United States District Court, E.D. North Carolina, Western Division
U.S. TOBACCO COOPERATIVE, INC., U.S. FLUE-CURED TOBACCO GROWERS, INC., and BIG SOUTH DISTRIBUTION, LLC, Plaintiffs,
BIG SOUTH WHOLESALE OF VIRGINIA, LLC d/b/a BIG SKY INTERNATIONAL, BIG SOUTH WHOLESALE, LLC, UNIVERSAL SERVICES CONSULTING GROUP, JASON CARPENTER, CHRISTOPHER SMALL, EMORY STEPHEN DANIEL, and ALBERT M. JOHNSON, Defendants.
TERRENCE W. BOYLE CHIEF UNITED STATES DISTRICT JUDGE.
cause comes before the Court on the United States' motion
to dismiss; plaintiffs' motion for partial summary
judgment; defendants Big South Wholesale of Virginia d/b/a
Big Sky International, Big South Wholesale, Carpenter, and
Small's motion for summary judgment; defendant
Daniel's motion for summary judgment; and defendant
Johnson's motion for summary judgment. The matters have
been fully briefed and are ripe for ruling. For the reasons
that follow, the United States is dismissed, plaintiffs'
motion for partial summary judgment is granted in part and
denied in part, and defendants' motions for summary
judgment are granted.
23, 2013, plaintiffs filed a complaint alleging that two of
their employees, a consultant, and others engaged in a
conspiracy to defraud plaintiffs of millions of dollars. [DE
1]. On April 23, 2014, the United States moved to intervene
and stay discovery in the matter due to ongoing grand jury
investigations, [DE 144], which was granted by the
Court on September 30, 2014 [DE 209]. The Court
further granted in part a motion for judgment on the
pleadings filed by defendants Big South Wholesale of Virginia
(Big South Wholesale-Va.), Big South Wholesale, Carpenter,
and Small (collectively the Big Sky defendants) and dismissed
plaintiffs' claims for breach of fiduciary duty and
constructive fraud against Carpenter and Small, as well as
plaintiffs' claims for tortious interference,
misappropriation of corporate opportunities, breach of the
covenant of good faith and fair dealing, and unjust
enrichment against the Big Sky defendants. [DE212].
24, 2015, the Court declined to extend the stay of discovery
further [DE 323], and the case proceeded through discovery.
On June 1, 2016, the parties filed various motions for
summary judgment. On August 24, 2016, the Court held an
evidentiary hearing on a petition to substitute the United
States as a party pursuant to 28 U.S.C. § 2679 (Westfall
certification) that had been filed by the Big Sky defendants.
On November 7, 2016, the Court granted in part the petition
to substitute the United States and granted Westfall
certification to the Big Sky defendants for plaintiffs'
fourth through ninth and seventeenth claims for relief. [DE
order entered May 19, 2017, the seal imposed on a large
number of documents in the case was lifted. [DE 810]. The
Court took up plaintiffs' motion to reconsider Westfall
certification and, after a hearing on July 20, 2017, granted
the motion to reconsider, removed Westfall certification for
the Big Sky defendants, and dismissed the United States as a
substituted party. [DE 1096]. The Big Sky defendants appealed
the denial of Westfall certification, and by opinion filed
August 3, 2018, the Court of Appeals for the Fourth Circuit
vacated this Court's order removing Westfall
certification and remanded the case for further proceedings.
[DE 1116]; U.S. Tobacco Coop. Inc. v. Big S. Wholesale of
Virginia, LLC, 899 F.3d 236 (4th Cir. 2018).
the case is now before the Court with the United States
substituted for the Big Sky defendants on plaintiffs'
claims for North Carolina RICO violations, fraud, fraud in
the inducement, North Carolina Unfair and Deceptive Trade
Practices Act (UDTPA) violations and civil conspiracy
(plaintiffs' fourth through ninth, and seventeenth claims
for relief). Also remaining for adjudication are
plaintiffs' claims against Carpenter, Small, and/or Big
South Wholesale and Big South Wholesale-Va. for federal RICO
violations and breach of contract (plaintiffs' first,
second, third, twelfth, thirteenth, and fourteenth claims for
relief); plaintiffs' claims against Daniel and/or
Universal Services Consulting Group (Universal) for federal
RICO violations, North Carolina RICO violations, fraud, fraud
in the inducement, constructive fraud, violations of the
North Carolina UDTPA, breach of fiduciary duty, tortious
interference with contractual relations, misappropriation of
corporate opportunities, civil conspiracy, and unjust
enrichment (plaintiffs' first through third, fourth
through sixth, seventh through eleventh, and fifteenth
through eighteenth claims for relief); plaintiffs' claims
against Johnson for federal RICO violations, North Carolina
RICO violations, fraud, fraud in the inducement, North
Carolina UDTPA violations, breach of fiduciary duty, and
civil conspiracy (plaintiffs' second, sixth, seventh
through tenth and seventeenth claims for relief); Carpenter
and Small's counterclaims for breach of contract,
piercing the corporate veil, violations of North
Carolina's UDTPA, and punitive damages; Daniel's
counterclaim for indemnification; and Johnson's
counterclaim for indemnification.
