                            UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                            No. 07-1237



STRATEGIC OUTSOURCING, INCORPORATED,

                Plaintiff - Appellee,

           v.


CONTINENTAL CASUALTY COMPANY,

                Defendant - Appellant.



                            No. 07-1279



STRATEGIC OUTSOURCING, INCORPORATED,

                Plaintiff - Appellant,

           v.


CONTINENTAL CASUALTY COMPANY,

                Defendant - Appellee.



Appeals from the United States District Court for the Western
District of North Carolina, at Charlotte. Robert J. Conrad, Jr.,
Chief District Judge. (3:02-cv-00540)


Argued:   March 19, 2008                  Decided:   April 16, 2008
Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, and MOTZ and
SHEDD, Circuit Judges.


Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.


ARGUED: Lynn H. Murray, GRIPPO & ELDEN, Chicago, Illinois, for
Continental Casualty Company.    Edmund M. Kneisel, KILPATRICK &
STOCKTON, L.L.P., Atlanta, Georgia, for Strategic Outsourcing,
Incorporated. ON BRIEF: Gary M. Elden, Patrick T. Nash, Donald P.
Bunnin, GRIPPO & ELDEN, Chicago, Illinois; Douglas Marshall
Jarrell, ROBINSON, BRADSHAW & HINSON, P.A., Charlotte, North
Carolina, for Continental Casualty Company.      Adam H. Charnes,
Elliot A. Fus, KILPATRICK & STOCKTON, L.L.P., Winston-Salem, North
Carolina, for Strategic Outsourcing, Incorporated.


Unpublished opinions are not binding precedent in this circuit.




                                2
PER CURIAM:

     Continental Casualty Company (CNA) and Strategic Outsourcing,

Inc. (SOI) entered into a contract under which CNA agreed to

provide SOI with workers’ compensation insurance for three years at

a specified rate.          Prior to the third year, CNA attempted to

increase the rate on SOI’s policy; the parties disagreed as to

whether a certain clause in the contract permitted CNA to do so.

Unable to resolve this disagreement, the parties terminated their

relationship.        SOI   eventually    brought      this   diversity    action,

involving North Carolina substantive law, against CNA asserting

breach of contract, a common law “insurance bad faith” claim, and

violation   of   a   state   statute;        CNA   counterclaimed   for   unpaid

premiums.     A jury awarded SOI over $10 million on its breach of

contract claim, and awarded CNA approximately $750,000 on its claim

for unpaid premiums.         CNA appeals and SOI cross-appeals, each

raising numerous issues.          Because the contract limited SOI’s

damages to those incurred during the ninety days after cancellation

of the contract, we must reverse and remand for the district court

to reduce the judgment accordingly.                In all other respects, we

affirm.



                                        I.

     In March of 1998, CNA and SOI entered into a contract,

memorialized in a “confirmation letter,” under which CNA agreed to


                                        3
provide SOI with workers’ compensation insurance for three years at

a rate of $3.40 per $100 of payroll.            The contract included a

clause allowing CNA to re-evaluate the $3.40 rate if “additional

exposures, premiums anticipated[,] and prior losses” represented

“significant changes from what has been contemplated herein” (the

“re-rating clause”).         The contract also included a cancellation

clause, under which either party could terminate the agreement with

ninety days’ notice.

      For almost two years, the parties performed under the contract

without dispute. During this time, SOI’s payroll more than doubled

and the company expanded into a number of new cities.       Prior to the

third year, CNA advised SOI by letter dated October 26, 1999, that

it   planned   to   invoke    the   re-rating   clause.   After   further

discussions, and over SOI’s objection, CNA confirmed by letter

dated December 7 that it planned to raise SOI’s $3.40 rate for the

2000 calendar year; on December 28, CNA sent SOI a proposal for a

new policy at an increased rate.       SOI did not accept this proposal.

The parties then attempted to agree upon a policy at an increased

rate and arranged for SOI’s coverage to continue for the month of

January at the old $3.40 rate while negotiations proceeded.          The

parties failed to reach a new agreement, and CNA advised SOI by

letter dated February 14, 2000, that SOI’s coverage had expired as

of January 31, 2000, and that CNA would notify the appropriate

state agencies that SOI had discontinued its coverage.


                                      4
     The parties then negotiated an “Extension Agreement,” in which

CNA agreed to provide SOI with insurance until February 29, 2000,

at the $3.40 rate.          SOI obtained a replacement policy from a

different carrier for the remaining ten months of the 2000 calendar

year, at a total additional cost of almost $8 million.

