Sun Chemicals Trading Corp. v. SGS Control Services, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2146
SUN CHEMICALS TRADING CORPORATION, a/k/a Sum
Kimya Gida Sanayi Ve Tickaret A.S.; AHMET
CULLU,
Plaintiffs - Appellants,
versus
SGS CONTROL SERVICES, INCORPORATED,
Defendant - Appellee,
and
CBP RESOURCES, INCORPORATED; PASTERNAK, BAUM,
AND COMPANY, INCORPORATED,
Defendants.
Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. William L. Osteen, District
Judge. (CA-01-425-1)
Argued: September 21, 2005 Decided: December 13, 2005
Before WILKINSON and WILLIAMS, Circuit Judges, and Robert J.
CONRAD, Jr., United States District Judge for the Western District
of North Carolina, sitting by designation.
Affirmed by unpublished per curium opinion.
ARGUED: Charles Elwood Soechting, Stephen Rolfe Walker, O’QUINN,
LAMINACK & PIRTLE, Houston, Texas, for Appellants. James Robert
Fox, BELL, DAVIS & PITT, P.A., Winston-Salem, North Carolina, for
Appellee. ON BRIEF: Jennifer R. Tillison, Kevin Dubose, ALEXANDER,
DUBOSE, JONES & TOWNSEND, L.L.P., Houston, Texas, for Appellants.
Alexander P. Ryan, BELL, DAVIS & PITT, P.A., Winston-Salem, North
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIUM:
Mr. Ahmet Cullu (“Cullu”) and Sun Chemicals Trading Corp.
(“Sun”) appeal the district court's order dismissing their claims
against SGS Control Services (“SGS”) for breach of contract, fraud,
breach of express warranty, breach of the implied warranties of
merchantability and fitness for a particular purpose, unfair and
deceptive trade practices, and negligent infliction of emotional
distress. For the below-stated reasons, we affirm the district
court’s Rule 12(b)(6) dismissal of the Plaintiffs’ complaint
against SGS.
I.
In February 1998, Sun, though its president and principal
shareholder Cullu, contracted with CBP Resources, Inc. (“CBP”) for
the purchase of 3,500 metric tons of feed grade ‘yellow grease.’
Pasternak, Baum & Co., Inc. (“Pasternak”) brokered the purchases
between Sun and CPB. During contract negotiations, Cullu informed
CBP and Pasternak that the yellow grease was to be exported to
Turkey, and that Muslims in Turkey were prohibited under the Sharia
from consuming pork and pork-derived products. To this end, the
purchase order contracts specified that the yellow grease could not
contain any lard.
CBP independently retained SGS to test the yellow grease for
the presence of lard. SGS tested the yellow grease, and provided
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thereafter its “No Lard” certification stating the yellow grease
“tested negative for the presence of lard.” CBP issued notarized
affidavits informing Sun that “the feed fat blend ... does not
contain any lard, pork, or pig derived fat.”
After the yellow grease was exported to Turkey, concerns
arose that the grease was contaminated with lard. Cullu requested
that CBP and SGS provide additional assurances that the yellow
grease did not contain any lard. SGS refused to provide additional
assurances because no definitive test existed to conclusively
determine the presence of lard.
Sun and Cullu (collectively, the “Plaintiffs”) brought suit
against CBP, SGS, and Pasternak. The suit alleged claims of breach
of contract, fraud, breach of express and implied warranties,
unfair and deceptive trade practices, and infliction of emotional
distress. The Plaintiffs alleged damages of $10 million, and made
a demand for treble damages “and/or punitive damages for fraud.”
By consent order and pursuant to the terms of the purchase order
contracts, Sun and Cullu, CBP, and Pasternak agreed to arbitrate
their claims. SGS declined to participate in the arbitration.
Before arbitration, Pasternak settled with the Plaintiffs for
$77,500.
A three-judge arbitration panel (the “panel”) held eight days
of evidentiary hearings, receiving live testimony, deposition
transcripts, affidavits, and documentary evidence. On July 9,
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2003, the panel issued a final award in favor of the Plaintiffs.
As to Sun, the panel found that it had suffered no direct damages
because it was able to sell the yellow grease for a profit.
However, the panel concluded Sun suffered incidental and
consequential damages as a result of CBP's breach because “it was
reasonably foreseeable that Sun would suffer the loss of its entire
business in the sale of poultry feed in Turkey if its product were
contaminated by pork.” Sun was awarded $300,000 “for anticipated
lost profits,” which the panel trebled to $900,000 under North
Carolina’s Unfair and Deceptive Trade Practices Act. The panel
also found Sun had failed to carry its burden of proof in its fraud
claim, and therefore found in favor of CBP.
As to Cullu, the panel determined “the actions of CBP
constitute[d] a negligent misrepresentation” that damaged Cullu,
and it found that conduct to be “actionable under Section 552 of
the Restatement (Second) of Torts.” The negligent misrepresentation
arose because “CBP provided inaccurate information for the guidance
of Sun and Mr. Cullu[,]...[it] failed to exercise reasonable care[,
and]...Sun and Mr. Cullu justifiably relied upon the information.”