have moved for partial summary judgment on their claims for
breach of the asset purchase agreement, breach of consulting
agreement, and breach of employment agreement
(plaintiffs' twelfth through fourteenth claims for
relief) and on defendants Carpenter and Small's first,
fourth, and sixth counterclaims. The Big Sky defendants have
moved for summary judgment in their favor on each of
plaintiffs' claims against them; Daniel, Universal, and
Johnson have also moved for summary judgment in their favor
on each of plaintiffs' claims and on their counterclaims
against plaintiffs for indemnification. The United States has
moved to dismiss each of plaintiffs' claims against it.
case is before the Court on multiple motions for summary
judgment, the following factual recitation is comprised,
unless otherwise indicated, of the undisputed portions of the
Local Civil Rule 56.1 statements of undisputed material facts
filed by the parties. [DE 460; 848; 649; 1018; 1135;
U.S. Tobacco Cooperative (U.S. Tobacco) is a member-owned
cooperative that purchases tobacco from its member-growers
and sells it to domestic and foreign customers. Plaintiff
U.S. Flue-Cured Tobacco Growers (U.S. Flue-Cured), a
wholly-owned subsidiary of U.S. Tobacco, was formed in 2004
to purchase a cigarette manufacturing facility in Timberlake,
North Carolina. U.S. Flue-Cured entered into an exclusive
manufacturing agreement with Premier Manufacturing, Inc.,
under which it manufactured Premier cigarette brands such as
"Wildhorse"; U.S. Flue-Cured later began to
manufacture its own cigarette brands, including
"1839." Until May 2011, U.S. Flue-Cured sold its
cigarettes through third-party distributors, which included
defendants Big South Wholesale and Big South Wholesale-Va.,
companies owned and operated by defendants Carpenter and
and 2007 respectively, defendants Carpenter and Small began
working with the Bureau of Alcohol, Tobacco, Firearms and
Explosives (ATF) in confidential roles, assisting ATF with
operations that targeted corrupt cigarette retailers,
wholesalers, brokers, distributors, and manufacturers.
early 2011, Daniel approached the U.S. Tobacco board of
directors and encouraged them to acquire the assets of Big
South Wholesale and Big South Wholesale-Va. Plaintiff Big
South ' Distribution was organized as a
wholly-owned subsidiary of U.S. Flue-Cured, and defendant
Daniel, who was the executive vice president of U.S.
Flue-Cured, became the president of Big South Distribution.
In approximately December 2011, negotiations between Daniel,
Carpenter, and Small began for U.S. Flue-Cured to acquire Big
South Wholesale and Big South Wholesale-Va., and Daniel
served as U.S. Tobacco's lead negotiator for the purchase
of Big South Wholesale and Big South Wholesale-Va.'s
assets. While negotiations were ongoing, a meeting was held
on March 23, 2011, which included ATF Agent Whittemore,
Carpenter, Small, Daniel, U.S. Tobacco and U.S.
Flue-Cured's chairman of the board of directors defendant
Johnson, U.S. Tobacco treasurer John Taylor, plaintiffs'
outside auditor Clay Worden, U.S. Tobacco president Tommy
Bunn, and plaintiffs' outside general counsel Marks
Arnold. Agent Wittemore informed the attendees, among other
things, that Carpenter and Small's operations with ATF
were winding down, and further instructed all attendees about
the importance of maintaining as confidential the information
that had been discussed at the meeting.
to the close of the agreement to purchase assets of Big South
Wholesale and Big South Wholesale-Va., there was no
disclosure to plaintiffs' full board of directors
regarding Carpenter and' Small's work with the ATF or
that, after the asset purchase, Carpenter and Small planned
to form a separate entity called Big Sky International which
would sell cigarettes to Big South Distribution at marked-up
prices. Also undisclosed to the full board of directors were
payments made by Carpenter and Small through Big South
Wholesale-Va. to Universal Services First Consulting, a
company owned and controlled by Daniel, for $2, 000 per month
from August 2010 to April 2011, totaling $18, 000.
regarding the acquisition of Big South Wholesale and Big
South Wholesale-Va. continued, culminating in an asset
purchase agreement (APA) that was entered into on May 1,
2011. Pursuant to the APA, U.S. Tobacco paid Carpenter and
Small approximately $8.6 million and Big South Distribution
acquired assets of Big South Wholesale and Big South
Wholesale-Va. On May 2, 2011, Carpenter and Small through Big
South Wholesale-Va. made a payment of $69, 066.67 to
Universal First Consulting, and this payment was not
disclosed to U.S. Tobacco's full board of directors.
of the APA, Carpenter was hired as a consultant and Small as
an employee of the newly formed Big South Distribution. Under
the APA and Carpenter and Small's consulting/employment
agreements, a non-competition provision forbade Carpenter and
Small from competing with Big South Distribution in the
wholesale acquisition and distribution of tobacco products in
Alabama, North Carolina, Virginia, Tennessee, South Carolina,
and Georgia. Four days prior to the close of the APA, on
April 27, 2011, Daniel sent an email to U.S. Tobacco's
general counsel Marks Arnold, Carpenter and Small's
counsel Henry Long, Carpenter, Small, and John Taylor, in
part describing "concern over business operations that
[Carpenter and Small] are involved in and the
'special' nature of certain activities that must be
handled with extreme confidentiality." [DE 1135-14].
