The Wellness Group, LLC v. King Bio, Inc.

Filing 137

ORDER granting in part and denying in part 69 Defendant's Motion for Partial Summary Judgment (see order for details); granting 74 Defendant Dr. Frank J. King's Motion for Summary Judgment ; granting 77 Defend ant Suzie R. King's Motion for Summary Judgment ; granting 79 Defendant David Gerhardt's Motion for Summary Judgment ; granting 81 Defendant Michael N. Whittaker's Motion for Summary Judgment. Signed by District Judge Martin Reidinger on 04/24/2014. (thh)

THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:12-cv-00281-MR-DLH

THE WELLNESS GROUP, LLC,

)
)
Plaintiff,
)
)
vs.
)
)
KING BIO, INC., DR. FRANK J.
)
KING, JR., SUZIE R. KING, DAVID
)
GERHARDT, and MICHAEL D.
)
WHITTAKER,
)
)
Defendants.
)
________________________________ )

MEMORANDUM OF
DECISION AND ORDER

THIS MATTER is before the Court on the Defendants’ Motions for
Summary Judgment [Docs. 69, 74, 77, 79, 81].
I.

PROCEDURAL BACKGROUND
The Plaintiff The Wellness Group, LLC (TWG) initiated this action on

September 10, 2012 against the Defendant King Bio, Inc. (King Bio) and its
corporate officers for claims arising out of the alleged breach of the parties
Sales Management Agreement (SMA). In its Amended Complaint, TWG
seeks a declaratory judgment as to the amount of commissions due and
owing to the Plaintiff under the SMA (Count I), as well as a declaratory
judgment that the Non-Competition Agreement executed by TWG in

connection with the SMA is invalid and unenforceable (Count VII). [Doc.
45]. In the remaining counts of the Amended Complaint, TWG asserts
claims for: breach of contract (Count II); unjust enrichment (Count III);
breach of the covenant of good faith and fair dealing (Count IV); tortious
interference with business relations (Count V); violations of N.C. Gen. Stat.
§ 75.1, et seq. (Count VI); civil conspiracy (Count IX); fraud (Count XI).
TWG further seeks an accounting under the SMA (Count X) and seeks to
hold the individual officers liable for the alleged wrongful acts of the
corporate defendant by piercing the corporate veil (Count XII). In addition
to seeking compensatory damages, TWG seeks punitive damages (Count
VIII).
The Defendants now move for the entry of summary judgment on the
majority of TWG’s claims. Specifically, the Defendants seek the dismissal
of TWG’s claims for breach of the covenant of good faith and fair dealing;
tortious interference with business relations, fraud, violations of Chapter 75;
civil conspiracy; unjust enrichment; accounting; and piercing the corporate
veil. [Docs. 69, 74, 77, 79, 81]. While King Bio does not seek dismissal of
the breach of contract claim asserted against it, it argues that it is entitled to
summary judgment on the following issues: (1) that King Bio terminated the

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SMA effective no later than September 13, 2012 and (2) that the SMA
directs that TWG’s commissions are to be paid monthly for a period of 18
months following termination of the SMA. [Doc. 69]. The Court heard oral
argument on these motions on January 3, 2014. 1
Having been fully briefed and argued, this matter is now ripe for
review.
II.

STANDARD OF REVIEW
Summary judgment is proper “if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if it
“might affect the outcome of the case.” News and Observer Pub. Co. v.
Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010).

A

“genuine dispute” exists “if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
A party asserting that a fact cannot be genuinely disputed must
support its assertion with citations to the record. Fed. R. Civ. P. 56(c)(1).

1

Also pending before the Court is Plaintiff’s Motion for Partial Summary Judgment as to
Count VII of the Amended Complaint [Doc. 70]. The Court shall address that motion by
a separate Order.
3

“Regardless of whether he may ultimately be responsible for proof and
persuasion, the party seeking summary judgment bears an initial burden of
demonstrating the absence of a genuine issue of material fact.” Bouchat v.
Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003). If
this showing is made, the burden then shifts to the non-moving party who
must convince the Court that a triable issue does exist. Id.
In considering the facts for the purposes of a summary judgment
motion, the Court must view the pleadings and materials presented in the
light most favorable to the nonmoving party and must draw all reasonable
inferences in the nonmoving party’s favor. Adams v. Trustees of the Univ.
of N.C.-Wilmington, 640 F.3d 550, 556 (4th Cir. 2011).
III.

