Polyquest, Incorporated v. Vestar Corp LLC
Filing
29
ORDER granting 24 Motion to Amend and granting in part and denying in part 13 Motion to Dismiss for Lack of Jurisdiction. Polyquest is directed to file a signed amended complaint within seven (7) days of the filing date of this Order. Signed by Senior Judge James C. Fox on 2/6/2014. (Edwards, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
No. 7:13-CV -23-F
POLYQUEST, INCORPORATED,
)
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
VESTAR CORP, LLC, and LEE W.
TARDIVEL,
Defendants.
ORDER
This matter is before the court on the Motion to Dismiss [DE-13] filed by Defendants V estar
Corp, LLC ("Vestar") and Lee W. Tardive! ("Tardive!"), and the Motion for Leave to Amend
Complaint [DE-24] filed by PlaintiffPolyquest, Incorporated ("Polyquest"). For the reasons stated
herein, the Motion to Dismiss [DE-13] is DENIED in part and ALLOWED in part and the Motion
for Leave to Amend Complaint [DE-24] is ALLOWED.
I. FACTUAL AND PROCEDURAL BACKGROUND
This action arises out of Defendants' alleged tortious interference with a Security Agreement
entered into between Plaintiff Polyquest and a non-party to this action, EocPlas Polymers LLC
("Polymers).
Polyquest is a North Carolina corporation headquartered in Wilmington, North Carolina,
'
which is engaged in the business of distributing PET resins, manufacturing and distributing recycled
PET resins and processing PET scrap streams. See Marinelli Aff. [DE-22]
~~
3, 6. PET resins are
a plastic substance used in a wide variety of products, including plastic bottles. !d.
~
6.
Polyquest alleges that during the period from June 2012 through November 2012, Tardive!,
a citizen of the United Kingdom who maintains a residence in New York, made several trips to
North Carolina and attended multi-day meetings at Polyquest's headquarters for purposes of
soliciting an investment by Polyquest into various joint ventures, including a proposed joint venture
to operate a baled bottle recycling facility located in East Farmingdale, New York ("the Facility").
Compl. [DE-l]
~
9. The Facility's manufacturing operation consisted of taking recycled plastic
bottles, and through a sorting and cleaning process, converting them into a plastic flake. !d. Tardivel
is a member ofVestar, which is a Delaware limited liability company.
!d.~
2.
Following the negotiations, Vestar and Polyquest agreed to an arrangement under which a
newly-formed Delaware limited liability company, Ecoplas Holdings, LLC ("Holdings") would own,
as a wholly-owned subsidiary, another newly-formed Delaware limited liability company, Polymers.
Holdings has two members: Defendant Vestar and PQ Capital Ventures, LLC ("PQ Capital"), a
North Carolina limited liability company and affiliate of Polyquest. Compl. [DE-l]
~
10. In
conjunction with this arrangement, Tardivel was appointed President of Holdings and Chief
Executive Officer of Polymers. !d.
~
11.
Additionally, Polymers and Vestar entered into a
Management Services Agreement, under which Vestar was responsible for the day-to-day
management ofPolymer's business operations. !d.~ 18.
Polyquest alleges that the joint venture arrangement was at all times dependent upon a
purchase of the operating assets of the Facility from a third party, the Coca Cola Company. !d.~ 12;
Marinelli Aff. [DE-22]
~
8. In connection with this asset purchase transaction, Polyquest extended
a $750,000 loan to Polymers, evidenced by a Promissory Note and secured by a Security Agreement.
Compl. [DE-l]~ 12; Exs. A (Promissory Note) & B (Security Agreement). Under the Security
Agreement, Polymers agreed that it would:
2
•
•
•
•
•
Compl.
Maintain all of its leases and conduct its business in an orderly and efficient
manner in accordance with good business practices.
Maintain its assets, invoices, and checks separate from and not commingled
with any ofthose of any other person or entity.
Not commingle its assets with the assets of any of its managers, members,
affiliates, principals or any other entity.
Not, without the consent ofPolyquest, pay management fees, salary, bonus,
commission, consulting fees or other compensation to the members,
managers and officers of Polymers, Holdings, or any entity that is a member
of Holdings.
Pay all taxes and charges imposed on the collateral securing its indebtedness
to Polyquest.
[DE-l]~~
13-17; Ex.
Bat~~
2A(b); 2A(c); 2B(c); 2B(e); 3.
Polyquest alleges that at some point in time, it became aware that Defendants were not
performing their obligations under the Management Services agreement, to the detriment of
Polymers and in apparent violation of the Security Agreement. Specifically, Polyquest alleges that
Defendants intentionally caused Polymers to fail to pay rent owed to the landlord of the Polymers
Facility; to fail to pay its utility providers and other trade creditors, and to fail to pay, withhold and
remit applicable payroll and unemployment taxes. Compl.
[DE-l]~
25.
Polyquest also alleges that less than two weeks after the execution of the Note and Security
Agreement by Polymers, Polymers contracted to sell Unifi Manufacturing, Inc. ("Unifi") five or
more inventory loads of plastic flake owned by Polymers. Compl.
