SUPERIOR PERFORMERS, INC. v. EWING et al
Filing
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MEMORANDUM OPINION AND ORDER signed by JUDGE JAMES A. BEATY, JR on 06/19/2015; that the Movants' Motion to Dismiss the Amended Counterclaims [Doc. # 48 ] is hereby GRANTED IN PART AND DENIED IN PART as described above. (Garland, Leah)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
SUPERIOR PERFORMERS, INC.
d/b/a NATIONAL AGENTS
ALLIANCE,
Plaintiff and
Counter Defendant,
v.
JERROD EWING, MYLES JERDAN,
DOMONIQUE RODGERS,
MATTHEW SMITH, TODD SMITH,
SEAN RUGGERIO (MCCOY),
MICHAEL KILLIMETT, WILLIAM
MARTIN, JOSHUA THOUNE,
TRAVIS GEORGE, MIKE WINICK,
MICHAEL COE, ROBERT JONES,
KRISTOPHER KRAUSE, NICK
THEODORE, FAMILY FIRST LIFE,
LLC, PAUL E. MCCLAIN, ANDREW
C. TAYLOR, JACK YIU, JIM
GLASCOTT, JAIME CUAMATZI,
WATHERA CUAMATZI, KIM
REABER, BOBBY REABER, DENNIS
RAUSSEER, JARROD M. FLATAU,
RAYMOND MANALUS, ISRAEL
WIZENFELD, and LISA M. ESTEP,
Defendants and
Counter Claimants,
v.
STEPHEN DAVIES, CHRIS LONG,
MICHAEL OWENS, ANDY
ALBRIGHT, JASON CAREY, JUSTIN
TRIPP, ADAM KATZ, TAWNY
CAREY, and PRO DATA RESEARCH,
LLC,
Counter Defendants.
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1:14cv232
MEMORANDUM OPINION AND ORDER
BEATY, District Judge.
This matter is currently before the Court on the Motion to Dismiss the Amended
Counterclaims [Doc. #48] filed by Plaintiff Superior Performers, Inc. (“Plaintiff” or “NAA”)
and Counterclaim Defendants Andy Albright, Stephen Davies, Michael Owens, Jason Carey,
Tawny Carey, Adam Katz, Chris Long, Justin Tripp, Pro Data Research, LLC, and K.I.T.
Marketing, LLC (the “Albright Group”). Defendants have filed a Response in Opposition to
the Motion [Doc. #50], to which, the Plaintiff and the Albright Group (collectively “the
Movants”) have filed a Reply [Doc. #51]. For the reasons discussed below, the Court will grant
in part and deny in part the Movants’ Motion to Dismiss.
I.
BACKGROUND
This case is one of several related cases brought by Plaintiff in an attempt to, among
other things, enforce restrictive covenants contained in the agent and management agreements
entered into by current and former NAA agents and managers. In this particular case, Plaintiff
asserted breach of contract claims based on alleged violations of the non-solicitation clauses, as
well as claims for breach of contract based on other parts of the agent and managerial
agreements. Other claims that Plaintiff alleged in this action include claims for tortious
interference with business relationships, unfair and deceptive trade practices, unfair competition,
civil conspiracy, and wiretapping.
In response to Plaintiff’s Amended Complaint, Defendants filed a combined Answer,
Counterclaim, and Third-Party Complaint, in which all Defendants, other than Family First Life
(“FFL”), asserted counterclaims against Plaintiff and asserted third-party claims against the
Albright Group. The Defendants asserted that these claims arose out of the Movants’ alleged
2
operation of a “pyramid scheme,” and their actions related to such scheme, which included the
“unlawful churning and twisting of insurance policy-holders’ insurance polices.” Defendants
claimed that Plaintiff and the Albright Group are liable for fraudulently inducing Defendants
into such scheme. Based on these alleged actions Defendants asserted a total of 12 claims
against Plaintiff and the Albright Group. First, Defendants asserted a claim for declaratory
judgment, requesting that the Court find that the agent and management agreements are void
and unenforceable for lack of consideration, among other arguments. Second, Defendants
asserted a claim for rescission of the management and agent agreements based on multiple
theories. Third, Defendants asserted a claim for fraud based upon the opposing parties’ alleged
fraudulent statements and omissions concerning various aspects of Defendants’ employment
with NAA. Fourth, Defendants also asserted a claim based upon the opposing parties’ alleged
misrepresentation and suppression concerning various aspects of Defendants’ employment with
NAA. Fifth, Defendants asserted a claim specifically against Plaintiff for breach of the duties
of loyalty, due care, good faith, and fair dealing in relation to the management and agent
agreements. Sixth, Defendants asserted a claim for breach of contract against Plaintiff in
relation to the management and agent agreements. Seventh, Defendants asserted a breach of
contract claim against both Plaintiff and the Albright Group for the alleged breach of oral and
implied contracts or agreements concerning alleged claims and promises made by such parties
in relation to Defendants’ employment with NAA. Eighth, Defendants asserted a claim for
defamation against both Plaintiff and the Albright Group concerning alleged statements about
Defendants in their trade and business. Ninth, Defendants asserted a claim of conversion
against the Plaintiff based on Plaintiff’s alleged wrongful withdrawal of funds from Defendants’
3
bank and credit accounts. Tenth, Defendants asserted a claim for unfair and deceptive trade
practices against Plaintiff and the Albright Group, based on their alleged fraud and
misrepresentations. Eleventh, Defendants asserted a claim for tortious interference with
business or contractual relations against Plaintiff and the Albright Group. Twelfth, Defendants
asserted a claim for civil conspiracy against the Movants based on the allegation that they acted
in concert in committing the above violations. Defendants also asserted a separate claim for
punitive damages based on the alleged foregoing actions.