FACTUAL BACKGROUND
A.

The Parties

TWG is a limited liability corporation organized and existing under the
laws of the State of Pennsylvania with its principal place of business in
Virginia. TWG is a sales management company that helps launch and
manage product lines for consumer product companies through a network
of broker representatives in the United States and Canada.

Michael

Lupacchini (“Lupacchini”) is the founder and member of TWG and assumed

4

primary responsibility for the business relationship with King Bio.
[Amended Complaint, Doc. 45 at ¶6].
King Bio is a corporation organized and existing under the laws of the
State of North Carolina with its principal place of business in Asheville,
North

Carolina.

King

Bio

is

an

FDA-registered

pharmaceutical

manufacturing company engaged in the research, development, and sale
of homeopathic medicines. [Id. at ¶7; Answer, Doc. 56 at ¶7]. Defendant
Dr. Frank J. King, Jr. (“Dr. King”) is the founder and President of King Bio.
[Amended Complaint, Doc. 45 at ¶8].

Defendant Suzie R. King (“Mrs.

King”) is Dr. King’s wife and the Vice President of King Bio. [Amended
Complaint, Doc. 45 at ¶9; Answer, Doc. 57 at ¶9].

Defendant David

Gerhardt (“Gerhardt”) is the Vice President of Sales of King Bio. [Amended
Complaint, Doc. 45 at ¶10; Answer, Doc. 59 at ¶10]. Defendant Michael N.
Whittaker (”Whittaker”) is the General Manager of King Bio. [Amended
Complaint, Doc. 45 at ¶11; Answer, Doc. 58 at ¶11].
B.

The Sales Management Agreement

The following facts are not in dispute, or if disputed are taken in the
light most favorable to the Plaintiff as the non-moving party. On November
22, 2011, King Bio and TWG entered into a Sales Management Agreement

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(“SMA”) regarding the launch and management of King Bio’s Food Drug
and Mass (“FDM”) market business. Specifically, TWG agreed to act as a
“national sales manager” for King Bio and develop its FDM business in
exchange for a percentage of King Bio’s earnings as commission.
TWG spent ten months developing the FDM market by promoting and
selling King Bio’s products.

By mid-July of 2012, however, tensions

between the parties were high. King Bio began reviewing the termination
provisions of the SMA and assessing its options for ending the relationship.
Ultimately, King Bio sent a termination notice to TWG on August 14, 2012,
and notified its brokers that TWG would no longer be a contact for King Bio.
The next day, August 15, 2012, King Bio received a letter from
TWG’s counsel demanding that over $43,000 in commissions be wired to
TWG before the close of business on August 17, 2012. In response, King
Bio sent TWG a check for commissions in the amount of $248.24, which
was the amount King Bio calculated as being due.
After a brief exchange of letters between counsel, TWG filed suit on
September 10, 2012. King Bio continued to deny any liability for unpaid
commissions until January 2013, when it admitted in interrogatory
responses that it was required to pay commissions to TWG under the SMA

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for a period of 18 months, regardless of whether the termination was with
or without cause.

In June 2013, when TWG threatened to amend its

Complaint further to seek additional penalties under North Carolina General
Statute § 66-191, King Bio began to pay a portion of the commissions owed
to TWG and continues to make monthly commission payments until this
day.

As of November 2013, King Bio has paid $252,299.85.

TWG

contends, however, that these payments are less than the entire amount of
commissions owed to TWG and that such payments improperly apply
additional set-offs to the commission calculation that directly contravene
the terms of the SMA.
IV.

ANALYSIS
A.

Withdrawn Claims

At the summary judgment hearing, TWG advised the Court that it was
withdrawing its claims for unjust enrichment, civil conspiracy, and piercing
the corporate veil.

Accordingly, the Defendants’ motions for summary

judgment will be granted as to these claims.
B.

Breach of Contract Claim

While King Bio does not seek dismissal of the breach of contract
claim asserted against it, it argues that it is entitled to summary judgment

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on the following issues: (1) that King Bio terminated the SMA effective no
later than September 13, 2012 and (2) that the SMA directs that TWG’s
commissions are to be paid monthly for a period of 18 months following
termination of the SMA. [Doc. 69].
Having reviewed the record, the Court concludes that there are
genuine disputes of material fact as to these issues and therefore summary
judgment is inappropriate with respect to any aspect of TWG’s breach of
contract claim against King Bio.

