United States District Court, E.D. North Carolina, Western Division
TERRENCE W. BOYLE UNITED STATES DISTRICT JUDGE.
matter is before the Court on defendant's motion for
summary judgment under Rule 56 of the Federal Rules of Civil
Procedure. [DE 19]. The matter has been fully briefed and is
ripe for adjudication. For the reasons discussed below
defendant's motion for summary judgment is granted.
action arises from an insurance claim made by plaintiff for
losses from a theft of restaurant equipment at a property it
owned in Raleigh, North Carolina. Plaintiff has alleged that
defendant breached its insurance contract, committed unfair
and deceptive acts, and acted in bad faith when it refused to
pay for the stolen restaurant equipment. Defendant filed a
counterclaim for declaratory relief, alleging that an
Entrustment Exclusion contained in the insurance policy
precluded coverage for the theft of the restaurant equipment.
acquired the property and the restaurant equipment at issue
in this matter in 2011. [DE 20-1, Auton Dep. at 33:15-35:16].
Around November 18, 2013, plaintiff, through its managing
member, John Auton, entered into a lease agreement with The
Balm Christian Restaurant and Lounge, LLC (the "Balm
Christian Restaurant") through its owner Harold Harris.
[DE 20-2]. Mr. Harris also executed a personal guaranty for
the lease and equipment with plaintiff. [DE 20-3]. The lease
agreement allowed Mr. Harris and the Balm Christian
Restaurant to use the property and restaurant equipment owned
by plaintiff. [DE 20-2 at 32 ("[a]s long as Tenant is
not in default, Tenant will have possession and sole use of
all equipment for the term of the lease."); DE 20-1,
Auton Dep. at 41:6-41:14].
all times relevant to this matter, plaintiff had a contract
of insurance with defendant for the property. That insurance
contract provided coverage for, among other things, the
restaurant equipment. [DE 1-1]. The insurance contract also
contained an Entrustment Exclusion, which provided that
defendant would not cover "loss or damage caused
directly or indirectly" from a "[d]ishonest or
criminal act by . . . anyone to whom you entrust the property
for any purpose." Id. at 66.
January 16, 2014, the Balm Christian Restaurant defaulted
under the terms of lease and York Properties, plaintiffs
property management agency, issued certified letters to the
Balm Christian Restaurant advising it of its' default
under the terms of the lease. [DE 22-1, Auton Aff. at 5].
Thereafter, sometime in January, 2014, the Balm Christian
Restaurant closed and ceased operating at the property.
February 6, 2014, York was contacted by the Balm Christian
Restaurant's former general manager and Harold
Harris's niece, Victoria Jones. [DE 20-11 at 5-6]. Ms.
Jones confirmed that the Balm Christian Restaurant had closed
and requested permission to start and operate a new
restaurant, called the Paparazzi, which plaintiff denied. [DE
22-1, Auton Aff. at 6]. Despite plaintiffs denial and without
authorization or consent from plaintiff, it appears that the
Ms. Jones's new restaurant began operations on January
13, 2014. Id.
May 5, 2014, plaintiff, through counsel, sent a letter to the
Balm Christian Restaurant indicating that past rent exceeded
$12, 000 and plaintiff was terminating the lease agreement
and the right to possession. [DE 20-4]. Plaintiffs counsel
threatened to move under the applicable law to recover
possession if necessary. Id.
May 22, 2014, Mr. Auton received a call from the operator of
a business near the property, who indicated that a moving van
had appeared at the property. [DE 20-1, Auton Dep. at
47:16-48:4]. Mr. Auton went to the property and, looking
through a window, noticed that some of the restaurant
equipment had been stolen. Id. at 48:5-49:8.
sometime in May, plaintiff began the process of obtaining a
judgment of eviction for Mr. Harris and the Balm Christian
Restaurant. [DE 20-1, Auton Dep. at 56:21-58:6]. The judgment
of eviction was entered on June 5, 2014. Id. at
45:12-45:15. On June 6, 2014, Mr. Auton went to the property
and learned that the remaining restaurant equipment had been
stolen. Id. at 60:23-61:17. Mr. Auton reported the
theft to the police and provided some information for an
incident report dated June 6, 2014. [DE 20-6]. That incident
report notes that the person arrested is "Harris, Harold
Fitzgerald." Id. Mr. Auton prepared a list of
all of the stolen restaurant equipment, which he valued at
$146, 932. [DE 20-8; DE 20-1, Auton Dep. at 64:6-64:11].
11, 2014, less than a week after discovering the totality of
the theft, counsel for plaintiff, and the same attorney who
wrote the letter to the Balm Christian Restaurant terminating
the lease for non-payment of rent, filed a complaint on
behalf of plaintiff in the Wake County Superior Court. [DE
20-9]. The next day, June 12, 2014, plaintiffs counsel filed
an amended complaint on behalf of plaintiff. [DE 20-10]. The
complaints identified Harold Harris and the Balm Christian
Restaurant as the "Defendants, " and alleged that
sometime between May 5, 2014 and June 5, 2014,
"Defendants removed the [restaurant equipment] from the
[property], damaging the [premises] in the process." [DE
20-9 at ¶ 10; DE 20-10 at ¶ 10]. The civil lawsuit
included a claim for conversion arising from the actions of
Mr. Harris and the Balm Christian Restaurant in removing the
Restaurant Equipment. [DE 20-9 at ¶ 17; DE 20-10 at
15, 2014, after reporting the theft to defendant, Mr. Auton
provided a recorded statement to defendant. [DE 20-11]. When
asked "who do you think is responsible for the loss to
your property?" Mr. Auton answered "Harold
Harris." Id. at 13.
state of North Carolina obtained a warrant for the arrest of
Harold Harris for stealing the restaurant equipment valued at
$146, 932.00 on June 30, 2014. [DE 20-12]. Mr. Auton
testified that he assisted the police in obtaining the
warrant for arrest. [DE 20-1, Auton Dep. at 76:7-76:10 and
77:23-77:25]. On January 5, 2015, a criminal ...