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LLC v. Westfield Insurance Co.

United States District Court, E.D. North Carolina, Western Division

June 15, 2017

2900 ROCK QUARRY, LLC, Plaintiff,
v.
WESTFIELD INSURANCE COMPANY, Defendant.

          ORDER

          TERRENCE W. BOYLE UNITED STATES DISTRICT JUDGE.

         This 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.

         BACKGROUND

         This 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.

         Plaintiff 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].

         During 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.

         Around 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. Id.

         On 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.

         Around 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.

         Around 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.

         Starting 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].

         On June 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 ¶ 17].

         On June 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.

         The 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 ...


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