USA Trouser, S.A. de C v. v. Scott Andrews

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1402
USA TROUSER, S.A. DE C.V.,
Plaintiff - Appellant,
v.
SCOTT ANDREWS,
Defendant – Appellee,
and
INTERNATIONAL LEGWEAR GROUP, INC.; WILLIAM SHEELY; JOHN
SANCHEZ,
Defendants.
Appeal from the United States District Court for the Western
District of North Carolina, at Asheville. Martin K. Reidinger,
District Judge. (1:11-cv-00244-MR-DLH)
Submitted: April 23, 2015 Decided: May 5, 2015
Before KING and DUNCAN, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.
Matthew K. Rogers, LAW OFFICES OF MATTHEW K. ROGERS, PLLC,
Hickory, North Carolina, for Appellant. Dana C. Lumsden,
Bethany A. Corbin, BRADLEY ARANT BOULT CUMMINGS LLP, Charlotte,
North Carolina; Lindsey C. Boney IV, BRADLEY ARANT BOULT
CUMMINGS LLP, Birmingham, Alabama, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
USA Trouser, S.A. de C.V. (“USAT”), a Mexican sock
manufacturer, filed suit against its primary distributor,
International Legwear Group, Inc. (“ILG”), two of ILG’s former
officers, and the former chairman of ILG’s board of directors,
Scott Andrews. On motions for summary judgment, the district
court denied USAT’s motion and granted Andrews summary judgment
on USAT’s claims of, among others, breach of fiduciary duty and
constructive trust. 1 USAT appeals the disposition of all of its
claims in favor of Andrews. We affirm in part, vacate in part,
and remand to the district court for further proceedings.
We review de novo a district court’s order ruling on cross-
motions for summary judgment. Bostic v. Shaefer, 760 F.3d 352,
370 (4th Cir. 2014), cert. denied, 135 S. Ct. 308 (2014); Mun.
Ass’n of S.C. v. USAA Gen. Indem. Co., 709 F.3d 276, 283 (4th
Cir. 2013). “A district court ‘shall grant summary judgment if
the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.’” Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d
1
Although the district court denied USAT’s motion for
summary judgment as to ILG, the court subsequently entered
default judgment against ILG. The court also granted summary
judgment to ILG’s two former officers on all but two claims, for
which USAT later accepted offers of judgment. USAT does not
appeal these rulings.
3
562, 568 (4th Cir. 2015) (quoting Fed. R. Civ. P. 56(a)). In
determining whether a genuine issue of material fact exists, “we
view the facts and all justifiable inferences arising therefrom
in the light most favorable to . . . the nonmoving party.” Id.
at 565 n.1 (internal quotation marks omitted). “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.” Id. at 568
(internal citations and quotation marks omitted).
USAT challenges the district court’s grant of summary
judgment to Andrews on its claim that Andrews breached fiduciary
duties he owed to USAT. See Green v. Freeman, 749 S.E.2d 262,
268 (N.C. 2013) (setting forth elements of claim). First, USAT
claimed that fiduciary duties arose out of a business
partnership or joint venture between ILG and USAT. However, we
conclude, as did the district court, that USAT forecast no
evidence to show USAT and ILG were joint venturers or business
partners under North Carolina law. See Best Cartage, Inc. v.
Stonewall Packaging, LLC, 727 S.E.2d 291, 298-99 (N.C. Ct. App.
2012). Second, USAT claimed that fiduciary duties arose out of
the vertically integrated strategic partnership between USAT and
ILG, which made them mutually interdependent businesses.
Although the district court may have read too broadly the
4
decision in Tin Originals, Inc. v. Colonial Tin Works, Inc., 391
S.E.2d 831, 833 (N.C. Ct. App. 1990) (indicating only that
mutual interdependence, without more, will not give rise to
fiduciary obligations), we conclude that any error is
necessarily harmless. USAT presented no evidence demonstrating
the type of circumstances required for the existence of a
fiduciary relationship between mutually interdependent
businesses. See Broussard v. Meineke Disc. Muffler Shops, 155
F.3d 331, 348 (4th Cir. 1998), quoted with approval in Kaplan v.
