Carolina Cargo Inc of Rock Hill v. Transportation Personnel Services Inc et al

Filing 26

ORDER AND OPINION finding as moot 5 Motion to Dismiss; granting in part as to Plaintiff's claims of fraud and unethical trade practices counts two and three of the Amended Complaint and denying in part as to Plaintiff's declaratory judgment claim count one of the Amended Complaint as to 20 Motion to Dismiss. Signed by Honorable J Michelle Childs on 8/29/2016.(asni, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
ROCK HILL DIVISION
Carolina Cargo, Inc. of Rock Hill,

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Plaintiff,
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v.
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Transportation Personnel Services, Inc.,
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PTO Services, Inc.,
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Defendants.
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Civil Action No. 0:15-cv-04629-JMC

ORDER AND OPINION

This matter is before the court pursuant to Defendants Transportation Personnel Services,
Inc., and PTO Services, Inc.’s (“Defendants”) Motion to Dismiss. (ECF No. 20.) Plaintiff Carolina
Cargo, Inc. of Rock Hill (“Plaintiff”) opposes Defendants’ Motion to Dismiss. (ECF No. 23.) For
the reasons set forth below, the court GRANTS in part Defendants’ Motion to Dismiss as to
Plaintiff’s claims of fraud and unethical trade practices. The court DENIES in part Defendants’
Motion to Dismiss as to Plaintiff’s declaratory judgment claim.
I. RELEVANT FACTUAL INFORMATION
On October 5, 2015, Plaintiff filed a Complaint for Declaratory Judgment in the Court of
Common Pleas in York County, South Carolina. (ECF No. 1.) On November 11, 2015, Defendants
filed a Notice of Removal asserting that the court possessed jurisdiction over the matter because
complete diversity of citizenship exists between the parties and the amount in controversy
requirement is met. (Id.) On November 24, 2015, Defendants filed a Motion to Dismiss1. (ECF

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 Plaintiff’s Amended Complaint supersedes its original complaint such that Defendants’ original Motion to Dismiss
(ECF No. 5) is deemed moot. See Young v. City of Mount Ranier, 238 F.3d 567, 572 (4th Cir. 2001) (noting that an
amended pleading supersedes the original “and renders it of no legal effect.”). Additionally, Defendant has filed a
subsequent Motion to Dismiss Amended Complaint (ECF No. 20), which is ultimately at issue here.

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No. 5.) Thereafter, on December 11, 2015, Plaintiff filed a Motion to Amend its complaint, (ECF
No. 8), which was granted by this court on July 1, 2016. (ECF No. 16.)
Plaintiff’s Amended Complaint alleges that it entered into a service agreement with
Defendants in March of 2013, which established a “Co-employment Relationship” between the
parties. (ECF No. 18 at 3 ¶ 12.) Plaintiff further alleges that the Service Agreement constitutes a
contract for the provision of “professional employer services” and Defendants were operating as a
“professional employer organization” as defined by S.C. Code Ann. § 40-68-10 (2016). (Id. at 3 ¶
16.) Plaintiff alleges that Defendants are not and have never been licensed by the South Carolina
Department of Consumer Affairs to “engage in or offer professional employer services” in South
Carolina, and as a result have not satisfied any of the statutorily mandated obligations necessary
for licensure as a professional employer organization in South Carolina. (Id. at 4-5.) In count one
of the Amended Complaint, Plaintiff seeks a declaratory judgment indicating that Defendants’
failure to adhere to the licensing requirements means that the service agreement is an illegal
contract and should be voided. (Id.)
In count two of the Amended Complaint, Plaintiff alleges that the Defendants engaged in
fraud and misrepresentation. (ECF No. 18 at 5.) Plaintiff asserts that Defendants, by and through
their officers, represented and held themselves out to Plaintiff prior to execution of the Service
Agreement as being properly organized and licensed, and capable of entering into and performing
the obligation of the Service Agreement in South Carolina. (ECF No. 18 at 5 ¶ 27.) Accordingly,
Plaintiff requests actual, consequential, and punitive damages in an amount to be determined by
the trier of fact. (ECF No. 18 at 6 ¶ 33.)
In count three of the Amended Complaint, Plaintiff alleges that the Defendants engaged in
unfair trade practices. Plaintiff alleges that Defendants’ actions in the conduct of their business,