     SOI    then   brought    the   instant   action,   claiming   that   CNA

breached the original contract by refusing to renew its policy at

the $3.40 rate and seeking in damages the additional cost of its

replacement policy plus interest.          SOI also asserted an “insurance

bad faith” claim and a claim under the North Carolina Unfair and

Deceptive Trade Practices Act (UDTPA).           CNA filed a counterclaim

for unpaid premiums plus interest.

     On    the   parties’    cross-motions    for   summary   judgment,   the

district court granted summary judgment to SOI on CNA’s statute of

limitations and modification defenses; CNA appeals these rulings.

The court also granted summary judgment to CNA on SOI’s UDTPA and

“insurance bad faith” claims; SOI appeals these rulings.             During

trial, the district court ruled, as a matter of law, that SOI’s

damages were not limited to those incurred during the ninety day

notice period in the cancellation clause; CNA appeals this ruling.

     After a six-day trial, the jury found for SOI on its breach of

contract claim, awarding over $10 million in damages and interest;

the jury found for CNA on its claim for unpaid premiums, awarding




                                       5
approximately $750,000 in damages and interest.                         We first address

CNA’s appeal, and then turn to SOI’s cross-appeal.



                                             II.

                                             A.

        CNA initially contends that the district court erred in

denying    its    Rule       50(b)    motion       on   the    question    of   breach   of

contract.       We review the district court’s denial of a Rule 50(b)

motion de novo.            See Adkins v. Crown Auto, Inc., 488 F.3d 225, 231

(4th Cir. 2007).

        The re-rating clause provides that CNA may re-evaluate the

policy    rate    if,       “in   [CNA’s]    opinion,”         “additional      exposures,

premiums     anticipated[,]            and     prior          losses”     all   represent

“significant changes from what has been contemplated herein.”                            CNA

argues that it did not breach the contract by refusing to renew

SOI’s    policy       at    the   $3.40   rate      because      the    re-rating    clause

permitted       CNA    to     raise    the     rate      on    SOI’s     policy.      After

deliberation, the jury returned a verdict for SOI on this claim.

     CNA    maintains          that    insufficient           evidence    supports     this

verdict.    CNA contends that “exposures,” as used in the re-rating

clause, refers only to the amount of payroll insured under the

policy as a matter of law, and that SOI’s payroll indisputably

increased significantly. CNA argues that the evidence indisputably

shows    that    “premiums        anticipated”          and   “prior     losses”    changed


                                               6
significantly as well. CNA thus contends that all three conditions

in the re-rating clause were met, and that therefore it was

entitled to re-evaluate the policy rate.

     The district court correctly found that SOI offered evidence

at trial from which the jury could conclude that CNA did breach the

contract.    Specifically, SOI introduced evidence that “exposures”

refers not just to the amount of payroll, as CNA asserted, but also

to the risk associated with that payroll.               SOI also offered

evidence that the risk associated with SOI’s payroll did not

increase.    On the basis of this evidence, the jury could conclude

that “exposures” did not change significantly and that therefore

CNA breached the contract when it attempted to raise the rate on

SOI’s policy.

                                     B.

     CNA    also   appeals   the   district   court’s   grant   of   summary

judgment to SOI on CNA’s statute of limitations and modification

defenses. We review the district court’s grant of summary judgment

de novo, viewing the facts in the light most favorable to the

nonmoving party -- with respect to this argument, CNA.           See Meson

v. GATX Tech. Servs. Corp., 507 F.3d 803, 806 (4th Cir. 2007).

     Under North Carolina law, a plaintiff must bring an action for

breach of contract within three years of the date of the breach.

N.C. Gen. Stat. § 1-52(1) (2007); see also Penley v. Penley, 332

S.E.2d 51, 62 (N.C. 1985).     SOI filed its complaint in this case on


                                      7
December 27, 2002. CNA argues that the statute of limitations bars

SOI’s suit because if CNA breached the contract, it did so no later

than December 7, 1999, when it definitively told SOI that it

planned to raise the rate on SOI’s policy for the 2000 calendar

year.   SOI contends that CNA did not breach the contract until its

letter dated February 14, 2000, which advised that SOI’s coverage

had   expired   and   that   CNA   would   notify   the   appropriate   state

agencies accordingly.

      North Carolina courts have recognized that a repudiation, or

anticipatory breach, constitutes an actual breach of contract that

triggers the statute of limitations if the injured party treats the

repudiation as a breach.      See Vreede v. Koch, 380 S.E.2d 615, 617-

18 (N.C. Ct. App. 1989); Cook v. Lawson, 164 S.E.2d 29, 32 (N.C.

