) (imposing default judgment as a “sanction for Defendants’ wholesale failure to participate in the See, e.g., Om Shankar Corp. v. Sai Devs., Inc., 2020 N.C. App. LEXIS 530, at *8–15
(2020) (unpublished) (affirming entry of default judgment as sanction).
34. A default judgment is appropriate only if the allegations of the complaint
are adequate to state a claim. The Court has carefully reviewed the allegations here
and concludes that they present sufficient bases to support the entry of a default
judgment. See Brown v. Cavit Scis., Inc., 230 N.C. App. 460, 467 (2013) (holding that,
for purposes of default judgment, “if any portion of the complaint presents facts
sufficient to constitute a cause of action, or if facts sufficient for that purpose fairly
can be gathered from it, the pleading will stand” (cleaned up)).
35. First, MIP 1, Peterson, and the Bonicas adequately state claims for fraud.
As alleged, Disaster America and its representatives falsely stated that they
possessed a North Carolina contractor’s license allowing them to restore properties
owned by MIP 1, Peterson, and the Bonicas. The allegations also show that this false
statement was reasonably calculated to deceive, made with intent to deceive, did in
fact deceive, and resulted in damages. See Rowan Cnty. Bd. of Educ. v. U.S. Gypsum
Co., 332 N.C. 1, 17 (1992) (listing the essential elements of fraud); (Compl. ¶¶ 71–93;
Amendment Compl. ¶¶ 211–29). Because Plaintiffs have established fraud, their
alternative claim for negligent misrepresentation is cumulative and may be
dismissed as moot.
adversary process”); Jindal Tubular USA, LLC v. Gilmore Pipe Sales, LLC, 2019 U.S. Dist. LEXIS 246454, at *8 (S.D. Miss. Apr. 4, 2019) (imposing default judgment as a sanction for failure to defend or prosecute case, appear at conferences, and respond to show-cause order). 36. MIP 1, Peterson, and the Bonicas also state claims for constructive fraud.
As alleged, these Plaintiffs had a special relationship of trust and confidence with
Defendants who acted as their attorney-in-fact and agent regarding negotiations with
insurance carriers. Defendants breached their duties and sought to benefit
themselves by inflating estimates and charging for work that was not performed. See
Sullivan v. Mebane Packaging Grp., Inc., 158 N.C. App. 19, 32 (2003) (stating that
constructive fraud requires the plaintiff to show “(1) facts and circumstances creating
a relation of trust and confidence; (2) which surrounded the consummation of the
transaction in which the defendant is alleged to have taken advantage of the
relationship; and (3) the defendant sought to benefit himself in the transaction”);
(Compl. ¶¶ 94–102; Amendment Compl. ¶¶ 230–37).
37. These three Plaintiffs also assert claims for unjust enrichment. The Court
previously declared that their contracts with Disaster America were invalid and not
enforceable. The allegations show that these Plaintiffs conferred funds on
Defendants, that they were not conferred officiously, that the benefit was not
gratuitous, that the benefit was measurable, and that Defendants consciously
accepted the benefit. See JPMorgan Chase Bank, N.A. v. Browning, 230 N.C. App.
537, 541–42 (2013) (describing the five elements necessary to make out a prima facie
case for unjust enrichment); (Compl. ¶¶ 103–07; Amendment Compl. ¶¶ 238–41).
38. MIP 1 separately asserts a claim for unfair debt collection practices. This
claim, too, is well grounded. As alleged, Defendants knew that their contract with
MIP 1 was void, demanded payment, and refused to release MIP 1’s personal property until Disaster America was paid in full. See Davis Lake Cmty. Ass’n, Inc. v.
Feldmann, 138 N.C. App. 292, 295–97 (2000) (concluding that allegations of unfair
debt collection were adequate); (Compl. ¶¶ 108–12).
39. In addition, Plaintiffs adequately state claims for violations of N.C.G.S.
§ 75-1.1. The allegations show that Defendants deceived MIP 1, Peterson, and the
Bonicas by falsely representing that they possessed JCG’s North Carolina
contractor’s license. This deception could and did enable Defendants to obtain
contracts with consumers, including Plaintiffs, and Defendants’ breaches of those
contracts injured Plaintiffs. See Walker v. Fleetwood Homes of N.C., Inc., 362 N.C.
63, 71–72 (2007) (stating that a plaintiff must allege “(1) an unfair or deceptive act or
practice, (2) in or affecting commerce, and (3) which proximately caused injury to
plaintiff” to make out a claim for unfair and deceptive trade practices); (Compl.
¶¶ 113–19, 136–39; Amendment Compl. ¶¶ 242–47).
40. Next, JCG states a claim for trade name and trademark infringement. It
alleges that it has valid and protectable marks—its business name and general
contractor’s license number—which it has continuously and exclusively used in the
State. It also alleges that Defendants’ use of the mark is likely to cause confusion
and has caused actual confusion among consumers, such as MIP 1, Peterson, and the
Bonicas. See Johnson & Morris, PLLC v. Abdelbaky & Boes, PLLC, 2017 NCBC
LEXIS 89, at *13–14 (N.C. Super. Ct. Sept. 28, 2017) (identifying elements of
trademark infringement to include “valid and protectable mark” and likelihood that
use of the mark will cause confusion); (Compl. ¶¶ 120–35). This infringement is also an unfair and deceptive practice that is in or affecting commerce under section 75-1.1.