The Movants filed Motions to Dismiss the Counterclaim and Third-Party Complaint
[Docs. #29 & #31] for improper joinder of the Albright Group and because the Movants
alleged that it was impossible to distinguish the claims made against Plaintiff versus the clams
made against the Albright Group. The Court denied the Motion to Dismiss based on those
arguments, and found that the Albright Group were proper Counterclaim Defendants. As a
result, the Court directed the Defendants to file an Amended Answer and Counterclaim and
assert its claims against the Albright Group as counterclaims, rather than third-party claims. The
Defendants complied with the Court’s order, and filed an Amended Answer and Counterclaim
Complaint asserting its claims against all Movants as counterclaims.
The Movants have now filed a Motion to Dismiss the Answer and Counterclaim
Complaint. In this Motion, the Movants are now arguing that Defendants’ counterclaims, other
than their claim for declaratory judgment, should be dismissed pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure for failure to state a claim. Additionally, the Movants argue
that the Defendants’ claim for declaratory judgment should be dismissed as redundant of the
affirmative defenses pled by Defendants. For the reasons stated below, the Court will grant in
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part and deny in part, Movants’ Motion to Dismiss the Answer and Counterclaim Complaint.
II.
DISCUSSION
Initially, the Court will address Defendants’ argument that this is a successive Motion to
Dismiss barred by the Federal Rules of Civil Procedure. Upon addressing this argument, the
Movants’ two arguments in favor of dismissal will then be addressed in turn.
A.
Successive Motion to Dismiss
Defendants argue that this Court should not consider any argument presented in the
Movants’ Motion to Dismiss, as it is a successive motion brought pursuant to Rule 12(b)(6) and
as such, it is barred by the Federal Rules of Civil Procedure. As to successive motions brought
pursuant to Rule 12 of the Federal Rules of Civil Procedure, Rule 12(g)(2) states, “Except as
provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make
another motion under this rule raising a defense or objection that was available to the party but
omitted from its earlier motion.” Fed. R. Civ. P. 12(g)(2). The exceptions in Rule 12(h) concern
when such motions are made in the form of a motion for judgment on the pleadings, or those
contained in the parties’ pleadings. Accordingly, the exceptions do not apply in this case.
Courts, however, have interpreted the bar on successive Rule 12 motions “permissively
and have accepted subsequent motions on discretionary grounds.” F.T.C. v. Innovative
Marketing, Inc., 654 F. Supp. 2d 378, 383 (D. Md. 2009) (citations omitted) (considering a
successive motion to dismiss in light of new law). This reading is said to comport “with the
general spirit of the rules” and promote “the interests of efficiency.” Id. (citations omitted).
Specifically, concerning the interests of efficiency, courts have recognized that “[u]nder Rule
12(h) [a 12(b)(6) argument] could be raised in a judgment on the pleadings or at trial[.]” Dart
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Drug Corp. v. Corning Glass Works, 480 F. Supp. 1091, 1095 n. 3 (D. Md. 1979). Accordingly,
“it is far more efficient to treat the arguments prior to more extensive discovery.” Id.
Initially, the Court notes that the Movants do not contest that this is a successive Motion
to Dismiss that is typically bared by Rule 12(g). Instead, the Movants only argue that in the
interests of efficiency, the Court should consider the Motion to Dismiss on the merits. While
the Court in no way approves of the Movants’ apparent piecemeal litigation method in this case,
the interests of judicial efficiency do strongly favor considering the Movants’ successive Motion
to Dismiss in this instance. As stated above, this case is one of several cases that were filed in
this Court involving the same or similar subject matter. In the consolidated case, Case Number
1:13CV1149, a similar Motion to Dismiss the Counterclaims for failure to state a claim was filed.
As this Court has now considered those arguments in Case Number 1:13CV1149, it would be
more efficient to also consider the same arguments raised in this action, rather than wait to
consider such arguments on a Motion for Judgment on the Pleadings. Accordingly, the Court
will address the Movants’ arguments on the merits below, and will decline to deny this Motion
to Dismiss on procedural grounds.
B.
Declaratory Judgment
The Defendants’ first counterclaim is one for declaratory judgment. In this claim,
Defendants assert that the agent and management agreements should be found void and
unenforceable. The Movants, however, briefly argue that this claim is redundant of the defenses
asserted by Defendants and as such, it should be dismissed. In support of their argument, the
Movants cite one unpublished case from the Middle District of Florida. See Sembler Family
P’ship, No. 41, Ltd. v. Brinker Florida, Inc., No. 8:08CV1212-T-24 MAP, 2008 WL 5341175,
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at *1 (M.D. Fla. Dec. 19, 2008) (dismissing declaratory judgment counterclaim when it was
duplicative of the main action).1
Pursuant to Fourth Circuit precedent, a district court, in its discretion, may decline to
entertain a declaratory judgment claim for “good reason.” Volvo Const. Equip. N. Am., Inc.
V. CLM Equip. Co., Inc. 386 F.3d 581, 594 (4th Cir. 2004). “[A] district court is obliged to rule
on the merits of a declaratory judgment action when declaratory relief ‘will serve a useful
purpose in clarifying and settling the legal relations in issue,’ and ‘will terminate and afford relief
from the uncertainty, insecurity, and controversy giving rise to the proceeding.’ ” Id. (quoting
Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937)).
In this instance, the declaratory judgment claim may resolve and clarify the issue of
whether valid and enforceable agreements exist for purposes the Movants’ defenses to
Defendants’ counterclaims.2 Additionally, it may serve to terminate the Plaintiff’s breach of
contract claim against Defendants, as a void and unenforceable contract would not be subject
to a claim for breach of contract. Accordingly, while such claim may be redundant of
Defendants’ affirmative defenses, the Court will, in its discretion, deny Movants’ Motion to
Dismiss Defendants’ declaratory judgment claim at this stage of the litigation based on the
1
Based on their citation, it appears that the Movants seek to have the claim dismissed as
redundant pursuant to the Court’s discretionary authority in deciding whether to declare the
rights of litigants, rather than seeking to strike the claim as redundant pursuant to Rule 12(f) of
the Federal Rules of Civil Procedure.
