LS Mtron v. Escorts, Ltd.,
2012 NCBC 18.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF EDGECOMBE 09 CVS 1539
LS MTRON, as successor to LS CABLE, )
Plaintiff )
)
v. ) OPINION AND ORDER ON
) MOTIONS TO DISMISS
ESCORTS, LTD., directly and as successor )
By merger to ESCORTS AGRIMACHINERY, )
INC., TEXTRON FINANCIAL CORP. and )
JAMES C. MARROW, Receiver for )
FARMTRAC NORTH AMERICA, LLC, )
Defendants )
THIS CAUSE, designated a mandatory complex business case by Order of the
Chief Justice of the Supreme Court of North Carolina, pursuant to N.C. Gen. Stat. § 7A-
45.4 (hereinafter, references to the North Carolina General Statutes will be to "G.S."),
and assigned to the undersigned Chief Special Superior Court Judge for Complex
Business Cases, comes before the court upon (a) Motion of Textron Financial
Corporation to Dismiss (the "Textron Motion") and (b) Motion of Escorts, Ltd. to Dismiss
Plaintiff's Complaint (the "Escorts Motion") (collectively, the "Motions"); and
THE COURT, after considering the Motions, arguments in support of and in
opposition to the Motions, briefs in support of and in opposition to the Textron Motion,
brief in opposition to the Escorts Motion1 and other appropriate matters of record,
1
The Escorts Motion was filed without an accompanying brief. This practice is inconsistent with Rule
15.2 of the General Rules of Practice and Procedure for the North Carolina Business Court ("BCR"),
which requires that "[a]ll motions, unless made orally during a hearing or trial, shall be accompanied by a
brief . . .," notwithstanding certain limited exceptions. While the Escorts Motion could be denied
summarily pursuant to BCR 15.11, the court, in the exercise of its discretion, decides to consider the
Escorts Motion on its merits.
CONCLUDES that the Textron Motion should be GRANTED in part and DENIED in
part, and the Escorts Motion should be DENIED, for the reasons stated herein.
Wyrick Robbins Yates & Ponton LLP, by Benjamin N. Thompson, Esq. and
Sarah M. Johnson, Esq. for Plaintiff LS Mtron, Ltd.
Poyner & Spruill LLP, by David Dreifus, Esq. and Andrew H. Erteschik, Esq. for
Defendant Textron Financial Corporation.
Parker Hudson Rainer & Dobbs LLP, by Eric Anderson, Esq. and Ronald T.
Coleman, Jr., Esq. for Defendant Textron Financial Corporation.
Smith Moore Leatherwood LLP, by Bradley Risinger, Esq. for Defendant Escorts,
Ltd.
Wilson & Ratledge, PLLC, by N. Hunter Wyche, Jr., Esq. and Michael A.
Ostrander, Esq. for Defendant Escorts, Ltd.
Jolly, Judge.
PROCEDURAL HISTORY
[1] On December 15, 2009, Plaintiff LS Mtron ("Mtron") filed its Complaint in
this civil action. The Complaint alleges three (3) claims for relief ("Claim(s)"): (a) First
Claim for Relief – Subordination Due To Breaches of Fiduciary Duty and Inequitable
Conduct, (b) Second Claim for Relief – Civil Conspiracy and (c) Third Claim for Relief –
Fraudulent Conveyances.
[2] On February 15, 2010, Defendant Textron Financial Corporation
("Textron") filed the Textron Motion, which seeks dismissal of all Claims, pursuant to
Rules 12(b)(1) and 12(b)(6) of the North Carolina Rules of Civil Procedure ("Rule(s)").
[3] On May 13, 2010, Escorts Ltd. ("Escorts") filed the Escorts Motion, which
seeks dismissal of all Claims, pursuant to Rule 12(b)(1); in the alternative, Escorts
requests the court to compel Mtron to prepare a more definite statement of its
Complaint, pursuant to Rule 12(e).
