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North Carolina Mutual Life Insurance Company v. Stamford Brook Capital, LLC

United States District Court, M.D. North Carolina

September 27, 2019

NORTH CAROLINA MUTUAL LIFE INSURANCE COMPANY, a North Carolina Corporation, Plaintiff,
STAMFORD BROOK CAPITAL, LLC a Delaware limited liability company, et al. Defendants.



         Plaintiff North Carolina Mutual Life Insurance Company (“NCM”) brings this action against several corporate and individual defendants for claims related to alleged mismanagement and misappropriation of trust assets. (ECF No. 97.) Defendant Bradley Reifler (“Reifler”) has filed a Counterclaim and Third-Party Complaint, in which he asserts claims against NCM and impleads its current and former CEOs, Michael L. Lawrence (“Lawrence”) and James H. Speed Jr. (“Speed”). (ECF No. 118.)

         Four interrelated motions are now before the Court: (1) NCM’s motion to dismiss Reifler’s counterclaim, (ECF No. 120); (2) Lawrence’s motion to dismiss Reifler’s third-party claims, (ECF No. 142); (3) Speed’s motion to vacate an entry of default and dismiss Reifler’s third-party claims, (ECF No. 163); and (4) Reifler’s motion for leave to file an amended counterclaim and third-party complaint, (ECF No. 176). For the reasons that follow, NCM, Lawrence, and Speed’s motions will be granted. Reifler’s motion will be denied.

         I. BACKGROUND

         NCM initiated this lawsuit on September 23, 2016. (ECF No. 1.) On January 20, 2017, Reifler filed for Chapter 7 bankruptcy relief in the Bankruptcy Court for the Southern District of New York, causing this Court to administratively terminate NCM’s action as to Reifler until his bankruptcy proceedings concluded. (ECF Nos. 46, 47.) Settlement negotiations between NCM and certain other Defendants began shortly thereafter and resulted in a settlement agreement on March 3, 2017. (ECF No. 51 ¶ 6.) At the joint request of those parties, this Court issued an order staying litigation “through September 30, 2018 . . . or until such sooner time as [NCM] request[ed] the Court lift the stay.” (ECF No. 52 at 2.) However, the settlement agreement was short lived; on June 1, 2017, NCM moved to lift the stay, (ECF No. 53), and this Court issued an order to that effect on April 24, 2018, (ECF No. 79 at 8).

         On May 1, 2017, around the time the settlement agreement was faltering, NCM filed an adversary proceeding in Reifler’s bankruptcy case, requesting that the Bankruptcy Court classify his alleged liability to NCM as nondischargeable. (ECF No. 97 ¶¶ 248–249.) Without fully recounting those proceedings, it is sufficient to note that, on May 4, 2018, the Bankruptcy Court granted a default judgment in favor of NCM on all of its claims asserted in the adversary proceeding. (ECF No. 90-1 at 11–12.) In justifying its decision to grant a default judgment, the Bankruptcy Court explicitly found that Reifler had “engaged in an intentional and directed campaign” to spoliate electronic evidence relevant to NCM’s claims and “willfully failed to comply” with the court’s discovery and sanctions orders. (Id. at 6, 10.) At the end of the bankruptcy proceedings, NCM moved to reopen its case as to Reifler. (ECF No. 89.) This Court granted that motion on February 25, 2019. (ECF No. 171.)

         After the collapse of the settlement agreement and the conclusion of Reifler’s bankruptcy case, NCM filed an amended complaint on August 2, 2018. (ECF No. 97.) To briefly summarize the allegations in the amended complaint: NCM alleges that it “entrusted Defendants, ” including Reifler and the “Forefront Entities, ” “with safekeeping and properly investing approximately $34, 000, 000 of its assets” (the “Trust Assets”) in April of 2015. (Id. at 3, 6–8.) Under the relevant management agreements, (ECF Nos. 1-1 at 2; 1-2 at 3), investment of the Trust Assets was supposed to be limited to certain “Eligible Assets”-cash and securities which complied with the insurer investment requirements outlined in N.C. Gen. Stat. § 58-7-173. (ECF No. 97 ¶ 27.) However, NCM alleges that, rather than properly invest the Trust Assets, Defendants “engaged in a concerted fraudulent scheme to transfer [NCM]’s assets into improper investments”-ineligible financial vehicles which they owned or controlled-“and to convert such assets for their own benefit.” (See Id . at 3.)