2
As will be more fully addressed below, the Movants argue that many of the
counterclaims should be dismissed as being contrary to the explicit terms of the agreements.
If the Court declares that such agreements are void and unenforceable, the Movants arguments
concerning the controlling nature of the terms of the agreements would be resolved, as a void
and unenforceable contract would not be used to establish the respective obligations or rights
of the parties.
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Movants’ brief argument.
C.
Failure to State a Claim
In reviewing a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the
Fourth Circuit has directed that courts “ ‘take the facts in the light most favorable to the
plaintiff,’ but ‘[they] need not accept the legal conclusions drawn from the facts,’ and ‘[they] need
not accept as true unwarranted inferences, unreasonable conclusions, or arguments.’ ”
Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting Eastern Shore Mkts., Inc. v.
J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000)). “To survive a motion to dismiss,
a [claim] must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d
868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L.
Ed. 2d 929 (2007)).
“A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (quoting Twombly, 550 U.S. at 556, 127 S. Ct. 1955). “The plausibility standard is not akin
to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id. “Where a [claim] pleads facts that are ‘merely consistent with’ a
defendant’s liability, it ‘stops short of the line between possibility and plausibility of “entitlement
to relief.” ’ ” Id. (quoting Twombly, 550 U.S. at 557, 127 S. Ct. 1955) (citations omitted). Thus,
dismissal of a claim is proper where a plaintiff’s factual allegations fail to “produce an inference
of liability strong enough to nudge the plaintiff’s claims ‘across the line from conceivable to
plausible.’ ” Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 256 (4th Cir.
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2009) (quoting Iqbal, 556 U.S. at 683, 129 S. Ct. 1937).
The Movants argue that Defendants have failed to state a claim as to all claims other than
Defendants’ claim for declaratory judgment, which as stated above, they argue should be
dismissed as redundant. The Court will address each of the 11 other claims, in addition to
Defendants’ claim for punitive damages in turn.
1.
Rescission - Second Count
The Defendants’ second counterclaim seeks the rescission of Defendants’ agent and
management agreements that are at issue in Plaintiff’s case-in-chief. Defendants assert that they
are entitled to rescission of these agreements because the agreements were the result of material
misrepresentations and omissions, duress, and because such agreements are unconscionable
contracts of adhesion. The Movants assert that the claim for rescission must be dismissed
because Defendants have failed to meet the pleading standards for any of these theories under
which the Defendants base their claim for rescission.
The Court initially notes that rescission itself is not a cause of action but rather, rescission
is an equitable remedy. See Marriott Financial Services, Inc. v. Capitol Funds, Inc., 217 S.E. 2d
551, 560–64 (N.C. 1975) (analyzing a claim for the equitable remedy of rescission based on
mistake or fraud). Accordingly, in order to state a claim for the remedy of rescission,
Defendants must have stated a plausible underlying claim for such relief. See Synovus Bank v.
Okay Properties, LLC, No. 1:11CV330, 2012 WL 3745280, at *8 (W.D.N.C. August 28, 2012)
(finding that because the defendants’ counterclaim for rescission was based on fraud, the
defendants must have stated a plausible claim for fraud). Movants first argue that Defendants
are not entitled to rescission for fraud because Defendants failed to meet the pleading standards
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for fraud. As this Court will more fully address below as to Defendants’ specific fraud claim,
the Court finds that Defendants have in fact adequately pled their claim of fraud against
Plaintiff. Accordingly, because Defendants have adequately pled fraud, they may maintain their
claim for rescission of the agent and management agreements based on such theory.
The Movants next argue that Defendants failed to adequately plead duress, and therefore
are not entitled to rescission of the agreements based on such theory. North Carolina allows a
party to avoid contractual obligations under a contract if the party entered into such contract
under duress. In re Maco Homes, Inc., No. 95-2938, 95-2939, 1996 WL 511494, at *4 (4th Cir.
Sept. 10, 1996). In order to establish economic duress, a party must show:
(1) a threatened breach that the promised performance will not be received and
that breach will result in irreparable injury; (2) the threat is effective because of
economic power not derived from the contract itself; (3) the threatened party
could not enter into a contract with a third party replacing the threatening party,
i.e., the party could not obtain the ‘goods’ from another source of supply; and (4)
there is no immediate legal remedy available.
G.E.B. v. QVC, Inc., 129 F. Supp. 2d 856, 861 (M.D.N.C. 2000) (citing Rose v. Vulcan
Materials Co., 194 S.E.2d 521, 536–37 (N.C. 1973).
After reviewing Defendants’ 99 page Answer and Counterclaim Complaint, the Court
finds that Defendants have not adequately pled that the agreements were entered into as a result
of economic duress. Defendants assert that the only obligation Plaintiff had under the contract
was to use commercially reasonable efforts to make insurance leads3 available to Defendants.
Defendants argue that Plaintiff threatened to withhold this obligation if Defendants did not join
clubs, attend seminars, purchase materials, and pay for other additional add-on expenses. Thus,
3
Defendants define the term leads as “names of people who are supposedly interested
in buying insurance[.]” (Counterclaim Complaint [Doc. #47], at 19.)
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Defendants are not asserting that they entered into the agreements as a result of economic
duress, but rather that they were forced into doing extra-contractual activities, such as joining
clubs, after they entered into the agreement. Accordingly, because Defendants have not asserted
that they entered into the agreements as a result of the extra-contractual activities, Defendants
cannot base their claim for rescission on a theory of economic duress.
The Movants also argue that Defendants cannot assert their claim for rescission based
on unconscionability of the agreements. To state a plausible claim for unconscionability, a party
must assert that the agreement is both procedurally and substantively unconscionable. Tillman
v. Commercial Credit Loans, Inc., 655 S.E. 2d 362, 370 (N.C. 2008).
“[P]rocedural
unconscionability involves ‘bargaining naughtiness’ in the form of unfair surprise, lack of
meaningful choice, and an inequality of bargaining power.” Id. (citations omitted). “Substantive
unconscionability, on the other hand, refers to harsh, one-sided, and oppressive contract terms.”
