Robichaud v. Engage2Excel, Inc. et al

Filing 47

ORDER granting in part and denying in part Defendants' 23 Motion to Dismiss and 24 Motion to Dismiss. See order for further details . Signed by Senior Judge Graham Mullen on 5/9/2019. (nvc)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO. 5:18-CV-00086-GCM
JAMES A. ROBICHAUD,
Plaintiffs,
v.
ENGAGE2EXCEL, INC
COMVEST INVESTMENT PARTNERS
HOLDINGS, LLC
U.S. BANK, N.A.
E2E HOLDINGS, INC
PHILLIP STEWART
GC REPRESENTATIVE COMPANY,
LLC,
Defendants.

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ORDER

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THIS MATTER COMES before this Court on Defendants Engage2Excel, Inc. (“E2E”),
Comvest Investment Partners Holdings, LLC (“Comvest”), E2E Holdings, Inc. (“E2E Holdings”),
and Philip Stewart’s (“Stewart”) (E2E, Comvest, E2E Holdings, and Stewart collectively “E2E
Defendants”) Motion to Dismiss (Doc. No. 23) and Defendant GC Representative Company,
LLC’s (“GC”) Motion to Dismiss (Doc. No. 25). Plaintiff James Robichaud (“Plaintiff”)
responded to both Motions and both the E2E Defendants and GC (collectively “Defendants”)
replied. Thus, this matter is ripe for disposition.
I.

FACTUAL BACKGROUND
For purposes of this Motion, the Court accepts the facts in the Amended Complaint as true.

Those facts serve as the factual basis for this Order.
Plaintiff worked as an independent distributor for E2E until December 29, 2016. (Amend.
Compl. ¶32). E2E operated in the human resources solutions industry. (Id. at ¶31). When Plaintiff
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left his employment with E2E, E2E offered Plaintiff a buyout in exchange for a non-compete
agreement. (Id. at ¶33). Plaintiff refused the buyout as Plaintiff intended to remain within the same
industry. (Id. at ¶33, 34). Despite leaving E2E, Plaintiff remained a minority stockholder in the
company. (Id. at ¶12, 13).
After leaving the employ of E2E, Plaintiff founded Global Engagement Solutions (“GES”).
(Id. at ¶1). GES became a direct competitor of E2E in February of 2017. (Id. at ¶35). In June of
2017, a significant client of E2E moved its business from E2E to GES. (Id. at ¶37). Defendants
knew of Plaintiff’s involvement with GES. (Id. at ¶36).
E2E merged with Comvest via a reverse triangular merger. (Id. at ¶38). The merger
extinguished all of Plaintiff’s shares in E2E. (Id. at ¶12). The Board of Directors and a majority of
the stockholders of E2E approved the merger. (Id. at ¶40). Plaintiff did not vote in favor of the
merger. (Id. at ¶41).
After Comvest and E2E completed the merger, Defendants sent out Letters of Transmittal
to the stockholders of E2E. (Id. at ¶44). The Merger Agreement provided a form Letter of
Transmittal. (Id. at ¶43). According to the Merger Agreement, a stockholder entitled to merger
consideration may receive the consideration upon the surrender of their shares and execution of
the Letter of Transmittal. (Id. at ¶44). Despite the inclusion of a form Letter of Transmittal in the
Merger Agreement, Defendants sent Plaintiff a Letter of Transmittal that contained non-compete
and non-solicitation clauses. (Id. at ¶46). Plaintiff was the only squeezed-out stockholder to receive
these restrictions in their Letter of Transmittal. (Id. at ¶47). Defendants continue to withhold
Plaintiff’s merger consideration until Plaintiff provides the Letter of Transmittal including the noncompete and non-solicitation clauses.
II.