Ct. App. 1968). The district court properly concluded that SOI did

not treat CNA’s December 7 letter as a breach, and so the statute

of limitations did not begin to run until CNA’s February 14 letter

cancelling coverage.     SOI therefore timely filed suit.

      CNA next argues that the Extension Agreement modified the

original contract, and so CNA did not breach the contract because

it abided by all of the terms of the Extension Agreement.                 “A

modification to a contract occurs if there is mutual assent to the

terms of the modification and consideration for the contract.”

Lewis v. Edwards, 554 S.E.2d 17, 23 (N.C. Ct. App. 2001).                The

district court properly found that the Extension Agreement did not


                                      8
reflect a mutual agreement that SOI would waive its rights to sue

under the original contract because, while the Agreement expressly

includes a waiver of CNA’s right to otherwise applicable penalties,

it does not include a waiver of SOI’s right to sue.

                                     C.

       Finally, we turn to CNA’s contention that the district court

erred as a matter of law in refusing to limit SOI’s damages to

those incurred during the notice period following cancellation.

                                     1.

       The contract between CNA and SOI provides that all policies

would be subject to a “90 day cancellation provision (except 10-day

if for non-payment).”      The policy itself provides that “[CNA] may

cancel this policy.       If [CNA] cancel[s] because [SOI] fail[s] to

pay all premium when due, [CNA] will mail or deliver to [SOI] not

less   than   10   days   advance   written    notice   stating   when   the

cancellation is to take effect.       If [CNA] cancel[s] for any other

reason, [CNA] will mail or deliver to [SOI] not less than 90 days

advance written notice stating when the cancellation is to take

effect.”

       Prior to trial, CNA argued that SOI’s damages should be

limited to those incurred within ninety days of the alleged breach

of contract because the cancellation clause allowed either party to

cancel with ninety days’ notice.         During trial, the district court

ruled, as a matter of law, that SOI’s damages were not limited by


                                     9
the cancellation clause and so SOI could seek damages incurred

during the full ten months that would have been covered by the

original contract.       CNA renewed this argument in its Rule 50(b)

motion and the district court again rejected it.            We review the

district court’s ruling on this question of law de novo.                  See

Anderson v. Sara Lee Corp., 508 F.3d 181, 191 (4th Cir. 2007).*

     Under North Carolina law, every contract includes “‘an implied

covenant of good faith and fair dealing that neither party will do

anything which injures the right of the other to receive the

benefits of the agreement.’”         Governors Club, Inc. v. Governors

Club Ltd. P’ship, 567 S.E.2d 781, 789 (N.C. Ct. App. 2002) (quoting

Bicycle Transit Auth. v. Bell, 333 S.E.2d 299, 305 (N.C. 1985)).

When a contract confers discretion on one of the parties that

affects   the   rights   of   the   other,   that   discretion   “‘must    be



     *
      SOI argues that CNA has waived its damages limitation
“affirmative defense” because it failed to “plead the defense” in
its answer.    See Fed. R. Civ. P. 8.      Even assuming that the
limitation of damages is an affirmative defense subject to the
pleading requirements of Rule 8, this issue is not waived. CNA
first asserted that SOI’s damages should be limited to those
incurred during the ninety day notice period in its Statement of
Disputed Issues for Trial and Trial Brief.        The court heard
argument on this question at the pretrial conference and SOI
explicitly stated that it had “no objection to these issues” being
resolved.   The court invited further briefing and the parties
submitted supplemental briefs on the first day of trial.        The
court then ruled from the bench that SOI’s damages were not limited
by the notice period in the cancellation clause. This issue was
therefore tried by the parties’ implied consent, and we treat it
“in all respects as if raised in the pleadings.” See People for
Ethical Treatment of Animals v. Doughney, 263 F.3d 359, 367 (4th
Cir. 2001) (relying on Fed. R. Civ. P. 15(b)).

                                     10
exercised in a reasonable manner based upon good faith and fair

play.’”    See Dysart v. Cummings, 640 S.E.2d 832, 836 (N.C. Ct. App.

2007) (quoting Mezzanotte v. Freeland, 200 S.E.2d 410, 414 (N.C.

Ct. App. 1973)).       SOI contends that the duty of good faith applies

to CNA’s exercise of discretion to cancel the contract.                     According

to SOI, because CNA could not have cancelled without breaching the

duty of good faith, SOI’s damages should not be limited to those

incurred during the notice period.

       As an initial matter, it is not at all clear that the North

Carolina     courts    would      find    that   the    duty   of   good   faith    and

objective reasonableness applies to the cancellation provision at

issue here.     Certainly the duty of good faith limits the exercise

of discretion when a contract grants a power to terminate only upon

the occurrence or non-occurrence of a specific event or condition.

