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					STATE OF NORTH CAROLINA                           IN THE GENERAL COURT OF JUSTICE
                                                        SUPERIOR COURT DIVISION
COUNTY OF FORSYTH                                            06 CVS 8371

JAMES SAMUEL COX, CALVIN L. DUDLEY,
RUBY C. GRIFFIN, BENJAMIN C.
HARDWICK, MARIE L. HARDWICK, PAT E.
HARPER, FRED DWIGHT MISENHEIMER,
LARRY C. NELSON, BONNIE B. SHEETS,
GUY SPENCE and MELBA C. YOUNG,

         Plaintiffs,
                                                   ORDER ON DEFENDANTS‘ MOTIONS
                v.                                           TO DISMISS

MYRON MITCHELL, SANFORD LEROY
SMITH, MARTY MITCHELL, THE HANOVER
INSURANCE GROUP, INC., and
COMMONWEALTH ANNUITY AND LIFE
INSURANCE COMPANY,

         Defendants.


   {1}      Plaintiffs‘ suit for constructive fraud, breach of fiduciary duty, negligence,
negligent misrepresentation, unfair and deceptive trade practices, punitive
damages, aiding and abetting constructive fraud, aiding and abetting breach of
fiduciary duty, and unjust enrichment arises out of their purchase of variable
annuities from the Insurance Company Defendants based upon investment advice
from the Individual Defendants. The matter is before the Court on Defendants‘
motions to dismiss the amended complaint.
         George Francisco, PC by George Edwin Francisco for Plaintiffs.

         Kilpatrick Stockton, LLP by David C. Smith, Daniel R. Taylor, Jr., and
         Bradley A. Roehrenbeck for Defendants Myron Mitchell, Sanford Leroy
         Smith, and Marty Mitchell.

         Fulbright & Jaworski, LLP by John M. Simpson and Caroline M. Mew for
         Defendants The Hanover Insurance Group, Inc., Commonwealth Annuity and
         Life Insurance Co., First Allmerica Financial Life Insurance Co., and The
         Goldman Sachs Group, Inc.

Tennille, Judge.


                                              1
                                         I.
                         PROCEDURAL BACKGROUND
   {2}   This action was filed in Forsyth County on November 20, 2006. The
matter was designated a mandatory complex business case by order of the Chief
Justice of the Supreme Court of North Carolina dated January 4, 2007, and
subsequently assigned to the undersigned Special Superior Court Judge for
Complex Business Cases by order of the Chief Special Superior Court Judge for
Complex Business Cases dated January 10, 2007.
   {3}   Defendants The Hanover Insurance Group, Inc and Commonwealth
Annuity and Life Insurance Company filed a Motion to Dismiss Plaintiffs‘ Amended
Complaint And Motion for More Definite Statement on June 6, 2007. Defendants
Myron Mitchell, Sanford Leroy Smith, and Marty Mitchell filed a Motion to Dismiss
Plaintiffs‘ Amended Complaint on June 6, 2007. The Court heard oral arguments
on both motions on August 28, 2007.


                                         II.
                            FACTUAL BACKGROUND
                                         A.
                                  THE PARTIES
   {4}   Plaintiff James Samuel Cox is a citizen and resident of Davie County,
North Carolina. (Compl. ¶ 1.) Plaintiff Cox worked for R.J. Reynolds (―RJR‖) for
thirty-three years after he graduated from high school and retired from RJR in
2000. (Compl. ¶¶ 223–24, 232.) Upon retiring, he turned his 401(k) account over to
Defendant Myron Mitchell. (Compl. ¶ 233.) On Defendant Myron Mitchell‘s advice,
he invested $151,978.24 in a variable annuity account. (Compl. ¶ 234.) As of June
30, 2006, Plaintiff Cox had lost more than $36,675.24 in that account. (Compl. ¶
236.) The Complaint does not state if or when Plaintiff Cox closed the variable
annuity account. (Compl. ¶¶ 221–36.)




                                         2
   {5}   Plaintiff Calvin Dudley is a citizen and resident of Yadkin County, North
Carolina. (Compl. ¶ 2.) Plaintiff Dudley worked for RJR for thirty-six years after
he graduated from high school and retired from RJR in 1997. (Compl. ¶¶ 238–39.)
Upon retirement, he turned his 401(k) account over to Defendant Myron Mitchell to
invest. (Compl. ¶ 245–46.) On Defendant Myron Mitchell‘s advice, he invested
$87,873.67 dollars in a variable annuity account. (Compl. ¶ 246.) As of June 30,
2006, Plaintiff Dudley had lost more than $20,652.26 in that account. (Compl. ¶
248.) The Complaint does not state if or when Plaintiff Dudley closed the variable
annuity account. (Compl. ¶¶ 237–48.)
   {6}   Plaintiff Ruby C. Griffin is a citizen and resident of Forsyth County, North
Carolina. (Compl. ¶ 3.) Plaintiff Griffin works at Wake Forest University Health
Sciences. (Compl. ¶ 251.) She turned her Wachovia IRA and 401(k) over to
Defendant Smith. (Compl. ¶ 256.) On Defendant Smith‘s advice, she invested
$41,228.52 in a variable annuity account. (Compl. ¶ 257.) Plaintiff Griffin closed
the account in 2004. (Compl.¶ 259.) At the time of closing, the account was worth
approximately $26,000. (Compl. ¶ 259.)
   {7}   Plaintiff Benjamin C. Hardwick is a citizen and resident of Davidson
County, North Carolina. (Compl. ¶ 4.) Plaintiff Benjamin Hardwick worked for
Western Electric AT&T for thirty-five years and retired in 1986. (Compl. ¶¶ 262–
63.) He invested $7,090.21 in a variable annuity policy. (Compl. ¶ 266.) That
account was transferred to a different variable annuity policy. (Compl. ¶ 267.) As
of September 30, 2005, Plaintiff Hardwick had lost more than $1,419.46 in that
account. (Compl. ¶ 268.) The Complaint does not state if or when Plaintiff
Hardwick closed the variable annuity account. (Compl. ¶¶ 261–68.)
   {8}   Plaintiff Marie L. Hardwick is a citizen and resident of Davidson County,
North Carolina. (Compl. ¶ 5.) Plaintiff Marie Hardwick worked for Western
Electric AT&T for almost thirty-eight years and retired in 1989. (Compl. ¶ 270.)
She had purchased several bank certificates of deposit prior to her dealings with
Defendants. (Compl. ¶ 271.) Those accounts were transferred to ―Allmerica




                                          3
Financial.‖1 (Compl. ¶¶ 274–76.) She purchased three variable annuity policies.2
(Compl. ¶¶ 276, 278, 280.) The amounts invested were $41,878.92, $110,921.94,
and $24,013.49 respectively. (Compl. ¶¶ 276, 278, 280.) She contributed an
additional $17,216.95 to PQ00462319 and $21,999.99 to PQ00462776. (Compl. ¶¶
278, 281.) As of June 30, 2006, Plaintiff Marie Hardwick had lost more than
$5,696.01 in PN 00462323 and more than $3,072.74 in PQ00462776. (Compl. ¶¶
277, 282.) As of June 30, 2002, Plaintiff Marie Hardwick had lost more than
$60,226.63 in PQ00462319. (Compl. ¶ 279.) The Complaint does not state if or
when Plaintiff Marie Hardwick closed the variable annuity accounts. (Compl. ¶¶
269–82.)
    {9}    Plaintiff Pat E. Harper is a citizen and resident of Forsyth County, North
Carolina. (Compl. ¶ 6.) Plaintiff Harper worked for RJR from 1966 to 2002 full
time and on a temporary basis since.3 (Compl. ¶ 286.) She purchased a variable
annuity policy from Defendants. (Compl. ¶ 291.) She invested $181,526.99.
(Compl. ¶ 292.) As of March 31, 2003, Plaintiff Harper had lost more than
$49,419.80 in that account. (Compl. ¶ 296.) Plaintiff Harper has not closed the
variable annuity account. (Compl. ¶ 295.)
    {10} Plaintiff Fred Dwight Misenheimer is a citizen and resident of Stokes
County, North Carolina. (Compl. ¶ 7.) Plaintiff Misenheimer worked for RJR for
thirty-five years and retired in 1999. (Compl. ¶¶ 299–300.) Upon retirement, he
turned his 401(k) over to Defendant Myron Mitchell for investment. (Compl. ¶ 303.)
On Defendant Myron Mitchell‘s advice, he invested $584,359.29 in a variable
annuity policy. (Compl. ¶ 304.) As of December 31, 2005, Plaintiff Misenheimer
had lost more than $142,775.56 in that account. (Compl. ¶ 305.) The Complaint
does not state if or when Plaintiff Misenheimer closed the variable annuity account.
(Compl. ¶¶ 298–305.)



1
  While it is unclear exactly which ―Allmerica Financial‖ is being referred to, ( see Compl. ¶ 15) the
Court recognizes that Plaintiff Marie Hardwick moved her previous accounts to the Defendants.
2 Policy numbers PN 00462323, PQ00462319, and PQ00462776. (Compl. ¶¶ 276, 278, 280.)
3 There is no information in the complaint as to her current employment status.




                                                    4
    {11} Plaintiff Larry C. Nelson is a citizen and resident of Stokes County, North
Carolina. (Compl. ¶ 8.) Plaintiff Nelson changed jobs in 1999 and needed to move
his 401(k). (Compl. ¶ 310.) He met with Defendant Smith and turned over his
401(k). (Compl. ¶¶ 314, 317.) On Defendant Smith‘s advice, he invested $88,407.44
in a variable annuity policy. (Compl. ¶ 317.) Plaintiff Nelson cancelled the variable
annuity policy in 2002. (Compl. ¶ 320.) When the account was closed, a surrender
charge of $3,145.60 was not turned over to Plaintiff Nelson. (Compl. ¶ 321.) As of
September 30, 2002, Plaintiff Nelson had lost more than $35,980.63 excluding the
surrender charge in that account. (Compl. ¶¶ 317, 320.)
    {12} Plaintiff Bonnie B. Sheets is a citizen and resident of Forsyth County,
North Carolina. (Compl. ¶ 9.) Plaintiff Sheets worked at RJR for over twenty-four
years. (Compl. ¶ 325.) When her position was eliminated in 1999 she had ninety
days to move her 401(k). (Compl. ¶ 325.) She met with Defendant Myron Mitchell
and transferred her 401(k). (Compl. ¶¶ 330–31.) On the advice of Defendant Myron
Mitchell, she invested $ 259,349.22 in a variable annuity policy. (Compl. ¶ 332.)
Plaintiff Sheets closed the variable annuity account in May 2003. (Compl. ¶ 337.)
When the account was closed, a surrender charge of $6,135.80 was not turned over
to Plaintiff Sheets. (Compl. ¶ 337.) As of 2003, Plaintiff Sheets had lost more than
$157,661.57 in that account. (Compl. ¶ 339.)
    {13} Plaintiff Guy Spence is a citizen and resident of Davidson County, North
Carolina. (Compl. ¶ 10.) Plaintiff Spence worked at RJR for thirty-two years and
retired in 1998. (Compl. ¶ 341.) On Defendant Myron Mitchell‘s advice, he turned
over $29,297.48 for a brokerage account. (Compl. ¶ 344.) Plaintiff Spence then
purchased a variable annuity policy for $167,189.78 on Defendant Myron Mitchell‘s
advice. (Compl. ¶ 345.) The balance of the brokerage account was transferred to
the variable annuity policy in two installments in 2001. (Compl. ¶¶ 346–47.) The
sum of $245,000 from the variable annuity policy was transferred to a different
account.4 (Compl. ¶ 349.) Plaintiff Spence closed the variable annuity account and

4The Complaint does not specify what type of account this was or how much was in the account
when it was closed in 2002.