FACTUAL BACKGROUND
Among other things, the Complaint alleges that:
[4] Mtron, formerly a division of LS Cable Ltd., is a tractor manufacturer
organized under the laws of the Republic of Korea, with its principal place of business in
or near Seoul, Republic of Korea.2
[5] Escorts is an international industrial company based in India, which,
among other things, manufactures tractors and agricultural equipment.3
[6] Textron is a corporation organized under the laws of Delaware, with its
principal place of business in Providence, Rhode Island.4
[7] Defendant James C. Marrow (the "Receiver") is the receiver for Farmtrac
North America, LLC ("Farmtrac").5 Farmtrac is a limited liability company organized
under the laws of Delaware, and prior to the appointment of the Receiver, Farmtrac had
its principal place of business in Tarboro, North Carolina.6
[8] At times material, Escorts controlled and dominated Farmtrac through
direct and indirect ownership.7 Escorts sold tractors and related equipment to Farmtrac
for further sale by Farmtrac to agricultural equipment dealers throughout the United
States.8
2
Compl. ¶ 11.
3
Id. ¶ 1.
4
Id. ¶ 14.
5
Id. ¶ 12.
6
Id.
7
Id. ¶ 2-3.
8
Id. ¶ 2.
[9] A business relationship between Mtron and Farmtrac developed in or
about 1998, when Mtron began supplying tractors and related equipment to Farmtrac on
credit, pursuant to a distribution agreement.9
[10] Textron financed Farmtrac operations through a revolving credit facility
and through floorplan financing to Farmtrac's dealers.10 The floorplan financing, which
resembles a purchase money loan, financed dealer purchases of Farmtrac's inventory
by advancing money directly to Farmtrac upon each equipment purchase by a dealer.11
[11] On May 11, 2005, Farmtrac and Mtron entered into a Distributorship
Agreement (the "Distributorship Agreement"), pursuant to which Mtron continued to sell
tractors and other related equipment to Farmtrac on an extension of trade credit.12
[12] In 2005, Escorts and Farmtrac were experiencing serious financial
difficulties.13 Escorts and Farmtrac adopted a practice of "channel stuffing" in an effort
to (a) obtain funds through the financing of equipment purchases by Farmtrac and (b)
wrongfully transfer those borrowed funds to Escorts for its benefit and that of its
subsidiaries.14 The alleged "channel stuffing" scheme was designed to "stuff"
Farmtrac's "inventory channel to allow excessive purchases of equipment from Escorts."
The scheme was carried out by: (a) Farmtrac creating false orders and invoices by its
dealers for tractors; (b) Farmtrac submitting the false invoices to Textron, purportedly
representing sales by Farmtrac to its dealers, which resulted in Textron increasing the
credit base under its floor plan and revolving credit facilities with Farmtrac; (c) Textron
9
Id. ¶ 28.
10
Id. ¶ 4.
11
Id.
12
Id. ¶¶ 40-41.
13
Id. ¶ 47.
14
Id. ¶¶ 6, 48.
advancing funds to Farmtrac under the revolving credit facility and the floor plan facility
and (d) Farmtrac transferring the proceeds of the Textron loans to Escorts for its
benefit.15
[13] The alleged "channel stuffing" scheme also led Mtron to perform under the
Distributorship Agreement by supplying millions of dollars worth of tractors and related
equipment to Farmtrac and increasing the amount of goods to be supplied by Mtron to
Farmtrac on credit.16 During late 2006 and 2007, the unpaid amounts due Mtron from
Farmtrac increased materially.17
[14] As the amount of goods allegedly purchased by Farmtrac from Escorts
and Mtron grew, and the corresponding debt increased, Textron knew or should have
known that the "channel stuffing" scheme existed, and it should have disclosed or
stopped the scheme.18 Rather, Textron allowed the fraudulent practices by Escorts and
Farmtrac to continue by increasing the amount of secured credit it extended to
Farmtrac. By doing so, Textron maximized the benefits of the scheme to itself, to the
knowing detriment of Mtron.19
[15] On September 30, 2006, Farmtrac owed Mtron approximately
$1,626,960.20 On November 25, 2007, Farmtrac had an account balance due to Mtron
of approximately $11,096,880, of which more than $8 million was past due. By
February 27, 2008, the unpaid amount due Mtron from Farmtrac was approximately
$12,349,610.88.21
15
Id. ¶ 6.
16
Id. ¶ 60.
17
Id.
18
Id. ¶¶ 9, 51-52, 59-60.
19
Id.
20
Id. ¶¶ 58, 60.
21
Id. ¶ 60.
