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Central National Gottesman Inc. v. Nakos Paper Products, Inc.

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

October 23, 2019

CENTRAL NATIONAL GOTTESMAN INC., Plaintiff,
v.
NAKOS PAPER PRODUCTS, INC., CHRISTOS L. NAKOS, and LAMBROS C. NAKOS, Defendants.

          ORDER

          Robert J. Conrad, Jr. United States District Judge

         THIS MATTER comes before the Court on Defendants' Motion to Dismiss, (Doc. No. 20), and the Magistrate Judge's Memorandum and Recommendation (“M&R”), (Doc. No. 24).

         I. BACKGROUND

         Plaintiff Central National Gottesman Inc. (“Plaintiff” or “CNG”) and Defendant Nakos Paper Products, Inc. (“Nakos”) began doing business together in February 2014. Pursuant to agreements between the parties, CNG delivered paper inventory to Nakos, and Nakos processed CNG's inventory into finished product that was sold and delivered to Nakos' end-use customers. Defendants Christos L. Nakos (“Chris Nakos”) and Lambros C. Nakos (“Lambros Nakos” and together with Chris Nakos, the “Individual Defendants”) are the sole shareholders and officers of Nakos.

         In late 2014 and 2015, Nakos failed to pay CNG for inventory delivered by CNG to Nakos. By the end of 2016, Nakos' past due balance had grown to $238, 657.62. As a result of and to rectify the past due amount, Nakos and CNG agreed that: (1) CNG would deliver CNG's inventory to Nakos pursuant to a Bailment Agreement dated November 7, 2016; (2) at all times, CNG was the owner of CNG's inventory delivered to Nakos; (3) Nakos would process CNG's inventory into finished product; (4) CNG would invoice the end-use customers for the finished product delivered by Nakos; (5) CNG would receive payment from the customer, and the funds would be applied first to CNG's cost of inventory; and (6) the remaining funds would be paid 70% to Nakos and 30% to CNG.

         Beginning in early 2017, Nakos breached the agreements by converting CNG's inventory into finished product and directly invoicing the end-use customers without CNG's knowledge or consent. This breach continued through early 2018 when CNG conducted a review and inspection of its inventory on Nakos' premises and discovered that approximately $400, 000 of its inventory was missing.

         CNG filed its Complaint on November 28, 2018 and an Amended Complaint on March 11, 2019. The Amended Complaint asserts the following claims: (1) breach of contract as to Nakos; (2) breach of the Bailment Agreement as to Nakos; (3) conversion as to Nakos; (4) unfair or deceptive acts or practices in violation of N.C. Gen. Stat. § 75-1.1 as to all Defendants; (5) unjust enrichment as to Nakos; (6) tortious interference with contract as to Chris Nakos; (7) conversion and aiding and abetting conversion as to the Individual Defendants; (8) fraud as to all Defendants; (9) constructive trust as to all Defendants; (10) fraudulent transfers as to all Defendants; (11) civil conspiracy to commit conversion and fraud as to all Defendants; and (12) piercing the corporate veil as to all Defendants.

         Defendants moved under Rule 12(b)(6) to dismiss CNG's claims for unfair or deceptive acts or practices as to the Individual Defendants, tortious interference with contract as to Chris Nakos, conversion and aiding and abetting conversion as to the Individual Defendants, fraud as to all Defendants, constructive trust as to all Defendants, fraudulent transfers as to all Defendants, civil conspiracy as to all Defendants, and piercing the corporate veil as to all Defendants. In the M&R, the Magistrate Judge recommended that the Court grant the motion as to all claims except the claim to pierce the corporate veil. CNG timely filed objections to the M&R.

         II. STANDARD OF REVIEW

         A district court may assign dispositive pretrial matters to a magistrate judge for “proposed findings of fact and recommendations.” 28 U.S.C. § 636(b)(1)(B). The Federal Magistrate Act provides that a district court “shall make a de novo determination of those portions of the report or specific proposed findings or recommendations to which objection is made.” Id. § 636(b)(1); Camby v. Davis, 718 F.2d 198, 199 (4th Cir. 1983).

         The standard of review for a motion to dismiss under Rule 12(b)(6) for failure to state a claim is well known. Fed.R.Civ.P. 12(b)(6). “A motion to dismiss under Rule 12(b)(6) ‘challenges the legal sufficiency of a complaint,' including whether it meets the pleading standard of Rule 8(a)(2).” Fannie Mae v. Quicksilver LLC, 155 F.Supp.3d 535, 542 (M.D. N.C. 2015) (quoting Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009)). A complaint attacked by a Rule 12(b)(6) motion to dismiss will survive if it contains enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Facial plausibility means allegations that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678.

         Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Specific facts are not necessary; the statement need only “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555 (alteration in original). Additionally, when ruling on a defendant's motion to dismiss, a court must accept as true all of the factual allegations contained in the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). Nonetheless, a court is not bound to accept as true legal conclusions couched as factual allegations. Papasan v. Allain, 478 U.S. 265, 286 (1986). “Courts cannot weigh the facts or assess the evidence at this stage, but a complaint entirely devoid of any facts supporting a given claim cannot proceed.” Potomac Conference Corp. of Seventh-Day Adventists v. Takoma Acad. Alumni Ass'n, Inc., 2 F.Supp.3d 758, 767-68 (D. Md. 2014). Furthermore, the court “should view the complaint in a light most favorable to the plaintiff.” Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).

         III. DISCUSSION

         CNG specifically objects to the M&R's conclusions regarding CNG's claims for tortious interference with contract as to Chris Nakos, fraud as to all Defendants, conversion as to the Individual Defendants, and unfair and deceptive trade practices as to the Individual Defendants.[1]

         A. Tortious Interference with Contract as to Chris Nakos

         CNG alleges that Chris Nakos tortiously interfered with Nakos' agreements with CNG. The Magistrate Judge concluded that CNG fails to allege sufficient facts to support that Chris Nakos acted outside his capacity as a shareholder and officer of Nakos such that his actions were not protected by the qualified privilege. CNG objects to the Magistrate Judge's conclusion, contending that it is not required to negate in its pleading the qualified privilege defense and, even ...


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