                                                5
the other account in May 2002. (Compl. ¶ 350.) As of May 2002, he had lost more
than $10,000.00 in the variable annuity account. (Compl. ¶ 352.)
    {14} Plaintiff Melba C. Young is a citizen and resident of Forsyth County, North
Carolina. (Compl. ¶ 11.) Plaintiff Young closed her business in 1999. (Compl. ¶
355.) Her retirement savings were invested with IDS.5 (Compl. ¶ 356.) Plaintiff
Young met with Defendant Myron Mitchell and, on his advice, liquidated her IDS
accounts. (Compl. ¶¶ 358–59.) Defendant Myron Mitchell told her she would incur
surrender charges of $1,500.00 if she liquidated the IDS accounts. (Compl. ¶ 359.)
Plaintiff Young incurred approximately $22,431.71 in surrender charges when she
liquidated the IDS accounts.6 (Compl. ¶ 361.) On the advice of Defendant Myron
Mitchell, Plaintiff Young invested $379,403.06 in a variable annuity policy. (Compl.
¶ 362.) At some point after her initial investment, Plaintiff Young‘s account was
assigned to Defendant Marty Mitchell. (Compl. ¶ 363.) As of June 2005, she lost
more than $65,557.33 in that account. (Compl. ¶ 364.) The complaint does not
state if or when Plaintiff Young closed the variable annuity account. (Compl. ¶¶
353–64.)
    {15} Defendants Myron Mitchell, Sanford Leroy Smith, and Marty Mitchell (the
―Individual Defendants‖) are citizens and residents of Stokes County, North
Carolina. (Compl. ¶ 12–14.) The Individual Defendants were doing business as
Allmerica Financial or Mitchell Investments at all times relevant to the Complaint.
(Compl. ¶ 15.) The Individual Defendants are insurance agents who sold variable
annuities on behalf of Defendant Hanover Insurance Company, Inc., formerly
known as Allmerica Financial Corporation (―AFC‖), American Financial Life
Insurance & Annuity Company (―AFLIAC‖), and Allmerica, Inc. (Compl. ¶ 15.)
    {16} Defendant Myron Mitchell called himself a ―Certified Financial Planner‖
and a ―Registered Investment Advisor.‖ (Compl. ¶¶ 83–84.)




5The Court notes that the term ―IDS‖ is not defined in the Complaint.
6The Complaint is unclear as to when Plaintiff Young liquidated the IDS accounts and incurred the
surrender charges.


                                                6
   {17} Defendant The Hanover Insurance Group, Inc. is a Delaware corporation
with a principal place of business in Worcester, Massachusetts, and doing business
in the State of North Carolina. (Compl. ¶ 17.)
   {18} Defendant Commonwealth Annuity and Life Insurance Company, formerly
known as Allmerica Financial Life Insurance & Annuity Company, is a
Massachusetts-domiciled insurance company with a principal place of business in
Worcester, Massachusetts, and doing business in the State of North Carolina.
(Compl. ¶ 18.)
   {19} Defendants The Hanover Insurance Group, Inc. and Commonwealth
Annuity and Life Insurance Company will be referred to collectively as the
―Insurance Company Defendants.‖ The Individual Defendants worked ―on behalf
of‖ the Insurance Company Defendants. (Compl. ¶ 15.) The relationship between
the Insurance Company Defendants and the Individual Defendants was terminated
in 2003. (Compl. ¶ 53.)
                                         B.
                                THE COMPLAINT
   {20}   Plaintiffs are citizens of North Carolina who bought AFLIAC variable
annuities from either one of two of the Individual Defendants, Myron Mitchell or
Sanford Smith. (Compl. ¶¶ 24, 51; Ind. Defs‘ Br. Supp. Mt. Dismiss 3.) Variable
annuities are ―insurance contracts‖ sold by insurance agents. (Compl. ¶ 48; Amend.
Compl. ¶ 16C.) When an investor purchases variable annuities, the amount is
invested in subaccounts of stocks, bonds, or money market accounts. (Compl. ¶ 56.)
Plaintiffs‘ money was invested only in stock mutual funds. (Compl. ¶143.) These
are high-risk investments because they are dependent on the performance of the
mutual funds. (Compl. ¶ 56.) Once invested in variable annuities, the money could
not be withdrawn without paying surrender charges. (Compl. ¶ 106.)
   {21} The Individual Defendants were paid sales commissions for selling the
variable annuities. (Compl. ¶ 102.) It is unclear if the Insurance Company
Defendants or the Individual Defendants paid the sales commission directly or if




                                         7
the sales commission was paid in some other way.7 The Individual Defendants also
sold the Plaintiffs a life insurance rider with the variable annuity. (Am. Compl. ¶
142A.) The Individual Defendants had different investment products for sale.
(Compl. ¶ 58.) The Individual Defendants did not recommend any other investment
product to the Plaintiffs except for the variable annuities. (Compl. ¶ 59.)
    {22} Plaintiffs‘ various causes of action are based upon the representations
made to and advice given to Plaintiffs in connection with the sale of the variable
annuities. In simplest terms, the Complaint alleges that the Individual Defendants
sold high-risk variable annuities because these products generated the highest
commissions for the Individual Defendants. The Complaint may be fairly read to
allege that the Individual Defendants made misrepresentations in connection with
their sales efforts and that they placed their individual interest in higher
commissions above the interests of the people to whom they were providing
financial advice for the investment of their retirement funds. The motions to
dismiss raise key issues concerning the application of certain causes of action to all
Defendants‘ activities and the application of the statute of limitations to the causes
of actions. The Complaint is ambiguous in some ways and lacks specificity in
others. For that reason, the Court will permit Plaintiffs to amend the pleadings
with respect to certain of the claims.8 Others are dismissed. Where appropriate,
the Court will note the applicable statute of limitations and whether or not a Rule
12(b)(6) motion is the best vehicle for determining application of the statute.




7 The Amendments to Complaint asserts that the Individual Defendants received ―undisclosed
monetary gain over and about [sic.] the actual amount of money [they] . . . represented they received
from Plaintiffs.‖ (Am. Compl. ¶ 39B.) There is no allegation as to the actual amount received from
Plaintiffs and if the ―undisclosed monetary gain‖ was from Plaintiffs or from the Insurance Company
Defendants. The Court believes it may fairly infer from the Complaint that the Individual
Defendants received commissions charged to Plaintiffs‘ accounts which were unknown and
undisclosed to Plaintiffs but would prefer that an amended complaint be specific in that regard.
8 The Court suggests that the parties consider mediation before filing an amended complaint.




                                                  8
                                         III.
                                LEGAL STANDARD
   {23} The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal
sufficiency of the pleading against which the motion is directed. Sutton v. Duke,
277 N.C. 94, 99, 176 S.E.2d 161, 163 (1970). In Branch Banking & Trust Co. v.
Lighthouse Financial Corp., 2005 NCBC 3 (N.C. Super. Ct. July 13, 2005),
http://www.ncbusinesscourt.net/opinions/2005%20 NCBC%203.htm, this Court
summarized the 12(b)(6) standard as follows:
      When ruling on a motion to dismiss under Rule 12(b)(6), the court
      must determine ―whether, as a matter of law, the allegations of the
      complaint . . . are sufficient to state a claim upon which relief may be
      granted.‖ In making its decision, the court must treat the allegations
      in the complaint as true. The court must construe the complaint
      liberally and must not dismiss the complaint unless it appears to a
      certainty that plaintiff is entitled to no relief under any state of facts
      which could be proved in support of the claim. When considering a
      motion under Rule 12(b)(6), the court is not required to accept as true
      any conclusions of law or unwarranted deductions of fact in the
      complaint.     When the complaint fails to allege the substantive
      elements of some legally cognizable claim, or where it alleges facts
      which defeat any claim, the complaint should be dismissed under Rule
      12(b)(6).

Branch Banking & Trust Co., 2005 NCBC 3 ¶ 8 (citations omitted).
   {24} Furthermore, the Court may not consider ―extraneous matter‖ outside the
complaint, or else the Rule 12(b)(6) motion will be converted into a Rule 56 motion
for summary judgment. See, e.g., Fowler v. Williamson, 39 N.C. App. 715, 717, 251
S.E.2d 889, 891 (1979). However, the Court may consider documents the moving
party attaches to a 12(b)(6) motion which are the subject of the challenged pleading
and specifically referred to in that pleading, even though they are presented to the
Court by the moving party. See Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52,
60, 554 S.E.2d 840, 847 (2001) (considering a contract on a 12(b)(6) motion even
though the contract was presented by the movant). The Court is not required to
accept as true ―any conclusions of law or unwarranted deductions of fact.‖ Id. at 56,
554 S.E.2d at 844. Thus the Court can reject allegations that are contradicted by


                                          9
the supplementary documents presented to it. See E. Shore Mkts., Inc. v. J.D.
Assocs. Ltd. P‘ship, 213 F.3d 175, 180 (4th Cir. 2000) (stating that the court ―need
not accept as true unwarranted inferences, unreasonable conclusions, or
arguments‖).


                                          IV.
                                     ANALYSIS
      In its analysis, the Court will determine which causes of action are
potentially applicable and the appropriate statute of limitations for each remaining
claim. Where appropriate, the Court will indicate where more specific factual
allegations are necessary.
                                          A.
          CONSTRUCTIVE FRAUD AND BREACH OF FIDUCIARY DUTY
   {25}   A constructive fraud claim may be based upon the existence of a fiduciary
relationship. Campbell v. Bowman, 2005 N.C. App. LEXIS 2444, at *7 (2005).
Likewise, a breach of fiduciary duty cannot exist in the absence of a fiduciary
relationship. Harris v. Matthews, 361 N.C. 265, 284, 643 S.E.2d 566, 577 (2007)
(citing Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707–08 (2001)). The
constructive fraud and breach of fiduciary duty claims both require allegations
which, if true, would create a fiduciary relationship. Thus, the first question the
Court must address is whether a fiduciary relationship existed under the
circumstances alleged in the Complaint.
   {26} The North Carolina Supreme Court has defined fiduciary relationship
broadly to include any relationship where ―there has been a special confidence
reposed in one who in equity and good conscience is bound to act in good faith and
with due regard to the interests of the one reposing confidence.‖ Frizzell Constr. Co.
v. First Citizens Bank & Trust Co., 759 F. Supp. 286, 292 (1991) (citing Watts v.
Cumberland County Hospital System, Inc., 317 N.C. 110, 116, 343 S.E.2d 879, 884
(1986)). Some examples of fiduciary relationships are ―attorney and client, broker
and principal, executor or administrator and heir, legatee or devisee, factor and


