AUTOMOTIVE DENT TECHNOLOGY, INC. v. WARREN
Filing
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MEMORANDUM OPINION AND ORDER signed by JUDGE N. C. TILLEY, JR on 06/21/2017. Defendant's Motion to Dismiss for Failure to State a Claim 8 is GRANTED, and Plaintiff's Second, Third, Fourth, Fifth, and Sixth Claims for Relief are DISMISSED. (Coyne, Michelle)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
AUTOMOTIVE DENT
TECHNOLOGY, INC., doing
business as ADT and as ADVANCE
DENT TECHNOLOGY,
Plaintiff,
v.
JOSEPH WARREN,
Defendant.
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1:16CV1003
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on Defendant Joseph Warren’s Motion
to Dismiss for Failure to State a Claim (“Motion”) [Doc. #8] pursuant to North
Carolina General Statutes § 105-230 and § 55-15-02 and Federal Rule of Civil
Procedure 12(b)(6). For the reasons explained below, Mr. Warren’s Motion will be
granted and Plaintiff Automotive Dent Technology, Inc.’s (“ADT”) second, third,
fourth, fifth, and sixth claims for relief will be dismissed. However, as Mr. Warren
did not move to dismiss ADT’s first claim for relief, breach of contract, that claim
remains.
ADT, a Delaware Corporation with its principal office in Forsyth County,
North Carolina, filed the present action in response to alleged wrongdoings by Mr.
Warren, an ADT officer and shareholder. (Compl. [Doc. #1] ¶¶ 1, 2.) ADT
provides repair and restoration services to automobile dealerships and other
businesses with inventories of cars when such inventory is damaged by adverse
weather conditions (like hail). (Id. ¶¶ 1, 8.) According to the Complaint, in March
2014, ADT contracted with Mr. Warren to secure a national vendor agreement for
ADT with Enterprise Holdings (“Enterprise”). (Id. ¶ 9.) In exchange, Mr. Warren
would receive one third ownership of ADT, be employed as an officer of the
corporation, and receive one third of the net profits. (Id. ¶¶ 10, 11.) In addition to
securing the vendor agreement with Enterprise, Mr. Warren’s contractual duties
included ”developing contacts, servicing contracts, negotiating service agreements
with new clients, and generally performing work consistent with that expected of
an officer employed by a small corporation.” (Id. ¶ 11.)
ADT asserts that Mr. Warren breached his employment contract by: (1)
forming one or more corporations or limited liability companies which were in direct
competition with ADT; (2) diverting and embezzling payments on accounts due to
ADT by instructing account debtors to make such payments to one or more
corporations or limited liability companies which were in direct competition with
ADT; and (3) knowingly and maliciously diverting accounts, customers, and
corporate opportunities away from ADT and toward one or more corporations or
limited liability companies which were in direct competition with ADT. (Id. ¶ 12.)
On July 27, 2016, ADT filed the present action alleging (1) breach of
contract, (2) interference with contractual relationships, (3) interference with
prospective economic advantages, and (4) breach of fiduciary duty, and asking for
(5) the imposition of a constructive trust and (6) punitive damages. (Id. ¶¶ 7-32.)
In response, Mr. Warren moved to dismiss claims two through six pursuant to
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North Carolina General Statutes § 105-230 and § 55-15-02 and Federal Rule of
Civil Procedure 12(b)(6). [Docs. #8, 9, 11.]
Mr. Warren’s first argument in support of dismissal is that ADT has no North
Carolina Certificate of Authority and, thus, pursuant to North Carolina General
Statute § 105-230, “all acts on which its claims are based are invalid.” (Def.’s Br.
in Supp. of Mot. to Dismiss (“Def.’s Br.”) [Doc. #39] at 3.)
North Carolina General Statute § 105-230 states
(a) If a corporation or a limited liability company fails to file any report
or return or to pay any tax or fee required by this Subchapter for 90
days after it is due, the Secretary shall inform the Secretary of State
of this failure. The Secretary of State shall suspend the articles of
incorporation, articles of organization, or certificate of authority, as
appropriate, of the corporation or limited liability company. The
Secretary of State shall immediately notify by mail every domestic or
foreign corporation or limited liability company so suspended of its
suspension. The powers, privileges, and franchises conferred upon the
corporation or limited liability company by the articles of incorporation,
the articles of organization, or the certificate of authority terminate
upon suspension.