STANDARD OF REVIEW

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When faced with a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court must “accept as true all well-pleaded allegations and . . . view the complaint
in a light most favorable to the plaintiff.” Mylan Labs, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th
Cir. 1993). The Court “assume[s] the[] veracity” of these factual allegations, and “determine[s]
whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679
(2009). However, the court “need not accept as true unwarranted inferences, unreasonable
conclusions, or arguments.” E. Shore Mkts., Inc. v. J.D. Assocs. LLP, 213 F.3d 175, 180 (4th
Cir. 2000). Thus, to survive a motion to dismiss, the plaintiff must include within his complaint
“sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
III.

DISCUSSION
As a result of Defendants’ actions, Plaintiff sued Defendants claiming: (1) Violation of the

North Carolina Unfair and Deceptive Trade Practices Act, (2) Violation of the Wisconsin
Deceptive Trade Practices Act, (3) Civil Conspiracy, (4) Fraud, (5) Unjust Enrichment, (6)
Punitive Damages, (7) Declaratory Judgment, and (8) Injunctive Relief. The Court will discuss
each cause of action below delineating between which Defendant is specifically being sued to the
extent such a distinction becomes relevant.
a. Violation of the North Carolina Unfair and Deceptive Trade Practices Act
First, Plaintiff claimed that Defendants’ act of withholding Plaintiff’s merger
consideration constituted a violation of the North Carolina Unfair and Deceptive Trade Practices
Act (“NCUDTPA”). N.C. Gen. Stat. § 75-1.1, et seq. In order to state a claim under the
NCUDTPA, a plaintiff must allege: “(1) the defendant engaged in conduct that was in or
affecting commerce, (2) the conduct was unfair or had the capacity or tendency to deceive, and

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(3) the plaintiff suffered actual injury as a proximate result of defendant’s deceptive statement or
misrepresentation.” Belk Inc., v. Meyer Corp., U.S., 679 F.3d 146, 164 (4th Cir. 2012) (internal
quotations omitted). North Carolina courts have held that the NCUDTPA does not apply to
securities transactions. Skinner v. E.F. Hutton & Co., 333 S.E.2d 236, 241 (N.C. 1985). In
holding that securities transactions were outside the scope of the NCUDTPA, the North Carolina
Supreme Court reasoned that securities transactions were
subject to pervasive and intricate regulation under the North
Carolina Securities Act, N.C. Gen. Stat. § 78A-1 et seq. (1981), as
well as the Securities Act of 1933, 15 U.S.C. § 77a et seq. (1982),
and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
(1982). Furthermore, to hold that § 75-1.1 applies to securities
transactions could subject those involved with securities
transactions to overlapping supervision and enforcement by both
the North Carolina Attorney General, who is charged with
enforcing § 75-1.1, and the North Carolina Secretary of State, who
is charged with enforcing the North Carolina Securities Act.
Id. (quoting Lindner v. Durham Hosiery Mills, Inc., 761 F.2d 162, 167-68 (4th Cir.1985)).
The North Carolina Supreme Court further discussed the securities exception to the
NCUDTPA in The HAJMM Co. v. House of Raeford Farms, Inc. 328 N.C. 578, 594 (1991). In
HAJMM, the North Carolina Supreme Court stated that the “in commerce” element meant
regular day-to-day business activities of a business “such as the sale or purchase of goods, or
whatever other activities the business regularly engages in and for which it is organized.” Id. The
Court went on to state that
The issuance of securities is an extraordinary event … not a
business activity of the issuing enterprise. Similarly, retirement of
the security by the issuing enterprise simply removes the security
from the capital structure. Like issuance and transfer of the
security, retirement is not a business activity which the issuing
enterprise was organized to conduct.
Id.