                                          10
principal, guardian and ward, partners, [and] principal and agent.‖ Abbitt v.
Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931). Being an investor in a
company, however, does not create a fiduciary relationship. Campbell v. Bowman,
No. COA05-16, 2005 N.C. App. LEXIS 2444, at *8 (N.C. Ct. App. 2005).
   {27} Claims of fraud, duress, or mistake and the circumstances surrounding
them must be stated with particularity. N.C. Gen. Stat. § 1A-1, Rule 9(b).
Constructive fraud, though, does not need to be stated with the same ―exacting‖
proof required by actual fraud. Watts, 317 N.C. at 115–16, 343 S.E.2d at 883–84. A
plaintiff must allege ―facts and circumstances (1) which created the relation of trust
and confidence, and (2) led up to and surrounded the consummation of the
transaction in which defendant is alleged to have taken advantage of his position of
trust to the hurt of plaintiff.‖ Id. at 116, 343 S.E.2d at 884 (citing Rhodes v. Jones,
232 N.C. 547, 549, 61 S.E.2d 725, 726 (1950). The Fourth Circuit explained Watts
further, stating that the Watts holding does not require that a ―defendant obtain a
benefit in order to sustain a cause of action.‖ Frizzell Constr. Co., 759 F. Supp. at
292 (citing Watts, 317 N.C. at 116, 343 S.E.2d at 884).
   {28} To sustain a cause of action for breach of fiduciary duty or constructive
fraud, the complaint needs to allege facts that set out the fiduciary relationship —
the ―relation of trust and confidence.‖ Watts, 317 N.C. at 116, 343 S.E.2d at 884.
Specifically, the court asks whether there has been a ―special confidence‖ and is one
party ―bound to act in good faith and with due regard to the interests‖ of the other
party. See Harris, 361 N.C. at 284, 643 S.E.2d at 577–78 (citations omitted). When
there is a fiduciary relationship, one party is ―under a duty to act for the benefit of
the other as to matters within the scope of the relation.‖ Restatement (Second) of
Trusts § 2 cmt. b (1959). For a claim of breach of fiduciary duty to survive a motion
to dismiss, facts must be alleged that forecast the breach of the duty to act for the
benefit of the other and ―not to profit at the expense of the other.‖ Id. For a claim of
constructive fraud to survive a motion to dismiss, the complaint ―must allege (1) a
relationship of trust and confidence, (2) that the defendant took advantage of that
position of trust in order to benefit himself, and (3) that plaintiff was, as a result,


                                            11
injured.‖ White v. Consolidated Planning, Inc., 166 N.C. App. 283, 294, 603 S.E.2d
147,156 (2004).
    {29} Plaintiffs here have alleged that there was a fiduciary relationship
evolving from the position of the Individual Defendants as brokers holding
themselves out as expert financial planners and Plaintiffs as naïve, would-be
investors who put their retirement money and trust in the Individual Defendants‘
hands.9 (Compl. ¶¶ 24, 26.) The relationship of insurance broker to financial
customer is not a previously recognized fiduciary relationship. See Abbitt, 201 N.C.
at 598, 160 S.E. at 906. In White however, the Court of Appeals found that the
plaintiffs‘ ―lack of expertise in financial affairs‖ in addition to the facts alleged in
the complaint was enough to establish a fiduciary relationship for the purposes of
breach of fiduciary duty and the first requirement of the constructive fraud claim.
White, 166 N.C. App. at 293, 603 S.E.2d at 155.
    {30} Plaintiffs in the current case are in a similar situation as plaintiffs in
White. Plaintiffs here allegedly are inexperienced in financial matters and relied on
the advice and discretion of the Individual Defendants on making financial
decisions for them. (Compl. ¶¶ 129-34.) The difference in the facts between this
case and White is that in White the employee of the insurance company who
conducted the transactions at issue was the plaintiffs‘ son. White, 166 N.C. App. at
288, 603 S.E.2d at 152. However, White does not specify that the familial
relationship between the employee and the plaintiffs was the basis for finding that
a fiduciary relationship existed. The court cited cases where agency relationships
existed. Id. at 293–94, 603 S.E.2d at 155. One case cited included a familial
relationship (son and mother), but the court cited it for the son‘s role as his mother‘s
agent and not for the familial relationship. Id. at 294, 603 S.E.2d at 155 (citing Vail
v. Vail, 233 N.C. 109, 114, 63 S.E.2d 202, 206 (1951)). While the court in White
does refer to ―further facts and circumstances‖ in the complaint when it found there
was a fiduciary relationship, the court appears to have been relying on the agency

9The Complaint refers to the Plaintiffs as ―unsophisticated investors who completely trusted
[Defendants] and relied on their advice.‖ (Compl. ¶ 166.)


                                                12
relationship between the employee and employer and the reliance of plaintiffs with
no ―expertise in financial affairs‖ on the employee/agent with that expertise. Id. at
293, 603 S.E.2d at 155.
   {31} Plaintiffs have alleged in the current case that the Individual Defendants
gave advice to Plaintiffs which was not in Plaintiffs‘ best interests. (Compl. ¶ 27.)
If true, that action would be a breach of fiduciary duty and is enough to sufficiently
allege a breach of fiduciary duty. However, more is needed to sufficiently allege
constructive fraud.
   {32} For the White court, the problem was not the fiduciary relationship but the
fact that the defendant only received commissions from the transactions. The court
found receipt of commissions was not enough to fulfill the second requirement, ―that
defendant took advantage of that position of trust in order to benefit himself‖ under
the constructive fraud cause of action. White, 166 N.C. App. at 294, 603 S.E.2d at
156. The defendant in White was an insurance company which received
commissions from the transactions of its employee. Id. at 295, 603 S.E.2d at 156.
There are two sets of defendants in the current case: the Insurance Company
Defendants and the Individual Defendants. Each set of defendants in the current
case is accused of constructive fraud and breach of fiduciary duty. The Court will
apply the elements of constructive fraud and breach of fiduciary duty to each set of
defendants in turn. In doing so, the Court will apply the above analysis of a
fiduciary relationship to the allegations regarding each Defendant.
                                          1.
                      INSURANCE COMPANY DEFENDANTS
   {33} The Complaint alleges that the Insurance Company Defendants ―turned a
willful blind eye‖ to what the Individual Defendants were doing (Compl. ¶ 176) and
―rubber-stamped‖ the actions of the Individual Defendants (Compl. ¶ 179).
Plaintiffs allege the Insurance Company Defendants are liable directly and
vicariously for injury to the Plaintiffs. (Compl. ¶¶ 175–82 (heading of the section
reads ―The Insurance Company Defendants actively participated in the annuity mill
scheme‖); Am. Compl. ¶ 373 (heading of section reads ―The Insurance Company


                                          13
Defendants are vicariously liable for the [Individual Defendants‘] conduct under the
doctrine of respondeat superior, and the general principles of agency‖).)
   {34} According to Plaintiffs, the Insurance Company Defendants actively
participated in the actions of the Individual Defendants by having Defendant
Myron Mitchell instruct its ―national sales force on how to conduct an annuity
mill[,] . . . by offering testimonials[,] . . . [by] turning a willful bland eye to the . . .
misconduct[,] . . . [by] failing to scrutinize the predatory sales practice[,] . . . and [by]
failing to review the suitability of the plaintiffs‘ investments.‖ (Pls.‘ Br. Resp. Ins.
Co. Defs.‘ Mot. Dismiss 13 (citations omitted).) The Complaint identifies
disciplinary actions that were taken against Allmerica Investments, Inc. during the
time the Plaintiffs were invested in AFLIAC variable annuities. (Compl. ¶¶ 180–
81.) The Complaint alleges that the punishments stemming from the disciplinary
actions ―were directly related to the misconduct‖ of the Individual Defendants.
(Compl. ¶ 182.) The Complaint does not allege facts that would give rise to a direct
fiduciary relationship between Plaintiffs and the Insurance Company Defendants.
There is no allegation that the Plaintiffs relied on the Insurance Company
Defendants themselves or that Plaintiffs trusted the Insurance Company
Defendants with their retirement money. The Complaint fails to allege facts that
would create a direct fiduciary relationship between the Plaintiffs and the
Insurance Company Defendants.
   {35} The Amended Complaint alleges generally that the Individual Defendants
were agents of the Insurance Company Defendants. (Amend. Compl. ¶ 373.) An
agency relationship exists when one party ―manifests consent that one shall act on
behalf of the other and subject to his control.‖ Miller v. Piedmont Steam Co., 137
N.C. App. 520, 524, 528 S.E.2d 923, 926 (2000) (citing Hayman v. Ramada Inn, Inc.,
86 N.C. App. 274, 357 S.E.2d 394, disc. review denied, 320 N.C. 631, 360 S.E.2d 87
(1987)). Vicarious liability stemming from the doctrine of respondeat superior
arises from ―the right of supervision and control‖ that the principal retains. Vaughn
v. N. C. Dep‘t of Human Res., 296 N.C. 683, 686, 252 S.E.2d 792, 795 (1979). The
actions of the agent must have been ―(1) . . . expressly authorized by the principal;


                                               14
(2) . . . committed within the scope of the agent‘s employment and in furtherance of
the principal‘s business; or (3) . . . ratified by the principal.‖ White, 166 N.C. App.
at 296, 603 S.E.2d at 157. The ―critical question,‖ however, is whether or not the
actions were ―in the course of activities that the employee was authorized to
perform.‖ Id. at 297, 603 S.E.2d at 158.
   {36} The Complaint alleges that the Individual Defendants sold variable
annuities ―on behalf of‖ the Insurance Company Defendants (Compl. ¶ 15),
―operated a common enterprise‖ with and were employed by the Insurance
Company Defendants (Compl. ¶¶ 16, 58), and that the Insurance Company
Defendants knew the techniques the Individual Defendants were using to entice the
Plaintiffs to become customers (Compl. ¶ 175). To the extent a cause of action is
stated for breach of fiduciary duty or constructive fraud against an Individual
Defendant that is not barred by the statute of limitations, Plaintiffs have
adequately alleged that the Insurance Company Defendants may be liable for those
actions based upon an agency relationship.
   {37} Although the Insurance Company Defendants were in a fiduciary
relationship with some of the Plaintiffs through the agency relationship, the second
requirement for a direct constructive fraud claim against the Insurance Company
Defendants is not met. There is no allegation of a benefit other than the
commissions received. (Compl. ¶¶ 175–82.) These allegations are not sufficient.
See Sterner v. Penn, 159 N.C. App. 626, 632, 583 S.E.2d 670, 674 (2003). There
must be more benefit alleged than just commissions earned through the
transactions to sufficiently allege a direct action for constructive fraud. Id. The
Complaint does not fulfill the second requirement under White.
   {38} Were there not sufficient allegations of an agency relationship, there would
not be a valid constructive fraud claim against the Insurance Company Defendants
based on the holding in White. There is no allegation of a benefit other than
commissions; therefore, the sole basis for liability is a vicarious liability based upon
an alleged agency relationship. The agency relationship has been sufficiently
alleged.


