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U.S. Bank National Association v. Sofield

United States District Court, W.D. North Carolina, Statesville Division

June 13, 2017

U.S. BANK NATIONAL ASSOCIATION, Plaintiff,
v.
ROBERT T. SOFIELD, JR., DEBORAH C. SOFIELD, and SOFIELD CHILDREN'S LIMITED PARTNERSHIP, Defendants.

          ORDER

          Richard L. Voorhees United States District Judge

         THIS MATTER IS BEFORE THE COURT on Defendants Robert T. Sofield, Jr., Deborah C. Sofield, and Sofield Children's Limited Partnership's (collectively the “Sofield Parties” or “Defendants”) Motion to Dismiss pursuant to Rules 12(b)(6) and 12(b)(7) of the Federal Rules of Civil Procedure. (Doc. 13). Plaintiff U.S. Bank National Association (“U.S. Bank”) filed a Memorandum in Opposition to Defendants' Motion to Dismiss, (Doc. 14), and Defendants filed a Reply in Support of Their Motion to Dismiss, (Doc. 17). For the reasons stated below, Defendants' Motion to Dismiss, (Doc. 13), is GRANTED IN PART, DENIED IN PART, and DEFERRED IN PART.

         I. BACKGROUND

         In 2013, the Sofield Parties sold their equity interests in certain companies to Justrite Manufacturing Company, LLC (“Justrite”) pursuant to a Purchase Agreement (“Purchase Agreement”). (Doc 1 at 3). To secure the Sofield Parties' obligations under the Purchase Agreement, Justrite and the Sofield Parties enlisted U.S. Bank to hold a portion of the purchase price in escrow and release funds over the eighteen-month period following closing so long as specified objective criterion were satisfied. Id.[1] The Sofield Parties, Justrite, and U.S. Bank signed an Escrow Agreement (“Escrow Agreement”), (see Doc. 1-1), [2] and Justrite transferred to U.S. Bank $1.5 million of the purchase price to hold as security for the Sofield Parties' obligations under the Purchase Agreement, (Doc. 1 at 3). The Escrow Agreement required U.S. Bank to disburse to the Sofield Parties $750, 000.00 of the escrowed funds, less any “Disputed Amount, ” on the second business day after the twelve-month anniversary of the closing date. Id.; (see also Doc. 1-1 at 5-6). A second disbursement, consisting of the remaining $750, 000.00 of the escrowed funds less any Disputed Amounts, was to be released to the Sofield Parties on the second business day after the eighteen-month anniversary of the closing date. (Doc. 1 at 3; see also Doc. 1-1 at 4, 6).

         Under the Escrow Agreement, if Justrite believed that it had a claim for indemnification under the Purchase Agreement during the eighteen-month period after the closing date, Justrite, to protect its interest in the funds in escrow, needed to promptly deliver a written “Indemnification Request” to the Sofield Parties and a “Pending Claim Notice” to the Sofield Parties and to U.S. Bank. (Doc. 1 at 3; see also Doc. 1-1 at 4-5). In its Pending Claim Notice, Justrite was required to set forth the “Claimed Amount”-i.e., the amount of money as to which it claimed indemnification. (Doc. 1 at 3; see also Doc. 1-1 at 4). Within a thirty-day “Objection Period” that followed the receipt of a Pending Claim Notice, the Escrow Agreement required the Sofield Parties to deliver to U.S. Bank and to Justrite a written response either agreeing that Justrite was entitled to the Claimed Amount or disputing that Justrite was entitled to all or a portion of the Claimed Amount, thus establishing the “Disputed Amount.” (Doc. 1 at 3; see also Doc. 1-1 at 4). If the Sofield Parties disputed the Claimed Amount, then the Escrow Agreement required U.S. Bank to release any amount that was not disputed and, further, required the Sofield Parties and Justrite to resolve the dispute, either through negotiations culminating in a “Joint Letter of Direction” to U.S. Bank or by obtaining a court order regarding the proper disbursement of the Disputed Amount. (Doc. 1 at 4; see also Doc. 1-1 at 4-5).

         At the twelve-month anniversary of the Purchase Agreement, U.S. Bank disbursed $750, 000.00 of the escrowed funds to the Sofield Parties. (Doc. 13-1 at 4). The eighteen-month anniversary of the Purchase Agreement closing date was March 12, 2015. (See Doc. 1 at 3 (noting closing date of Purchase Agreement of September 12, 2013). On March 9, 2015, Justrite sent a “Notice of Indemnification Claim” to the Sofield Parties, asserting a claim for breach of representations and warranties under the Purchase Agreement. (Doc. 1 at 4; see Doc. 1-2). Justrite also submitted a Pending Claim Notice to U.S. Bank, requesting that U.S. Bank not disburse any of the escrow funds because Justrite could not yet quantify the claim amount. (Doc. 1 at 4; see Doc. 1-3).