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Applying controlling North Carolina law to the facts of this case, the Court finds that the
securities exception applies and bars Plaintiff’s NCUDTPA claim. Plaintiff premises his claim
upon the alleged unlawful withholding of his merger consideration. Plaintiff attempts to avoid
the securities exception by arguing that the withholding of merger consideration is an attempt to
prevent a competitor from expanding in the marketplace. According to Plaintiff “there is no
question that competitive behavior and marketplace participation—or the restriction thereof—is
conduct in or affecting commerce.” (Doc. No. 32, p. 17).
The Court finds this argument unpersuasive. The resolution of the NCUDTPA claim
requires the Court to determine if Defendants’ actions were unfair or deceptive. To make that
determination, the Court will be required to delve into Delaware corporate law along with other
related securities law. Thus, the actions at issue in this case are already subject to “pervasive and
intricate regulation” as discussed in Skinner. 333 S.E.2d at 241. The pervasive regulation weighs
in favor of holding that the securities exception applies.
The Court further finds that the acts alleged in this case are not regular day-to-day
business activities and are thus not “in or affecting commerce.” HAJMM, 328 N.C. at 594.
Rather, the acts involve a “sophisticated transaction engineered by sophisticated parties.”
(Amend. Compl. ¶12). Every act pertinent to the resolution of this matter is an extraordinary
event outside the scope of the NCUDTPA. To wit, the merger, the issuance of Letters of
Transmittal, and the conditions precedent contained within the Letters all are extraordinary
events that are not in or affecting commerce as contemplated under the NCUDTPA.
The North Carolina Business Court dealt with a strikingly similar factual scenario in
Tillery Environmental, LLC v. A&D Holdings, Inc., 17CVS6525, 2017WL3335764 (N.C. Sup.
Ct. Aug. 4, 2017) (Bledsoe, J.). In Tillery, the plaintiff alleged that the defendant attempted to

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improperly claim escrow funds over a year after the close of the subject merger. Tillery,
2017WL3335764 at *5. The North Carolina Business Court opined that post-merger actions that
happened nearly “eighteen months after the securities transaction closed” fell within the
securities exception to the NCUDTPA. Id. at *5-6. The Court reasoned that “Defendants’
conduct is inextricably tied to the sale of securities and the Stock Purchase Agreement.” Id. at
*6. In the case at bar, Defendant’s conduct also is “inextricably tied” to a securities transaction.
While Tillery may not be binding, the Court finds the decision highly persuasive and chooses to
follow its reasoning and holding.
As such, the Court finds that the securities exception applies to this case. Because the
securities exception applies, Defendants’ Motion to Dismiss Plaintiff’s NCUDTPA claim is
GRANTED.
b. Violation of the Wisconsin Deceptive Trade Practices Act
Plaintiff’s next cause of action alleged a violation of the Wisconsin Deceptive Trade
Practices Act (“WDTPA”), Wis. Stat. § 100.18(1). In order to state a claim under the WDTPA, a
plaintiff must allege “(1) the defendant made a representation to the public with the intent to
induce an obligation, (2) the representation was untrue, deceptive or misleading, and (3) the
representation materially induced (caused) a pecuniary loss to the plaintiff.” Brainstorm
Interactive, Inc. v. Sch. Specialty, Inc., No. 14–cv–50–WMC, 2014 WL 6893881, at *17 (W.D.
Wis. Dec. 5, 2014) (Conley, J.) (internal quotations omitted). While one person may constitute a
member of the “public” in certain instances, a statement made to a person with a “particular
relationship” to the defendant is not a statement made to the public. See Uniek, Inc. v. Dollar
General Corp., 474 F.Supp.2d 1034, 1037-38 (W.D. Wis. 2007); but see State v. Automatic
Merchandisers of Am., Inc., 221 N.W.2d 683, 686 (Wis. 1974) (“The important factor is whether