As a result of CBP’s “negligent conduct” the arbitrators awarded
Cullu $150,000 for the loss in value of Sun. The panel further
awarded Cullu $2,731 for past and future medical expenses that
“were reasonably related to the temporary damage to Mr. Cullu's
reputation and the loss of Sun, which were themselves proximately
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caused by the negligent conduct of CBP.” The panel also found that
“CBP's negligent misrepresentation also damaged the reputation of
Mr. Cullu,” but that the damage was temporary, and thus awarded
$1.00 for the “unquantifiable temporary damage.” The panel trebled
the amount awarded to Cullu, and then reduced the award by the
$77,500 received in the Pasternak settlement, leaving a net award
to Cullu of $380,696.
The panel also found that CBP would bear both the compensation
and expenses of the arbitrators, totaling $57,439.28, and the
administrative fees and expenses of the American Arbitration
Association, totaling $37,500.
As to Cullu’s remaining claims of fraud and negligent
infliction of emotional distress, the arbitration panel found that
Cullu had failed to carry his burden of proof, and therefore found
in favor of CBP.
After the arbitration concluded, SGS moved to dismiss Sun and
Cullu's complaint against it pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure. SGS argued that North Carolina’s
“one-satisfaction” doctrine precluded any further recovery by Sun
or Cullu, and that the doctrine of collateral estoppel precluded
re-litigation of damages. The district court agreed with SGS. The
court dismissed the Plaintiffs’ claims against SGS, finding
"[u]nder the detailed arbitration award [Sun and Cullu] have made
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a recovery for all of the injuries they assert against SGS in this
action."1
II.
On appeal, Sun and Cullu contend that the district court
erred when it found that Sun and Cullu already had recovered at
arbitration for all of the injuries they asserted against SGS in
this action.
We review de novo a decision of the lower court on a motion to
dismiss pursuant to Rule 12(b)(6). Brooks v. City of Winston-Salem,
N.C., 85 F.3d 178 (4th Cir. 1996). Dismissal under Rule 12(b)(6)
is appropriate when, accepting as true the well-pleaded facts in
the complaint and viewing them in the light most favorable to the
plaintiffs, the court finds with certainty that a plaintiff would
not be entitled to relief under any set of facts that could be
proved in support of the claim. See id.It is well-settled that North Carolina law precludes a
plaintiff from recovering more than one-satisfaction for the same
injury, caused by different parties. “Both reason and justice
decree that there should be collected no double compensation, or
even overcompensation, for any injury, however many sources of
1
Because the district court dismissed the Plaintiffs’ actions
on 12(b)(6) grounds, it did not reach the merits of Defendant’s
collateral estoppel argument. Likewise, we need not and do not
reach the collateral estoppel issue.
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compensation there may be .... Any amount paid by anybody, whether
they be joint tort-feasors or otherwise, for and on account of any
injury or damage, should be held for a credit on the total recovery
in any action for the same injury or damage.” Holland v. Southern
Public Utilities Co., Inc., 208 N.C. 289, 292, 180 S.E. 592, 593-94
(1935). See also Chemimetals Processing, Inc. v. Schrimsher, 140
N.C. App. 135, 138, 535 S.E.2d 594 (2000)(holding that it is
well-settled that although a plaintiff is entitled to full recovery
for its damages, it is not entitled to a double recovery for the
same loss or injury); Chisholm v. UHP Projects, Inc., 205 F.3d 731,
738 (4th Cir. 2000)(holding the rule is an equitable doctrine that
operates to reduce a plaintiff's recovery from the non-settling
defendant to prevent the plaintiff from recovering twice from the
same assessment of liability).
As did the district court, we too find the reasoning in
Chemimetals persuasive. In Chemimetals, the plaintiff sued its
corporate president for breach of contract, breach of fiduciary
duty, and unfair and deceptive trade practices arising from the
president's scheme to divert company assets to himself. After
settling with the president, the corporation initiated a second
action against its board of directors and accountants on the same
factual allegations, alleging theories of negligence, including
breach of duty of care and breach of fiduciary duty in failing to
notice the former president's unlawful acts. Id. at 137. The North
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Carolina Court of Appeals held that the plaintiff’s second action
was barred, even though the defendants committed separate acts of
wrongdoing, because the defendants’ actions concurrently caused the
plaintiff to suffer the same injuries for which it already had been
fully compensated through the settlement agreement:
[The plaintiff] has suffered but one injury in this
case--monetary loss due to the purported diversion of
profits and labor from [the plaintiff] by [the
plaintiff's president]. Under the facts as alleged by
[the plaintiff], all actions in the course of events
leading to financial demise of [the company] were
concurrent. [The plaintiff's] monetary loss, which was
the injury created by [the president's] scheme, is the
same injury caused by the alleged failure of the board of
directors and CPAs to notice [the president's] unlawful
acts. That only one injury occurred is in no way altered
by the fact that the board of directors and CPAs may have
been guilty of separate wrongdoing.