Accordingly, King Bio’s motion for

summary judgment as to these breach of contract issues is denied.
C.

Tortious Interference with Business Relations

In its Amended Complaint, TWG alleges that King Bio and the
Individual Defendants interfered in TWG’s business relations with FDM
retailers and the brokers engaged by TWG to assist in selling King Bio’s
products to FDM retailers when the Defendants advised the brokers that
the SMA would be terminated. [Amended Complaint, Doc. 45 at ¶152].
To maintain an action for tortious interference with business relations
under North Carolina law, a plaintiff “must show that [the defendant] acted
with malice and for a reason not reasonably related to the protection of a
legitimate business interest of [the defendant].” Market America, Inc. v.

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Christman-Orth, 135 N.C. App. 143, 158, 520 S.E.2d 570, 581 (1999)
(citation and internal quotation marks omitted).
In support of its claim, TWG cites two emails that it claims create a
genuine issue of fact as to whether King Bio interfered with TWG’s
business relations. [See Docs. 86-19, 86-20]. In both emails, King Bio
representatives contact retail brokers and ask them to contact King Bio
directly regarding future sales. [Id.]. TWG offers no forecast of evidence to
suggest that these emails were sent maliciously or for a reason not
reasonably related to protection of King Bio’s legitimate business interests.
Moreover, TWG has failed to present a forecast of evidence that any actual
or prospective business relations of TWG were in fact damaged or harmed
as result of these emails. For these reasons, TWG’s claim for tortious
interference with business relations will be dismissed.
D.

Fraud

In Count XI of the Verified Amended Complaint, TWG alleges that at
the time that TWG and King Bio entered into the SMA, agents of King Bio
falsely represented to TWG “that King Bio intended to honor its contractual
agreement to engage TWG to serve as King Bio’s National Sales Manager
and to pay TWG commissions in accordance with the SMA.” [Amended

9

Complaint, Doc. 45 at ¶190]. TWG additionally alleges that King Bio and
its agents further made a misrepresentation “regarding Mr. Lupacchini
becoming the highest paid employee at King Bio.” [Id.]. TWG alleges that
in making these representations, “King Bio concealed . . . its true intent . . .
to use the contract to induce TWG to use its capabilities . . . to create and
develop the lucrative business for King Bio, and to thereafter wrongfully
terminate the contract and refuse to continue paying the agreed-upon
commissions to TWG.” [Id.].
To prove a claim for fraud in North Carolina, a plaintiff must
demonstrate: (1) a material misrepresentation of a past or existing fact; (2)
that the representation was definite and specific; (3) that it was made “with
knowledge of its falsity or in culpable ignorance of its truth”; (4) that the
misrepresentation was made with the “intention that it should be acted
upon”; (5) that the recipient of the misrepresentation reasonably relied and
acted upon the misrepresentation; and (6) that the misrepresentation
resulted in damage to the recipient. Horack v. Southern Real Estate Co. of
Charlotte, Inc., 150 N.C. App. 305, 313, 563 S.E.2d 47, 53 (2002).
To prevail on its fraud claim, TWG must produce a forecast of
evidence that King Bio entered the SMA and made representations

10

regarding Lupacchini’s future earnings with the present intent to deceive.
Id. “[A]bsent specific evidence of [the defendant’s] intent to deceive during
contract formation, ‘mere unfilled promises cannot be made the basis for an
action of fraud.’” McKinnon v. CV Indus., Inc., 213 N.C. App. 328, 338, 713
S.E.2d 495, 503, disc. rev. denied, 365 N.C. 353, 718 S.E.2d 376 (2011).
Here, TWG argues that the record “is replete with evidence of the
Defendants’ fraudulent performance under the contract.” [Doc. 84 at 19].
TWG fails, however, to point to any specific evidence from which a
reasonable jury could conclude that King Bio fraudulently entered the SMA
or made representations regarding Lupacchni’s earning potential with the
present intent to deceive TWG. Further, the forecast of evidence before
the Court indicates that King Bio and its agents performed under the SMA
for several months prior to its termination.