(b)Any act performed or attempted to be performed during the period
of suspension is invalid and of no effect, unless the Secretary of State
reinstates the corporation or limited liability company pursuant to G.S.
105-232.
In support of his argument, Mr. Warren relies on Ben Johnson Homes, Inc. v.
Watkins, 541 S.E.2d 769, 771 (N.C. Ct. App. 2001). However, the facts in Ben
Johnson are distinguishable from the facts here. In that case,
[Ben Johnson Homes, Inc.] entered into the contract with Defendant
and performed that contract at a time when its certificate of authority
was in a state of suspension. Thus, the contract and any rights,
including claims based in equity (i.e., claims based on quantum
meruit), arising under that contract are of no force and effect and are
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not enforceable.
541 S.E.2d at 771 (emphasis added). Presently, unlike in Ben Johnson, there is
nothing before the Court showing that ADT had a certificate of authority at the
time it entered into the contract with Mr. Warren, much less that any such
certificate was suspended at the time of contracting. Therefore, North Carolina
General Statute § 105-230 does not apply here. And even if the statute did apply,
it is not clear that ADT would be barred from pursuing the present action. See,
e.g., Raleigh Swimming Pool Co. v. Wake Forest Country Club, 182 S.E.2d 273,
274 (N.C. Ct. App. 1971) (holding that even after charter suspension, N.C. Gen.
Stat. § 105-230 does not deprive a corporation of “the incidental powers
necessary to its survival; the power to protect its property in a court of law, either
by assertion or defense of right”).
Mr. Warren next argues that this action should be dismissed pursuant to
North Carolina General Statute § 55-15-02, because ADT is “not registered to do
business in North Carolina.” (Def.’s Br. at 9.) North Carolina General Statute
§ 55-15-02 addresses the consequences of transacting business without authority
in North Carolina. Specifically, North Carolina General Statute § 55-15-02 states
(a) No foreign corporation transacting business in this State without
permission obtained through a certificate of authority under this
Chapter or through domestication under prior acts shall be permitted
to maintain any action or proceeding in any court of this State unless
the foreign corporation has obtained a certificate of authority prior to
trial.
In Ben Johnson, the North Carolina Court of Appeals addressed a similar
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argument to the one Mr. Warren makes here.
Although there is a requirement for all foreign corporations to obtain a
certificate of authority prior to doing business in this State, "the
failure . . . to obtain a certificate of authority does not impair the
validity of its corporate acts or prevent it from defending any
proceeding in this State." N.C.G.S. § 55-15-02(e) (1999). Prior to the
trial of a claim asserted by a foreign corporation without a certificate
of authority, however, the corporation must first obtain a certificate of
authority. N.C.G.S. § 55-15-02(a) (1999).
541 S.E.2d at 771 n.2. While ADT did not allege that it was registered to do
business in North Carolina at the time it entered into the contract with Mr. Warren,
it received its Certificate of Authority from the state of North Carolina on
September 28, 2016, prior to any trial of its claims. (Ex. D1, Certificate of
Authority [Doc. #10-1] at 7.) Accordingly, North Carolina General Statute § 5515-02 does not bar ADT’s lawsuit.
Mr. Warren also moves to dismiss five of ADT’s six claims (interference with
contractual relationships, interference with prospective economic advantages,
breach of fiduciary duty, constructive trust, and punitive damages) pursuant to
Federal Rule of Civil Procedure 12(b)(6).
“A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a
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ADT presented this document in its Brief In Opposition of the Motion to
Dismiss. In addressing a dismissal motion, a court may consider “documents
incorporated into the complaint by reference, and matters of which a court may
take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
322 (2007). “[A] court may properly take judicial notice of matters of public
record.” Goldfarb v. Mayor and City Council of Baltimore, 791 F.3d 500, 508 (4th
Cir. 2015). The Certificate of Authority is a public record and neither party
disputes its authenticity.
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complaint; importantly, it does not resolve contests surrounding the facts, the
merits of a claim, or the applicability of defenses.” Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992). “To survive a motion to dismiss, a
complaint 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
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
claim is facially plausible if the plaintiff provides enough factual content to enable
the court to reasonably infer that the defendant is liable for the misconduct alleged.