[DE-l]~
19. Per the terms of the
contract, the product was to be shipped from Polymers' place of business in New York to Unifi's
place ofbusiness in Yadkinville, North Carolina. !d. The Unifi Order was evidenced by a purchase
order submitted by Unifi to Polymers. !d., Ex. D.
According to Polyquest, following the initiation of the Unifi Order, Defendants caused
invoices for the Unifi Order to be submitted to Unifi in the name of Vestar, not Polymers, and
3
directed that payment be made directly to Vestar rather than Polymers. Compl. [DE-l]
~
20.
Polyquest alleges that Defendants' actions were for the purpose of intentionally converting
Polymer's product, and the payments derived therefrom, to Defendant's use and benefit to the
detriment of Polymers and Plaintiff, and were in violation of the Security Agreement. Id
Accordingly, upon learning of the invoicing for the Unifi Order, Polymers sent a letter dated
January 16, 2013 to Unifi, notifying it ofthe conversion and directing payment to Polymers at its
North Carolina address. Id
~
21; Ex. E. On that same date, the Management Services Agreement
between Vestar and Polymers was terminated, and Tardivel was removed as an officer ofHoldings
and Polymers. Compl.
[DE-l]~ 27;
Ex. G. On the following day, January 17,2013, Polyquest sent
Polymers a Notice of Default. Compl.
[DE-l]~
26; Ex. F.
Polyquest alleges, notwithstanding the foregoing, that Tardivel still directed Unifi to wire
payment for the Unifi Order to a Chase bank account of Polymers to which Tardivel had direct
access and control. Compl. [DE-l]
~
22. Polyquest alleges that Tardivel promptly changed the
passwords to the Polymers' Chase account, thereby denying Polymers' chief financial officer, Randy
M. Bragg, and its chief operating officer, George Smilow, any ability to access or review activity in
the Polymers' Chase account. Compl. ld On or about January 22,2013, Defendants initiated three
electronic, online transfers from this Polymers' Chase account in the amounts of$20,000, $50,000,
and $100,000, respectively, to an account ending the digits "256." Id
this account is maintained by Vestar or Tardive!. ld
~
~ 23.
Polyquest contends that
23.
On January 24,2013, Polyquest, through its counsel, sent Tardivel a letter demanding return
of the $170,000 in withdrawn funds to Polymers. Id
demand. Compl.
[DE-l]~
~ 28;
Ex. H. Tardivel failed to comply with this
28. Polyquest contends that both Defendants have acknowledged that
4
they authorized the transfer for these monies from Polymers' Chase account. !d.~ 24. According
to Polyquest, Defendants claim, falsely, that the transfers were payment for Vestar's management
fee. !d. Polyquest asserts that payment for any such fee would be owed, if at all, by Holdings, and
not by Polymers. !d.
Polyquest then initiated this action in this court on January 31, 2013, alleging claims for
tortious interference with contract and unfair and deceptive trade practices in violation ofN. C. Gen.
Stat. § 75-1.1. Defendants thereafter filed a Motion to Dismiss [DE-13], arguing that the action must
be dismissed pursuant to Rule 12(b)(2) for lack of personal jurisdiction over the Defendants, or in
the alternative, dismissed pursuant to Rule 12(b)(3) for improper venue. Defendants also argue that
the Complaint must be dismissed pursuant to Rule 12(b)(6) for failure to state a claim. Polyquest
has filed a response [DE-21] and Defendants have replied [DE-26], and the Motion to Dismiss is
therefore ripe for disposition.
While the parties were briefing the Motion to Dismiss, Polyquest also filed a Motion for
Leave to Amend Complaint [DE-24], whereby Polyquest seeks to file an Amended Complaint which
adds an additional claim for conversion of security. Defendants have responded [DE-27], and this
motion also is ripe for disposition.
II. MOTION TO DISMISS
Because Defendants' Motion to Dismiss concerns, in part, the court's power to hear this case,
the court will address that motion first.
A.
Motion to Dismiss for Lack of Personal Jurisdiction
Under Federal Rule ofCivil Procedure 12(b)(2), the party assertingpersonaljurisdictionhas
the burden to prove the existence of a ground for jurisdiction by a preponderance of the evidence.
5
Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290,294 (4th Cir. 2005). "Where
a challenge to personal jurisdiction is addressed only on the basis of motion papers, supporting legal
memoranda, and the relevant allegations ofthe complaint, 'the burden on the plaintiff is simply to
make a prima facie showing of a sufficient jurisdictional basis to survive the jurisdictional
challenge." Pan-American Prods. & Holdings, LLC v. R. T G. Furniture Corp., 825 F. Supp. 2d 664,
676(M.D.N.C. 2011) (quoting Combsv. Bakker, 886 F.2d 673,676 (4th Cir. 1989)). In that instance,
the court "must construe all relevant pleading allegations in the light most favorable to the plaintiff,
assume credibility, and draw the most favorable inferences for the existence ofjurisdiction." Combs,
886 F.2d at 676. "[W]here the defendant provides evidence that denies the facts essential for
jurisdiction, the plaintiff must present sufficient evidence to create a factual dispute on each
jurisdictional element which has been denied by the defendant on which the defendant has presented
evidence." Pan-American, 825 F. Supp. 2d at 676 (citing Pinpoint IT Servs., L.L.C v. Atlas IT
Export Corp., 812 F. Supp. 2d 710, 716-17 (E.D. Va. 2011); Indus. Carbon Corp. v. Equity Auto &
Equip. Leasing Corp., 737 F. Supp. 925,926 (W.D. Va. 1990)). At this stage, ifthe court determines
that a plaintiff has established a prima facie showing of personal jurisdiction, the court "will proceed
as if it has personal jurisdiction over the matter, although factual determinations to the contrary may
be made at trial." Pinpoint, 812 F. Supp. 2d at 717 (citing 2 James W. Moore etal.,Moore 's Federal
Practice ~ 12.31 (3d ed. 2011)).