Id.
The Court finds that Defendants Counterclaim Complaint taken as a whole, does in fact
plead the necessary elements of unconscionability for purposes of Rule 12(b)(6). First,
Defendants have asserted procedural unconscionability, as Defendants refer to the fact that in
order to gain access to Plaintiff’s website to obtain leads, they were required at various times to
check a box consenting to the agreements or they were locked out of the website. Furthermore,
Defendants assert that the terms of these agreements were concealed and obstructed by Plaintiff.
See Wilkerson ex rel. Estate of Wilkerson v. Nelson, 395 F. Supp. 2d 281, 289 (M.D.N.C. 2005)
(“It may be that the arbitration agreement was drafted and positioned in a manner that would
avoid drawing undue attention to its terms, and may constitute procedural unfairness.”).
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Accordingly, Defendants have asserted procedural unconscionability. Additionally, Defendants
have asserted substantive unconscionability, based on what Defendants argue are unfair terms,
including requiring Defendants to expend substantial sums of money on things such as joining
clubs and attending seminars. Thus, at this time Defendants have adequately pled both
procedural and substantive unconscionability so as to support their claim for rescission. As a
result of Defendants adequately pleading the underlying theories of fraud and unconscionability,
Defendants’ counterclaim for the equitable right of rescission, is only dismissed insomuch as it
is premised on economic duress.
2.
Fraud - Third Count
In support of their Motion to Dismiss for failure to state a claim, the Movants argue that
Defendants have not pled their fraud claim with sufficient particularity. Specifically, the
Movants argue that Defendants have not alleged which individual entity or person committed
the various acts of fraud, or what acts in general were fraudulent. Rule 9(b) of the Federal Rules
of Civil Procedure provides that a party alleging fraud “must state with particularity the
circumstances constituting fraud[.]” Fed. R. Civ. P. 9(b). Courts interpret this particularity
requirement as requiring that parties plead the “ ‘time, place, and contents of the alleged
fraudulent representation, as well as the identity of each person making the misrepresentation
and what was obtained thereby.’ ” Liner v. DiCresce, 905 F. Supp. 280, 287 (M.D.N.C. 1994)
(quoting Riley v. Murdock, 828 F. Supp. 1215, 1225 (E.D.N.C. 1993)). The requirement that
the identity of each person making the misrepresentation be pled with particularity is especially
important in a multi-defendant, or multi-counterclaim defendant case. Dealers Supply Co., Inc.
v. Cheil Industries, Inc., 348 F. Supp. 2d 579, 589–90 (M.D.N.C. 2004). Thus, where there are
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multiple parties involved in the fraud, the claimant must allege all claims with particularity as to
each such party. Id.
After reviewing Defendants’ extensive Counterclaim Complaint, the Court finds that
taking the document as a whole, Defendants have adequately pled their claim for fraud against
Plaintiff and the various members of the Albright Group, other than Justin Tripp. It is correct
that under the particular count of fraud listed in Defendants’ Counterclaim Complaint, the
allegations of fraud are stated generally against all Movants. Defendants, however, in the earlier
part of the Counterclaim Complaint specifically list out the various misrepresentations that were
made by the specific individual Movants within the Counterclaim Complaint or that were made
on behalf of Plaintiff by way of Plaintiff’s agents or employees. These allegations are
incorporated by reference into the fraud count. The Court, however, was unable to locate
specific allegations of false statements made by Movant Justin Tripp. The following is a list of
examples of at least one allegation of fraud against each of the particular Movants, other than
Tripp:
•
•
•
•
Plaintiff - “Prior to joining NAA and/or continuing throughout [Defendants’]
tenures at NAA, NAA on its website and elsewhere, portrayed certain agents as
“success stories” and falsely represented the income levels of such agents.”
(Counterclaim Complaint, [Doc. #47], at 23.)
Andy Albright - “Albright told Jones that if he quit his full-time job he could
make $100,000 a month like Katz.” (Id. at 43.) Defendants assert that this
statement by Albright was false.
Stephen Davies - “The false statements on [the NAA and NAA Agent websites]
are, among other things, the specific statements about incomes that current
agents (including . . . Davies . . . ) make working for NAA, the statements about
the availability of leads, and the statements about profit from leads.” (Id. at 22.)
This statement was made in conjunction with the representation that such
assertions were false.
Adam Katz - “[A]t NAA conventions . . . Katz and NAA continued to represent
to those in attendance including numerous of the [Defendants], that Katz
generated annual income in excess of $1,000,000 from NAA.” (Id. at 25.) This
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•
•
•
•
•
•
statement was made in conjunction with the representation that such amount was
false.
Chris Long - “Mark Womack, Andy Riddle, and Chris Long all stated that they
earned over $500,000 in the previous year, and they said that everyone in the
room could earn over $1 million dollars per year if they would just follow the
NAA system.” (Id. at 50.) This statement was made in conjunction with the
representation that such assertions were false.
Michael Owens - “The false statements on [the NAA and NAA Agent websites]
are, among other things, the specific statements about incomes that current
agents (including . . . Owens . . . ) make working for NAA, the statements about
the availability of leads, and the statements about profit from leads.” (Id. at 22.)
This statement was made in conjunction with the representation that such
assertions were false.
Jason Carey - “The false statements on [the NAA and NAA Agent websites] are,
among other things, the specific statements about incomes that current agents
(including . . . J. Carey . . . ) make working for NAA, the statements about the
availability of leads, and the statements about profit from leads.” (Id. at 22.) This
statement was made in conjunction with the representation that such assertions
were false.
Tawny Carey -“The false statements on [the NAA and NAA Agent websites] are,
among other things, the specific statements about incomes that current agents
(including . . . T. Carey . . . ) make working for NAA, the statements about the
availability of leads, and the statements about profit from leads.” (Id. at 22.) This
statement was made in conjunction with the representation that such assertions
were false.