[16] On or around March 2007, Escorts executed a Guarantee Agreement (the
"Guarantee Agreement"), pursuant to which Escorts guaranteed payment on certain
Farmtrac payment obligations to Mtron under the Distributorship Agreement.22
[17] On November 27, 2007, Mtron made a formal demand for payment from
Escorts under both the Guarantee Agreement and Distributorship Agreement.23 When
Escorts failed to pay upon demand, Mtron commenced an arbitration proceeding
against Escorts and Farmtrac, pursuant to the Distributorship Agreement, with the
International Chamber of Commerce on November 29, 2007.24
[18] On November 30, 2007, Mtron also filed a complaint in an action entitled
LS Cable Ltd. v. Farmtrac North America, LLC (Edgecombe County Sup. Ct. 07-CVS-
1345) (the "Receivership Case") seeking, among other things, the appointment of a
receiver for Farmtrac.25 The court entered an order on February 27, 2008 (the
"Receivership Order"), appointing James C. Marrow as the receiver for Farmtrac and
authorizing the receiver to liquidate the receivership estate.26
[19] Subsequently, Textron filed a proof of claim against Farmtrac in the
Receivership Case for approximately $15,500,000, representing the balance of the
indebtedness owed under the revolving credit facility, which was secured by a lien on
substantially all of Farmtrac's assets.27 On or about November 21, 2008, the Receiver
filed a motion with the court in the Receivership Case to allow the secured claim of
Textron.28 On December 1, 2008, Mtron filed an objection to the allowance of Textron's
22
Id. ¶ 42.
23
Id., Ex. 2. ¶ 10.
24
Id. ¶ 15.
25
Id. Ex. 2. ¶ 12.
26
Id. ¶ 12.
27
Id. Ex. 5.
28
Id. ¶ 17.
secured claim. On March 2, 2009, the court entered an Order Approving Distribution to
Secured Creditor (the "March 2 Order") granting the Receiver's motion and authorizing
payment to Textron of approximately $11,875,000.29 The March 2 Order specified that
the payment to Textron was made without prejudice to any objections by Mtron to
Textron's claim against Farmtrac.30
[20] Thereafter, Mtron filed the instant action on December 15, 2009. By way
of this action, Mtron seeks relief, in its behalf and on behalf of "other general creditors of
Farmtrac," against Textron, Escorts and the Receiver for equitable subordination, civil
conspiracy and fraudulent conveyances.31 In substance, Mtron asks the court to
determine that the funds paid to Textron as a result of the March 2 Order should be (a)
returned to the Receiver as general assets of Farmtrac and (b) made available to the
general creditors of Farmtrac ahead of any claims against Farmtrac by Escorts and
Textron.
29
Id. Ex. 6.
30
Id. ¶ 17.
31
Id. ¶ 20.
DISCUSSION
Standing
[21] As a threshold matter, Defendants Textron and Escorts argue that the
court lacks subject matter jurisdiction because Mtron does not have standing to bring its
Claims on behalf of itself and the general creditors of Farmtrac for harm allegedly done
by Textron and Escorts. Accordingly, both Motions seek dismissal of this action
pursuant to Rule 12(b)(1).
[22] All the elements of standing must be met prior to a court invoking its
jurisdiction in adjudicating an alleged civil dispute. Aubin v. Susi, 149 N.C. App. 320,
324 (2002); see also Estate of Apple v. Commercial Courier Express, Inc.,
168 N.C.
App. 175, 176 (2005) ("If a party does not have standing to bring a claim, a court has no
subject matter jurisdiction to hear the claim."). The burden is on the party seeking to
invoke the court's jurisdiction to establish that all elements of standing have been met.
Peninsula Prop. Owners Ass'n v. Crescent Res., LLC, 171 N.C. App. 89, 92 (2005).
[23] Rule 17(a) provides that standing is not present when a party is not a "real
party in interest." In the context of Rule 17(a), the "real party in interest" has been
interpreted to mean the party who "by substantive law has the legal right to enforce the
claim in question." Whittaker v. Furniture Factory Outlet Shops, 145 N.C. App. 169, 175
(2001) (internal quotations omitted). It is not enough that a party "merely" has an
"interest in the action involved." Parnell v. Nationwide Mut. Ins. Co.,
263 N.C. 445, 448
(1965) (internal citations omitted). Rather, to be the real party in interest, a party must
have an interest in the subject matter of the litigation, such that the party is "entitled to
receive the fruits of the litigation" in the form of damages. Goodrich v. Rice,
75 N.C.
App. 530, 537 (1985); see Parnell,
263 N.C. at 449.
[24] The court may consider and weigh matters outside the pleadings when
ruling on a motion to dismiss brought under Rule 12(b)(1) for lack of subject matter
jurisdiction. Tart v. Walker, 38 N.C. App. 500, 502 (1978).