Analysis of personal jurisdiction consists of a two-part inquiry. First, the court must
determine whether North Carolina's long -arm statute authorizes the exercise of personal jurisdiction
over the defendants. See Christian Scientist Bd. ofDirectors ofFirst Church ofChristv. Nolan, 259
F.3d 209,215 (4th Cir. 2001). Second, if the long-arm statute does authorize jurisdiction, then the
6
court must examine whether the exercise of personal jurisdiction comports with the Due Process
Clause of the Fourteenth Amendment. See id. North Carolina's long-arm statute, N.C. Gen. Stat.
§ 1-75.4, was enacted "to make available to the North Carolina courts the full jurisdictional powers
permissible under federal due process." Dillon v. Numismatic Funding Corp., 231 S.E.2d 629, 630
(N.C. 1977). Because North Carolina long-arm jurisdiction has been interpreted to be coextensive
with the limits of due process, the normal two-step personal jurisdiction test has been collapsed into
a single inquiry of whether the exercise of jurisdiction comports with due process. See Nolan, 259
F .3d at 215. That is, the court in this case need only inquire into whether "the defendant has such
'minimal contacts' with the forum state that maintenance of the suit does not offend 'traditional
notions of fair play and substantial justice."' Nolan, 259 F.3d at 215 (quoting Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)). In other words, a defendant must have purposefully
established minimum contacts with the forum state such that he "should reasonably anticipate being
haled into court" there. Burger King Corp. v. Rudzewicz, 471 U.S. 462,474 (1985).
"The requisite contacts may be established by way of general or specific jurisdiction."
Hardee's Food Sys., Inc. v. Beardmore, 169 F.R.D. 311,314 (E.D.N.C. 1996). General jurisdiction
enables a foreign forum to exercise jurisdiction over a defendant due to the defendant's "continuous
and systematic" contacts with the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
U.S. 404,414-16 (1984). Specific jurisdiction exists when a plaintiffs cause of action arises out of
the defendant's conduct with the forum state. See Consulting Engineers, 561 F.3d at 277. As the
Fourth Circuit has noted, the "threshold level of minimum contacts to confer general jurisdiction is
significantly higher than for specific jurisdiction." ESAB Group, Inc. v. Centricut, Inc., 126 F.3d
617,623 (4th Cir. 1997).
7
Here, Polyquest concedes the question of general jurisdiction, see Mem. in Opp. to Def.'s
Mot. to Dismiss [DE-21] p. 10, and accordingly the court will limit its analysis to specific personal
jurisdiction. "With respect to specific jurisdiction,' [t]he touchstone ... remains that an out-of-state
person have engaged in some activity purposefully directed toward the forum state."' ESAB Group,
126 F.3d at 625 (alteration in original) (quoting Lesnickv. Hollingsworth & Vase Co., 35 F.3d 939,
941-46 (4th Cir. 1994)). In the Fourth Circuit, courts typically engage in a three-part inquiry to
determine if specific jurisdiction exists, examining '"(1) the extent to which the defendant
purposefully availed itself of the privilege of conducting activities in the State; (2) whether the
plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of
personal jurisdiction would be constitutionally reasonable.'" Consulting Engineers, 561 F .3d at 278
(quotingALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707,712 (4th Cir. 2002)). Each
prong of this test must be satisfied for a court to exercise personal jurisdiction over a party. !d.
Defendants concede that they have contacts with North Carolina. 1 They argue, however, that
Polyquest's claims against them do not arise out ofDefendant's contacts with North Carolina, and
therefore the second prong of the specific jurisdiction test has not been met. Specifically, Defendants
note that Polyquest' s claims are based on Defendants' alleged tortious interference with the Note and
Security Agreement between Polyquest and Polymers. Defendants further observe that Polyquest' s
claims arise from Defendants allegedly (1) converting Polymers inventory andre-marketing that
inventory as if it were owned by Vestar; (2) withdrawing $170,000 from Polymers' bank account and
paying those funds to themselves; (3) causing Polymers to pay Vestar's management fee; and (4)
1
The court agrees that Polyquest has met its prima facie showing that Defendants purposefully availed itself
of the privilege of conducting activities in North Carolina. See Pl.'s Mem. [DE-21] p. 10 (summarizing
Defendants' contacts with North Carolina).
8
failing to cause Polymers to conduct its business practices in a good and efficient manner, including
failure to timely pay Polymers' landlord, taxes and creditors. See Compl
[DE-l]~
29. Defendants
argue that all these actions, which relate to Defendants' operation and management of Polymers,
occurred in New York and not North Carolina. Although Defendants recognize that some of the
allegations concerning their management of Polymers includes their invoicing a North Carolina
company for product actually sold by Polymers, and later contacting that same North Carolina
company with instructions to deposit money in Polymers' account, Defendants maintain that these
actions, too, were confined to New York.