                                           15
                                          2.
                           INDIVIDUAL DEFENDANTS
   {39} The Individual Defendants consist of three individuals; Myron Mitchell,
Sanford Leroy Smith, and Marty Mitchell. The Court will address the three
constructive fraud requirements and apply those requirements to each of the
Individual Defendants.
                                          a.
                         DEFENDANT MYRON MITCHELL
                                          (1)
                           FIDUCIARY RELATIONSHIP
   {40} Defendants agree that the pleadings are sufficient to create a fiduciary
relationship in regard to Defendant Myron Mitchell. (Hr‘g Tr. 8–9, Aug. 28, 2007.)
The second and third requirements of constructive fraud are at issue: ―(2) that the
defendant took advantage of that position of trust in order to benefit himself, and
(3) that plaintiff was, as a result, injured.‖ White, 166 N.C. App. at 294, 603 S.E.2d
at 156.
                                          (2)
                      BENEFIT FROM POSITION OF TRUST
   {41} This element of constructive fraud, that the defendant was seeking to
benefit himself, is ―an essential element of constructive fraud.‖ Sterner, 159 N.C.
App. at 631, 583 S.E.2d at 674. There are generalized allegations regarding what
the Individual Defendants as a group did to abuse the fiduciary relationship.
(Compl. ¶¶ 132–33, 139–41, 146–47.) There are also generalized allegations
regarding the benefit that the Individual Defendants received from the abuse of the
relationship. (Compl. ¶¶ 168–70.) The allegations of benefit relate to the
commissions that Individual Defendants received from selling the variable
annuities. (Compl. ¶ 168(a).) The court in White relied heavily on Sterner and its
holding that the payment of a commission or fee for work performed is ―not
sufficient to survive a motion to dismiss a claim for constructive fraud.‖ White, 166
N.C. App. at 295, 603 S.E.2d at 156 (citing Sterner, 159 N.C. App. at 632, 583


                                          16
S.E.2d at 674.) In White and Sterner, the defendant was the insurance company
who received commissions from the actions its agent took. The situation in the
present case is slightly different because Defendant Myron Mitchell is the agent
who took advantage of Plaintiffs in order to earn those commissions. A more
analogous situation is found in NationsBank v. Parker, 140 N.C. App. 106, 535
S.E.2d 597 (2000).
      {42} In NationsBank, the defendant attorney, forged documents that he
presented to the plaintiff bank issuing the loan. Id. at 108, 535 S.E.2d at 598. The
defendant attorney received a fee for work done just as Defendant Myron Mitchell
received a commission for his work in this case. The work done in both situations
allegedly took advantage of the relationship of trust. In NationsBank, the plaintiff
trusted the defendant‘s work as an attorney and notary. In the present case,
Plaintiffs trusted Defendant‘s work as an expert in financial matters. In both cases,
the alleged bad actors received a fee or commission for the work. For the court in
NationsBank, this fee was not enough to establish that the defendant ―sought to
benefit himself.‖ Id. at 114, 535 S.E.2d at 602. The fee was the same regardless of
whether the documents were forged. Id. Therefore, regardless of whether
defendant took advantage of the relationship of trust in NationsBank, he was going
to get paid. Id. Just getting paid was not enough for the court to find that
defendant sought to and did benefit himself by taking advantage of the relationship.
Id.
      {43} In the present case, Defendant Myron Mitchell received the commission
only because he took advantage of the relationship of trust. If he had not taken
advantage of the relationship, he would not have been paid because he, allegedly,
would not have made the investments with Plaintiffs‘ money that he made. He was
seeking to benefit himself in the transaction by taking advantage of the relationship
of trust. A jury could find that there are enough facts alleged regarding Defendant
Myron Mitchell‘s actions which took advantage of the fiduciary relationship that
any commissions he received through those actions were the benefit he had sought,
therefore fulfilling the second requirement of a constructive fraud claim.


                                          17
      {44} There are other allegations of wrongdoing. The Complaint alleges
―unauthorized trades‖ within Plaintiffs‘ accounts. (Compl. ¶ 133.) There are no
clear allegations of how Individual Defendants benefited from the unauthorized
trades. It is unclear whether Defendant Myron Mitchell received more commissions
for making those trades. These allegations would have to be pled with more
specificity to show how Defendant Myron Mitchell benefited from those trades.
Additional facts could further satisfy the second requirement as to Defendant
Myron Mitchell.
                                                 (3)
                                    INJURY TO PLAINTIFF
      {45} The third requirement is that the pleadings show Plaintiffs were injured
by Defendant Myron Mitchell‘s actions. There are several allegations of injury to
Plaintiffs.
      {46} First, the Complaint alleges that Plaintiffs lost money and security when
their retirement assets were put into high-risk investments they did not want or
understand. (Compl. ¶¶ 236, 248, 260, 268, 279, 282, 296, 305, 322, 336, 352, 364.)
      {47} Second, the Complaint alleges that all Plaintiffs lost money in surrender
charges they were either unaware of or that were higher than represented by
Individual Defendants. (Compl. ¶¶ 105-06.) The Complaint only alleges that
certain Plaintiffs received representations from Defendant Myron Mitchell
regarding the surrender charges.10 (Compl. ¶¶ 227, 359.) The Complaint needs to
be clarified with respect to who made representation to whom about surrender
charges and when the surrender charges were paid.
      {48} Third, the Complaint alleges Plaintiffs were unaware of the amount of
commissions being paid to Individual Defendants. (Compl. ¶¶ 100-01.) There is a
question as to whether the commissions were paid from or charged to Plaintiffs‘
accounts. (Ind. Defs.‘ Br. Mot. Dismiss 13.) If the commissions were not paid from
or charged to Plaintiffs‘ accounts, then Plaintiffs were not injured by the
commissions. If their account values were reduced by the commissions they were

10   Those Plaintiffs are James Cox and Melba C. Young.


                                                 18
injured. The facts with respect to commissions need clarification, including when
Plaintiffs learned of the commissions.
   {49} In Nakell v. Liner Yankelevitz Sunshine & Regenstreif, LLP, 394 F. Supp.
2d 762 (M.D.N.C. 2005), the court denied the motion to dismiss a constructive fraud
claim even when the damages were pled ―very generally.‖ Id. at 772. The court
stated that the defendant ―should be given the opportunity to produce evidence of
damages.‖ Id. In the case at bar, the allegations are pled generally with only two
examples of direct allegations of injury done by Defendant Myron Mitchell.
However, the court in Nakell allowed general allegations to suffice. Id. Similarly,
the general allegations here of damage and injury by the high-risk investments and
large commissions should suffice as to Defendant Myron Mitchell. There need to be
clear facts shown that Plaintiffs were injured by the commission structure or
unauthorized trades. There also need to be more facts pled to show that Plaintiffs
other than James Cox and Melba Young were injured by surrender charges and
when those injuries occurred.
   {50} The Court finds that there are sufficient facts pled to support a breach of
fiduciary duty claim. The Court hereby ORDERS Plaintiffs to plead with more
particularity the constructive fraud claim as indicated above.
                                            b.
                      DEFENDANT SANFORD LEROY SMITH
                                            (1)
                             FIDUCIARY RELATIONSHIP
   {51} Defendant Smith argues that there has been no fiduciary relationship
created between him and Plaintiffs. Plaintiffs allege generally that they trusted
Individual Defendants‘ expertise in financial matters. Defendant Smith was
Plaintiff Ruby Griffin‘s and Larry Nelson‘s investment advisor. (Compl. ¶¶ 254–57,
312–19.) Both of these Plaintiffs allege they trusted Defendant Smith (Compl. ¶¶
255, 315) and relied on his advice to keep their money invested in the annuities
(Compl. ¶¶ 258, 319). As stated above, the Court of Appeals in White found that the
plaintiffs‘ ―lack of expertise in financial affairs‖ with the facts alleged in the


                                            19
complaint was enough to establish a fiduciary relationship for the purposes of
breach of fiduciary duty and the first requirement of under the constructive fraud
claim. White, 166 N.C. App. at 293, 603 S.E.2d at 155. Here are two of the
Plaintiffs with no financial expertise and Defendant Smith who was seen as having
financial expertise. Plaintiffs Griffin and Nelson‘s reliance upon Defendant Smith
and his role as their financial advisor created a fiduciary relationship. However,
there are not enough facts alleged to create the same fiduciary relationship with the
other Plaintiffs. More facts would have to be alleged to find a fiduciary relationship
between Defendant Smith and any Plaintiff other than Plaintiffs Griffin and
Nelson. Because the fiduciary relationship is lacking as to the other Plaintiffs,
further analysis under the second and third requirements of a constructive fraud
claim will only concern Plaintiffs Griffin and Nelson.
   {52} Plaintiffs‘ repeated use of the term ―annuity mill‖ is not sufficiently clear
to create vicarious liability of one Individual Defendant for the acts of another. The
causes of action asserted are individual claims, many of which require specific
pleadings to establish liability running from a named defendant to a named
plaintiff.
                                          (2)
                      BENEFIT FROM POSITION OF TRUST
   {53} The second requirement of constructive fraud asks whether defendant took
advantage of the relationship of trust to benefit him or herself. Id. at 294, 603
S.E.2d at 155–56. There are no specific allegations that Defendant Smith received a
benefit from the transactions he conducted on behalf of Plaintiffs Griffin and
Nelson. There are general allegations that Individual Defendants received
commissions on the sale of the variable annuities. (Compl. ¶ 168(a).) As shown
with Defendant Myron Mitchell, receipt of those commissions could be considered
taking advantage of the relationship of trust if the jury decides that the
commissions were the benefit sought when taking advantage of the fiduciary
relationship.




                                          20
   {54} There are other allegations of wrongdoing. The complaint alleges
―unauthorized trades‖ within Plaintiffs‘ accounts. (Compl. ¶ 133.) There are no
allegations of how Individual Defendants benefited from the unauthorized trades.
It is unclear whether Defendant Smith received more commissions for making those
trades. These allegations would have to be pled with more specificity to show how
Defendant Smith benefited from those trades. Additional facts could further satisfy
the second requirement as to Defendant Smith.
                                           (3)
                               INJURY TO PLAINTIFF
   {55} The third requirement of constructive fraud asks whether plaintiff was
injured. As stated above, the court in Nakell allowed for general allegations of
damages to suffice. Nakell, 394 F. Supp. 2d at 772. There are specific allegations of
injury to Plaintiffs Griffin and Nelson in the amount of money each Plaintiff lost in
the account overall (Compl. ¶¶ 260, 322) and, for Plaintiff Nelson, in surrender
charges (Compl. ¶ 321). There are also general allegations of high commissions.
(Compl. ¶ 168(a).) In regards to the commissions, there is still the question of
whether the commissions were paid from each Plaintiff‘s account. More facts would
be necessary to make that determination. Although these allegations are general,
the allegations concerning the loss in the account is sufficient to fulfill the third
requirement but should be pled with greater clarity and specificity.
   {56} The Court finds sufficient facts are pled to support a breach of fiduciary
duty against Defendant Smith as to Plaintiffs Nelson and Griffin but not as to the
other Plaintiffs. Plaintiffs shall file amended pleadings that provide greater detail
and specificity with respect to the constructive fraud claim against Defendant
Smith in relation to each Plaintiff and the breach of fiduciary duty claim against
Defendant Smith in relation to the remaining Plaintiffs.
                                            c.
                         DEFENDANT MARTY MITCHELL
   {57} The last individual defendant is Defendant Marty Mitchell. Defendant
Marty Mitchell received Plaintiff Young‘s account from Defendant Myron Mitchell.