Pro Data Research, LLC - “Additionally, on multiple occasions, after the
[Defendants] spent substantial sums of money recruiting agents and building their
teams in a particular area, NAA and PDR would allocate leads for the area only
to the agents in the area that were directly downline to NAA or Albright . . .
rather than the agents on the [Defendants’] teams[.]” (Id. at 36.) This statement
was made in conjunction with the representation that such actions were contrary
to what had been previously represented to Defendants.
K.I.T. Marketing, LLC - “NAA’s agents are pressured to purchase and pay
periodic payments to KIT Marketing for these services, which the agents are told
will benefit them by having someone keep in touch with the customers on the
agents’ behalf and in the name of the agent. However, NAA’s agents do not
know, because it is kept secret from them, that KIT Marketing and NAA are
being used against the agents, to churn the agents’ customers by churning the
insurance policy-holders’ insurance policies.” (Id. at 40–41.)
Accordingly, the Movants’ argument that the fraud claims were not pled with particularity
because they did not identify which entity or individual made the misrepresentations constituting
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the fraud, is without merit as to all Movants, other than Tripp. Defendants’ Counterclaim
Complaint references specific misrepresentations or fraudulent conduct by or on behalf of the
other individual Movants. However, as this Court was unable to locate a specific fraudulent act
alleged to have been undertaken specifically by Tripp and Defendants have not provided such
an example, the Defendants’ counterclaim for fraud must be dismissed as to Tripp.
3.
Misrepresentation/Suppression - Fourth Count
Defendants’ fourth counterclaim, is a claim for misrepresentation and suppression.
Defendants assert that the Movants made specific misrepresentations and concealed other
material facts concerning Defendants’ employment with NAA. The Movants argue that this
claim should be dismissed because it has the same deficiencies as Defendants’ claim for fraud.
The Movants further argue that the misrepresentation claim should be dismissed because
Defendants have failed to allege any facts that would give rise to a legally recognized duty to
disclose information. Additionally, the Movants assert that Defendants’ suppression claim
should be dismissed because such a claim does not exist in North Carolina. The Court notes
that because the Court found that the fraud claim is sufficiently pled as to all Movants other than
Tripp, the Movants first argument that the this claim fails for the same reason as the fraud claim
is without merit as to all Movants other than Tripp. The Court, however, will specifically
address the other two remaining arguments concerning this claim.
Pursuant to North Carolina law, “[t]he tort of negligent misrepresentation occurs when
a party justifiably relies to his detriment on information prepared without reasonable care by one
who owed the relying party a duty of care.” Raritan River Steel Co. v. Cherry Bekaert &
Holland, 367 S.E. 2d 609, 612 (N.C. 1988). Breach of the duty of care may occur when “[o]ne
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who, in the course of his business, profession or employment, or in any other transaction in
which he has a pecuniary interest, supplies false information for the guidance of others in their
business transactions, . . . is subject to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to exercise reasonable care or competence
in obtaining or communicating the information.” Kindred of North Carolina, Inc. v. Bond, 584
S.E. 2d 846, 853 (N.C. Ct. App. 2003) (quoting Jordan v. Earthgrains Cos. Inc., 767, 576 S.E.
2d 336, 340 (N.C. Ct. App. 2003)).
The above examples of the alleged fraudulent misrepresentations made by each party
show that Defendants have sufficiently alleged facts indicating that the Movants, other than
Tripp, owed Defendants a duty of care for supplying false information in their business
transactions. All of the alleged false information was provided to the Defendants in the context
of their employment with NAA, and Defendants allege that such information caused them to
sign the agent and management agreements at issue or to continue to expend money in relation
to NAA. Furthermore, Defendants allege that the structure of NAA is that of a pyramid
scheme, and all Movants are either above the Defendants in the hierarchy or are the corporate
entities employing or contracting with Defendants. Thus, it can be inferred that the Movants
had a pecuniary interest in Defendants’ continued employment with NAA as they were
presumably financially benefitting from those below them in the alleged pyramid hierarchy.
Thus, the Court finds that Defendants have sufficiently pled facts supporting a claim for
misrepresentation based on a breach of the duty of care for all Movants except Tripp.
The Court, however, finds that Defendants’ claim for suppression must be dismissed.
Defendants attempt to assert a suppression claim in conjunction with their claim for
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misrepresentation based on the Movants’ negligent concealment or omissions. As this Court
has previously found in two other instances, a claim based on such negligent concealment or
omission, as opposed to affirmative misrepresentations, does not currently exist under North
Carolina law. Breeden v. Richmond Community College, 171 F.R.D. 189, 202–02 (M.D.N.C.
1997); Pearson, v. Gardere Wynne Sewell LLP, 814 F. Supp. 2d 592, 608 n.11 (M.D.N.C. 2011).
Accordingly, Defendants’ claim for suppression is dismissed, as such claim does not exist
pursuant to North Carolina law.
4.
Breach of Duties of Loyalty, Due Care, Good Faith, and Fair Dealing –
Fifth Count
Defendants’ fifth counterclaim alleges that Plaintiff breached the duties of loyalty, due
care, good faith, and fair dealing that are implied in the agent and management agreements. The
Movants argue that Defendants did not allege any specific conduct that would breach any of the
express terms of the contract, and thus, they argue that Defendants cannot assert a breach of
the duties of good faith and fair dealing.
Pursuant to North Carolina law, all contracts contain “ ‘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.’ ” Sunset Beach Development, LLC v. AMEC, Inc., 675
S.E. 2d 46, 57 (N.C. Ct. App. 2009) (quoting Bicycle Transit Authority, Inc. v. Bell, 333 S.E.2d
299, 305 (N.C. 1985)). In this instance, Defendants have asserted that if a valid contract exists,
NAA has breached its obligation under such contract to use commercially reasonable efforts to
make insurance leads available to Defendants. (Counterclaim Complaint, [Doc. #47], at 31–32,
91.) Defendants further detail the way in which this obligation was breached. (Id.)