[25] Textron contends that when the court entered the Receivership Order, the
Receiver became the only party legally able to bring a claim on behalf of Farmtrac's
"general creditors."32 In support of this argument, Textron refers to the language in the
Receivership Order granting the Receiver the power to "[b]ring all actions of law or in
equity which cause may require."33
[26] Mtron argues that the March 2 Order allows Mtron to bring its Claims.34
For support, Mtron cites the language in the March 2 Order that allowed the Receiver to
make payment to Textron, without prejudice to Mtron's objection.35 Moreover, Mtron
contends that the Receiver agrees with this interpretation of the March 2 Order because
the Receiver answered Mtron's Complaint on March 1, 2010, by admitting paragraph 19
of the Complaint.36 Paragraph 19 reads:
By virtue of the [March 2] Order and other rulings of the trial
court made in open court at the hearing in the Related
[Receivership] Proceeding conducted on February 18, 2009,
Mtron is entitled to bring this action for itself, and for the
benefit of the general creditors of the estate of receivership
of Farmtrac, to obtain relief against Textron and Escorts with
respect to the funds which are now in the custody of Textron
pursuant to the March Order.
32
Def. Textron Mem. Supp. Mot. Dismiss 9.
33
Id. (citing Compl. Ex. 2.).
34
Pl. Resp. Opp'n Def. Textron Mot. Dismiss 14.
35
Id.
36
Id.
[27] A review of the case law reveals that an individual creditor ordinarily only
has standing to assert its own claim when the injury alleged is separate from the estate
and independent of other creditors. Lillian Knitting Mills Co. v. Earle, 233 N.C. 74, 75-
76 (1950) (holding that an individual creditor had standing to assert a claim against
directors of a corporation that had been placed in receivership because the alleged
misrepresentations were made directly to that individual creditor). However, an
individual creditor that does not have standing to bring its claim on the basis of a
particularized injury may still have standing on such a claim if the receiver has either
abandoned the claim or it is shown that the receiver has no motivation for bringing the
claim. Nat'l Am. Ins. Co. v. Ruppert Landscaping Co.,
187 F.3d 439, 441-42 (4th Cir.
1999).
[28] In the instant case, the court is persuaded that Mtron has standing to bring
its Claims against Defendants for the relief sought. Mtron should not be denied such
opportunity in the hope that the Receiver will pursue the Claims on behalf of Mtron. The
Receiver's admission in answering Mtron's Complaint is evidence of the fact that the
Receiver either has abandoned the claims or has no motivation to bring the claims that
Mtron alleges. Dismissing Mtron's Complaint for lack of standing would be unfair in light
of the facts and would result in Mtron being denied its day in court. For these reasons,
the court CONCLUDES that Mtron has standing to bring its Claims against Textron and
Escorts, and that the court has subject matter jurisdiction to decide this dispute.
[29] Therefore, the Motions, to the extent they seek dismissal pursuant to Rule
12(b)(1), should be DENIED.
Textron's Rule 12(b)(6) Motion
[30] The Textron Motion also seeks dismissal of each of Mtron's Claims under
Rule 12(b)(6) for failure to state a claim upon which relief can be granted. By bringing a
motion to dismiss under Rule 12(b)(6), the moving party is able to test the legal
sufficiency of a complaint. Sutton v. Duke, 277 N.C. 94, 98 (1970).
[31] The court, in deciding a Rule 12(b)(6) motion, should treat the well-
pleaded allegations of the complaint as true and admitted, but conclusions of law or
unwarranted deductions of fact are not admitted. Id. The allegations set forth in the
complaint are to be treated in a light most favorable to the non-moving party. Ford v.
Peaches Entm't Corp.,
83 N.C. App. 155, 156 (1986).
[32] A Rule 12(b)(6) motion should be granted when either (a) the complaint on
its face reveals that no law supports the plaintiff's claim, (b) the complaint on its face
reveals the absence of facts sufficient to make a good claim or (c) some fact disclosed
in the complaint necessarily defeats the plaintiff's claim. Jackson v. Bumgardner, 318
N.C. 172, 175 (1986). A party must state enough facts to satisfy the substantive
elements of some legally recognized claim for relief to avoid dismissal under Rule
12(b)(6). Strickland v. Hedrick,
194 N.C. App. 1, 20 (2008).
[33] Documents that are attached to the complaint as exhibits and referenced
therein will be considered by the court for Rule 12(b)(6) purposes. Woolard v.