Polyquest, in turn, argues that Defendants takes too restrictive view ofthe requirement that
a claim arise from or relate to a defendants' contacts with a forum state. Rather, according to
Polyquest, "[i]t is sufficient to show that plaintiff felt the brunt of the harm from the alleged tortious
activity in the forum state, that defendants expressly aimed their tortious conduct at the forum state
or that the activity arose out of a contractual or collaborative relationship established with a North
Carolina-based entity." Pl.'s Mem [DE-21] p. 11. Polyquest' s argument implicates two distinct
issues. The latter portion of the argument concerns what it means for a claim to "arise out of' or
"relate to" a defendant's contacts with a forum. The former portion of Polyquest's argument
concerns whether a defendant's tortious conduct outside the forum can nevertheless be characterized
constitutionally sufficient contacts. See Calder v. Jones, 465 U.S. 783, 789 (1984); Consulting
Engineers, 561 F.3d at 280.
The court considers the "arise out of' or "relate to" question first. Again, the second part of
the test for specific jurisdiction requires that the defendant's contacts with the forum state form the
basis ofthe suit. Consulting Engineers, 561 F.3d at 278-79 (citing Burger King, 471 U.S. at 472,
9
Helicopteros, 466 U.S. at 414). Accordingly, a plaintiff's claims must "arise out of or relate to" the
defendant's contacts with the forum state. Helicopteros, 466 U.S. at 414. "Unfortunately, the
Supreme Court has not yet explained the scope of this requirement." 0 'Connor v. Sandy Lane Hotel
Co. Ltd., 496 F .3d 312,318 (3d Cir. 2007) (citing Helicopteros, 466 U.S. at 415 n.l 0). Lower courts,
however, have tackled the issue, and a review of cases shows that "[t]hree approaches predominate."
!d.
The first, and most restrictive approach, has been called the "proximate cause" or
"substantive relevance" test. !d. Some courts utilizing this approach hold that the defendant's instate conduct must give birth to the cause of action-or, in other words, be the "legal cause" of the
plaintiff's injury. See id. (citing Mass. Sch. ofLaw at Andover, Inc. v. Am. Bar Ass 'n, 142 F.3d 26,
35 (1st Cir. 1998)). Put another way, "this test examines whether any of the defendant's contacts
with the forum are relevant to the merits of the plaintiff's claim." !d. at 318-19. The second, more
relaxed, approach, commonly known as the "but for" standard, "is satisfied when the plaintiff's
claim would not have arisen in the absence of the defendant's contacts." !d. at 319 (citing Shute v.
Carnival Cruise Lines, 897 F.2d 377, 385-86 (9th Cir. 1990) rev 'don other grounds 499 U.S. 585
(1991 )). Finally, the least restrictive approach, known as the "'substantial connection" or "discernible
relationship" standard, examines the totality of the circumstances to determine "whether the tie
between defendant's contacts and the plaintiff's claim is close enough to make jurisdiction fair and
reasonable." !d. (citing Chew v. Dietrich, 143 F.3d 24,29 (2d Cir. 1998)).
The Fourth Circuit has yet to explicitly adopt a particular approach, but in at least one
decision, CFA Institute v. Institute of Chartered Financial Analysis ofVirginia, 551 F.3d 285 (4th
Cir. 2009), it appears to have employed the "but for" standard. In that case, the court found that a
10
Virginia non-profit's claims against an Indian corporation for trademark infringement, unfair
competition, and breach of contract "arose out of [the Indian corporation's ] Virginia-related
business transactions." ld. at 296. In so doing, the Fourth Circuit observed that the Indian
corporation's 1984 visit to the non-profit in Virginia was "the genesis of the dispute." ld. at 295.
Specifically, "[t]he visit prompted the parties to enter into the License Agreement; [the Indian
corporation's] subsequent infringement of the [non-profit's] rights under the License Agreement
resulted in the Settlement Agreement ... ; and [the Indian corporation's] breach of the Settlement
Agreement resulted in this lawsuit." ld. In the Fourth Circuit's view, this demonstrated a "seamless
series ofbusiness transactions from [the] 1984 Charlottesville visit to the filing ofthe Complaint."
ld. The Fourth Circuit's analysis appears to hew more closely to the "but for" approach than any of
the other approaches utilized by other courts.
Using the same "but for" approach in this case leads to the conclusion that Polyquest' s claims
arise out of, or relate to, Defendants' contacts with North Carolina. If the 1984 visit to Virginia in
CFA Institute can be said to be the genesis of that dispute, then Defendants' actions in reaching out
to a North Carolina corporation, traveling several times toN orth Carolina to solicit that corporation's
participation in a joint venture, and eventually securing a managerial role in the execution of that
joint venture is the genesis of the instant dispute. The court does not adopt Defendants' view that
for a claim to "arise out of or relate to" a parties' contacts with the forum state, those contacts must
be the proximate cause of the injury leading to a plaintiffs claims. Accordingly, the court finds that
Plaintiffs' claims arise out of or relate to Defendants' contacts with North Carolina. Having so
concluded, the court does not reach Polyquest's alternative argument that Defendants' actions
outside North Carolina can nevertheless be considered constitutionally sufficient minimum contacts.