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there is some particular relationship between the parties.”). Parties to a contract have a particular
relationship. Kailin v. Armstrong, 643 N.W.2d 132, 149 (Wis. Ct. App. 2002) (“We see no
indication in the language of § 100.18(1) that the legislature intended to address untrue,
deceptive, or misleading assertions, representations, or statements of fact made by one party to
another after they have entered into a contract.”)
Applying the above standard to the case at bar, the Court finds that Plaintiff is not a
member of the public for purposes of the WDTPA. Plaintiff complains of post-merger actions of
Defendants. The post-merger actions happened after Plaintiff became a stockholder in E2E. The
Supreme Court of Wisconsin, in Kailin, held that the WDTPA is not intended to cover the
Parties’ actions after they enter into a contract. The Court finds that the Parties had a particular
relationship. Thus, Plaintiff is not a member of the public and therefore cannot state a claim
under the WDTPA. As such, Defendants’ Motion to Dismiss the WDTPA claim is GRANTED.
c. Fraud
Next, Plaintiff sued E2E alone for fraud. To establish fraud in North Carolina, a plaintiff
must allege a: “(1) false representation or concealment of a material fact, (2) reasonably
calculated to deceive, (3) made with the intent to deceive, (4) which does in fact deceive, (5)
resulting in damage to the injured party.” Ragsdale v. Kennedy, 209 S.E.2d 494, 500 (N.C. 1974)
(internal citations omitted). In addition, the Federal Rules of Civil Procedure require that a party
claiming fraud plead that cause of action with particularity. Fed. R. Civ. Pro. 9(b).
Even assuming that Plaintiff pled the fraud claim with sufficient particularity, Plaintiff
failed to plead facts supporting the fourth and fifth elements. First, Plaintiff failed to plead facts
that establish reliance. In this case, Plaintiff alleged that he recognized that his Letter of
Transmittal was different. Plaintiff recognized that his Letter of Transmittal contained non-

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compete and non-solicitation clauses. Thus, even if E2E’s statement that Plaintiff must sign the
Letter of Transmittal provided to him in order to receive merger consideration was false, Plaintiff
did not rely upon that statement. Thus, Plaintiff cannot maintain a claim for fraud.
Additionally, Plaintiff failed to plead any facts to support damages arising from the
alleged fraudulent act. Plaintiff’s damages in this case arise from the withholding of the merger
consideration, not any alleged fraudulent statements made by E2E. While Plaintiff strenuously
argues in brief that it was the statements that caused the damages, the facts alleged in the
Amended Complaint make it clear to the Court that the act of withholding the merger
consideration, in fact, caused the damages. As such, Plaintiff failed to plead facts supporting the
fifth element of the claim. Because Plaintiff failed to plead facts to support both the fourth and
fifth elements of his fraud claim, Defendants’ Motion to Dismiss the fraud claim is GRANTED.
d. Civil Conspiracy
Plaintiff also sued Defendants for civil conspiracy. In order to state a claim for civil
conspiracy, a plaintiff must allege: “an overt act committed by one or more of the conspirators
pursuant to a common agreement and in furtherance of a common objective.” Dickens v.
Puryear, 276 S.E.2d 325, 337 (N.C. 1981). “The common law action for civil conspiracy is for
damages caused by acts committed pursuant to a conspiracy rather than for the conspiracy, i. e.,
the agreement, itself.” Id. (internal citations omitted). Thus, North Carolina law requires an
underlying tort in order to state a claim for civil conspiracy. Eli Research, Inc. v. United
Commc’ns Grp., LLC, 312 F. Supp. 2d 748, 763 (M.D.N.C. 2004).
Here, Plaintiff failed to plead an underlying tort. The Court has already dismissed
Plaintiff’s NCUDTPA claim, WDTPA claim, and fraud claim. Plaintiff did not allege any other
torts in his Amended Complaint. Thus, Plaintiff’s civil conspiracy claim must be dismissed for