Id. Thus, as the plaintiff had not demonstrated any remaining
damages for which it had not been compensated, the court in
Chemimetals found that the trial court properly entered summary
judgment against the plaintiff.
Likewise, the Plaintiffs in the instant case have alleged
nearly identical claims against CBP, Pasternek, and SGS, seeking
recovery for losses arising from Sun's financial collapse. While
CBP, SGS and Pasternak may have all committed separate acts of
wrongdoing, the resulting injuries suffered by Sun and Cullu, are
the same. Thus, we find the Plaintiffs recovered at arbitration all
the damages to which they were entitled.
First, a review of the arbitration panel’s decision shows that
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the Plaintiffs were compensated “for all of their compensable
injuries by way of the arbitration award.” The panel determined
that Sun suffered no direct damages, and found that it sustained
only consequential and incidental damages. These damages were
awarded to Sun in the form of lost future profits, and were trebled
pursuant to North Carolina's Unfair and Deceptive Trade Practices
Act. The panel also awarded damages to Cullu to compensate him for
his personal losses associated with Sun's financial collapse, as
well for injury to his reputation and certain medical expenses.
These damages also were trebled. The panel reduced the total award
to Cullu by the pre-arbitration settlement with Pasternek, and then
awarded Cullu those fees associated with the costs of arbitration.
Further, the panel held that the Plaintiffs had failed to carry
their burden of proof for their claims of fraud and emotional
distress, and found in favor of CBP on those claims. According to
the panel, the award was made “in full settlement of all claims
submitted to this Panel in this arbitration proceeding.”
It is unpersuasive that the Plaintiffs sought between $9 and
$85 million from the arbitration panel, but did not recover those
sums. As the district court correctly pointed out “[f]requently,
litigants do not receive the full damage verdict or judgment they
seek. A ‘disappointing’ result does not entitle a litigant to seek
damages for the same injuries from another defendant in the hopes
of a better recovery.” Sun Chemical Trading Corp. v. CBP Resources,
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Inc., 2004 WL 1777582, at *5 (M.D.N.C. July 29, 2004).
For these reasons, we find that the Plaintiffs have alleged no
theory of compensatory damages against SGS that has not already
been considered and/or awarded by the arbitration panel.2 Thus, the
Plaintiffs are not entitled to further compensation from SGS.
Second, we do not find persuasive the Plaintiffs’ contention
that, because North Carolina’s one-satisfaction rule generally is
inapposite to punitive damages, they ought to be able to pursue an
action against SGS for punitive damages.
Punitive damages are generally disfavored by the law, and
should be allowed only when they can properly promote the dual
purposes of punishment and deterrence. See Ratner v. Sioux Natural
Gas Corp., 719 F.2d 801 (5th Cir. 1983). To this end, the North
Carolina Supreme Court has held “a party may not recover punitive
damages for tortious conduct and treble damages for a violation of
Chapter 75 based on that same conduct.” United Laboratories, Inc.
v. Kuykendall, 335 N.C. 183, 191, 437 S.E.2d 374, 379 (1993)
(citing Ellis v. Northern Star, 326 N.C. 219, 227-28, 388 S.E.2d
127, 132 (1990)).
In the instant case, the Plaintiffs seek punitive damages
against SGS based on the same conduct and injuries for which the
2
The district court has issued a thorough analysis detailing
the nature of the arbitration award in CBP’s subsequent action
against SGS. See CBP Resources, Inc. v. SGS Control Services, Inc.,
2005 WL 1166730 (M.D.N.C. May 17, 2005).
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arbitration panel separately awarded Sun and Cullu treble damages
against CBP. The Plaintiffs, however, have cited no case that
authorizes the trebling of damages against one defendant and
punitive damages against a subsequent defendant, when both
defendants may be liable for common damages arising from a single
indivisible harm.
Thus, we find that allowing the Plaintiffs to recover treble
damages from CBP, and punitive damages from SGS, for the same
wrongful conduct and injuries, would contravene North Carolina’s
one-satisfaction rule, as well as the North Carolina Supreme
Court’s holding in Kuykendall.
As explicated above, under North Carolina law plaintiffs are
not entitled to more than one satisfaction for the same injuries,
“regardless of how many claims or bases of liability they may
assert, or how many defendants they may pursue.” Sun Chemical, 2004
WL 1777582, at *5. Thus, we find that by virtue of the arbitration
award, the Plaintiffs have received a full and complete recovery
for their damages, and therefore are prohibited from seeking
additional recovery from SGS.
III.
In conclusion, for the reasons stated in this opinion, we hold
the district court did not err when it dismissed Sun’s claims
against SGS pursuant to Rule 12(b)(6).
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AFFIRMED
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