11
The court therefore turns to the third prong of the specific jurisdiction test: whether the
exercise of personal jurisdiction over Defendants would be constitutionally reasonable. In assessing
this, the court considers factors such as "( 1) the burden on the defendant in litigating in the forum;
(2) the interest of the forum in adjudicating the dispute; (2) the plaintiffs interest in obtaining
convenient and effective relief; (4) the shared interest of the states in obtaining efficient resolution
of the dispute; and (5) the interests of the states in furthering substantive social policies." Consulting
Engineers, 561 F.3d at 279. Defendants do not argue that any of these factors weigh against finding
that this court's exercise of personal jurisdiction over them is constitutionally reasonable.
Defendants have demonstrated that they are capable of defending themselves in this state, and it is
no less convenient for Defendants to litigate this action here than it is for Polyquest to litigate this
action in New York. 2 Additionally, it cannot be said that North Carolina does not have an interest
in providing a forum for the resolution of this conflict. Consequently, the exercise of personal
jurisdiction over Defendants by this court will not "make litigation so gravely difficult and
inconvenient that a party unfairly is at a 'severe disadvantage' in comparison to his opponent."'
Nolan, 259 F.3d at 217 (quoting Burger King, 471 U.S. at 478).
Accordingly, because this court may exercise specific jurisdiction over Defendants, the
motion to dismiss on the basis oflack personal jurisdiction is DENIED.
2
Indeed, Defendant Tardive! signed on behalf of the yet-to-be-formed V estar a Confidentiality Agreement
with Polyquest providing that "each party irrevocably and unconditionally submits to the jurisidiction" of
the courts ofNorth Carolina. See Marinelli Aff. [DE-22], Ex. A. Although this litigation does not concern
the terms of the Confidentiality Agreement, the court does find this fact significant in assessing V estar and
Tardivel's burden in litigating in this forum.
12
B.
Motion to Dismiss for Improper Venue
When a defendant moves to dismiss for improper venue pursuant to Rule 12(b)(3), and no
evidentiary hearing is held, "the plaintiff need only make a prima facie showing of venue." Mitrano
v. Hawes, 377 F.3d402, 405 (4th Cir. 2004). 28 U.S.C. § 1391 provides the statutory framework for
determining proper venue. Subsection (b) provides that a civil action may be brought in
( 1) a judicial district where any defendant resides, if all defendants are residents of
the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving rise
to the claim occurred, or a substantial part of property that is the subject of the action
is situated, or
(3) if there is no district in which an action may otherwise be brought as provided in
this section, any judicial district in which any defendant is subject to the court's
personal jurisdiction with respect to such action.
Id
Residency for venue purposes is defined by 28 U.S.C. § 1391(c). Pertinent to this action, "an
entity with the capacity to sue and be sued in its common name under applicable law, whether or not
incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such
defendant is subject to the court's personal jurisdiction with respect to the civil action in question."
28 U.S.C. § 1391(c)(2); see also§ 1391(d) ("[I]n a State which has more than one judicial district
and in which a defendant that is a corporation is subject to personal jurisdiction at the time an action
is commenced, such corporation shall be deemed to reside in any district in that State within which
its contacts would be sufficient to subject it to personal jurisdiction ifthat district were a separate
State, and, ifthere is no such district, the corporation shall be deemed to reside in the district within
which it has the most significant contacts."). A natural person, however, "including an alien lawfully
admitted for permanent residence in the United States, shall be deemed to reside in the judicial
13
district in which that person is domiciled." 28 U.S.C. § 1391(c)(l). Correspondingly, then, "a
natural person who is an alien but not admitted for permanent residence in the United States may be
sued in any district." 14D CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE &
PROCEDURE§ 3810 (3d ed. 2009); see also 28 U.S.C. § 1391(c)(3) ("[A] defendant not resident in
the United States may be sued in any judicial district, and the joinder of such a defendant shall be
disregarded in determining where the action may be brought with respect to other defendants.").
Under the plain terms of§ 13 91, Defendant V estar is considered a resident ofNorth Carolina,
and more specifically, the Eastern District of North Carolina, because it is subject to personal
jurisdiction here. Plaintiff also has alleged that Tardivel is a citizen of the United Kingdom, where
he is domiciled, although he maintains a residence in New York. Compl.
[DE-l]~
3. Tardivel's
declaration confirms this. See Decl. ofTardivel [DE-13-1] ~ 1 ("I have been a citizen ofthe United
Kingdom my entire life. I still own property in the United Kingdom, but I also maintain a residence
in New York County, New York."). Tardivel's declaration does not suggest that he has been
admitted for permanent residence in the United States. Accordingly, the fact that he maintains a
residence in New York is of no importance for venue purposes. He may be sued in any district, for
purposes of venue. See FEDERAL PRACTICE & PROCEDURE§ 3810.
Because Vestar is subject to personal jurisdiction in this district, and is therefore deemed to
be a resident thereof, venue is proper under§ 1391(b)(l). Defendants' motion to dismiss on the basis
of improper venue is therefore DENIED.