See Ray Lackey Enters., Inc. v. Vill. Inn Lakeside, Inc., 2016 NCBC LEXIS 9, at *37
(N.C. Super. Ct. Jan. 29, 2016) (treating trademark infringement as violation of
section 75-1.1).
41. JCG, MIP 1, and the Bonicas assert claims under the North Carolina
Racketeer Influenced and Corrupt Organizations Act. These claims are well
grounded. Defendants impermissibly used JCG’s general contractor’s license to
obtain contracts from MIP 1, the Bonicas, and others to perform restoration services
in the wake of Hurricane Florence and used those contracts to make false claims by
mail and electronic mail. Securing the contracts resulted in pecuniary gain for
Defendants and caused damage to property owned by MIP 1 and the Bonicas and to
JCG’s business, each of whom was an innocent person. See Gilmore v. Gilmore, 229
N.C. App. 347, 356 (2013) (establishing a claim under the North Carolina RICO Act
requires “(1) an innocent person must allege (2) an injury or damage to his business
or property (3) by reason of two or more acts of organized unlawful activity or conduct,
(4) one of which is something other than mail fraud, wire fraud, or fraud in the sale
of securities, (5) that resulted in pecuniary gain to the defendants” (cleaned up));
(Compl. ¶¶ 140–55).
42. The same three Plaintiffs assert a claim for civil conspiracy. Because
Plaintiffs have adequately pleaded their underlying claims for unfair and deceptive
trade practices as well as violations of the North Carolina RICO Act, Plaintiffs have
adequately stated a claim for civil conspiracy. See Esposito v. Talbert & Bright, Inc., 181 N.C. App. 742, 747 (2007) (“It is well established that there is not a separate civil
action for civil conspiracy in North Carolina.” (citation and quotation marks
omitted)); (Compl. ¶¶ 172–78).
43. MIP 1 and the Bonicas have also adequately stated claims for negligence.
The complaint alleges that Defendants owed a duty of care in their performance of
restoration work and that they breached that duty, resulting in damage to the
properties. See Keith v. Health-Pro Home Care Servs., Inc., 381 N.C. 442, 450 (2022)
(stating that negligence requires “(1) a legal duty owed by the defendant to the
plaintiff, (2) a breach of that legal duty, and (3) injury proximately caused by the
breach”); (Compl. ¶¶ 179–90).
44. MIP 1, JCG, and the Bonicas also seek to impose liability on the estate of
Donald Husk for the various claims above on both a theory of direct liability and on
a theory of veil piercing. The complaint alleges that the late Donald Husk exercised
complete domination and control over Disaster America’s policy and business
practices such that it was his mere instrumentality. In addition, the allegations state
that the late Donald Husk used that domination and control to appropriate JCG’s
name and general contractor’s license number to perpetrate a fraud on MIP 1 and the
Bonicas. The Court therefore concludes that MIP 1, JCG, and the Bonicas have
adequately pleaded a theory of liability based on veil piercing. See Kerry Bodenhamer
Farms, LLC v. Nature’s Pearl Corp., 2017 NCBC LEXIS 27, at *12 (N.C. Super. Ct.
Mar. 27, 2017) (describing the elements of a theory of liability premised on piercing
the corporate veil); (Compl. ¶¶ 191–204). 45. Finally, the complaint and amendment to the complaint include a total of
four requests for punitive damages that are labeled as claims for relief. There is no
standalone claim for punitive damages. See Collier v. Bryant, 216 N.C. App. 419, 434
(2011) (“Punitive damages are available, not as an individual cause of action, but as
incidental damages to a cause of action.”). The Court will therefore address punitive
damages, if necessary, in its consideration of remedies.
III. CONCLUSION
46. For all these reasons, the Court, in the exercise of its discretion, enters
sanctions against Defendants and ORDERS as follows:
a. Defendants’ answers, including all affirmative defenses asserted
therein, are STRICKEN.
b. Defendants’ third-party claims are DISMISSED with prejudice.
c. Default judgment is ENTERED as to liability on all remaining claims
for relief (other than the alternative claim for negligent
misrepresentation) asserted against Defendants, and this matter shall
proceed to a determination of Plaintiffs’ damages.
d. The Court shall determine the amount of Plaintiffs’ damages as well as
any other remedies to be awarded by separate order after further
submissions as follows:
(1) Plaintiffs shall have through and including 3 January 2023 to
file (i) a brief detailing the compensatory and consequential
damages they claim to have suffered and any supporting materials, which may be in the form of affidavit testimony or
evidence; (ii) any other materials needed to support Plaintiffs’
requested remedies; and (iii) a proposed final default judgment.
(2) Defendants shall have through and including 13 January 2023
to respond and object to Plaintiffs’ submissions. Failure to
respond will be deemed a waiver of the right to object and a
waiver of any right to a hearing.
(3) No reply brief is permitted.
(4) The Court will, if necessary, schedule a hearing on these
matters at a later date.
SO ORDERED, this the 12th day of December, 2022.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases