North Carolina District Court Lets Fraud, Breach of Contract Claims Proceed in Seized Hemp Case

The U.S. District Court for the Western District of North Carolina will allow shipping company Planet Nine Private Air's counterclaims of fraud, fraudulent concealment and negligent misrepresentation to proceed, denying We CBD's motion to dismiss them, in a June 28 opinion (We CBD v. Planet Nine Private Air, W.D.N.C. #21-00352).

In the case, We CBD alleges wrongdoing on Planet Nine's behalf. We CBD had signed an agreement with Planet Nine to export a hemp shipment from Oregon to Switzerland. The flight containing the shipment stopped to refuel in North Carolina, where the hemp aboard was then seized by CBP. Planet Nine emailed the customs agency with a request for a chartered flight that was heading to Switzerland but failed to list any cargo aboard the flight. CBP then conducted a border search and found 93 duffel or trash bags filled with hemp, marijuana or both from We CBD. Planet Nine has already moved to dismiss the case (see 2109030056).

The shipping company filed five counterclaims to We CBD's lawsuit -- two alleging breach of contract and three making fraud claims. We CBD then moved to dismiss the counterclaims, arguing that many of the claims are conclusory, do not allege any facts and will be resolved during the litigation of We CBD's claims (see 2202170060).

The court sided with Planet Nine, keeping the counterclaims alive. The defendant first made counterclaims for breach of contract and contractual indemnification. The company said it entered into a contract that required We CBD to give all the required travel documents and abstain from loading the aircraft with illegal contraband. We CBD violated this contract when it loaded the plane with illegal marijuana. Based on its argument, the court said Planet Nine sufficiently pleaded its counterclaims for breach of contract and contractual indemnification.

The opinion told a similar story for the shipping company's fraud, fraudulent concealment and negligent misrepresentation claims. To establish a claim for fraud or fraudulent concealment under North Carolina law, a party must establish five factors: false representation of a material fact, "reasonably calculated to deceive," made with the intent to deceive, which does actually deceive and results in damage to the moving party. The court ruled that Planet Nine cleared all five factors since the plaintiffs, through the controlling shareholder of Jet Northwest, Ed Clark, falsely represented that the cargo was legal hemp with the intent to deceive Planet Nine, resulting in damages to the company.

"Planet Nine therefore describes the alleged fraud with particularity, and its counterclaim satisfies the Rule 9(b) pleading standard," the opinion said. "... After careful review of the allegations recited in the Complaint, the Court concludes Planet Nine has also adequately pled all five elements of fraudulent concealment. ... After careful review of the allegations recited in the Complaint, the Court also concludes Planet Nine has adequately pled a claim for negligent misrepresentation."

The court did not rule on Planet Nine's behalf, though, regarding its move for declaratory judgment to establish that the Montreal Convention limits the damages We CBD can recover. "Even absent this claim, the issue of whether the Montreal Convention applies to the parties’ contract will be decided in the normal course of litigation," the court said. "Because Planet Nine’s contract claims already encompass the sole issue in its declaratory judgment claim, the declaratory judgment claim serves no independent, useful purpose and will not help terminate the uncertainty giving rise to this proceeding. Therefore, the Court declines to entertain the claim as requested."