C.
Motion to Dismiss for Failure to State a Claim
Defendants also move to dismiss, on the basis of failure to state a claim, Polyquest' s claims
for tortious interference with contract and for unfair and deceptive trade practices.
14
The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the
complaint, not to resolve conflicts of fact or to decide the merits of the action. Edwards v. City of
Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999). In considering a motion to dismiss, the court
assumes the truth of all facts alleged in the complaint and the existence of any fact that can be
proved, consistent with the complaint's allegations. Erickson v. Pardus, 551 U.S. 89, 94 (2007).
However, the"' [t]actual allegations must be enough to raise a right to relief above the speculative
level' and have 'enough facts to state a claim to relief that is plausible on its face.'" Wahi v.
Charleston Area Med. Ctr., Inc., 562 F.3d 599,616 n.26 (4th Cir. 2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)); Ashcroft v. Iqbal,_ U.S._, 129 S. Ct. 1937, 1950 (2009)
("While legal conclusions can provide the framework of a complaint, they must be supported by
factual allegations."). "[A] plaintiffs obligation to provide the 'grounds' of his 'entitle[ment] to
relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's
elements will not do." Twombly, 550 U.S. at 555 (citations omitted). Moreover, a court "need not
accept the legal conclusions drawn from the facts" nor "accept as true unwarranted inferences,
unreasonable conclusions, or arguments." Eastern Shore Mkts., Inc. v. JD. Assocs. Ltd. P 'shp., 213
F.3d 175, 180 (4th Cir. 2000).
1.
Tortious Interference
Polyquest alleges that Defendants tortiously interfered with Polymer's duties and obligations
under the Security Agreement between Polymers and Polyquest. Under North Carolina law, 3 the
elements of tortious interference with contract are:
3
The parties have assumed, for purposes of this motion, that North Carolina law governs Polyquest' s claims.
The court will do the same.
15
(1) a valid contract between the plaintiff and a third person which confers upon the
plaintiff a contractual right against a third person; (2) the defendant knows of the
contract; (3) the defendant intentionally induces the third person not to perform the
contract; (4) and in so doing acts without justification, (5) resulting in actual damage
to plaintiff.
United Labs, Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988). Defendants
contend that Polyquest has failed to allege sufficient facts to establish the third, fourth, and fifth
elements of such a claim. The court disagrees.
With regard to the third element, Defendants contend that Polyquest has failed to allege a
material, as opposed to technical, breach of the Security Agreement. Specifically, Defendants argue
that Polyquest was required to provide Polymers with notice, and an opportunity to cure, the alleged
breaches of the Security Agreement. Because the Complaint does not allege that Polyquest did so,
Defendants argue that the tortious interference claim must fail. Defendants, however, do not cite, and
this court has not been able to locate, a case distinguishing between "technical" and "material"
breaches as they relate to tortious interference claims under North Carolina law. The court also notes
that the attachments to the Complaint show that Polyquest viewed some of the alleged breaches as
being "incurable," and therefore it believed no notice was required. See Compl. Ex. E [DE-1-6].
Accordingly, the court declines to rule, at this juncture, that as a matter oflaw "technical" breaches
of a contract are insufficient to support a tortious interference claim.
The court finds Defendants' additional argument with regard to the third element-that the
sale of the Polymers' inventory to Unifi was in the ordinary course ofbusiness, and therefore, could
not be a breach of the Security Agreement-to constitute a seemingly willful misreading the
Complaint. It was not the sale of inventory to Unifi that constituted the breach; it was Defendants'
alleged actions in invoicing Unifi in the name ofV estar, and eventually converting Unifi' s payment
16
for the inventory.
With regard to the fourth element, requiring that a defendant act without justification,
Defendants contend that the complaint is deficient for two reasons. First, they argue that as "nonoutsiders," they are entitled to assert a qualified privilege. Second, Defendants assert that the
Complaint shows on its face that there was an obvious, legitimate business justification for their
actions. The court finds that neither argument is sufficient to dismiss Polyquest' s claim for tortious
interference.
As to the first argument, Defendants are correct that under North Carolina law, "corporate
insiders" such as"[o]fficers, directors, shareholders and other corporate fiduciaries have 'a qualified
privilege to interfere with contractual relations between the corporation and a third party.'" Embree
Constr. Group v. Rafcor, Inc., 330 N.C. 487,499,411 S.E.2d 916, 924 (1992) (quoting Wilson v.
McClenny, 262 N.C. 121, 133, 136 S.E.2d 569,578 (1964)). "The privilege, however, is qualified,
not absolute; the presumption that the officers's acts are in the corporation's interest and thus
justified is overcome when the means or the officer's motives are improper." !d. Accordingly, a
plaintiff may still state a claim for tortious interference against an "insider" defendant where the
plaintiff alleges facts showing that defendant's actions were in his own personal interest. !d. at 499,
411 S.E.2d at 925-25. Here, Polyquest has alleged facts that support the inference that Defendants'
actions were taken to benefit themselves, at the expense ofPolymers. See Compl. [DE-l] ,-r,-r 20, 22,
23, 24. Additionally, some of the actions underlying Polyquest's claim-namely, the alleged
conversion of$170,000.00 from Polymers' bank account-allegedly occurred after Defendants' were
relieved of their management responsibilities at Polymers. Accordingly, Polyquest's claim for
tortious interference does not fail, at this juncture, on the basis of the qualified privilege.