Id. “[I]n evaluating a Rule 12(b)(6) motion to dismiss, a court accepts all well-pled
facts as true and construes these facts in the light most favorable to the plaintiff in
weighing the legal sufficiency of the complaint.” Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009).
Mr. Warren first moves to dismiss ADT’s claims of tortious interference with
contractual relationships and tortious interference with prospective economic
advantages. In North Carolina, the elements of tortious interference with
contractual relationships are:
(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 doing
so acts without justification; (5) resulting in actual damage to the
plaintiff.
RLM Commc’n, Inc. v. Tuschen, 66 F. Supp. 3d 681, 694 (E.D.N.C. 2014) (citing
Embree Const. Grp., Inc. v. Rafcor, Inc., 411 S.E.2d 916, 924 (N.C. 1992)). The
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purpose of a claim for wrongful interference with contract is to afford relief
“against an outsider who knowingly, intentionally and unjustifiably induces one
party to a contract to breach it to the damage of the other party.” Childress v.
Abeles, 84 S.E.2d 176, 181 (N.C. 1954).
ADT alleges that: (1) As an employee and officer of the corporation, Mr.
Warren had actual knowledge of accounts and contracts ADT had with various
entities and individuals, and (2) without justification or excuse, Mr. Warren willfully
and maliciously interfered with ADT’s contractual relationships with its customers
in one or more “particulars.” (Compl. ¶¶ 15, 16, 19, 20.) Specifically, ADT
alleges that Mr. Warren:
A. secretly formed one or more corporations or limited liability
companies which were in direct competition with ADT;
B. knowingly and maliciously diverted and embezzled payments on
accounts due to ADT by instructing account debtors to make such
payments to one or more corporations or limited liability companies
which were in direct competition with ADT;
C. knowingly and maliciously diverted accounts, customers, and
corporate opportunities away from ADT and toward one or more
corporations or limited liability companies which were in direct
competition with ADT; and
D. falsely represented to ADT customers that the corporation had
begun doing business under the name(s) of one or more of the
corporations and limited liability companies formed by Mr. Warren.
(Id. ¶¶ 16, 20.)
Mr. Warren argues that ADT has failed to plead several essential elements of
the tortious interference with contractual relationships claim. Specifically, Mr.
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Warren asserts that ADT does not identify any valid contract that was disturbed
nor any contracts that “were breached or not performed because of defendant’s
actions,” and has not plead any actual damages. (Def.’s Br. at 7, 8.)
The Court agrees with Mr. Warren. With its allegations, ADT has not
identified any contract it had with any third party much less one that Mr. Warren
induced a third party not to perform, nor has it alleged any damage as a result. As
such, the Complaint is void of any facts which could plausibly be read to state a
claim for tortious interference with contractual relationships and that claim will be
dismissed.
A claim for tortious interference with prospective economic advantages
arise[s] when a party interferes with a business relationship by
maliciously inducing a person not to enter into a contract with a third
person, which he would have entered into but for the
interference, . . . if damage proximately ensues, when this
interference is done not in the legitimate exercise of the interfering
person's rights.
Beverage Sys. of the Carolinas, LLC v. Assoc. Beverage Repair, LLC, 784 S.E.2d
457, 463 (N.C. 2016) (internal citations and quotations omitted). “However, a
plaintiff's mere expectation of a continuing business relationship is insufficient to
establish such a claim. Instead, a plaintiff must produce evidence that a contract
would have resulted but for a defendant's malicious intervention.” Id.
ADT relies on the same allegations asserted for its tortious interference with
contractual relationship claim in support of its tortious interference with
prospective economic advantages. Mr. Warren argues that ADT has not alleged
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that but for defendant’s alleged actions, it would have entered any contract and
does not specifically identify any future contracts or prospective business
relationships it lost because of Mr. Warren’s conduct. According to Mr. Warren,
ADT “generally alleges that defendant competed with plaintiff, diverted unspecified
payments from plaintiff, diverted unspecified accounts from plaintiff, and made
false representations to unspecified customers.” (Id. at 9-10.)
With respect to this claim, ADT has not identified any contract into which it
was going to enter but for Mr. Warren’s interference, nor has it alleged any
damages as a result. Accordingly, ADT has failed to state a claim for tortious
interference with prospective economic advantages and this claim will be
dismissed.