Davenport, 166 N.C. App. 129, 133-34 (2004).
Equitable Subordination
[34] Mtron's First Claim is entitled "Subordination Due to Breaches of Fiduciary
Duty and Inequitable Conduct." Mtron contends that Textron should be estopped from
asserting the status of a secured creditor under the doctrines of unclean hands and
equitable subordination, because Textron allegedly engaged in inequitable conduct and
aided and abetted breaches of fiduciary duty committed by Escorts.37 As a practical
matter, Mtron is asking that the funds already paid to Textron be returned to the
receivership estate of Farmtrac, and any liens upon said funds for the benefit of Escorts
or Textron should be equitably subordinated to the claims of Mtron and other general
creditors.38
[35] Textron argues that Mtron's First Claim should be dismissed pursuant to
Rule 12(b)(6) because North Carolina law does not recognize equitable subordination
as a cause of action.39
[36] In response, Mtron concedes that North Carolina courts have not
addressed the availability of an equitable subordination claim, but argues that this cause
of action should be adopted as consistent with North Carolina public policy.40 For
argument, Mtron lists only two states, Alaska and Rhode Island, that have recognized a
claim for equitable subordination outside the context of bankruptcy proceedings.41
[37] The court recognizes that there is no case law or statutory basis in North
Carolina for equitably subordinating a claim, other than its application in the limited
context of cases involving issues of admiralty and bankruptcy. In fact, one federal court
dismissed an equitable subordination claim, stating that "[t]he Court has conducted an
extensive review of North Carolina law and finds that this doctrine has been applied,
almost exclusively, in bankruptcy proceedings . . . and admiralty matters involving ship
37
Compl. ¶ 69.
38
Compl. ¶¶ 1-4 (Prayer for Relief).
39
Def. Textron Mem. Supp. Mot. Dismiss 10.
40
Pl. Resp. Opp'n Def. Textron Mot. Dismiss 5-8.
41
Id. 7-8.
mortgages." Bradson Merchantile, Inc. v. Vanderbilt Indus. Contracting Corp., 883 F.
Supp. 37, 59-60 (W.D.N.C. 1995). Since the Bradson Merchantile decision, the court
finds no reported North Carolina case that has recognized an equitable subordination
claim in a context similar to Mtron's First Claim.
[38] When a party alleges a cause of action or seeks relief not recognized by
law, the court is powerless to grant relief despite the factual allegations alleged by the
party. Forrester v. Garrett, 280 N.C. 117, 122 (1971). Based on the law and authority
in other jurisdictions, the court declines to extend the law and recognize a claim for
equitable subordination here. Therefore, the court CONCLUDES that Mtron's First
Claim fails to state a cause of action upon which relief can be granted.
[39] Accordingly, to the extent it seeks dismissal of Mtron's First Claim
pursuant to Rule 12(b)(6), Textron's Motion should be GRANTED. 42
Fraudulent Conveyances43
[40] Mtron's Third Claim alleges fraudulent conveyances, presumably under
the North Carolina Uniform Fraudulent Transfers Act ("NCUFTA"), pursuant to G.S. 39-
23.4(a) and 39-23.5(a).44
[41] The NCUFTA sets forth the statutory elements that must be pleaded by a
party to allege sufficiently a cause of action for fraudulent transfer. Specifically,
42
Textron argues that even if equitable subordination was recognized by this court, Mtron's Complaint
does not sufficiently allege the elements of an equitable subordination claim. Because the court
concludes that equitable subordination is not a recognized cause of action under North Carolina law, the
court need not address the substantive elements of Mtron's Claim.
43
Although Mtron alleges fraudulent conveyances as its Third Claim, the court elects to discuss said
Claim out of turn because Mtron's Second Claim (Civil Conspiracy) is derivative of the Third Claim.
44
Mtron's Complaint does not clarify whether its fraudulent conveyances Claim is alleged under the
NCUFTA. Instead, Mtron, in its response to the Textron Motion, asserts that its Third Claim satisfies the
elements of a fraudulent conveyance under the NCUFTA.