17
Similarly, Defendants' assertion that their actions were supported by an obvious, legitimate
business justification also does not preclude Polyquest's claim. "Whether an actor's conduct is
justified depends upon 'the circumstances surrounding the interference, the actor's motive or
conduct, the interests sought to be advanced, the social interest in protecting the freedom of action
of the actor[,] and the contractual interests of the other party."' Embree Construction, 330 N.C. at
924, 411 S.E.2d at 498 (quoting Peoples Security Life Ins. Co. v. Hooks, 322 N.C. 216, 221, 367
S.E.2d 647, 650 (1988)) (alteration in original). Defendants assert that the Complaint, and the
attachments thereto, show that the sale of inventory to Unifi was in the ordinary course of business,
and expressly consented to by Polyquest. See Security Agreement [DE-1-2]
~~
2(b)(g) & 3(g)
(allowing the sale of inventory in the ordinary course of business). The court, however, finds that
such an argument amounts to almost a willful misreading of the allegations of the Complaint.
Polyquest does not allege that sale of inventory by Polymers resulted in the breach of security
agreement. Rather, Polyquest alleges that Defendants' actions in later sending an invoice to Unifi
in the name ofVestar, and then directing Unifi to wire payment to a Polymers' account and then
transferring the wired funds out of the account-despite explicit instructions to the contrary-was one
of the breaches of the security agreement. Compl.
[DE-l]~~ 20,
22, 23. The facts, as alleged, do not
show that Defendants' actions were in the ordinary course of business. Furthermore, to the extent
that Defendants contend that they had the authority to send the invoice to Unifi in the name of
Vestar, the court notes that any such authority seemingly would not extend to Defendants' later
actions in re-directing the payment and transferring the funds out of Polymers' account. See Compl.
[DE-l]
~~
22-23, 27 (alleging that the Management Services Agreement between Vestar and
Polymers was terminated and Tardive! was removed as an officer of Holdings and Polymers on
18
January 16, 2013, and that the transfer of funds out of Polymers account occurred on January 22,
2013). Consequently, the court finds that Polyquest has alleged sufficient facts to support the
allegation that Defendants' actions were taken without justification.
Finally, Defendants contend that Polyquest has failed to allege that Defendants' alleged
interference with the Security Agreement resulted in actual damages to Polyquest. As Polyquest
observes, however, it has explicitly alleged that it has suffered damages as a result of Defendant's
actions in causing Polymers to breach the Security Agreement. Compl. [DE-l] ,-r 32. The court finds
this sufficient at this juncture to satisfy the fifth element.
Because Polyquest sufficiently alleged all the elements of tortious interference with contract,
Defendants' motion to dismiss that claim is DENIED.
2.
Unfair and Deceptive Trade Practices Claim
Polyquest also asserts a claim for unfair trade practices, in violation of North Carolina's
Unfair and Deceptive Trade Practices Act ("UDTPA"), N.C. Gen. Stat. § 75-1.1. "To recover under
the UDTP A, a party must show that ( 1) the defendant engaged in conduct that was in or affecting
commerce, (2) the conduct was unfair or had the capacity or tendency to deceive, and (3) the plaintiff
suffered actual injury as a proximate result of defendants' descriptive statement or
misrepresentation." Belk, Inc. v. Meyer Corp., US., 679 F.3d 146, 164 (2012) (internal quotation
marks omitted). Defendants argue that Polyquest has failed to sufficiently allege facts that satisfy any
of these required elements.
Defendants specifically argue that Polyquest has not alleged that Defendants engaged in
conduct that was in or affecting commerce-the first element of an UDTP A claim-because ( 1) their
alleged actions all took place within the operation of a joint venture and (2) they enjoy a qualified
19
privilege as a non-outsider and/or they acted with a legitimate business justification. The court does
not find the latter argument to be any more persuasive in the context of the UDTP A claim than it did
in the context oftortious interference claim. The former argument, however, merits more discussion.
North Carolina's UDTPA defines "commerce" to include "all business activities, however
denominated," see N.C. Gen. Stat. § 75-l.l(b), and the North Carolina Supreme Court has
interpreted the term "business activities" to mean "the manner in which businesses conduct their
regular, day-to-day activities, or affairs, such as the purchase or sale of goods, or whatever other
activities the business regularly engages in and for which it is organized." HAJMM Co. v. House of
Raeford Farms, Inc., 328 N.C. 578,594,403 S.E.2d 483,493 (1991) (affirming the dismissal of an
UDTPA claim premised on unfair acts relating to raising capital). In White v. Thompson, 364 N.C.
