Court Opinion

ID: 2798751
Source: CourtListenerOpinion
Date Created: 2015-05-05 20:01:11.8795+00
Date Added: 2024-06-11T11:29:29.049919
License: Public Domain

UNPUBLISHED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Affirmed in part, vacated in part, and remanded by unpublished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Unpublished opinions are not binding precedent in this circuit.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

                                    11