G.S. 39-23.4(a) provides that a transfer is fraudulent as to present and future creditors if
the debtor made the transfer:
(1) with intent to hinder, delay, or defraud any creditor of
the debtor; or
(2) without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the
debtor:
(a) was engaged or was about to engage in a
business or a transaction for which the
remaining assets of the debtor were
unreasonably small in relation to the business
or transaction; or
(b) intended to incur, or believed that the debtor
would incur, debts beyond the debtor's ability
to pay as they became due.
[42] Additionally, G.S. 39-23.5(a) sets forth additional grounds under which a
transfer is fraudulent as to present creditors if:
A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor whose claim arose before the
transfer was made or the obligation was incurred if the
debtor made the transfer or incurred the obligation without
receiving a reasonably equivalent value in exchange for the
transfer or obligation, and the debtor was insolvent at that
time or the debtor became insolvent as a result of the
transfer or obligation.
[43] Mtron's Complaint sufficiently sets forth a cause of action under both
applicable provisions of the NCUFTA dealing with fraudulent transfers.
[44] Mtron alleges that Farmtrac and Escorts engaged in their "channel
stuffing" scheme with the "actual intent to hinder, delay, or defraud" Mtron. It alleges
that, with the assistance of both Escorts and Textron, Farmtrac was able to continue its
operations and increase its credit obligations when there was no "realistic chance that
Farmtrac would be able to pay its general creditors."45 The Complaint further alleges
45
Compl. ¶ 77.
that the transfers caused Farmtrac to incur "debts far beyond the ability of Farmtrac to
pay as those debts became due . . .,"46 resulting in insolvency during the time period
these disputed transfers were made.47 Mtron alleges that the transfers from Farmtrac to
Textron of the fabricated accounts receivable were made without Farmtrac receiving a
reasonably equivalent value from Textron because Textron knew or should have known
that the funds transferred to Farmtrac in exchange for security rights on equipment and
accounts receivable were being diverted from Farmtrac to Escorts and its subsidiaries.48
Mtron alleges that these actions were done as part of the scheme to benefit Farmtrac,
Escorts and Textron.
[45] Accepting the allegations as true and in the light most favorable to Mtron,
the court CONCLUDES that the Complaint alleges sufficient facts to satisfy the
substantive elements of a claim for fraudulent conveyance under the NCUFTA and
states a cause of action under either G.S. 39-23.4(a) or 39-23.5(a).49
46
Id. ¶ 78-81.
47
Id. ¶¶ 62, 64, 75, 78, 80.
48
Id. ¶ 78.
49
Mtron's allegations that Textron extended loan proceeds to Farmtrac in exchange for lien rights and
interest payments, see id. ¶¶ 43, 50-53, 58, 65, 77-79, would ordinarily be fatal to a cause of action for
fraudulent conveyance on the basis that such allegations on their face establish that Textron gave
reasonably equivalent value for the transfers. However, because Mtron sufficiently alleges that Textron
acted in bad faith and knew or should have known that Farmtrac was diverting to Escorts the funds
received from Textron and that Textron was benefitted by such actions, see id. ¶¶ 50-51, 58-59, 71-73,
78-80, Mtron has alleged enough facts at this early stage in the proceedings to avoid dismissal on Rule
12(b)(6) grounds.
[46] Accordingly, to the extent it seeks dismissal of Mtron's Third Claim
pursuant to Rule 12(b)(6), Textron's Motion should be DENIED.50
Civil Conspiracy
[47] Mtron's Second Claim seeks relief based on an allegation of civil
conspiracy.
[48] To state a cause of action for civil conspiracy, it must be alleged that there
was: "[a] an agreement between two or more individuals; [b] to do an unlawful act or to
do a lawful act in an unlawful way; [c] resulting in injury to plaintiff inflicted by one or
more of the conspirators; and [d] pursuant to a common scheme." Piraino Bros., LLC v.
Atl. Fin. Grp., Inc., No. COA10-831, 2011 N.C. App. LEXIS 703, 14 (N.C. Ct. App. Apr.
19, 2011) (quoting Privette v. Univ. of North Carolina,
96 N.C. App. 124, 139 (1989));
see also Norman v. Nash Johnson & Sons' Farms, Inc.,
140 N.C. App. 390, 416 (2000)
("In order to state a claim for civil conspiracy, a complaint must allege a conspiracy,
wrongful acts done by certain of the alleged conspirators, and injury.") (citation omitted).