47,691 S.E.2d 676 (2010), the North Carolina Supreme Court further explained that the purpose of
UDTPA is "to achieve fairness in dealings between individual market participants." !d. at 52, 691
S.E.2d at 679. According to the North Carolina Supreme Court, UDTPA acts to "regulate two types
of interactions in the business setting: (1) interactions between businesses, and (2) interactions
between businesses and consumers." !d. at 52; 691 S.E.2d at 679. The White court accordingly held
that a partner's unfair conduct toward a partnership, and the members thereof, could not form the
basis for a claim under UDTP A because "any unfair and deceptive conduct contained solely within
a single business is not covered by the Act." !d. at 53, 691 S.E.2d at 680. The parties in White were
former partners in a Bladen County fabrication and welding business, which enjoyed some initial
success in performing construction work at a plant owned by Smithfield Packing Company. !d. at
48, 691 S.E.2d at 677. The defendant partner in White, while still a member of the partnership,
started a competing business and acted to divert business from the original partnership. Because the
20
defendant partner in White "unfairly and deceptively interacted only with his partners, his conduct
occurred completely within the ... partnership and entirely outside the purview of the Act." !d. at
54; 691 S.E.2d at 680.
Defendants argue that under White, the alleged conduct in this case was not "in or affecting
commerce" as that phrase is used under UDTPA, because it all occurred within the context of a joint
venture. That is, although Defendants' actions were not confined to the internal operations of a
"single business," their action were confined to the internal operation of a "single market
participant," the joint venture. See White, 364 N.C. at 53, 691 S.E.2d at 53 ("[T]he General
Assembly did not intend for the Act to intrude into the internal operations of a single market
participant."). The court agrees. The alleged unfair or deceptive conduct in this case, at bottom,
"only affects relationships within a single ... market participant"-the joint venture as a whole. See
Powell v. Dunn, 2014 NCBC 3, 2014 WL 340254, at *3 (N.C. Business Court Jan. 28, 2014)
("[W]hen the unfair or deceptive conduct alleged only affects relationships within a single business
or market participant, and not dealings with other market participants, that conduct is not 'in or
affecting' commerce within the meaning of Section 75-1.1, even if other market participants may
be indirectly involved in the unfair or deceptive acts."). The fact that separate entities comprise the
single market participant does not alter this analysis; the case remains a dispute about the internal
operations of the joint venture. Nor does the tangential involvement of Unifi, the company that
received the allegedly false invoices in the name ofVestar, mean that Defendants' acts were in or
affecting commerce. If that were the case, then the plaintiffs' UDTPA claim in White would have
survived, given that the Smithfield Packing Company plant's involvement in awarding work to the
two separate welding businesses.
21
Because the alleged facts, taken as true, do not show that the Defendants' unfair and/or
deceptive acts were "in or affecting commerce," Polyquest's UDTPA claim cannot survive. 4 The
Motion to Dismiss [DE-13] is ALLOWED as to that claim only.
III. MOTION FOR LEAVE TO AMEND COMPLAINT
Polyquest moves for leave to file an amended complaint to assert a claim for conversion of
security. Defendants oppose the motion.
Rule 15(a) ofthe Federal Rules of Civil Procedure provides that a court "should freely give
leave [to amend a pleading] when justice so requires." Fed. R. Civ. P. 15(a). The Supreme Court,
in Foman v. Davis, 371 U.S. 178 (1962), set forth the general standard for district courts to consider
when making Rule 15(a) determinations:
If the underlying facts or circumstances relied upon by a plaintiff may be a proper
subject of relief, he ought to be afforded an opportunity to test his claims on the
merits. In the absence of any apparent or declared reason such as undue delay, bad
faith, or dilatory motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the opposing
party for virtue of the allowance of the amendment, futility of the amendment, etc.,
the leave should, as the rules require, be "freely given."
Id at 182 (quoting Fed. R. Civ. P. 15(a)). Thus, in the Fourth Circuit, the law is well settled "that
leave to amend a pleading should be denied only when the amendment would be prejudicial to the
opposing party, there has been bad faith on the part of the moving party, or the amendment would
be futile." Edwards v. City ofGoldsboro, 178 F.3d 231, 242 (4th Cir. 1999).
Defendants in this case argue that the proposed amendment in this case would be futile for
a variety of reasons. Whatever the merit of some of Defendants' reasons, it cannot be in dispute that
4
For this reason, the court does not address Defendants' other arguments as to why the UDPTA claim must
be dismissed.
22
the Defendants' actions in allegedly transferring $170,000 from the Polymers' bank account-after
they were relieved from their positions of authority with respect to the governance ofPolymers-may
support a conversion claim. See Peed v. Burleson's, 244 N.C. 437, 439, 94 S.E.2d 351, 353 (1956)
("The tort of conversion is well defined as 'an unauthorized assumption and exercise of the right of
ownership over goods or personal chattels belonging to another, to the alteration of their condition
or the exclusion of an owner's rights."). The court therefore does not find the amendment to be
futile, and therefore, the Motion for Leave to Amend [DE-24] is ALLOWED. Polyquest is
DIRECTED to file a signed amended complaint within seven (7) days of the filing date of this Order.
III. CONCLUSION
For the foregoing reasons, the Motion to Dismiss [DE-13] is ALLOWED as Polyquest's
claim for tortious interference only, and is DENIED in all other respects. Polyquest's Motion for
Leave to Amend [DE-24] is ALLOWED, and Polyquest is directed to file a signed amended
complaint within seven (7) days of the filing date of this Order.
SO ORDERED.
11
This the_£_ day of February, 2014.
J
S
23
s C. Fox
or Umted States District Judge
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