Memorandum Opinion Granting in Part and Denying in Part Defendants’ Motion to Dismiss Complaint, and Granting Plaintiff’s Motion for Leave to Amend Complaint. The Defendants Moses H. Cone Memorial Hospital Operating Corp. (“Cone Health”) and Moses Cone Physician Services, Inc. (“MCPS”) filed a motion to dismiss numerous claims in the Plaintiff’s complaint regarding (1) the avoidance of transfers under provisions of the Bankruptcy Code and the North Carolina Uniform Voidable Transactions Act (“UVTA”) and (2) damages stemming from breach of fiduciary duty, constructive fraud by a fiduciary, and unfair and deceptive trade practices. The Plaintiff presented several arguments against dismissal of these claims and requested, in the alternative, that leave be granted to amend the Complaint.

In dismissing several claims for avoidance of preferential transfers and fraudulent conveyances, the Court found that the Plaintiff did not adequately plead that the debtor, Randolph Health, was insolvent at the time of the alleged transfers under the Bankruptcy Code or the UVTA. Under both regimes, a debtor is defined as insolvent when the sum of its debts is greater than all of its property, at a fair valuation (commonly referred to as the “balance sheet test”). See 11 U.S.C. § 101(32)(A); N.C. Gen. Stat. § 39-23.2(a). The Plaintiff’s allegations did not lead to an inference that Randolph Health was insolvent because he alleged that Randolph Health had net assets, according to book values, of at least $31 million at all applicable times.

Nevertheless, the Court granted the Plaintiff a presumption of insolvency under 11 U.S.C. § 547(f) for the 90-day period before the petition date and a presumption of insolvency for the two claims under N.C. Gen. Stat. § 39-23.5(a) for alleged transfers made on or before February 27, 2017. During this latter period, the Plaintiff sufficiently alleged that Randolph Health had defaulted and was unable to make payments on a substantial loan. See N.C. Gen. Stat. § 39-23.2(b) (presuming insolvency if debtor is generally not paying its debts as they become due other than as a result of a bona fide dispute). However, the Court dismissed the Eighth Cause of Action with respect to MCPS only because it was not sufficiently alleged that Randolph Health received less than reasonably equivalent value in exchange for the transfers it made to MCPS. Specifically, the Plaintiff made no factual allegations from which the Court could compare the value of the transfers to the value of the services rendered by MCPS.

The claims under N.C. Gen. Stat. § 39-23.4(a)(2) were dismissed because the Court found the Plaintiff failed to adequately plead the undercapitalization element. The Plaintiff’s allegations did not lead to an inference that Randolph Health was unable to sustain operations or pay debts as they became due within the 2-year lookback period of that provision.

The Court also dismissed the Plaintiff’s state law claims for breach of fiduciary duty and constructive fraud by a fiduciary because the Plaintiff failed to adequately plead that Cone Health had a fiduciary relationship with Randolph Health. Under North Carolina caselaw, the existence of such a relationship is successfully pleaded by alleging that a party had “control and domination” over another or the party “held all the cards.” Courts are especially reluctant to extend the protections of fiduciary obligations to parties whose relationship is established and defined by contract. Here, the Plaintiff relied solely on contractual obligations to allege that Cone Health had a fiduciary duty to Randolph Health. And the Plaintiff did not sufficiently allege that Cone Health held all the cards or was in a position of overwhelming superiority and influence over Randolph Health.

The Court did not dismiss the claim for unfair and deceptive trade practices because the Plaintiff alleged facts leading to a plausible inference that Cone Health used its managerial role and “position of power” to unfairly compete with Randolph Health from within. The Plaintiff sufficiently alleged that such competition adversely impacted the healthcare services provided to local patients.

Lastly, the Court granted the Plaintiff’s request for leave to amend the complaint because he had not amended before and amendment was not futile. The Court noted that the complaint’s issues were of a factual, rather than legal, nature and could potentially be cured with more adequate factual pleading.