However, because there is no independent cause of action for civil conspiracy, the tort
claim for civil conspiracy must be based on some underlying wrongful, overt act. Dove
v. Harvey, 168 N.C. App. 687, 690 (2005). "The charge of [civil] conspiracy itself does
nothing more than associate the defendants together and perhaps liberalize the rules of
evidence to the extent that under proper circumstances the acts and conduct of one
50
Mtron's Complaint seeks equitable subordination as its relief under both its fraudulent conveyance and
civil conspiracy Claims. As discussed above, equitable subordination is not a recognized cause of action
or remedy under North Carolina law. However, this is not fatal to Mtron's Third Claim. Whether or not the
proper relief has been demanded specifically by Mtron in its prayer for relief, the court concludes that it
would be just and proper to permit Mtron to pursue the statutory remedies of a creditor set forth in G.S.
39-23.7 under the NCUFTA.
might be admissible against all."
Id. (quoting Fox v. Wilson,
85 N.C. App. 292, 301
(1987)).
[49] Here, Mtron alleges in its Second Claim that while Farmtrac was insolvent,
Farmtrac, Escorts and Textron acted in concert to increase the amount of collateral that
secured the amount owed from Farmtrac to Textron by falsifying orders and invoices
when there were no bona fide buyers and diverting money from Farmtrac to Escorts and
its subsidiaries.51 As a result of this scheme, Mtron alleges that, to its detriment, it
continued to send additional equipment to Farmtrac and is now unable to recover the
money it is owed by Farmtrac as a result of the alleged conspiratorial actions of
Farmtrac, Escorts and Textron.
[50] Accepting the allegations as true and in the light most favorable to Mtron,
the court CONCLUDES that Mtron has alleged sufficient facts to satisfy the substantive
elements of a claim for civil conspiracy.52 Accordingly, to the extent it seeks dismissal
of Mtron's Second Claim pursuant to Rule 12(b)(6), Textron's Motion should be
DENIED.
Escorts' Rule 12(e) Motion
[51] The Escorts Motion seeks, in the alternative to its Rule 12(b)(1) standing
argument, an order compelling Mtron to file a more definite statement of its Complaint,
pursuant to Rule 12(e). The Escorts Motion contends that Mtron's Complaint "is so
vague, ambiguous and filled with confusing allegations, Escorts cannot reasonably
prepare a responsive pleading."53
51
Compl. ¶¶ 71-73.
52
Whether a forecast of admissible evidence will support this Claim may be tested later pursuant to Rule
56.
53
Def. Escorts Mot. Dismiss.
[52] A motion for a more definite statement is not favored by the courts and
should not be granted if the pleading complies with the notice theory of pleading as
required by Rule 8. See Ross v. Ross, 33 N.C. App. 447, 454 (1977). "Under the
'notice theory' of pleading a statement of claim is adequate if it gives sufficient notice of
the claim asserted 'to enable the adverse party to answer and prepare for trial.'" Sutton,
277 N.C. at 102 (internal quotations omitted). A pleading complies with Rule 8 if the
opposing party is given notice of the "transactions, occurrences, or series of
transactions or occurrences intended to be proved."
[53] Mtron's Complaint satisfies the pleading requirements of Rule 8. It gives
Escorts notice of the series of transactions or occurrences that Mtron intends to prove.
Stated broadly, Mtron alleges that Farmtrac, Escorts and Textron together acted
fraudulently and in bad faith to benefit each other to the detriment of Mtron and other
general creditors of Farmtrac. Accordingly, the court CONCLUDES that Mtron's
Complaint gives Escorts notice of the transaction, occurrences, or series of transactions
or occurrences intended to be proven by Mtron. Escorts Motion for a more definite
statement pursuant to Rule 12(e) should be DENIED.
NOW THEREFORE, based on the foregoing, it hereby is ORDERED that:
[54] The Motion of Textron Financial Corporation to Dismiss, pursuant to Rule
12(b)(1), is DENIED.
[55] With regard to Plaintiff's First Claim, the Motion of Textron Financial
Corporation to Dismiss, pursuant to Rule 12(b)(6), is GRANTED; and the First Claim is
DISMISSED.
[56] With regard to Plaintiff's Second and Third Claims, the Motion of Textron
Financial Corporation to Dismiss, pursuant to Rule 12(b)(6), is DENIED.
[57] The Motion of Escorts, Ltd. to Dismiss Plaintiff's Complaint, pursuant to
Rule 12(b)(1), including its alternative motion for a more definite statement, pursuant to
Rule 12(e), is DENIED.
This the 22nd day of March, 2012.