         Notwithstanding the notices sent by Justrite, U.S. Bank, on April 28, 2015, disbursed the remaining escrow funds to the Sofield Parties. (Doc. 1 at 5). Specifically, U.S. Bank issued three checks to the Sofield Parties totaling $750, 561.91, which represented the remainder of the escrow funds. Id.; (see also Doc. 1-4 at 2).[3] U.S. Bank asserts that the April 28, 2015 disbursement was “inadvertent[]” and that the disbursement was done “mistakenly” and was an “error.” (Doc. 1 at 2, 5). Subsequently, U.S. Bank demanded the Sofield Parties return the funds, Id. at 5; (see also Doc. 1-4 at 2), but the Sofield Parties declined to do so because they did not believe Justrite had a valid claim, (Doc. 1 at 5; see also Doc. 1-5). On November 5, 2015, Justrite served on the Sofield Parties and U.S. Bank an updated claim quantifying the amount of the claim as being $604, 000.00 (“Disputed Funds”). (Doc. 1 at 5; see also Doc. 1-6). On November 10, 2015, U.S. Bank served a second demand on the Sofield Parties, seeking return of the Disputed Funds. (Doc. 1 at 5; see also Doc. 1-7). The Sofield Parties again declined to return any of the money from the second disbursement because they did not believe Justrite had a valid claim. (Doc. 1 at 5; see also Doc. 1-8).

         U.S. Bank's complaint against the Sofield Parties contains three claims: (1) conversion (“Count One”); (2) unjust enrichment (“Count Two”); and (3) a request for a declaratory judgment with respect to U.S. Bank's and the Sofield Parties' rights to possess the Disputed Funds (“Count Three”). (Doc. 1 at 6-7). Justrite is not a party to this action. The Sofield Parties filed a motion to dismiss seeking to dismiss all three claims under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted and seeking to dismiss the action under Fed.R.Civ.P. 12(b)(7) for failure to join a party under Fed.R.Civ.P. 19. (Doc. 13). In support of the Rule 12(b)(6) aspect of their motion to dismiss, the Sofield Parties argue that: (1) the conversion claim should be dismissed because U.S. Bank, as escrow agent, has no ownership interest in the allegedly converted funds, (Doc. 13-1 at 12); (2) the unjust enrichment claim is barred by an express contract governing the relationship between U.S. Bank and the Sofield Parties, id at 12-13; and (3) the declaratory judgment claim is invalid because there is no “actual controversy” between U.S. Bank and the Sofield Parties, id at 13-14. In response, U.S. Bank contends that: (1) the conversion claim survives because it has an interest in “restor[ing] and preserv[ing] the status quo until ownership of the disputed funds can be determined, ” (Doc. 14 at 2, 7-8); (2) the unjust enrichment claim should survive because it “may plead equitable claims in the alternative, ” id. at 8-10; and (3) it may sustain its declaratory judgment claim because there is a “live, concrete” dispute between U.S. Bank and the Sofield Parties in that the Sofield Parties are in possession of the Disputed Funds and U.S. Bank is entitled to immediate possession of them, id at 10-11. In support of their Rule 12(b)(7) basis for dismissal, the Sofield Parties contend that Justrite is a necessary and indispensable party under Rule 19 because the Court will need to interpret both the Escrow Agreement and the Purchase Agreement to render a judgment, and because any judgment by the Court would likely subject the Sofield Parties to conflicting legal obligations. (Doc. 13-1 at 8-12; Doc. 17 at 1-4). In response, U.S. Bank contends that Justrite is not a necessary or indispensable party because this Court can afford U.S. Bank complete relief on its claims without interpreting the Purchase Agreement and without determining Justrite's entitlement to the “Disputed Funds.” (Doc. 14 at 4-6).

         II. DISCUSSION

         A. Jurisdiction

         This Court's jurisdiction is properly based on 28 U.S.C. § 1332(a). Specifically, U.S. Bank is a citizen of Minnesota and Ohio for purposes of diversity jurisdiction, and the Sofield Parties are residents of North Carolina.[4] (Doc. 1 at 2). In addition, U.S. Bank's complaint, which seeks the return of the Disputed Funds, satisfies the amount in controversy requirement of § 1332(a). See Id. at 8 .

         B. Fed. R. Civ. P. 12(b)(6) Failure to State a Claim

         Rule 12(b) of the Federal Rules of Civil Procedure provides for the dismissal of a claim based upon a plaintiff's “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In evaluating a motion to dismiss, a court must construe the complaint's factual allegations “in the light most favorable to the plaintiff” and “must accept as true all well-pleaded allegations.” Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994). A court, however, “‘need not accept the legal conclusions drawn from the facts, '” nor “‘accept as true unwarranted inferences, unreasonable conclusions, or arguments.'” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000)).

         While Rule 8(a)(2) does not require “detailed factual allegations, ” a complaint must offer more than “naked assertion[s]” and unadorned “labels and conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In order to survive a Rule 12(b)(6) motion to dismiss, the facts alleged must be sufficient to “raise a right to relief above the speculative level” and “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). Requiring plausibility “does not impose a probability requirement at the pleading stage, ” id. at 556, but does demand more than a “sheer possibility that a defendant has acted unlawfully, ” Iqbal, 556 U.S. at 678. Ultimately, a claim is facially plausible when the factual content allows for the reasonable inference that the defendant is liable for the misconduct alleged. Id.

          i. Conversion Claim

         In support of their Motion to Dismiss U.S. Bank's conversion claim, the Sofield Parties argue that U.S. Bank does not state a valid claim because, as an escrow agent, it has no ownership interest in the allegedly converted Disputed Funds. (Doc. 13-1 at 12). In response, U.S. Bank acknowledges that it “isn't the beneficial owner of the disputed funds, ” and that it “has no stake in who ultimately is entitled to the funds.” (Doc. 14 at 2). However, U.S. Bank contends that it has an interest in “restor[ing] and preserv[ing] the status quo until ownership of the disputed funds can be determined in whatever manner the Sofield Parties and Justrite pursue.” (Doc. 14 at 2). The issue, then, is whether an escrow agent may bring a conversion ...


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