A defendant’s partial

performance under a contract is evidence of the defendant’s intent to fulfill
the agreement when formed. See id. at 339, 713 S.E.2d at 504. For these
reasons, TWG’s fraud claim is dismissed.
E.

Breach of Good Faith and Fair Dealing

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TWG alleges that King Bio created a false pretext for terminating the
SMA and further performed its obligations under the SMA in bad faith,
thereby constituting a breach of the covenant of good faith and fair dealing.
[Amended Complaint, Doc. 45 at ¶¶ 142, 145].
“In every contract there is an implied covenant of good faith and fair
dealing that neither party will do anything which injures the right of the other
to receive the benefits of the agreement.”

Governors Club, Inc. v.

Governors Club Ltd. P’ship, 152 N.C. App. 240, 251, 567 S.E.2d 781, 789
(2002), aff'd, 357 N.C. 46, 577 S.E.2d 620 (2003) (citation and internal
quotations omitted). “North Carolina courts ... do not consider breach of
good faith claims independently from breach of contract claims unless there
is a special relationship between the parties.” Meineke Car Care Centers
v. RLB Holdings, LLC, No. 3:08-CV-240-RJC, 2009 WL 2461953, at *11
(W.D.N.C. Aug. 10, 2009), rev’d on other grounds, 423 F. App’x 274 (4th
Cir. 2011).
When a claim for breach of the covenant of good faith and fair dealing
is “part and parcel” of a similar claim for breach of the express terms of the
same contract, it should be dismissed as a freestanding claim and asserted
as a theory in support of the claim for breach of contract. See Rezapour v.

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Earthlog Equity Grp., Inc., 5:12-CV-105-RLV, 2013 WL 3326026, at *4
(W.D.N.C. July 1, 2013).
In the present case, TWG has not presented a forecast of evidence to
suggest that the parties had any sort of special relationship.

Further,

TWG’s good faith and fair dealing claim is “part and parcel” of its claim for
breach of the SMA. Accordingly, the Court will dismiss Count IV of the
Amended Complaint as a stand-alone claim. TWG may still assert theories
of a breach of the duties of good faith and fair dealing in support of its
claims for breach of contract.
F.

Chapter 75

In its Verified Amended Complaint, TWG alleges that King Bio and
the Individual Defendants “strategically terminated” the SMA and
intentionally interfered in TWG’s relations with brokers and retailers, and
thereby committed unfair and deceptive trade practices in violation of
Chapter 75. [Amended Complaint, Doc. 45 at ¶¶ 157-59].
To make a claim for unfair and deceptive trade practices under
Chapter 75, a party must show “(1) an unfair or deceptive act or practice, or
an unfair method of competition, (2) in or affecting commerce, (3) which
proximately caused actual injury to the plaintiff or to his business.” Spartan

13

Leasing, Inc. v. Pollard, 101 N.C. App. 450, 460–61, 400 S.E.2d 476, 482
(1991). A deceptive practice is one that has “the capacity or tendency to
deceive the average consumer, but proof of actual deception is not
required.” Id. at 461, 400 S. E.2d at 482.
As another Court in this District recently observed:
A cause of action for unfair and deceptive trade
practices under Section 75–1–1 can be a distinct
cause of action from [a] breach of contract claim. To
do so, however, plaintiff must show substantial
aggravating circumstances attending the breach to
recover under the Act, which allows for treble
damages. It is unlikely that an independent tort
could arise in the course of contractual
performance, since those sorts of claims are most
appropriately addressed by asking simply whether a
party adequately fulfilled its contractual obligations.
Patterson v. Flagstar Bank, FSB, 3:12-CV-00707-MOC, 2013 WL 5217616,
at *8 (W.D.N.C. Sept. 17, 2013) (internal citations and quotation marks
omitted).
Here, TWG has failed to present a forecast of evidence of
“substantial aggravating circumstances” attending King Bio’s breach of the
SMA to sustain its Chapter 75 claim.

While TWG claims that it was

deceived by King Bio’s failure to disclose that it had no intention of
honoring the contract, TWG has failed to present a forecast of evidence

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that King Bio did not intend to honor the SMA at the time the contract was
formed.

Without that, TWG’s evidence tends to show nothing more than

an intentional breach, which is not a deceptive trade practice.