Mr. Warren next challenges the sufficiency of ADT’s breach of fiduciary duty
claim. Both parties agree that the internal affairs doctrine directs that this claim is
subject to the law of Delaware, the state where ADT is incorporated. See Bluebird
Corp. v. Aubin, 657 S.E.2d 55, 63 (N.C. Ct. App. 2008) (holding that, pursuant to
the internal affairs doctrine, the North Carolina court correctly applied New York
law in a breach of fiduciary duty claim against a New York corporation sued in
North Carolina). Under Delaware law,
A claim for breach of fiduciary duty requires proof of two elements:
(1) that a fiduciary duty existed and (2) that the defendant breached
that duty.
Beard Res., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010). In support of its
breach of fiduciary duty claim, ADT asserts the same facts it did for its tortious
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interference claims, but additionally alleges that “[a]s an employee and officer of
the corporation, Mr. Warren owed ADT a duty of loyalty as a fiduciary.” (Compl.
¶ 23.) In response, Mr. Warren argues that ADT has not alleged what position Mr.
Warren held as an officer and that under Delaware law, “to the extent that
plaintiff’s breach of fiduciary duty claim is based on defendant’s employment with
plaintiff, that claim is foreclosed by plaintiff’s claim for breach of contract.”
(Def.’s Br. at 10-12.) Like the previous claims, ADT has failed to state a claim
upon which relief can be granted. ADT has not asserted sufficient facts for the
Court to determine if Mr. Warren owed ADT any duty, nor, if so, the scope of it or
how Mr. Warren breached any such duty. Other than generalized claims of alleged
behavior, the Complaint is void of any facts to support a breach of duty claim.
Accordingly, this claim will be dismissed.
Mr. Warren next challenges ADT’s final two claims which relate to the
protection of assets and damages – (1) the request for the imposition of a
constructive trust in claim five and (2) the request for punitive damages in claim
six. A constructive trust is an equitable remedy and courts have great leeway in
imposing one. See Swann v. Charlotte-Mecklenburg Bd. of Ed., 402 U.S. 1, 15
(1971) (“[T]he scope of a district court's equitable powers . . . is broad.”)
However, when “[a] plaintiff's complaint denominates a claim for constructive
trust, a claim for constructive trust is properly denominated as a remedy for a claim
of unjust enrichment.” WJ Glob. LLC v. Farrell, 941 F. Supp. 2d 688, 693
(E.D.N.C. 2013) (citing Embree Const. Grp., 411 S.E.2d 916, n.3 (N.C. 1992)). In
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support of its claim, ADT alleges that “[Mr. Warren] converted, embezzled, and
misappropriated substantial sums which belonged to and which were due to be
paid to [ADT].” (Compl. ¶ 27.) On these allegations, a constructive trust is not an
appropriate remedy. ADT has not alleged a claim of unjust enrichment, its claim
for breach of fiduciary duty is being dismissed, and it has not identified any money
or assets to be put in a trust. See, e.g., Cury v. Mitchell, 688 S.E.2d 825, 828
(N.C. Ct. App. 2010) (finding the plaintiff stated a claim for constructive trust
where the “plaintiff alleged that a fiduciary relationship existed, that defendant
breached a fiduciary duty, and that defendant was unjustly enriched because of
that breach.”) Accordingly, ADT’s claim for constructive trust will be dismissed.
Like the claim for a constructive trust, ADT has not stated a claim for
punitive damages. North Carolina General Statute § 1D-15 explains the standard
for punitive damages. Specifically,
(a) Punitive damages may be awarded only if the claimant proves that
the defendant is liable for compensatory damages and that one of the
following aggravating factors was present and was related to the
injury for which compensatory damages were awarded:
(1) Fraud.
(2) Malice.
(3) Willful or wanton conduct.
N.C. Gen. Stat. § 1D-15. However, “[p]unitive damages shall not be awarded
against a person solely for breach of contract.” Id. Because the only claim
remaining is one for breach of contract, ADT’s punitive damages claim will be
dismissed.
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For the reasons set forth herein, IT IS HEREBY ORDERED that Defendant’s
Motion to Dismiss for Failure to State a Claim [Doc. #8] is GRANTED, and
Plaintiff’s Second, Third, Fourth, Fifth, and Sixth Claims for Relief are DISMISSED.
This the 21st day of June, 2017.
/s/ N. Carlton Tilley, Jr.
Senior United States District Judge
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