                                           21
(Compl. ¶ 363.) Under the same analysis as above, Defendant Marty Mitchell was
the party with financial expertise which Plaintiff Young relied upon. However,
there is no evidence that Plaintiff Young had a relationship of trust and confidence
with Defendant Marty Mitchell. Unlike the other Plaintiffs‘ relationships outlined
above, Plaintiff Young has not clearly alleged reliance on Defendant Marty
Mitchell‘s expertise in deciding which investment products to purchase. It appears
that more facts would have to be alleged before a jury could find there were
sufficient facts to fulfill the first requirement of a constructive fraud claim as to
Plaintiff Young‘s claims against Defendant Marty Mitchell and to clarify the claims
against Defendant Myron Mitchell. As to the other Plaintiffs, there are no
allegations of fact that could create a fiduciary relationship. Likewise, there are no
facts that would fulfill the second or third requirements of a constructive fraud
claim. There is no specific allegation that Defendant Marty Mitchell sold the
annuity and received a commission, made unauthorized trades and received a
commission, or misrepresented the surrender charges. Plaintiff Young should plead
her claims against Defendants Myron and Marty Mitchell more clearly.
   {58} The Court finds no facts have been clearly alleged that support a breach of
fiduciary duty or constructive fraud against Defendant Marty Mitchell by any of the
Plaintiffs other than Plaintiff Young. Plaintiffs shall file amended pleadings that
provide greater detail and specificity with respect to the breach of fiduciary duty
and constructive fraud claim against Defendant Marty Mitchell in relation to each
Plaintiff.
                                            3.
                            STATUTE OF LIMITATIONS
                                            a.
                           BREACH OF FIDUCIARY DUTY
   {59} The statute of limitations for a breach of fiduciary duty claim is three
years when the claim is founded on a breach of contract. Tyson v. N.C. Nat‘l Bank,
305 N.C. 136, 141–42, 286 S.E.2d 561, 564–65 (1982). In Tyson, an estate executor
and trustee was accused of failing to exercise reasonable care in carrying out the


                                           22
duties associated with those positions. Id. at 141, 286 S.E.2d at 564. The Court
found breach of fiduciary duty to be analogous to a breach of trust or breach of
contract. Id. at 141–42, 286 S.E.2d at 565. When the breach of fiduciary duty is
based on breach of contract, the statute of limitations begins to run when the cause
of action accrues in accordance with North Carolina General Statute section 1-52(1).
Toomer v. Branch Banking & Trust Co., 171 N.C. App. 58, 66–68, 614 S.E.2d 328,
335–36 (2005), cert. denied, 360 N.C. 78, 623 S.E.2d 263 (2005). If the breach of
fiduciary duty is based on the trustee or guardian relationship, the statute of
limitations begins to run when the claimant ―knew or should have known of the
facts giving rise to the claim.‖ Id. at 69, 614 S.E.2d at 336. The present case is
analogous to a breach of contract claim. The Individual Defendants were not acting
as the trustees or guardians of the Plaintiffs‘ retirement money. The Plaintiffs‘
claims are based on the variable annuity policies they purchased upon the advice of
the Individual Defendants. The statute of limitations for the Plaintiffs‘ breach of
fiduciary duty claims is three years from the cause of action.
   {60} The Court finds that the pleadings do not provide sufficient facts to
determine if the statute of limitations has run as to the Individual Defendants. The
Court hereby ORDERS Plaintiffs to plead with more particularity and detail their
claims against each Individual Defendant in relation to each Plaintiff.
                                          b.
                             CONSTRUCTIVE FRAUD
   {61} Fraud claims fall into one of two categories: actual fraud and constructive
fraud. Terry v. Terry, 302 N.C. 77, 82, 273 S.E.2d 674, 677 (1981). Actual and
constructive fraud are claims are of the same ilk. Both concern plaintiff‘s reliance
on defendant because of their relationship or representations that were made and
plaintiff‘s subsequent discovery that that reliance was misplaced, leading to injury
or damages on the part of the plaintiff. Compare Ragsdale v. Kennedy, 286 N.C.
130, 138, 209 S.E.2d 494, 500 (1974) (listing the essential elements of fraud) with
Rhodes v. Jones, 232 N.C. 547, 549, 61 S.E.2d 725, 726 (1950) (listing the elements
of constructive fraud). Actual fraud and constructive fraud have different pleading


                                          23
standards. Whereas actual fraud must be pled with particularity, constructive
fraud can be plead with significantly less particularity. Newton v. Whitaker, 83
N.C. App. 112, 114, 349 S.E.2d 333, 334 (1986). See also, Terry, 302 N.C. at 83, 273
S.E.2d at 677 (―A claim of constructive fraud does not require the same rigorous
adherence to elements as actual fraud.‖). Plaintiffs have not asserted a claim for
actual fraud.
   {62} Actual fraud and constructive fraud previously had different statutes of
limitations. Actual fraud has a three-year statute of limitations as mandated by the
State. N.C. Gen. Stat. § 1-52(9). Until recently, there has been a question of
whether the three-year statute of limitations found in North Carolina General
Statute section 1-52(9) applied to constructive fraud. Compare Toomer, 171 N.C.
App. at 67, 614 S.E.2d at 335 (holding constructive fraud statute of limitations is
ten years) and Piles v. Allstate Ins. Co., No. COA06-1543, 2007 N.C. App. LEXIS
2449, at *12 (N.C. Ct. App. 2007) (―Moreover, the basis of the constructive fraud
claims clearly falls within ten years of the complaint.‖) with Hunter v. Guardian
Life Ins. Co. of Am., 162 N.C. App. 477, 593 S.E.2d 595 (2004), cert denied, 358 N.C.
543, 599 S.E.2d 48 (2004) (stating the constructive fraud statute of limitations is
three years) and Carlisle v. Keith, 169 N.C. App. 674, 614 S.E.2d 542 (2005) (stating
the constructive fraud statute of limitations is three years). Constructive fraud
claims appear to now fall under a three-year statute of limitations based on the
North Carolina Supreme Court decision in Forbis v. Neal, 361 N.C. 519, 649 S.E.2d
382 (2007).
   {63} In Forbis, plaintiffs appealed the Court of Appeals affirmation of the grant
of summary judgment in favor of defendant. Id. at 523, 649 S.E.2d at 385. There
were three bank accounts at issue in Forbis. Id. at 530, 649 S.E.2d at 389.
Summary judgment had been granted by the trial court, and affirmed by the Court
of Appeals, on actual fraud and constructive fraud claims for all three accounts. Id.
The North Carolina Supreme Court gave an analysis of each bank account under
the actual fraud claim and the constructive fraud claim. Id. at 526–30, 649 S.E.2d
at 387–89. Defendant argued that the three-year statute of limitation on claims for


                                          24
fraud barred plaintiffs‘ suit. Id. at 524, 649 S.E.2d at 385–86. The Court began the
opinion with an analysis of when the three-year statute of limitations begins to run
for fraud. Id. At no time during that discussion of fraud did the Court make a
distinction between constructive and actual fraud. Id. at 524–25, 649 S.E.2d at
385–86. The Court stated that the three-year statute of limitations on fraud claims,
again without distinction as to whether the fraud was constructive or actual, begins
to accrue when the fraud is discovered ―regardless of the length of time between the
fraudulent act . . . and plaintiff‘s discovery of it.‖ Id. at 524, 649 S.E.2d at 386
(quoting Feibus & Co. v. Godley Constr. Co., 301 N.C. 294, 304, 271 S.E.2d 385, 392
(1980)). It is not until later in the decision that the Court addressed the differences
between actual fraud and constructive fraud. Id. at 526–27, 649 S.E.2d at 387. At
no point during that discussion of actual and constructive fraud or the application of
the facts to the elements of actual and constructive fraud did the Court say that the
statute of limitations is different for constructive fraud claims than for actual fraud
claims. Id. at 526–30, 649 S.E.2d at 387–89. The Court gave only one analysis of
the statute of limitations that applies to fraud. Id. at 524–25, 649 S.E.2d at 385–86.
The Court did not state that there are different statutes of limitations for fraud
depending on whether the fraud claim is actual or constructive. Id. Accordingly,
constructive fraud and actual fraud both have a three-year statute of limitations
between discovery of the fraudulent act and the filing of the complaint. The three-
year statute of limitations must be applied to the case at bar regardless of whether
the claim is for constructive fraud or actual fraud.
   {64} The three-year statute of limitations begins to accrue when the injured
party discovers the fraudulent act. Id. at 524, 649 S.E.2d at 386 (citing N.C. Gen.
Stat. § 1-52(9)). Discovery can be actual discovery or ―when the fraud should have
been discovered in the exercise of ‗reasonable diligence under the circumstances.‘‖
Id. (quoting Bennett v. Anson Bank & Trust Co., 265 N.C. 148, 154, 143 S.E.2d 312,
317 (1965)). What course of actions create reasonable diligence under the
circumstances is usually a question for the jury. Id. Reasonable diligence is
excused when there was a confidential or fiduciary relationship between the parties.


                                            25
Id. at 525, 649 S.E.2d at 386. If there was an event that ―excited‖ the suspicion of
the injured party, then reasonable diligence is not excused. Id. (citing Vail, 233
N.C. at 117, 63 S.E.2d at 208).
   {65} There is a significant question of when the Plaintiffs‘ suspicion should
have been excited. The pleadings do not contain sufficient facts to make that
determination in all cases. Each Plaintiff must allege with more particularity the
dates each Plaintiff was charged commissions and surrender charges, when the
unauthorized trades occurred and the loss associated with those trades (Compl. ¶
38), the dates that each Plaintiff received statements from the Individual
Defendants regarding the accounts (Compl. ¶ 52), the first date that each Plaintiff
was aware the variable annuities were losing money, and any other information
including pertinent dates a trier of fact would need to determine the applicability of
the three-year statute of limitations and the discovery rule to the Individual
Defendants‘ actions in relation to each Plaintiff.
   {66} Where an account was terminated and losses incurred or surrender
charges paid, there exists a prima facie showing of notice to the Plaintiff which
would trigger the running of the statute of limitations. Such events would have
excited the suspicion of an injured party or put them on notice of their claim. It will
be incumbent upon a Plaintiff in that situation to plead facts which would place his
or her claim within the statute of limitations period. For example, Plaintiff Nelson
allegedly cancelled his variable annuity in 2002. He was charged a surrender fee
and his losses were fixed and apparent. With respect to his losses and surrender
charges, the statute of limitations would have begun to run at that time. His claims
are subject to the three-year statute of limitations and were barred by November of
2006 when the Complaint was filed unless there is some reason alleged to excuse
the requirement of reasonable diligence.
   {67} The Court will not dismiss the constructive fraud claims based upon
application of the statue of limitations on this Rule 12(b)(6) motion. It will require
greater specificity in the pleadings as described above. The Court takes this
opportunity to remind Plaintiffs‘ counsel that the obligation under Rule 11 to only