17
Accordingly, Defendants have sufficiently pled that NAA took actions that injured Defendants’
right to receive the benefits they were owed under the contract. As such, Movants’ Motion to
Dismiss Defendants’ claim for breach of the duties of duties of loyalty, due care, good faith, and
fair dealing4 will be denied.
5.
Breach of Contract Claims - Sixth and Seventh Counts
The sixth counterclaim that Defendants assert is a beach of contract claim against NAA.
The Movants assert that this claim should also be dismissed for the same reasons that the
Movants sought to have the Defendants’ claim for breach of the duties of good faith and fair
dealing dismissed. The Movants again argue that Defendants have not alleged any specific
conduct that would breach any of the express terms of the contract. As the Court found above,
however, Defendants have sufficiently pled that NAA breached its contractual obligation to use
commercially reasonable efforts to make insurance leads available to Defendants. Accordingly,
the Court will deny Movants’ Motion to Dismiss Defendants’ claim for breach of contract
against NAA.
The Defendants also assert a breach of contract claim against both the Plaintiff and the
Albright Group. This claim is based on a breach of oral or implied contracts. The Movants
argue that this claim must be dismissed because Defendants have failed to assert any promises
that Plaintiff or the Albright Group made to Defendants or how such promises were breached.
Additionally, the Movants argue that this claim conflicts with the express terms of the actual
4
The Court notes that the Movants do not argue that Defendants failed to adequately
plead a breach of the duties of loyalty and due care. Instead, the Movants focus their argument
solely on the duties of good faith and fair dealing. As such, Defendants’ claim for breach of the
duties of loyalty and due care remain as validly stated claims against the Movants.
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written agreements and that it conflicts with the merger clause contained in the actual
agreements.
To state a claim for breach of contract, a party must allege the, “(1) existence of a valid
contract and (2) breach of that contract.” Poor v. Hill, 530 S.E. 2d 838, 845 (N.C. Ct. App.
2000). Initially, the Court notes that Defendants have in fact alleged specific promises made by
the NAA and the Albright Group. For instance, Defendants allege that the Albright Group and
NAA, through its websites, promised that “[Defendants’] businesses, including their customers
and clients, and the agents they recruit to be part of their downline, could never be taken away.”
(Counterclaim Complaint, [Doc. #47], at 26.) Later in the Counterclaim Complaint, Defendants
assert that this promise was broken, as the Defendants’ downlines were eventually removed. (Id.
at 34.) Accordingly, Defendants have sufficiently alleged that certain promises were made by
Plaintiff and the Albright Group and that such promises were later broken.
Furthermore, the argument that the merger clause subsumes these promises or that they
are contradicted by the express terms of the written contract are without merit at this stage of
the litigation. The written contracts were not entered into between the Albright Group and the
Defendants, but rather the contracts were entered into between NAA and the Defendants.
Therefore, because the written agreements are not agreements between the Albright Group and
Defendants, it is unclear how such agreements would control the effect of the alleged oral
contracts between the Defendants and the Albright Group. Accordingly, at least as to the oral
contracts between Defendants and the Albright Group, the merger clause would not appear to
apply. Additionally, Defendants are seeking to have the agreements with NAA that contain the
merger clause declared void and unenforceable. If the Court declares such contracts void, the
19
terms would not be enforced against Defendants, and the terms would not effect the oral
contracts between the Defendants and NAA. Thus, the Movants’ merger clause argument is
without merit and the Movants’ Motion to Dismiss the breach of contract claims will be denied.
6.
Defamation - Eighth Count
Defendants’ eighth counterclaim is a claim for defamation in which the Defendants assert
that the Movants published defamatory statements about the Defendants. The Movants argue
that this claim for defamation should be dismissed because Defendants failed to specifically
allege the defamatory statements made by any of the Movants. Additionally, the Movants argue
that the defamation claims cannot succeed against any of the corporate entities, NAA, K.I.T.
Marketing, and Pro Data Research, because comments made after Defendants’ termination
cannot be attributed to the corporate employer.
To establish a defamation claim under North Carolina law, a party must prove: “(1)
defendant spoke [or published] base or defamatory words which tended to prejudice him in his
reputation, office, trade, business or means of livelihood or hold him up to disgrace, ridicule or
contempt; (2) the statement was false; and (3) the statement was published or communicated to
and understood by a third person.” West v. King’s Dept. Store, Inc., 365 S.E. 2d 621, 624 (N.C.
Ct. App. 1994) (citations omitted). The Movants argue that the first element is insufficiently
pled because Defendants have not indicated the particular statements that were made by each
Movant. In support of the contention that this lack of specificity requires dismissal, the
Movants cite two North Carolina Court of Appeals cases. However, as this case is before a
federal court and not a North Carolina state court, the Federal Rules of Civil Procedure
concerning pleading apply.
20
The Fourth Circuit has concluded that the Federal Rules of Civil Procedure do not
require a heightened or special pleading standard for defamation claims. Moore v. Cox, 341 F.
Supp. 2d 570, 575 (M.D.N.C. 2004). Accordingly, the pleading standards set forth in Rule 8 of
the Federal Rules of Civil Procedure, in conjunction with “the universally accepted and
mandatory authorities of Twombly and Iqbal, adequately and accurately set forth the standard
of review” that is to be applied to the Movants’ Motion to Dismiss. Araya v. Deep Dive Media,
LLC, 966 F. Supp. 582, 588 (W.D.N.C. 2013).
In Defendants’ Counterclaim Complaint, Defendants allege that,
NAA, Albright, Davies, Owens, J. Carey, T. Carey, Katz, Long, and Tripp have
been systematically attempting to destroy [Defendants’] and FFL’s reputations by
lying and otherwise intentionally and recklessly broadcasting and publishing
untrue statements of fact . . . about [Defendants’] and FFL’s and its agents’ ethics,
morals, and character; their performance while working with NAA; their reasons
for leaving; that [Defendants’] and FFL are “under federal indictment,” that
[Defendants] and FFL are being prosecuted both civilly and criminally, that NAA
and Albright are going to have them thrown in jail, and various other matters.