See Dysart, 640 S.E.2d at 836; Mezzanotte, 200 S.E.2d at 414.                       But

North Carolina courts have declined to decide whether a contract

that requires notice of cancellation, but imposes “no additional

restrictions upon the rights of either party to terminate the

agreement,” carries “an implied good faith limitation upon [the

parties’] rights to terminate at will.”                Dull v. Mut. of Omaha Ins.

Co.,   354   S.E.2d        752,   757    (N.C.   Ct.    App.   1987).       Here   the

cancellation provision does not require cause, nor does it make the

parties’     right    to    cancel      depend   on    any   contingency;    it    only

requires ninety days’ notice for either party to cancel. Therefore


                                           11
the clause may not include any implied limitation on the parties’

power to terminate their relationship.

     We need not speculate as to how the North Carolina courts

would resolve this open question, however, because even if the duty

of good faith does apply here, CNA could invoke the clause without

breaching this duty. Nothing in this record even suggests that CNA

chose to terminate its relationship with SOI “with the intent to

wrongfully deprive [SOI] of . . . benefits to which [it was]

entitled or for any other wrongful or unconscionable purpose.”

Dull, 354 S.E.2d at 757; see also Claggett v. Wake Forest Univ.,

486 S.E.2d 443, 447-48 (N.C. Ct. App. 1997) (declining to find

breach of the duty of good faith and fair dealing when party’s

discretionary decision was “rational”).   Unquestionably, CNA had

lost a substantial amount of money under the contract with SOI and

this loss constituted the reason that CNA wanted to terminate the

contract if negotiation of a more profitable rate was impossible.

Such a motive is neither wrongful nor unconscionable; indeed, North

Carolina courts have specifically held that a party’s desire to

avoid financial losses constitutes reasonable grounds for declining

to perform otherwise applicable contractual obligations.      See,

e.g., Jones v. Andy Griffith Prods., Inc., 241 S.E.2d 140 (N.C. Ct.

App. 1978).   Therefore, even if an implied duty of good faith

limited the parties’ exercise of their cancellation rights under




                                12
the contract, CNA could invoke the cancellation clause without

breaching this duty.

        Because CNA was entitled to terminate the contract under the

cancellation clause, SOI’s damages should have been limited to

those incurred during the ninety-day notice period.           See Bloch v.

Paul Revere Life Ins. Co., 547 S.E.2d 51, 58-59 (N.C. Ct. App.

2001).     As discussed above, CNA did not breach the contract until

its letter cancelling coverage, dated February 14, 2000.             SOI’s

damages are therefore limited to those incurred within ninety days

after February 14, 2000.

                                     2.

        The district court held to the contrary for three reasons. We

find none of them persuasive.

        First, relying on Chevrolet Motor Co. v. Gladding, 42 F.2d 440

(4th Cir. 1930), the court found that the cancellation clause did

not limit SOI’s damages because CNA had not invoked that clause as

its reason for terminating the agreement.             SOI argues that the

“mend the hold” doctrine also compels this result.           The “mend the

hold”    doctrine   is   “an   equitable   doctrine   that   precludes   the

assertion of inconsistent litigation positions, usually concerning

the meaning of a contract, within the context of a single lawsuit.”

Whitacre P’ship v. Biosignia, Inc., 591 S.E.2d 870, 886 (N.C.

2004).     Gladding applied a similar rule, holding that “one who

breaches his contract for reasons specified at the time will not be


                                     13
permitted afterwards, when sued for damages, to set up other and

different defenses.”   42 F.2d at 445 (internal quotation marks and

citations omitted).    Unlike Gladding and cases applying the “mend

the hold” doctrine, however, CNA’s argument that damages should be

limited to the notice period does not present an inconsistent

position taken during, or in preparation for, litigation because

the   cancellation   provision   did   not   require   specific   cause.

Therefore, both Gladding and the “mend the hold” doctrine are

inapposite here.

      Second, the district court held that the jury’s conclusion --

that CNA’s decision to raise the rate on SOI’s policy was not

objectively reasonable -- “necessarily foreclosed” a finding that

CNA could invoke the cancellation clause without breaching the

implied duty of good faith.      As discussed above, the re-rating

clause provides that CNA may re-evaluate the policy rate if “[1]

additional exposures, [2] premiums anticipated[,] and [3] prior

losses” all changed significantly, and SOI introduced evidence at

trial that “exposures” had not changed.       While all three of these

conditions must be met in order to invoke the re-rating clause, the

cancellation clause does not require that any of these conditions

be met.   The jury’s conclusion that CNA did not have an objectively

reasonable, good faith belief that all three specific conditions in

the re-rating clause were met thus does not foreclose the holding

that CNA had reasonable grounds to invoke the cancellation clause.