                                           26
put forth causes of action that are ―warranted by existing law or a good faith
argument for the . . . modification . . . of existing law,‖ including statutes of
limitation, applies to claims that will be pending in the expected amended
complaint. N.C. Gen. Stat § 1A-1, Rule 11.
                                            B.
                                     NEGLIGENCE
   {68} Plaintiffs alleged in their third case of action that the ―Annuity Mill
Defendants‖ have acted negligently, grossly negligently, and willfully and wantonly
negligently in the performance of their duties to the Plaintiffs. (Compl. ¶ 390.)
Plaintiffs defined ―Annuity Mill Defendants‖ as the Individual Defendants ―doing
business as Allmerica Financial or Mitchell Investments.‖ (Compl. ¶ 16.) Plaintiffs
alleged in their sixth cause of action that the Insurance Company Defendants acted
negligently, grossly negligently, and willfully and wantonly negligently. (Compl. ¶
412.)
   {69} A plaintiff ―must allege: (1) a legal duty; (2) a breach thereof; and (3)
injury proximately caused by the breach‖ when making a claim of negligence. Stein
v. Asheville City Bd. of Educ., 360 N.C. 321, 328, 626 S.E.2d 263, 267 (2006) (citing
Kientz v. Carlton, 245 N.C. 236, 240, 96 S.E.2d 14, 17 (1957)). A legal duty is ―an
obligation, to which the law will give recognition and effect, to conform to a
particular standard of conduct toward one another.‖ Mullis v. Monroe Oil Co., 349
N.C. 196, 204, 505 S.E.2d 131, 136 (1998) (quoting Peal v. Smith, 115 N.C. App.
225, 230, 444 S.E.2d 673, 677 (1994)). A legal duty exists when ―one person is by
circumstances placed in such a position [towards] another that every one of
ordinary sense who did think would at once recognize that if he did not use ordinary
care and skill in his own conduct with regard to those circumstances he would cause
danger of injury to the person or property of the other.‖ Id. at 204, 505 S.E.2d at
137 (alteration in original) (citation omitted).
   {70} When one of the Individual Defendants was hired by one of the Plaintiffs
for his financial expertise, that Individual Defendant was put into a position that
required him to use his skill to avoid injuring the Plaintiff and the Plaintiff‘s


                                            27
property. See supra Part IV.A.2 (analysis of fiduciary duty owed by each Individual
Defendant to Plaintiffs). Each Individual Defendant had a legal duty to each
Plaintiff he dealt with just as he had a fiduciary duty to such Plaintiff as discussed
above. See supra Part IV.A. There are no facts alleged in the pleadings that would
give rise to a legal duty by the Insurance Company Defendants separate from the
vicarious liability that arose through their agency relationship with the Individual
Defendants. The Insurance Company Defendants would be vicariously liable for the
actions of its agents, the Individual Defendants, only where the Individual
Defendant had formed a fiduciary relationship with or had a legal duty to the
Plaintiff. See supra Part IV.A.1.
   {71}   Negligence claims fall under North Carolina General Statute section 1-
52(5) three-year statute of limitations. N.C. Gen. Stat. § 1-52(5). The discovery rule
of North Carolina General Statute section 1-52(16), which tolls the accrual of the
statute of limitation until the injury ―becomes apparent or ought reasonably to have
become apparent,‖ does not apply to negligence claims that result in pecuniary loss.
White, 166 N.C. App. at 308–09, 603 S.E.2d at 164 (citing N.C. Gen. Stat. § 1-
52(16)). The negligence claim in this instance resulted only in pecuniary loss.
(Compl. ¶ 391.) Therefore, the three-year statute of limitations on negligence
claims begins to accrue when the transaction that caused the pecuniary loss
occurred. White, 166 N.C. App. at 309, 603 S.E.2d at 164.
   {72} The Complaint is unclear as to which transactions were negligent. The
original transactions, where Individual Defendants sold Plaintiffs variable
annuities, would fall outside the three-year statute of limitations and cannot be the
basis for a negligence claim. The Complaint makes reference to ―unauthorized
trades‖ (Compl. ¶ 38) and ―surrender charges‖ (Compl. ¶ 106) causing damage to
Plaintiffs. The dates of these transactions or any other transaction that Plaintiffs
allege would constitute negligence on the part of the Individual Defendants need to
be pled with more particularity. Plaintiff Nelson closed his variable annuity policy
―soon after September 30, 2002.‖ (Compl. ¶ 320.) Plaintiff Sheets closed her
variable annuity policy in May 2003. (Compl. ¶ 337.) Plaintiff Spence closed his


                                          28
variable annuity policy in May 2002. (Compl. ¶ 350.) This action was filed
November 20, 2006. No transaction by the Individual Defendants regarding
Plaintiffs Nelson, Sheets, and Spence could have taken place within three years of
the filing of this action. Plaintiffs Nelson, Sheets, and Spence‘s negligence claims
against the Individual Defendants are hereby DISMISSED as barred by the
applicable statute of limitations. The Court hereby ORDERS the remaining
Plaintiffs file amended pleadings that provide greater detail and specificity with
respect to the negligence claim or dismiss the negligence claim against the
Individual Defendants in relation to each remaining Plaintiff.
                                          C.
                      NEGLIGENT MISREPRESENTATION
   {73} The North Carolina Supreme Court has used the Restatement 2nd of Torts
definition of negligent misrepresentation. Marcus Bros. Textiles, Inc. v. Price
Waterhouse, LLP, 350 N.C. 214, 218, 513 S.E.2d 320, 323–24 (1999). Negligent
misrepresentation arises when a party ―in the course of his business, profession or
employment . . . supplies false information for the guidance of others in their
business transactions,‖ the others justifiably rely on that information, and the party
supplying the false information ―fails to exercise reasonable care or competence in
obtaining or communicating the information.‖ Restatement (Second) of Torts §
552(1) (1977). The North Carolina Supreme Court has broken negligent
misrepresentation into four elements: (1) a party must justifiably rely (2) ―to his
detriment [(3)] on information prepared without reasonable care [(4)] by one who
owed the relying party a duty of care.‖ Raritan River Steel Co. v. Cherry, Bekaert &
Holland, 322 N.C. 200, 206, 367 S.E.2d 609, 612 (1988), rev‘d on other grounds, 329
N.C. 646, 407 S.E.2d 178 (1991). Justifiable reliance must be actual reliance. Id.
The party relying on the information prepared without reasonable care can only
recover the ―pecuniary loss caused to them by their justifiable reliance.‖
Restatement (Second) of Torts § 552(1).
   {74} The North Carolina Court of Appeals requires that an allegation of
negligent misrepresentation include ―facts which constitute the negligence charged


                                          29
and the facts which establish such negligence as the proximate cause of the injury‖
to survive a motion to dismiss. Stanford v. Owens, 46 N.C. App. 388, 395, 265
S.E.2d 617, 622 (1980). In Bob Timberlake Collection, Inc. v. Edwards, 176 N.C.
App. 33, 626 S.E.2d 315 (2006), the Court of Appeals granted a motion to dismiss
because the pleadings failed to allege (1) there was a duty owed between plaintiffs
and defendants, (2) that the ―information was prepared without reasonable care,‖
(3) and that the alleged ―breach was the proximate cause of the injuries.‖ Id. at 40,
626 S.E.2d at 322. The Court of Appeals noted that the pleadings only contained
―legal conclusions‖ such as the ―misrepresentations were made negligently,‖ the
plaintiffs ―had a financial interest in such misrepresentations,‖ the defendant
―relied upon [plaintiffs‘] negligent misrepresentations,‖ that the ―reliance was
reasonable,‖ and that the defendant was ―damaged by [plaintiff‘s] negligent
misrepresentations in an amount to be established at trial.‖ Id.
   {75} Similarly, but with a different outcome, the Court of Appeals found that
when the complaint alleged ―in substance‖ that plaintiffs and defendants had a
business relationship based on defendants‘ realty company business, that ―during
the negotiations for the property‖ the defendant ―misrepresented, or neglected to
communicate[] facts critical to the future value of the property,‖ that the plaintiffs
justifiably relied, and provided the amount of damages plaintiffs suffered through
this misrepresentation, the complaint was ―sufficient to withstand a Rule 12(b)(6)
motion to dismiss.‖ Powell v. Wold, 88 N.C. App. 61, 68, 362 S.E.2d 796, 800 (1987).
   {76} However, as the Court of Appeals pointed out, liability for negligent
misrepresentation is ―highly fact-dependent.‖ Bob Timberlake Collection, Inc., 176
N.C. App. at 40, 626 S.E.2d at 322 (quoting Marcus Bros. Textiles, Inc. , 350 N.C. at
220, 513 S.E.2d at 325).
   {77} Plaintiffs assert that the Complaint need only allege ―(1) the
misrepresentations and omissions made . . . and (2) that [they] were made
negligently.‖ (Pls.‘ Br. Resp. Ind. Defs.‘ Mot. Dismiss 25.) Plaintiffs‘ asserted
standard is not enough. For the pleadings to withstand a Rule 12(b)(6) motion to
dismiss, the pleadings must allege (1) there was a duty owed by defendants to


                                           30
plaintiffs, (2) the defendants did not use reasonable care in supplying information
leading to (3) misrepresentations made to the plaintiffs which (4) the plaintiffs
justifiably relied on (5) and that reliance caused pecuniary injury to the plaintiffs.
Powell, 88 N.C. App. at 68, 362 S.E.2d at 800; Bob Timberlake Collection, Inc., 176
N.C. App. at 40, 626 S.E.2d at 322. Additionally, because liability for negligent
misrepresentations is fact-specific, these allegations must be pled with specificity.
Bob Timberlake Collection, Inc., 176 N.C. App. at 40, 626 S.E.2d at 322.
   {78} First, Plaintiffs have established that there was duty owed to them by an
Individual Defendant for which the Insurance Company Defendants might be
vicariously liable. See supra Part IV.A. Whether or not a duty is owed is ―of
paramount importance‖ in a negligent misrepresentation claim. Bob Timberlake
Collection, Inc., 176 N.C. App. at 40, 626 S.E.2d at 322 (quoting Marcus Bros.
Textiles, Inc., 350 N.C. at 220, 513 S.E.2d at 325). For this reason, the Plaintiffs
must plead with more specificity and detail the facts that would establish a duty
owed by each Individual Defendant to each Plaintiff. Further analysis of the
negligent misrepresentation claim will only concern those Plaintiffs identified above
as having a business relationship with certain Individual Defendants. See supra
Part IV.A.
   {79} Second, the pleadings do allege facts to support that Individual Defendants
did not use reasonable care in preparing information for the Plaintiffs. (Compl. ¶¶
57–59, 117, 183–89.)
   {80} Third, the pleadings allege misrepresentations made by Defendant Myron
Mitchell but not by the other Individual Defendants. The Complaint alleges that
the ―Annuity Mill Defendants‖ made ―representations and omissions,‖ many of
which ―were false as described‖ in the body of the Complaint. (Compl. ¶¶ 396–97.)
In the Complaint, there are many allegations of the ―Defendants‖ and the ―Annuity
Mill Defendants‖ making false statements and misrepresentations. For example,
the Complaint alleges that ―Defendants made material statements to the Plaintiffs
which were untrue, and omitted material facts which were necessary in order to
make the statements made not misleading in light of the circumstances under