(Counterclaim Complaint, [Doc. #47], at 43–44.) Through these allegations, Defendants have
sufficiently alleged that NAA, Albright, Davies, Owens, J. Carey, T. Carey, Katz, Long, and
Tripp have made defamatory statements against Defendants. While Defendants do not provide
particular statements made by each of these Movants, Defendants do provide defined categories
of statements which provide reasonable notice to the parties as to the claims that Defendants
are asserting against them. The categories are not just conclusory statements, but instead, the
categories provide sufficient factual content so as to allow the Court to draw the reasonable
inference that the particular Movants proffered such statements.
The Court, however, does note that Pro Data Research and K.I.T. Marketing were not
alleged to have made any defamatory statements. Thus, the defamation claim must be dismissed
21
as to both Pro Data Research and K.I.T. Marketing for failure to state a claim against such
entities. Additionally, as the statements described above appear to have been made after
Defendants left employment with NAA, those statements cannot be attributed to NAA. See
Gibson v. Mutual Life Ins. Co. of New York, 465 S.E. 2d 56, 59 (N.C. Ct. App. 1996) (finding
that because statements were made after party was terminated from employment, the statements
could not, as a matter of law, be imputed to the employer) (citing Stutts v. Power Co., 266
S.E.2d 861, 865 (N.C. Ct. App. 1980)). Accordingly, the defamation claim must also be
dismissed as to NAA.
7.
Conversion - Ninth Count
Defendants’ claim for conversion against NAA alleges that NAA withdrew funds from
the Defendants’ bank accounts, which NAA did not have the authority to withdraw.
Defendants assert that any prior authorization to withdraw such funds had been revoked at the
time NAA withdrew some of the funds at issue. The Movants argue that this claim should be
dismissed because it is barred by the express terms of the agent and managements agreements.
Specifically, the Movants assert that the agent and management agreements require that the
Defendants provide NAA with notice of any discrepancies in their accounts within 30 days from
the date that Defendants receive their bank statements. The Movants argue that because notice
was not provided within 30 days, any claim is time barred.
Pursuant to North Carolina law, the two essential elements that are necessary to state a
claim for conversion are: “(1) ownership in the plaintiff, and (2) a wrongful conversion by the
defendant.” Bartlett Milling Co., L.P. v. Walnut Grove Auction and Realty Co., Inc., 665 S.E.
2d 475, 489 (N.C. Ct. App. 2008) (citation omitted). The Movants do not argue that Defendants
22
failed to plead either of these two elements, but instead, the Movants argue that the claim is time
barred based on the agreements. The Court finds that Movants’ argument is without merit.
First, Defendants, in their Counterclaim Complaint, seek a declaratory judgment that those same
agreements are void and unenforceable. Therefore, if the Court does find the agreements to be
unenforceable, any time period set forth in such agreements for providing notice would
necessarily be unenforceable. Second, Defendants argue that even after the employment
relationship ended, NAA was still making unlawful withdraws from their bank accounts at a time
when the agreements were allegedly no longer applicable. Accordingly, even if the time period
provided in the agreement would bar Defendants’ conversion claim, it is not clear at this time
that such agreement is enforceable. Thus, the Movants’ Motion to Dismiss Defendants’
counterclaim for conversion will be denied.
8.
Unfair and Deceptive Trade Practices Act - Tenth Count
The Movants next seek to dismiss the tenth counterclaim that alleges a violation of North
Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”). In this claim, Defendants
assert that the Movants’ fraud, false statements, and misrepresentations set forth in the
Counterclaim Complaint constitute unfair and deceptive practices. The Movants, however,
assert that such claim must be dismissed because Defendants have failed to properly allege any
claims of fraud and the Defendants’ allegations regarding the use of insured client contact
information are contradicted by the express terms of the agreement. Additionally, the Movants
argue that Defendants’ allegations that the lead practices constitute unfair and deceptive
practices can only be asserted under a breach of contract theory because such allegations fall
within the express agreements of the parties.
23
Initially, the Court notes that the Movants’ first two arguments for dismissal are faulty
for the reasons more fully stated above in relation to Defendants’ other claims. First, as the
Court found above, Defendants have sufficiently stated a claim for fraud against the Movants.
Thus, the Movants argument that the UDTPA claim fails as a result of the fraud claim failing,
is without merit. Second, as stated above in relation to Defendants’ claim for conversion, the
Defendants seek a declaratory judgment that the agreements between the parties are void and
unenforceable. Accordingly, if the Court does find such agreements to be unenforceable, any
of the alleged contradicting terms would be unenforceable. Thus, an argument that any part of
the UDTPA claim must be dismissed because it contradicts the terms of the agreement is also
without merit.
Furthermore, the Movants’ argument that Defendants’ allegations regarding lead
practices can only be asserted under a breach of contract theory is equally without merit. As this
Court has stated in a previous Memorandum Opinion and Order issued in this case, the
economic loss doctrine “prohibits recovery for purely economic loss in tort, as such claims are
instead governed by contract law.” Lord v. Customized Consulting Specialty, Inc., 643 S.E. 2d
28, 30 (N.C. Ct. App. 2007). Therefore, “[o]rdinarily, a breach of contract does not give rise to
a tort action by the promisee against the promisor.” N.C. State Ports Auth. v. Lloyd A. Fry
Roofing Co., 240 S.E.2d 345, 350 (1978). Rather, tort claims are limited to those that are
identifiable and distinct from the primary breach of contract claim. Broussard v. Meineke
Discount Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998).