O.K. Techs., L.L.C., 675 S.E.2d 133, 138 (N.C. Ct. App. 2009);
Crumley & Assocs., P.C. v. Charles Peed & Assocs., P.A., 730
S.E.2d 763, 768 (N.C. Ct. App. 2012).
Next, USAT claims that it presented evidence demonstrating
Andrews owed it, as ILG’s creditor, a fiduciary duty due to his
position as ILG’s director and that the district court erred by
not viewing the evidence in USAT’s favor. We agree. With one
exception, “directors of a corporation do not owe a fiduciary
duty to creditors of the corporation.” Keener Lumber Co. v.
Perry, 560 S.E.2d 817, 824 (N.C. Ct. App. 2002) (internal
quotation marks omitted). “[O]nly where there exist
circumstances amounting to a ‘winding-up’ or dissolution of the
corporation” will directors of a corporation owe a fiduciary
duty to its creditors. Id. at 825 (internal quotation marks
5
omitted). In determining whether such circumstances exist, a
court undertakes a “complex analysis” involving:
various factors . . . , including but not limited to:
(1) whether the corporation was insolvent, or nearly
insolvent, on a balance sheet basis; (2) whether the
corporation was cash flow insolvent; (3) whether the
corporation was making plans to cease doing business;
(4) whether the corporation was liquidating its assets
with a view of going out of business; and (5) whether
the corporation was still prosecuting its business in
good faith, with a reasonable prospect and expectation
of continuing to do so.
Id. Absent evidence that the corporation’s circumstances were
such that it was winding-up or dissolving, North Carolina courts
have used summary judgment to prevent a creditor’s fiduciary
duty claim against a director from reaching the jury. See
Whitley v. Carolina Clinic, Inc., 455 S.E.2d 896, 900-01 (N.C.
Ct. App. 1995). However, where a plaintiff-creditor presents
sufficient evidence, North Carolina courts allow the jury to
determine whether the corporation was winding-up or dissolving
and, thus, whether a director-creditor fiduciary relationship
existed. See Keener, 560 S.E.2d at 826.
Although the district court laid out the Keener factors,
the court did not analyze all of them, emphasizing instead the
language of a treatise that treats both balance-sheet and cash-
flow insolvency as nearly irrelevant factors. 2 The court
2
The treatise states that
(Continued)
6
determined that the evidence forecast only that ILG’s directors
and officers “were actively trying to secure financing for the
continued operation of ILG” and “actively continuing ILG’s
operations” “up until the time that ILG’s lender decided to
foreclose on its secured loans.” (J.A. 2729-30). 3 On this
determination alone, the district court concluded that no
fiduciary relationship arose because Andrews was not a director
during any period of winding-up or dissolution.
We conclude, however, that USAT presented evidence from
which a factfinder could reasonably infer that ILG was both
balance-sheet and cash-flow insolvent during Andrews’s tenure as
a corporation is not insolvent, as a general rule,
merely because it is embarrassed and cannot pay its
debts as they become due, or because its assets, if
sold, would not bring enough to pay all its
liabilities, if it is still prosecuting its business
in good faith, with a reasonable prospect and
expectation of continuing to do so.
15A William Meade Fletcher, Fletcher Cyclopedia of the Law of
Private Corporations § 7472 (perm. ed., rev. vol. 1990), quoted
in Keener, 560 S.E.2d at 825; Whitley, 455 S.E.2d at 900. See
generally Matrix Grp. Ltd. v. Rawlings Sporting Goods Co., 477
F.3d 583, 590 (8th Cir. 2007) (defining balance-sheet and cash-
flow insolvency); J.B. Heaton, Solvency Tests, 62 Bus. Law. 983,
988-95 (2007) (same).
3
“J.A.” refers to the joint appendix filed by the parties
on appeal.