         In response to the amended complaint, Reifler filed an answer, a counterclaim against NCM, and third-party claims against Lawrence and Speed. (ECF Nos. 117, 118.) NCM and Lawrence have timely moved to dismiss the respective counterclaim and third-party claims against them pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (ECF Nos. 120, 142.) When it appeared[1] that Speed had failed to plead or otherwise defend within his allotted time, Reifler requested an entry of default, which the Clerk of Court granted. (ECF Nos. 158, 159.) Pursuant to Rules 55(c) and 12(b)(5)[2] of the Federal Rules of Civil Procedure, Speed now moves to vacate that entry of default and dismiss the third-party claims against him. (ECF No. 163.) Reifler, for his part, seeks leave from this Court to amend his counterclaim and third-party complaint so as to incorporate “additional facts and details that recently came to light [and] new information supporting new claims.” (ECF No. 176 at 1.) This Court will address each motion in turn.


         A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure “challenges the legal sufficiency of a complaint, ” including whether it meets the pleading standard of Rule 8(a)(2). Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). Rule 8(a)(2) requires a complaint to contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), thereby “giv[ing] the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). A complaint may fail to state a claim upon which relief can be granted in two ways: first, by failing to state a valid legal cause of action, i.e., a cognizable claim, see Holloway v. Pagan River Dockside Seafood, Inc., 669 F.3d 448, 452 (4th Cir. 2012); or second, by failing to allege sufficient facts to support a legal cause of action, see Painter’s Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013).

         The true substance of Reifler’s counterclaim and third-party complaint takes some effort to discern. Reifler groups his allegations under four counts, titled “Negligence, ” “Negligence Per Se, ” “Fraud, ” and “Respondeat Superior.” (ECF No. 118 at 27–40.) However, looking beyond those headings, Reifler’s claims are essentially threefold: (1) that NCM either failed to verify that Defendants’ investments met the criteria for “Eligible Assets” or implicitly consented to improper investments, thereby relieving Reifler of liability (the “negligence-related claims”); (2) that by “attempt[ing] to blame” Reifler publicly for its own mismanagement, NCM has caused Reifler to suffer “irreparable” reputational harm (the “defamation claims”)[3]; and (3) that by providing Reifler with an underlined copy of North Carolina General Statute § 58-7-173, NCM fraudulently enticed him into making improper investments (the “fraud claim”). (See Id . at 3–4, ¶¶ 104–09, 150–152.)

         Although he was represented by counsel at the outset of this lawsuit, Reifler now appears pro se. This Court has an obligation to construe pro se filings, “however inartfully pleaded, ” less rigidly than “formal pleadings drafted by lawyers.”[4] See Erickson v. Pardus, 551 U.S. 89, 94 (2007). However, the “[p]rinciples requiring generous construction of pro se complaints are not . . . without limits.” Beaudett v. City of Hampton, 775 F.2d 1274, 1278 (4th Cir. 1985). This Court need not act as Reifler’s advocate, nor help him develop otherwise meritless claims. See Adler v. Anchor Funding Servs., LLC, No. 3:10cv515, 2011 WL 1843226, at *2 (W.D. N.C. May 16, 2011) (citing Gordon v. Leeke, 574 F.2d 1147, 1151 (4th Cir. 1978)).

         A. Reifler’s Negligence-Related Claims

         Even if construed liberally, Reifler’s negligence-related claims cannot survive NCM’s motion to dismiss. The counts titled “Negligence” and “Negligence Per Se” fail to allege an essential element of those torts: a legal duty owed to Reifler by NCM. See Fussell v. N.C. Farm Bureau Mut. Ins. Co., 695 S.E.2d 437, 440 ( N.C. 2010) (“To state a claim for common law negligence, a plaintiff must allege: (1) a legal duty; (2) a breach thereof; and (3) injury proximately caused by the breach.”); Stein v. Asheville City Bd. of Educ., 626 S.E.2d 263, 266 (2006) (explaining that a violation of a public safety statute imposing a “specific duty” for the protection of individuals in the plaintiff’s class is negligence per se). Nowhere does Reifler allege that NCM owed him any special, general, or fiduciary duty based on any business relationship, contract, statute, or common law. (See ECF No. 118.) Rather, throughout his counterclaim and third-party complaint, Reifler insists that there was “no business relationship” between him and NCM and that the parties never entered into “any agreement” of any kind. (See, e.g., id. at 15–16.) The closest Reifler comes to alleging facts which would support the existence of a legal duty is his statement that “[NCM], Speed and Lawrence in failing to perform their required fiduciary duties [have] caused Reifler to be harmed financially.” (Id. ¶ 105.) However, the alleged duties referenced in that statement would be owed to NCM and its shareholders-not Reifler. Because Reifler has not sufficiently alleged that any duty was owed to him by NCM, his negligence-related claims must fail.