In this action, Defendants are asserting a breach of contract claim. Such claim, however,
is based on NAA’s alleged breach of its contractual obligation to use commercially reasonable
24
efforts to make insurance leads available to Defendants. Defendants’ UDTPA claim is not
based on such an alleged breach. Instead, Defendants base their UDTPA claim on the Movants’
alleged fraud, false statements, and misrepresentations. These allegations are separate and
distinct from Defendants’ claim for breach of contract. Accordingly, the Movants’ Motion to
Dismiss Defendants’ UDTPA claim will be denied as it is not prohibited by the economic loss
doctrine. Rather, Defendants’ UDTPA claim is based on the claims of fraud, false statements,
and misrepresentations made by the Movants, which are not related to nor do such claims give
rise to Defendants’ breach of contract claim based on NAA’s alleged breach of its contractual
obligations.
9.
Tortious Interference with Business or Contractual Relationships Eleventh Count
Defendants’ eleventh counterclaim is a claim for tortious interference with business or
contractual relationships. In this claim, Defendants allege that the Movants wrongful conduct
has interfered with Defendants’ and FFL’s business. It is unclear, however, as to what wrongful
conduct that Defendants are referring to. The Movants assert that this claim should be
dismissed because Defendants failed to plead that the Movants knew of any contracts that
Defendants or FFL had with others. Additionally, Movants argue that Defendants failed to
identify any contract that was not performed or signed, and failed to identify any customers that
were lost.
To state a claim for tortious interference with contract, the Defendants must show that
(1) a valid contract existed between the Defendants and a third party which confers a contractual
right against that third party, (2) the Movants knew of such contract, (3) the Movants
25
intentionally induced the third party not to perform pursuant to the contract, (4) in doing so the
Movants acted without justification, and (5) the Movants’ actions resulted in actual damage to
the Defendants. Embree Constr. Group, Inc. v. Rafcor, Inc., 411 S.E. 2d 916, 924 (N.C. 1992)
(citing United Lab, Inc. v. Kuykendall, 370 S.E. 2d 375, 387 (N.C.1988)).
In this instance, Defendants have not asserted that any contracts specifically existed
between Defendants and any third-party. Defendants certainly describe the alleged wrongful
conduct of NAA and other certain Movants in churning and twisting NAA’s Agents’ business.
(See Counterclaim Complaint, [Doc. #47], at 38–42.) These statements, however, are only
generalized statements of NAA’s practices and do not specify any contracts that existed between
Defendants and third-parties. Accordingly, as Defendants have failed to state the existence of
valid contracts between themselves and third-parties, the counterclaim for tortious interference
will be dismissed.
10.
Civil Conspiracy - Twelfth Count
The twelfth count of Defendants’ Counterclaim Complaint alleges a claim for civil
conspiracy against the Movants. Defendants assert that the individual members of the Albright
Group have conspired with each other and with Plaintiff to commit the other torts alleged in
the Counterclaim Complaint. The Movants argue that Defendants have not alleged sufficient
facts to support the allegation that an agreement existed between the individual Movants.
In order to state a claim for civil conspiracy under North Carolina law, Plaintiff must
allege that there was: “(1) an agreement between two or more persons to commit a wrongful act;
(2) an act in furtherance of the agreement; and (3) damage to the plaintiff as a result.” Eli
Research, Inc. v. United Comm. Group, LLC, 312 F. Supp. 2d 748, 763 (M.D.N.C. 2004) (citing
26
Pleasant Valley Promenade, L.P., v. Lechmere, Inc., 464 S.E. 2d 47, 54 (N.C. Ct. App. 1995)).
While the Movants argue that sufficient facts have not been pled to show an agreement existed,
the Court finds that, after a review of the Counterclaim Complaint, such facts were in fact,
sufficiently pled. Specifically, at least as it relates to the allegations of defamatory statements and
fraudulent misrepresentations, the Defendants allege that the Movants acted in concert and
through a joint enterprise to make such defamatory statements and fraudulent
misrepresentations. (Id. at 44.) These allegations provide sufficient detail to allege an agreement
at this stage of the litigation. Accordingly, the Court will deny Movants’ Motion to Dismiss
insomuch as it relates to Defendants’ civil conspiracy claim.
11.
Punitive Damages
Defendants’ last claim in their Counterclaim Complaint, which they label as a thirteenth
count, is a claim for punitive damages. Defendants assert that they are entitled to punitive
damages based on the alleged conduct contained in the claims that proceed the punitive damages
claim. The Movants argue that this claim should be dismissed if all other counterclaims are
dismissed because punitive damages cannot be awarded unless the opposing party is also liable
for compensatory damages. As this Court has not dismissed the entirety of the claims described
above, the Movants’ argument is without merit, as it is still possible that the Movants will be
liable for compensatory damages. Accordingly, the Movants’ Motion to Dismiss Defendants’
counterclaim for punitive damages will be denied.
III.
CONCLUSION
In sum, for the reasons stated above, the Movants’ Motion to Dismiss the Amended
Counterclaims is granted in part and denied in part. Specifically, the Motion to Dismiss is
27
granted as to Defendants’ claim for rescission based on duress, the fraud claim as to only Justin
Tripp, the misrepresentation claim as to only Justin Tripp, the suppression claim, the tortious
interference claim, and the defamation claim insomuch as it relates to the corporate Movants,
which are NAA, K.I.T. Marketing, LLC, and Pro Data Research, LLC. The Motion to Dismiss,
however, is denied as to Defendants’ claim for declaratory judgment, the rescission claim based
on fraud and unconscionability, the fraud claim as to all Movants other than Justin Tripp, the
misrepresentation claim as to all Movants other than Justin Tripp, the breach of the duties of
loyalty, due care, good faith, and fair dealing claim, the breach of contract claims, the defamation
claim insomuch as it relates to the non-corporate Movants, the conversion claim, the UDTPA
claim, the civil conspiracy claim, and the punitive damages claim.
IT IS THEREFORE ORDERED that the Movants’ Motion to Dismiss the Amended
Counterclaims [Doc. #48] is hereby GRANTED IN PART AND DENIED IN PART as
described above.
This the 19th day of June, 2015.
United States District Judge
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