                                           31
which they were made.‖ (Compl. ¶ 10.) Allegations specific to the Individual
Defendants and the individual Plaintiffs are sparse, however.
   {81} The Complaint alleges specific misrepresentations made to Plaintiffs by
Defendant Myron Mitchell. (Compl. ¶¶ 102, 119, 122, 148, 161, 227, 244, 333, 343,
359.) Of these misrepresentations, the Complaint only alleges misrepresentations
to specific Plaintiffs Cox (Compl. ¶ 227), Dudley (Compl. ¶ 244), Sheets (Compl. ¶
333), and Young (Comp. ¶ 359). Additionally, the Complaint only alleges Plaintiff
Spence was specifically misrepresented to at one of the dinner seminars referred to
in the Complaint. (Compl. ¶ 343.) The Complaint does allege that other Plaintiffs
attended these dinner seminars, but without stating the misrepresentation that
those Plaintiffs would have heard. (See e.g., Compl. ¶ 288 (―Plaintiff Harper
believed what Defendant Myron Mitchell said at the seminar.‖).)
   {82} The Complaint does not allege specific misrepresentations made by
Individual Defendants Smith and Marty Mitchell. The Complaint alleges that
―Defendant Mitchell intentionally misled Plaintiffs‘ [sic.] and other customers by
falsely implying that he would triple his customers‘ money in ten years.‖ (Compl. ¶
107.) As there are two ―Defendant Mitchells‖ in the present case, the Court cannot
attribute this allegation to either Defendant Myron Mitchell or Defendant Marty
Mitchell. The Court therefore finds that the present pleadings support neither a
claim for negligent misrepresentation as to Individual Defendants Smith and Marty
Mitchell nor a claim for negligent misrepresentation as to Individual Defendant
Myron Mitchell in relation to Plaintiffs Griffin, Benjamin Hardwick, Marie
Hardwick, Harper, Misenheimer, and Nelson. The negligent misrepresentation
claims must be pled with more particularity and specificity.
   {83} Fourth, the pleadings do not clearly allege facts related to the reasonable
reliance of Plaintiffs on the misrepresentations. Of the misrepresentations by
Defendant Myron Mitchell set forth above, there are no dates associated with the
statements about surrender charges made to Plaintiffs Cox and Young which would
be necessary in an analysis of whether those Plaintiffs reasonably relied on the
statements. (Compl. ¶¶ 227, 359.) More specificity is needed. There are facts


                                         32
alleged by Plaintiffs Spence, Dudley, and Sheets about their reliance on Defendant
Myron Mitchell‘s misrepresentations. These statements occurred at or near the
beginning of Plaintiffs‘ relationship with Defendant Myron Mitchell.11 (Compl. ¶¶
343, 244, 333.)
     {84} Fifth, the pleadings do not clearly allege facts related to the
misrepresentation being the proximate cause of the injury. Of the
misrepresentations by Defendant Myron Mitchell set forth above, there are not facts
alleged related to exactly how much Plaintiffs Spence, Dudley, and Sheet lost by
relying on Defendant Myron Mitchell‘s misrepresentations that they would not have
lost had they received information prepared with reasonable care. (Compl. ¶¶ 343,
244, 333.) More specificity is needed. There are facts alleged with regard to the
statements about surrender charges made to Plaintiffs Cox and Young which state
how much they were injured by the surrender charges. (Compl. ¶¶ 227, 359.)
     {85} Negligent misrepresentation falls under the three-year statute of
limitations set forth in North Carolina General Statute section 1-52(5). Barger v.
McCoy Hillard & Parks, 346 N.C. 650, 665, 488 S.E.2d 215, 224 (1997). The North
Carolina Supreme Court identified two conditions to the accrual of the statue of
limitations: ―first, the claimant suffers harm because of the misrepresentation, and
second, the claimant discovers the misrepresentation.‖ Id. at 666, 488 S.E.2d at 224
(quoting Jefferson-Pilot Life Ins. Co. v. Spencer, 336 N.C. 49, 57, 442 S.E.2d 316,
320 (1994)).
     {86} The Court hereby ORDERS Plaintiffs plead with more particularity the
duty owed by each Individual Defendant to each Plaintiff, the negligent
misrepresentations made by each Individual Defendant to each Plaintiff, the
reasonable reliance on the those misrepresentations, and the misrepresentations as
the proximate cause of the specific injuries suffered by each Plaintiff.




11Plaintiffs‘ reliance can also be judged from the same facts that created a fiduciary duty.
Specifically, the Individual Defendants had financial expertise and were relied upon for that
expertise. See supra Part IV.A.


                                                 33
                                          D.
                 UNFAIR AND DECEPTIVE TRADE PRACTICES
   {87} The elements of a claim alleging a violation of the North Carolina Unfair
and Deceptive Trade Practices Act, North Carolina General Statute section 75.1-1
(―UDTPA‖), are ―(1) defendant[] committed an unfair or deceptive act or practice, (2)
in or affecting commerce, and (3) plaintiff was injured as a result.‖ Phelps-Dickson
Builders, L.L.C. v. Amerimann Partners, 172 N.C. App. 427, 439, 617 S.E.2d 664,
671 (2005). The UDTPA defines ―commerce‖ broadly, to include ―all business
activities, however denominated.‖ N.C. Gen. Stat. § 75-1.1(b). ―Commerce,‖
however, does not include securities transactions. Skinner v. E. F. Hutton & Co.,
314 N.C. 267, 275, 333 S.E.2d 236, 241 (1985). The rationale for excluding
securities transactions is that those types of transactions are ―already subject to
pervasive and intricate regulations under the North Carolina Securities Act as well
as the Securities Act of 1933 and the Securities Exchange Act of 1934. Id. (citations
omitted). The exclusion of securities transactions has been extended by the
rationale that such transactions are not ―business activities‖ under the UDTPA.
HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483,
493 (1991). Both of these rationales were explored in Sterner.
   {88} In Sterner, the plaintiff claimed unfair and deceptive trade practices
against the defendant investment brokerage firms. 159 N.C. App. at 627, 583
S.E.2d at 671. The plaintiff in Sterner gave money to the individual defendants to
invest with their promise that they would ―double or even triple her investment.‖
Id. at 627–28, 583 S.E.2d at 671. The investments were made by the individual
defendants through several brokerage firms which were unaware that the
individual defendants were investing plaintiff‘s money. Id. at 628, 583 S.E.2d at
671. The court ruled that securities transactions were not actionable under the
UDTPA under both rationales: (1) securities transactions were specifically excluded
from the UDTPA by the North Carolina Supreme Court in Skinner because of
―pervasive and intricate regulation‖ and (2) the term ―business activities‖ does not




                                          34
include transactions involving securities. Id. at 634, 583 S.E.2d at 676. Both
rationales can be applied to the present case.
     {89} First, variable annuity policies are subject to pervasive and intricate
regulation. Variable annuity policies are sold by insurance agents who must be
licensed in the State of North Carolina. N.C. Gen. Stat. §§ 58-33-26(a), (c)(1)(b).
Life insurance companies wishing to write variable contracts must provide
substantial amounts of information to the Commissioner when requesting
permission to offer variable contracts. 11 N.C. Admin. Code 11B.0303 (2007). This
information includes ―the prospectus or offering memorandum filed with and
declared effective by the Securities and Exchange Commission‖ (―SEC‖). Id. Even
after approval, the life insurance companies must ―submit its variable annuity
contract forms‖ for approval. Id. at 12.0419. The salespeople who sell the variable
annuity contracts are also regulated. See e.g., id. at 6A.0402. Additional regulation
under the UDTPA would give rise to the ―overlapping supervision and enforcement‖
situation that Skinner warned against. Skinner, 314 N.C. at 275, 333 S.E.2d at
241.
     {90} Second, the variable annuity policies in this case concern securities
transactions that are excluded from the UDTPA. Variable annuity polices are
labeled insurance transactions by the North Carolina General Statutes but are in
substance securities transactions.12 See N.C. Gen. Stat. § 58-7-15(2) (defining
―annuities‖ as one kind of insurance that may be authorized by North Carolina); 11
N.C. Admin. Code 11B.0303 (applying companies must have already filed a
prospectus with the SEC); id. at 6A.0402 (salespeople selling variable annuities
must be licensed to sell securities); (Compl. ¶¶ 48, 50, 56). The North Carolina
Securities Act does exclude any ―annuity contract under which an insurance
company promises to pay . . . benefits or payments or value that vary so as to reflect
investment results of any segregated portfolio of investments‖ from the definition of
―security.‖ N.C. Gen. Stat. § 78A-2(11). However, the actual trades and security

12As the Complaint states, ―variable annuity[ies are] insurance contract[s] between an investor and
an insurance company.‖ (Compl. ¶ 48 (emphasis added).)


                                                35
purchases that take place under the auspices of the variable annuity account are
regulated by the North Carolina Securities Act.13 Id. These policies are
transactions involving securities and are not business activities as defined by the
UDTPA. Sterner, 159 N.C. App. at 634, 583 S.E.2d at 676. The fact that Plaintiffs
did not understand that they were investing in securities (Compl. ¶ 55) does not
preclude the fact that they were investing in securities. The UDTPA regulates
business activities, not business activities entered into with knowledge of the
substance of that activity.
     {91}   For the reasons set forth above, the Court hereby DISMISSES Plaintiffs‘
Fifth Claim for Relief Against All Defendants For Unfair and Deceptive Trade
Practices.
                                                    E.
                                      PUNITIVE DAMAGES
     {92} Plaintiffs‘ seventh cause of action against all Defendants for punitive
damages is based on ―actions of Defendants‖ that ―included one or more of the
following: actual malice, oppression, gross negligence, willful wrong, insult,
rudeness, indignities or reckless or wanton disregard of the Plaintiffs‘ rights.‖
(Compl. ¶ 415.) Punitive damages are designed to ―punish a defendant for
egregiously wrongful acts and to deter the defendant and others from committing
similar wrongful acts.‖ N.C. Gen. Stat. § 1D-1. Punitive damages are awarded
when compensatory damages are awarded and defendant engaged in fraud, malice
or willful or wanton conduct. Id. § 1D-15(a). However, ―fraud‖ does not include
constructive fraud ―unless an element of intent is present.‖ Id. § 1D-5(4). ―Malice‖
is ―a sense of personal ill will.‖ Id. § 1D-5(5). ―Willful or wanton conduct‖ is the
―conscious and intentional disregard of and indifference to the rights and safety of




13A security includes ―any note; . . . bond; . . . transferable share; investment contract . . . or, in
general, any interest or instrument commonly known as a ‗security.‘‖ N.C. Gen. Stat. § 78A-2(11).
Variable annuity policies are typically investments in ―mutual funds that invest in stocks, bonds,
money market instruments, or some combination of the three.‖ (Compl. ¶ 50.) The value of the
variable annuity ―is determined by the investment performance . . . of that fund.‖ (Compl. ¶ 50.)


                                                    36
others.‖ Id. § 1D-5(7). ―Punitive damages shall not be awarded against a person
solely on the basis of vicarious liability.‖ Id. § 1D-15(c).
      {93} The Insurance Company Defendants are only vicariously liable. Therefore,
the Insurance Company Defendants are not liable for punitive damages. The Court
hereby DISMISSES Plaintiffs‘ Seventh Cause of Action Against All Defendants For
Punitive Damages as to the Insurance Company Defendants.
      {94} The issue of the Individual Defendants‘ liability under the claim for
punitive damages is still outstanding.
      {95} The pleadings allege several grounds upon which compensatory damages
could be awarded. The pleadings do not allege fraud, but constructive fraud.14
Fraud cannot be the aggravating factor on which Plaintiffs based their claim for
punitive damages. The pleadings state that the Individual Defendants‘ conduct was
a ―willful wrong‖ and carried out with ―actual malice‖ and ―wanton disregard.‖
(Compl. ¶ 415.) However, these are legal conclusions the Court can ignore. Branch
Banking & Trust Co., 2005 NCBC 3 ¶ 8. The pleadings do not allege that any of the
Individual Defendants had ―personal ill will‖ against any of the Plaintiffs as
required by statute. N.C. Gen. Stat. § 1D-5(5). Malice cannot be the aggravating
factor on which Plaintiffs based their claim for punitive damages. The Complaint
alleges that the Individual Defendants manipulated Plaintiffs and made
misrepresentations in order to enrich themselves through commissions. (Compl. ¶
27.) The Complaint alleges Defendant Myron Mitchell made various
misrepresentations to Plaintiffs Spence, Dudley, Sheet, Cox, and Young which
caused them pecuniary loss. See supra Part IV.C. The Complaint alleges
Defendant Myron Mitchell breached his fiduciary duty to Plaintiffs, although it is
unclear what injury was caused by this breach. See supra Part IV.A.2.a. The
Complaint alleges Defendant Smith breached his fiduciary duty to Plaintiffs Griffin
and Nelson but not to other Plaintiffs. See supra Part IV.A.2.b. The Complaint
alleges Defendant Marty Mitchell breached his fiduciary duty, but the pleadings
have not alleged facts sufficient to support such a claim. See supra Part IV.A.2.c.