7
an ILG director. 4 We also conclude that the district court
failed to construe in USAT’s favor evidence regarding whether
ILG was actively attempting to secure financing and continue its
operations during a time when Andrews was a director. First, we
note that the relevant inquiry is whether ILG had ceased these
activities at a time when Andrews was still on the board. The
district court concluded that ILG had not ceased the activities
until ILG’s primary lender decided to foreclose. Second, the
evidence, construed in USAT’s favor, demonstrates that Andrews
did not resign from ILG’s board of directors until after ILG’s
primary lender decided to foreclose. 5
Under these circumstances, genuine issues of material fact
remain concerning whether ILG was winding-up or dissolving and,
thus, whether a creditor-director fiduciary relationship
existed. With regard to whether Andrews breached any fiduciary
duty he may have owed to USAT, the district court correctly
found that the forced liquidation of ILG’s assets and
distribution of the proceeds to ILG’s primary lender could not
4
We need not, and do not, decide whether the court was
obligated under North Carolina law to weigh all of the factors
set forth in Keener.
5
Andrews resigned on July 20, 2011. The only evidence
concerning when ILG’s primary lender made its decision shows
that it did so in mid- or late-July 2011.
8
form the basis of a breach because, “even after the fiduciary
duty arises, directors of a corporation may prefer secured
creditors over unsecured creditors” by paying all debts to the
former before paying any debts to the latter. Keener, 560
S.E.2d at 827. However, the court did not address USAT’s claim
that Andrews breached his duty by failing to disclose to USAT
ILG’s financial condition or the potential that ILG may cease
operating. 6 See King v. Bryant, 737 S.E.2d 802, 809 (N.C. Ct.
App. 2013) (“Inherent in any fiduciary relationship is an
affirmative duty to disclose all facts material to a
transaction.”); Keener, 560 S.E.2d at 827. Viewing the evidence
in USAT’s favor, we conclude that genuine issues of fact remain
as to whether ILG’s financial condition was material to USAT,
whether Andrews breached his fiduciary duty to USAT by failing
to disclose ILG’s condition during a time when ILG and USAT were
still transacting, and whether any of Andrews’s alleged breaches
caused USAT injury.
Turning to USAT’s claim of constructive trust, we note that
the record does not clearly indicate whether the claim was one
for constructive trust or, instead, constructive fraud. In
6
In so concluding, we express no opinion regarding the
validity of the remainder of the actions on which USAT relied to
demonstrate breach.
9
either case, we conclude that summary judgment was inappropriate
based on the genuine issues of material fact discussed above.
See Brisset v. First Mount Vernon Indus. Loan Ass’n, 756 S.E.2d
798, 806 (N.C. Ct. App. 2014); Variety Wholesalers, Inc. v.
Salem Logistics Traffic Servs., LLC, 723 S.E.2d 744, 751-52
(N.C. 2012).
Finally, for the remainder of the claims that USAT seeks to
raise on appeal, we conclude that USAT either has raised them
here for the first time or has not sufficiently challenged in
its brief the basis for the district court’s disposition
regarding them. Accordingly, we do not address them. 7 See In re
Under Seal, 749 F.3d 276, 285 (4th Cir. 2014); Projects Mgmt.
Co. v. Dyncorp Int’l LLC, 734 F.3d 366, 376 (4th Cir. 2013);
Eriline Co. S.A. v. Johnson, 440 F.3d 648, 653 n.7 (4th Cir.
2006); Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6 (4th
Cir. 1999).
Accordingly, we vacate the district court’s grant of
summary judgment to Andrews on USAT’s fiduciary duty and
7
To the extent that USAT asserts that the district court
erred in calculating damages in its default judgment against
ILG, we decline to entertain such a claim because ILG is not a
party to this appeal. To the extent that USAT seeks to argue in
this court the amount of damages for which Andrews is liable,
such arguments are premature as genuine issues of material fact
remain concerning whether Andrews is liable.
10
constructive trust claims, affirm the district court’s order in
all other respects, and remand the case to the district court
for further proceedings. We dispense with oral argument because
the facts and legal contentions are adequately presented in the
materials before this court and argument would not aid the
decisional process.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
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