Please ensure Javascript is enabled for purposes of website accessibility
Home / Opinion Digests / Contract / Contract – Pharmacy Management – Corporate – Dividends or Rebates – Statute of Limitations – Tort/Negligence

Contract – Pharmacy Management – Corporate – Dividends or Rebates – Statute of Limitations – Tort/Negligence

Crescent Foods, Inc. v. Evason Pharmacies, Inc. (Lawyers Weekly No. 020-068-16, 24 pp.) (Gregory McGuire, J.) 2016 NCBC 73

Holding: A pharmacy-management contract’s definition of “Gross Profit” required a deduction of the “cost of goods sold,” but the contract did not define “cost of goods sold.” Although the defendant-management company contends that the amounts it received quarterly and annually from North Carolina Mutual Drug Company were dividends, the plaintiff-grocery store contends that those amounts were rebates based on the amount of drugs defendant purchased from Mutual Drug and that these rebates should have been accounted for in the calculation of gross profits. The contract is at least susceptible to an interpretation that would require accounting for rebates in calculating the cost of goods sold, so plaintiff’s breach of contract claim cannot be dismissed based on interpretation of the contract at this stage of the proceedings.

Defendant’s motion to dismiss is denied as to plaintiff’s claims for breach of contract arising on or after Oct. 27, 2005. Otherwise, the motion is granted.

Defendant also argues that plaintiff’s claims are time-barred since the first alleged breach would have occurred around January of 2002. Plaintiff counters that the contract was under seal – and thus subject to a 10-year statute of limitations – and that each failure to pay was a separate breach.

Defendant signed the contract under a corporate seal, but the body of the contract does not contain language showing that the parties intended it to be a sealed instrument. Nevertheless, plaintiff might be able to show such an intent through extrinsic evidence. Therefore, in deciding defendant’s motion to dismiss, the court will apply a 10-year limitations period.

The contract called for a quarterly accounting of gross profits. The accountings would have occurred each quarter from early 2002 through the expiration of the contract in 2013. Each quarter that defendant did not account for the rebates, it breached its obligations under the contract and a new cause of action for breach of contract accrued. Accordingly, plaintiff’s claim for breaches of the contract occurring on or after Oct. 27, 2005, are timely raised. Defendant’s motion to dismiss is granted with regard to claims arising before Oct. 27, 2005.

Where (1) the contract expressly states that defendant was an independent contractor, (2) the sharing of profits was intended only as compensation for defendant, and (3) the parties were not co-owners of any business, plaintiff has failed to allege the existence of a partnership such that defendant would owe plaintiff a fiduciary duty.

Furthermore, the allegations do not establish a relationship in which defendant dominated plaintiff or “held all the cards.” In the absence of any such facts, plaintiff’s allegations that it trusted defendant to honor the terms of the agreement do not transform its relationship into a fiduciary one. Plaintiff has not stated a claim for breach of fiduciary duty.

Since plaintiff’s fraud claim is based on precisely the same conduct underlying its claim for breach of contract, the economic loss rule bars plaintiff’s fraud claim. Moreover, plaintiff has failed to allege fraud with particularity.

To the extent plaintiff’s claim for violation of the Unfair and Deceptive Trade Practices Act is predicated on its now-dismissed claims for breach of fiduciary duty and fraud, the UDTPA claim is also dismissed. This leaves only plaintiff’s breach of contract claim, and plaintiff has failed to allege aggravating factors that would support an unfair trade practices claim.

Motion granted in part and denied in part.

Leave a Reply

Your email address will not be published. Required fields are marked *