         However, there is another-and, in this Court’s view, better-way to view Reifler’s negligence-related claims: as defenses sounding in implied consent, contributory negligence, or a related doctrine. See generally 1 North Carolina Law of Torts §§ 15.20, 19.20 (2019) (discussing defenses tied to plaintiff’s conduct). For example, when Reifler alleges that NCM failed to “make any effort to make sure that [Defendants’] investment recommendations met their Eligible Asset criteria” or “pull[ ] the [improper] . . . investment selections [when they] were sent to them, ” he is arguing that NCM’s alleged harm is the result of “[its] own doing and not that of Reifler.” (ECF No. 118 ¶¶ 74–76, 109); see North Carolina Law of Torts § 19.20 n.3 (“Contributory negligence is the breach of the duty of the plaintiff to exercise due care for his own safety in respect of the occurrence about which he complains.”). Likewise, when Reifler alleges that “[a]t no time did [NCM] . . . write and/or voice[ ] any concern to Reifler or his team” that certain investments were improper, he appears to be stating a defense akin to implied authorization or consent. (ECF No. 118 ¶ 72.)

         When a party “mistakenly designates a defense as a counterclaim . . . the court must, if justice requires, treat the pleading as though it were correctly designated.” Fed.R.Civ.P. 8(c)(2). Put another way: “What is really [a] . . . defense to a suit does not become an independent piece of litigation because of its label.” Tenneco Inc. v. Saxony Bar & Tube, Inc., 776 F.2d 1375, 1379 (7th Cir. 1985). Reifler’s negligence-related claims are more aptly described as defenses; this Court will consider them as such, and, accordingly, finds no place for them in a separate counterclaim against NCM. Thus, Reifler’s negligence-related claims will be dismissed.

         B. Reifler’s Defamation Claims

         Reifler further claims that NCM has caused him “irreparable harm” by “defaming his reputation, character and livelihood” through allegedly “false accusations as outlined in [NCM]’s Amended Complaint.” (ECF No. 118 at 4, 34–35.) However, as NCM correctly points out, (see ECF No. 121 at 7), Reifler’s reputational claims all stem from allegations first published in the course of this litigation. Under North Carolina law, statements alleged to be “false, fraudulent, or misleading” are privileged if they are made in connection with a judicial proceeding. See Edwards v. Parrish Tire Co., No. 1:18CV811, 2019 WL 4246671, at *3 (M.D. N.C. Sept. 6, 2019) (discussing the contours of North Carolina’s litigation privilege). This litigation privilege applies when three conditions are met: (1) the statements at issue are made in the course of a judicial proceeding; (2) the statements are sufficiently relevant to said proceeding; and (3) the plaintiff’s claim is based on the allegation that the statements are false, fraudulent, or misleading. See id.; Harris v. NCNB Nat. Bank of N.C. , 355 S.E.2d 838, 841–42 ( N.C. Ct. App. 1987). All three conditions are met here.

         First, the statements complained of were made in the course of a judicial proceeding. (See ECF No. 118 at 34–35 (“telling others false information . . . as specifically outlined in Plaintiff’s Amended Complaint”; “knowingly making false public statements . . . as specifically described in Plaintiff’s Amended Complaint”; “making false accusations as outlined in the amended complaint”).) In his responsive briefing, Reifler adds, for the first time, that NCM “knowingly made false damaging statements about [him] immediately after it underwent an audit” at a time before this litigation arose. (ECF No. 136 at 8.) These alleged pre-litigation statements appear nowhere in the counterclaim itself. In addition, Reifler has failed to identify any specific defamatory statements from this time period. (See id.) While alleged defamatory statements “need not be repeated verbatim . . . they must be alleged substantially in haec verba, or with sufficient particularity to enable the court to determine whether the statement was defamatory.” See Izydore v. Tokuta, 775 S.E.2d 341, 349 ( N.C. Ct. App. 2015) (internal quotations omitted) (quoting Stutts v. Duke Power Co., 266 S.E.2d 861, 866 ( N.C. Ct. App. 1980)). Second, the statements at issue are highly relevant to this litigation. NCM’s statements regarding Reifler’s alleged tortious conduct-in Reifler’s summation, that he has “committed fraudulent acts, failed to carry out his duties of a fiduciary, [and committed] breach of contract”-go to the heart of the claims set out in NCM’s amended complaint. (ECF No. 118 at 34.) As it pertains to the litigation privilege, a statement is considered sufficiently relevant to a judicial proceeding unless ...

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