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want of an underlying tort. Defendants’ Motion to Dismiss the civil conspiracy claim is
GRANTED.
e. Unjust Enrichment, Punitive Damages, and Injunctive Relief
Plaintiff also sued Defendants for unjust enrichment, punitive damages, and injunctive
relief. In Plaintiff’s response, Plaintiff did not object to the dismissal of his unjust enrichment
claim. As such, the Court GRANTS Defendants’ Motion to Dismiss as it pertains to the unjust
enrichment claim.
Plaintiff also agreed that his claim for punitive damages was a remedy rather than a
stand-alone cause of action. Therefore, the Court will also GRANT Defendants’ Motion to
Dismiss as it pertains to the claim for punitive damages.
Finally, Plaintiff sued Defendants for injunctive relief. While the Parties each briefed the
merits of a permanent injunction, the Court will not reach the merits at this stage. Injunctive
relief is not a separate cause of action; rather, an injunction is a remedy to be considered once
liability attaches. Plaintiff has not filed a motion for temporary restraining order or preliminary
injunction. Rather, Plaintiff included within the Amended Complaint a separate cause of action
for a permanent injunction. To the extent Plaintiff intended injunctive relief to be a separate
cause of action, Defendants’ Motion to Dismiss that claim is GRANTED. The Court will
consider injunctive relief as a remedy if liability is found at a later time.
f. Declaratory Judgment
Plaintiff also sued Defendants seeking declaratory judgment as to his rights in the merger
consideration. Declaratory judgment is appropriate if a plaintiff shows “(1) the complaint alleges
an actual controversy between the parties of sufficient immediacy and reality to warrant issuance
of a declaratory judgment; (2) the court possesses an independent basis for jurisdiction over the

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parties (e.g., federal question or diversity jurisdiction); and (3) the court does not abuse its
discretion in its exercise of jurisdiction.” Volvo Constr. Equip. N. Am. Inc. v. CLM Equip. Co.,
386 F.3d 581, 592 (4th Cir. 2004) (internal quotation omitted).
Here, Plaintiff sufficiently pled a plausible claim for declaratory judgment against all
Defendants. First, Plaintiff alleged an actual controversy between the Parties. An actual
controversy is one that is “definite and concrete, touching the legal relations of parties having
adverse legal interests.” McAllister v. Malfitano, Case No. 7:17-CV-66-D, 2018 WL 2016311, at
*2 (E.D.N.C. Apr. 30, 2018) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240–41
(1937)). Plaintiff alleged that Defendants wrongfully withheld $140,000.00 in merger
consideration. A declaration of rights in wrongfully withheld property is the epitome of an
actual, concrete controversy between two parties.
The Court also has an independent basis for jurisdiction in this case. To wit, the Parties
maintain complete diversity of citizenship, and the amount in controversy exceeds $75,000.00.
Thus, diversity jurisdiction is appropriate in this case. See 28 U.S.C. §1332. The Court also finds
that it is not an abuse of discretion to exercise jurisdiction over this matter. Therefore, Plaintiff
has stated a plausible claim for declaratory judgment.
Defendant GC argues that Plaintiff lacks standing to assert a claim for declaratory
judgment against GC. The crux of GC’s argument is the Merger Agreement did not allow GC to
control the transfer of merger consideration so GC cannot possibly be responsible for any
damage to Plaintiff. In order to have standing to bring suit against GC, Plaintiff must show (1)
that he suffered an actual or imminent injury, (2) that is fairly traceable to GC, and (3) that is
likely to be redressed by the relief requested. Steel Co. v. Citizens for a Better Environment, 523
U.S. 83, 103-04 (1998). The Court finds, that on the record currently before this Court, Plaintiff

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has standing to seek declaratory judgment against GC. Plaintiff alleged that GC was complicit in
the improper withholding of Plaintiff’s merger consideration. GC disputes this claim. While GC
may ultimately be able to show that it was in fact not complicit in Plaintiff’s injury, at this stage
the record supports an actual injury traceable to GC. Further, if GC participated in the wrongful
withholding of the merger consideration, declaratory judgment against all Defendants, including
GC, would redress that injury. Thus, the Court finds that Plaintiff has standing to sue GC seeking
declaratory judgment.
For the reasons stated above, Defendants’ Motions to Dismiss the declaratory judgment
action are DENIED.
IV.

CONCLUSION
For the aforementioned reasons, Defendants’ Motions to Dismiss (Doc. Nos. 23, 25) are

GRANTED IN PART and DENIED IN PART. The Motions are GRANTED as to the
NCUDTPA claim, WDTPA claim, fraud, civil conspiracy, unjust enrichment, punitive damages,
and injunctive relief. The Motions are DENIED as to the declaratory judgment claim.
SO ORDERED.

Signed: May 9, 2019

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