Marks Arnold responded by email the same day stating
"Based on my conversation with Rusty Irby [Big South
Wholesale's attorney] this morning, I suggest that we all
recognize that the 'special' activities will not
violate the non-compete, but not document that fact, for
obvious reasons." [DE 849 Dep. Ex. 29].
the APA closed, Carpenter and Small oversaw Big South
Distribution's day-to-day operations and controlled the
tobacco products that it purchased for wholesale, and were
paid annual salaries of more than $100, 000 per year plus a
percentage of profits. Carpenter and Small also continued to
operate Big South Wholesale-Va., under the name Big Sky
International, out of the Big South Distribution warehouse in
Bristol, Virginia. From May 2011 to May 2013, Carpenter and
Small sold tobacco products from Big Sky to Big South
Distribution, the majority of which were "Brand B"
cigarettes. These sales exceeded $24 million. Between May
2011 and March 2013, Carpenter and Small through Big Sky made
payments of over $470, 000 to Universal First Consulting, and
these payments were not disclosed to U.S. Tobacco's full
board of directors.
March 7, 2013, Brandon Moore, an employee at the Bristol,
Virginia warehouse, emailed Stuart Thompson, the chief
financial officer of U.S. Tobacco, about activities and
alleged wrongdoing taking place at the warehouse. [DE
1135-23] Thompson Dep. at 130. The U.S. Tobacco board of
directors voted to initiate an internal investigation into
Moore's allegations and hired outside counsel. On July
23, 2013, U.S. Tobacco terminated Carpenter's consulting
agreement and Small's employment agreement. Both
Carpenter's consulting and Small's employment
agreement contained early termination penalties where the
agreement was terminated without cause. A finding that their
respective non-competition agreements have been violated
would forfeit any early termination penalties owed.
United States' motion to dismiss.
October 12, 2018, plaintiffs filed a notice of voluntary
dismissal of their claims against the United States pursuant
to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil
Procedure. [DE 1125]. Rule 41(a)(1)(A)(i) provides a
plaintiff with the right to dismiss an action without a court
order by filing a notice of dismissal before the opposing
party has filed an answer or motion for summary judgment.
Although some courts have found that reference to "an
action" by the rule requires that a plaintiff may not
proceed under Rule 41 to dismiss claims against one but not
all defendants, "the sounder view and the weight of
judicial authority are to the contrary." 9 Charles Alan
Wright, et al., Federal Practice & Procedure
§ 2362 (3d ed. 2008); see also Duke Progress Energy
LLC v. 3M Co., No. 5:08-CV-460-FL, 2015 WL 5603344, at
*2 (E.D. N.C. Sept. 23, 2015) (noting use of Rule 41(a) to
dismiss fewer than all defendants in an action is standard
practice in this district); S. Bank & Tr. Co. v.
Laburnum Hotel Partners, LLC, No. 2:13CV216, 2014 WL
3052535, at *5 (E.D. Va. July 3, 2014). Accordingly, by
operation of the notice of voluntary dismissal, the United
States has been dismissed as a defendant in this action.
Counts four, five, six, seven, eight, nine, and seventeen of
the second amended complaint are therefore dismissed without
prejudice, and the United States' motion to dismiss is
denied as moot. Plaintiffs' motion for leave to file
surreply to the United States' renewed motion to dismiss
Sky defendants' motion for summary judgment.
Carpenter, Small, Big South Wholesale, and Big South
Wholesale-Va. have moved for summary judgment in their favor
on all claims, which include claims for federal RICO
violations and state law claims for breach of contract. A
motion for summary judgment may not be granted unless there
are no genuine issues of material fact for trial and the
movant is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(a). The moving party bears the initial burden
of demonstrating the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). If that burden has been met, the non-moving party
must then come forward and establish the specific material
facts in dispute to survive summary judgment. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
588 (1986). In determining whether a genuine issue of
material fact exists for trial, a trial court views the
evidence and the inferences in the light most favorable to
the nonmoving party: Scott v. Harris, 550 U.S. 372,
"[t]he mere existence of a scintilla of evidence"
in support of the nonmoving party's position is not
sufficient to defeat a motion for summary judgment.
Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 252
(1986). "A dispute is genuine if a reasonable jury could
return a verdict for the nonmoving party. . . .and [a] fact
is material if it might affect the outcome of the suit under
the governing law." Libertarian Party of Virginia v.
Judd,718 F.3d 308, 313 (4th Cir. 2013) (internal
quotations and citations omitted). Speculative or conclusory
allegations will not suffice. Thompson v. Potomac Elec.
Power Co.,312 F.3d 645, 649 (4th Cir. 2002). When
deciding cross-motions for summary judgment, a court
considers each motion ...