14   Plaintiffs‘ counsel explicitly rejected a fraud claim at oral argument. (Tr. 34–36, Aug. 28, 2007.)


                                                     37
These allegations are sufficient to allege willful and wanton conduct by Defendant
Myron Mitchell. These allegations are not sufficient to allege willful and wanton
conduct by Defendant Marty Mitchell. Punitive damages against Defendant Smith
would relate only to his customers. Willful and wanton conduct requires the
Individual Defendants to have acted with ―conscious and intentional disregard‖ of
Plaintiffs‘ potential of pecuniary loss. N.C. Gen. Stat. § 1D-5(7). The Court hereby
ORDERS Plaintiffs to plead with more particularity and specificity allegations to
support the willful and wanton conduct of Defendants Marty Mitchell and Smith
against each Plaintiff.
                                          F.
         AIDING AND ABETTING BREACH OF FIDUCIARY DUTY AND
                              CONSTRUCTIVE FRAUD
   {96} The North Carolina court system may or may not recognize a claim for
aiding and abetting a breach of fiduciary duty. The sole North Carolina appellate
decision recognizing such a claim involved allegations of securities fraud, and its
federal underpinnings were subsequently overruled by the United States Supreme
Court. See Sompo Japan Ins. Co., v. Deloitte & Touche, LLP, 2005 NCBC 2 ( N.C.
Super. Ct. June 10, 2005),
http://www.ncbusinesscourt.net/opinions/2005%20NCBC%202.htm (discussing Blow
v. Shaughnessy, 88 N.C. App. 484, 364 S.E.2d 444 (1988) and Central Bank of
Denver, N.A., v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994)). But
see Equitable Life Assurance Soc‘y of the U.S. v. Am. Bankers Ins. Co. of Fla., No.
88-535-CIV-5-H, 1995 U.S. Dist. LEXIS 10880, at *34 (E.D.N.C. May 12, 1995)
(stating that North Carolina would still recognize a claim for aiding and abetting
breach of fiduciary duty based solely on tort principles); In re Lee Memory Gardens,
Inc., 333 B.R. 76, 80 (Bankr. M.D.N.C. 2005) (stating that ―North Carolina law
recognizes a cause of action for aiding and abetting breach of fiduciary duty‖ and
citing Blow for that proposition).
   {97} Even assuming North Carolina law continues to recognize a claim for
aiding and abetting a breach of fiduciary duty, it applies only to third parties who


                                          38
do not stand in a fiduciary relationship to the alleged victim but who provide
substantial assistance toward accomplishing the alleged breach.15 Sompo Japan
Ins. Co., 2005 NCBC at ¶¶ 10–11.
     {98} The pleadings allege that all the Individual Defendants and Insurance
Company Defendants stood in a fiduciary relationship with the Plaintiffs. The
Court has already found that there was a fiduciary relationship at least between
some of the Individual Defendants and some of the Plaintiffs. See supra Part
IV.A.2. The Court has already found that there was not a direct fiduciary
relationship between the Insurance Company Defendants and the Plaintiffs. See
supra Part IV.A.1. The pleadings could allege aiding and abetting a breach of
fiduciary duty and constructive fraud as to those Defendants the Court has found do
not stand in a fiduciary relationship with the Plaintiffs.
     {99} The elements of aiding and abetting are (1) a breach of the fiduciary duty
or constructive fraud by the party standing in a fiduciary relationship with the
claimant, (2) knowledge of the breach or constructive fraud by a third party, and (3)
―substantial assistance‖ by the third party in the breach or constructive fraud.
Blow, 88 N.C. App. at 490, 364 S.E.2d at 447 (citations omitted). The pleadings do
allege that there was a breach of fiduciary duty and constructive fraud as to
Defendant Myron Mitchell. See supra Part IV.A.2.a. The pleadings do support
allegations that other Defendants gave ―substantial assistance‖ to Defendant Myron
Mitchell in carrying out his breach of fiduciary duty and constructive fraud.
     {100} The Complaint alleges the Insurance Company Defendants knew what the
Individual Defendants were doing and encouraged the behavior by ―arrang[ing] for
Defendant Myron Mitchell to instruct the Allmerica Insurance national sales force.‖
(Compl. ¶ 175.) The Insurance Company Defendants provided the ―testimonials of
corporate officers to gain the trust and confidence of the Plaintiffs‖ for the
Individual Defendants. (Compl. ¶ 175.) There are sufficient allegations that those


15Plaintiffs‘ counsel acknowledges that there cannot be both an aiding and abetting cause of action
and a breach of fiduciary duty or constructive fraud cause of action against the same person. (Hr‘g
Tr. 32–33, Aug. 28, 2007.)


                                                 39
Defendants that did not stand in a fiduciary relationship with Plaintiffs aided and
abetted breaches of duty by those who did. The aiding and abetting claims are
better determined on a fuller record and will not be dismissed.
     {101} The Court hereby ORDERS Plaintiffs to plead with more particularity and
specificity allegations that each Defendant that did not stand in a fiduciary
relationship with each Plaintiff knew that a breach occurred by the Defendant(s)
standing in a fiduciary relationship with each Plaintiff and substantially assisted
the breach.
                                                   G.
                                    UNJUST ENRICHMENT
     {102} Unjust enrichment is a ―quasi-contract claim‖ that can only be brought if
there is no contract between the parties. Tomlin v. Dylan Mortgage Inc., 2000
NCBC 9, ¶ 31 (N.C. Super. Ct. June 12, 2000),
http://www.ncbusinesscourt.net/opinions/2000%20NCBC%209.htm (citations
omitted).
     {103} The Complaint alleges that Defendant Myron Mitchell had Plaintiffs ―sign
new account forms in blank‖ that the ―Annuity Mill Defendants‖16 would later
complete themselves. (Compl. ¶ 108.) The Complaint alleges Defendant Myron
Mitchell did provide prospectuses to some of the Plaintiffs but would then instruct
them to ―throw it in the trash.‖ (Compl. ¶ 110.) Plaintiffs did not include these
account forms or prospectuses as attachments to the pleadings. Plaintiffs do not
argue that there was no contract in fact between Plaintiffs and Defendants, but that
they did not read or receive the contract. (Pls.‘ Br. Resp. Ind. Defs.‘ Mot. Dismiss
13; Pls.‘ Br. Resp. Ins. Defs.‘ Mot. Dismiss 15 (in both instances arguing that the
Court could not consider the attachments to the briefs supporting the motions to
dismiss because doing so would require that the Court ―find as a fact that plaintiffs
actually received the insurance policies‖).) The Court finds that there was an
express contract between the parties.

16The use of the term ―Annuity Mill Defendants‖ is not only unhelpful to the Court, it is also
sufficiently ambiguous that its use could result in a finding of insufficient particularity in pleading.


                                                   40
   {104} The Court hereby DISMISSES Plaintiffs‘ Tenth Cause of Action Against
all Defendants for Unjust Enrichment.


                                          V.
                                   CONCLUSION
   {105} Plaintiffs will have thirty (30) days from entry of this Order to file an
amended complaint which complies with the following instructions:
        1.      As to each Plaintiff, the amended complaint should state with
                clarity (1) when unauthorized trades were made, (2) when
                commissions were paid and how Plaintiff was injured by payment of
                commissions, (3) when the Plaintiff‘s variable annuity account was
                terminated, and (4) when surrender charges were incurred and for
                how much.
        2.      Plaintiffs should specify which Individual Defendants made
                misrepresentations to them and specify the misrepresentation
                whether by commission or omission.
        3.      Plaintiffs should plead facts which establish that their claims fall
                within the applicable statutes of limitation. The Court will permit
                the amended claims to relate back to the filing of the original
                complaint.
        4.      Plaintiffs‘ use of generalizations between Plaintiffs and all
                Defendants has caused numerous problems for the Court.
                Plaintiffs‘ counsel should carefully draft the amended complaint to
                clarify precisely which claims each Plaintiff asserts against each
                Defendant. Such pleadings should be done with counsel‘s
                obligations under Rule 11 in mind. Claims should not be asserted
                that are clearly barred by the applicable statutes of limitation as
                set forth above.




                                          41
  {106} Based on the foregoing, it is hereby ORDERED, ADJUDGED, and
DECREED:
       1.    The Breach of Fiduciary Duty cause of action is hereby ordered to
             be pled with more particularity and specificity as to Defendant
             Smith in relation to Plaintiffs Cox, Dudley, Benjamin Hardwick,
             Marie Hardwick, Harper, Misenheimer, Sheets, Spence, and Young,
             and as to Defendant Marty Mitchell in relation to each Plaintiff and
             hereby ordered to be pled with particularity and specificity as to the
             application of the statute of limitations to each Individual
             Defendant‘s actions in relation to each Plaintiff;
       2.    The Constructive Fraud cause of action is hereby ordered to be pled
             with more particularity and specificity as to each Individual
             Defendant in relation to each Plaintiff;
       3.    The Negligence cause of action as to Plaintiffs Nelson, Sheets, and
             Smith is DISMISSED and is hereby ordered to be pled with more
             particularity and specificity as to each Individual Defendant in
             relation to each remaining Plaintiff.
       4.    The Negligent Misrepresentation cause of action is hereby ordered
             to be pled with more particularity and specificity as to each
             Individual Defendant in relation to each Plaintiff;
       5.    The Unfair and Deceptive Trade Practices cause of action is hereby
             DISMISSED;
       6.    The Punitive Damages cause of action is hereby DISMISSED as to
             the Insurance Company Defendants and is hereby ordered to be
             pled with more particularity and specificity as to Defendants Marty
             Mitchell and Smith in relation to each Plaintiff;
       7.    The Aiding and Abetting Breach of Fiduciary Duty and
             Constructive Fraud cause of action is hereby ordered to be pled
             with more particularity and specificity;
       8.    The Unjust Enrichment cause of action is hereby DISMISSED;


                                      42
         9.    The Plaintiffs shall file an amended complaint pleading with
               particularity and specificity in accordance with above orders 1–4
               and 6–7 within thirty (30) days of entry of this Order.


This the 20th day of February, 2008.


                                              /s/ Ben F. Tennille
                                             The Honorable Ben F. Tennille
                                             Chief Special Superior Court Judge
                                               for Complex Business Cases




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