                                  14
Therefore the jury’s verdict with respect to the re-rating clause

does not foreclose CNA’s invocation of the cancellation clause.

     Finally, the district court concluded that North Carolina

cases limit damages to the notice period only in at-will employment

contracts and other contracts of indefinite duration, and permit

recovery of all damages incurred during the entire contract in

contracts of fixed duration.   But no North Carolina case so holds.

Rather, North Carolina law merely holds that an injured party to a

contract of fixed duration may recover damages incurred during the

entire contract period when one party prematurely terminates the

contract if it does not include a cancellation provision.      See

Bloch, 547 S.E.2d at 237-38 (citing Lowery v. Love, 378 S.E.2d 815

(N.C. Ct. App. 1989)).   North Carolina courts have explained that

this follows from the general rule that the non-breaching party’s

reasonable “expectation interest” defines the scope of recoverable

damages.   See id. (citing Restatement (Second) of Contracts §

344(a) cmt. a (1979)).   Thus, when a contract does provide a right

to cancel with notice the parties must reasonably expect that this

right might be exercised, regardless of whether the contract is for

a fixed term or of indefinite duration.

     In sum, contrary to the conclusion of the district court,

SOI’s damages should have been limited to those incurred during the

ninety-day notice period.




                                 15
                                   III.

                                    A.

      In its cross-appeal, SOI contends that the district court

erred in denying its motion for a new trial or remittitur on CNA’s

claim for unpaid premiums.       We review the district court’s denial

of a motion for a new trial or remittitur for abuse of discretion.

See F.D.I.C. v. Bakkebo, 506 F.3d 286, 294 (4th Cir. 2007).

      CNA based its counterclaim for unpaid premiums, in part, on a

minimum payroll provision that allegedly applied to the 1999 policy

year.    SOI argues that it is entitled to a new trial because the

weight of the evidence shows that the parties never actually agreed

to the minimum payroll provision. The district court did not abuse

its discretion in declining to disturb the jury’s conclusion that

SOI did in fact agree to this term.             The district court also

properly found that the minimum payroll provision only applied to

the     $3.40   rate   program   and     that   therefore   any   alleged

miscalculation of premiums that SOI owed under other programs did

not affect the jury’s award.

                                    B.

      In addition to its breach of contract claim, SOI brought a

claim under the North Carolina Unfair and Deceptive Trade Practices

Act, N.C. Gen. Stat. § 75-1.1 (2007) (UDTPA) and a common law

“insurance bad faith” claim, for which it sought punitive damages.

CNA moved for summary judgment on these claims, and the district


                                    16
court granted the motion.        We again review the district court’s

grant of summary judgment de novo, with respect to this argument

viewing the facts in the light most favorable to SOI.                See Meson,

507 F.3d at 806.

     The North Carolina UDTPA makes unlawful unfair or deceptive

acts affecting commerce.        See N.C. Gen. Stat. § 75-1.1.            A mere

breach of contract does not constitute an unfair or deceptive act,

but additional aggravating factors -- like fraudulent or deceptive

conduct, or conduct that amounts to an inequitable assertion of

power -- can trigger the Act.        See Mosley & Mosley Builders, Inc.

v. Landin Ltd., 389 S.E.2d 576, 579-80 (N.C. Ct. App. 1990).              North

Carolina courts have held that a plaintiff may not recover punitive

damages absent similar aggravating factors; punitive damages are

appropriate only in “breach of contract actions that smack of tort

because of the fraud and deceit involved.” Oestreicher v. Am. Nat.

Stores, Inc., 225 S.E.2d 797, 809 (N.C. 1976).              The district court

correctly   found,   as    a   matter    of   law,   that    SOI’s    UDTPA   and

“insurance bad faith” claims fail because no reasonable jury could

conclude    that   CNA’s   conduct      included     sufficient      aggravating

behavior.



                                     IV.

     To summarize, we hold that the district court should have

limited SOI’s damages to those incurred during the ninety day


                                        17
notice period in the cancellation clause, and we reverse and remand

with instructions for the district court to reduce the judgment

accordingly.   Otherwise we affirm.   The judgment of the district

court is therefore

                                                 AFFIRMED IN PART,
                                                 REVERSED IN PART,
                                                     AND REMANDED.




                                18