See

Bumpers v. Community Bank of N. Va., 747 S.E.2d 220, 226 (N.C. 2013)
(noting that Chapter 75 “does not . . . apply to an individual who merely
breaches a contract”); Mitchell v. Linville, 148 N.C. App. 71, 74, 557 S.E.2d
620, 623 (2001) (“Neither an intentional breach of contract nor a breach of
warranty ... constitutes a violation of Chapter 75.”) (citations omitted).
TWG also claims that it was deceived by King Bio’s conduct in
formulating a plan to terminate the SMA months before it was actually
terminated, and continuing to encourage and praise TWG’s performance
during the interim period.

TWG, however, received the notice it was

entitled to under the parties’ contract. The fact that King Bio may have
made preparations in advance of TWG’s termination does not render the
contractual breach an unfair or deceptive trade practice. See Bartolomeo
v. S.B. Thomas, Inc., 889 F.2d 530, 535 (4th Cir. 1989) (“Because [the
plaintiff] had all the notice for which he could conceivably have asked . . .
the district court properly concluded that this conduct did not violate the
Act.”); see also United Roasters, Inc. v. Colgate-Palmolive Co., 649 F.2d

15

985, 989-90 (4th Cir. 1981) (affirming dismissal of Chapter 75 claim, noting
party possessing a right of termination is not required to inform the other
party promptly of any decision to exercise that right).
Further,

while

TWG

complains

that

King

Bio

deceptively

communicated with certain brokers prior to terminating the SMA to let them
know that TWG would soon be terminated, such communications will not
support a Chapter 75 claim. See Pennsylvania Floor Coverings, Inc. v.
Perstorp Flooring Inc., 5:98-CV-705-BR(2), 1999 WL 1939994, at *1-2
(E.D.N.C. Mar. 2, 1999) (Denson, M.J.) (declining to conclude that “secret
discussions with another potential distributor” constituted aggravating
circumstances, finding instead that such actions “amount to nothing more
than a breach of contract.”).
Finally, while TWG asserts that King Bio violated Chapter 75 by
“manufacturing a pretextual cause” for terminating the SMA and attempting
to force TWG to abandon the relationship itself, TWG has failed to show
that it suffered any damage as a result of such a scheme, as King Bio was
unsuccessful in its bid to force TWG into terminating the contract.
Moreover, King Bio is paying commissions to TWG as required by the
SMA.

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Having failed to present a forecast of evidence to establish
substantial aggravating circumstances attending King Bio’s breach of
contract, TWG’s Chapter 75 claim will also be dismissed.

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G.

Punitive Damages

Because none of TWG’s tort claims survive summary judgment,
TWG’s claim for punitive damages is also dismissed.2
ORDER
Accordingly, IT IS, THEREFORE, ORDERED that:
(1)

Defendant King Bio, Inc.’s Motion for Partial Summary
Judgment [Doc. 69] is GRANTED with respect to Plaintiff’s
claims for unjust enrichment (Count III), breach of good faith
and fair dealing (Count IV), tortious interference with business
relations (Count V), violations of Chapter 75 (Count VI), punitive
damages (Count VIII), civil conspiracy (Count IX), fraud (Count
XI), piercing the corporate veil (Count XII), and In all other
respects, King Bio’s Motion for Summary Judgment is DENIED;

(2)

Defendant Dr. Frank J. King, Jr.’s Motion for Summary
judgment [Doc. 74] is GRANTED, and all of Plaintiff’s claims
pending against this Defendant are hereby DISMISSED;

2

Because all of TWG’s tort claims have been dismissed on their merits, the Court need
not address whether the economic loss rule and/or the independent tort doctrine bars
such claims.
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(3)

Defendant Suzie R. King’s Motion for Summary Judgment [Doc.
77] is GRANTED, and all of Plaintiff’s claims pending against
this Defendant are hereby DISMISSED;

(4)

Defendant David Gerhardt’s Motion for Summary Judgment
[Doc. 79] is GRANTED, and all of Plaintiff’s claims pending
against this Defendant are hereby DISMISSED; and

(5)

Defendant Michael N. Whittaker’s Motion for Summary
Judgment [Doc. 81] is GRANTED, and all of Plaintiff’s claims
pending against this Defendant are hereby DISMISSED.

IT IS SO ORDERED.

Signed: April 24, 2014

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