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which are capable of repetition and intended to be repeated, affect the public interest and are
characterized both by unfairness and deception, and therefore constitute willful violations of South
Carolina’s Unfair Trade Practices Act (“SCUTPA”), S.C. Code Ann. §§ 39-5-10, 39-5-560 (2014).
(ECF No. 18 at 6 ¶ 36.) Accordingly, Plaintiff seeks an award of actual, consequential, and special
damages, as well as treble damages, attorney’s fees and costs. (Id.)
On July 19, 2016, Defendants filed a Motion to Dismiss in response to Plaintiff’s Amended
Complaint. (ECF No. 20.) The court considers Defendants’ arguments below.
II. LEGAL STANDARD
A. Motion to Dismiss Standard
A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be
granted tests the legal sufficiency of a complaint. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.
1991). While the complaint need not be minutely detailed, it must provide enough factual details
to put the opposing party on fair notice of the claim and the grounds upon which it rests. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47
(1957)). In order to withstand a motion to dismiss, a complaint must contain factual content that
allows the court to reasonably infer that the defendant is liable for the alleged misconduct. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009). The court must accept the allegations in the complaint as true,
and all reasonable factual inferences must be drawn in favor of the party opposing the motion. Id.
at 679. If the court determined that those factual allegations can “plausibly give rise to an
entitlement of relief,” dismissal is not warranted. Id.
B. Declaratory Judgment Standard
Under the Declaratory Judgment Act, a district court, in a case or controversy otherwise
within its jurisdiction, “may declare the rights and other legal relations of any interested party

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seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a).
The United States Supreme Court has “repeatedly characterized the Declaratory Judgment Act as
‘an enabling Act, which confers discretion on the courts rather than an absolute right upon the
litigant.’” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n of
Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). Courts have long interpreted the Act's permissive
language “to provide discretionary authority to district courts to hear declaratory judgment
cases.” United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir. 1998). “[A] declaratory
judgment action is appropriate ‘when the judgment will serve a useful purpose in clarifying and
settling the legal relations in issue, and ... when it will terminate and afford relief from the
uncertainty, insecurity, and controversy giving rise to the proceeding.’” Centennial Life Ins. Co.
v. Poston, 88 F.3d 255, 256 (4th Cir.1996) (quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d
321, 325 (4th Cir.1937)).
III. ANALYSIS
A. Declaratory Judgment
1. The Parties’ Arguments
Defendants generally argue that each of the claims contained in the Amended Complaint
purportedly arise out of alleged violations of licensing statutes concerning professional employer
organizations in South Carolina that do not provide for a private right of action, and, therefore, the
Amended Complaint should be dismissed under Fed. R. Civ. P. 12(b)(6), or 12(c) for failure to
state a claim upon which relief can be granted. (ECF No. 20 at 1.) Specifically, Defendants assert
that under S.C. Code Ann. § 40-68-165 (2016), the power of enforcement of the licensing statutes
by court action is given exhaustively to the South Carolina Department of Consumer Affairs and
the South Carolina Attorney General, and as a result the Amended Complaint should be dismissed

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under Fed. R. Civ. P. 17(b). (ECF No. 20-1 at 10.) Defendants additionally allege that they are not
subject to the statutory licensing requirements because a license was not required for the services
provided and the services provided were rendered outside of South Carolina. (Id. at 2.)
In response, Plaintiff contends in its request for Declaratory Judgment that the Service
Agreement constitutes an illegal contract and its claim is not dependent upon a statutory private
right of action, but actually arises from the long upheld common law. (ECF No. 23 at 3.) Plaintiff
asserts that “a contract to do an act which is prohibited by statute, or which is contrary to public
policy is void, and cannot be enforced in a court of justice”. McConnell v. Kitchens, 20 S.C. 430,
437-38 (S.C. 1884). Specifically Plaintiff asserts that it is not seeking to “enforce the provisions”
of the statute, but rather is seeking only a determination and declaration of the court that the Service
Agreement constitutes an illegal contract and is, accordingly, void. (ECF No. 23 at 5.) Plaintiff
subsequently asserts that due to this distinction, the fact that the right of enforcement is vested in
the Department of Consumer Affairs is wholly irrelevant making Defendants’ argument without
merit. (Id.) Plaintiff asserts that the Service Agreement itself incorporated language directly from
the statute in an effort to refute Defendants’ arguments contending they are not bound by the
professional employer licensing statutes. Additionally, Plaintiff contends that any argument that
Defendants did not perform or offer to perform services in South Carolina is without merit. (Id. at
7-8.) Plaintiff alleges that Defendants undertook actions such as assigning employees to a South
Carolina company, paying employee wages, and paying all federal and state payroll taxes, thus the
services provided did occur within the state of South Carolina. (Id. at 8.)
2. The Court’s Review
Generally, a court cannot enforce a valid contract that is “made in derogation of statutes
designed to protect the public.” Smithy Braedon Co. v. Hadid, 825 F.2d 787, 790 (4th Cir. 1987).

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The licensing statutes purported to govern Defendants’ business were enacted for the “exclusive
purpose of protecting the public interest.” S.C. Code Ann. § 40-1-10(B) (2016). Plaintiff seeks a
declaration from this court indicating that its contract with Defendants is unenforceable because
they were not properly licensed, and as such, could not legally perform the duties agreed upon in
the Service Agreement. The court finds that Plaintiff’s Amended Complaint contains sufficient
allegations to illustrate that Defendants may have entered into the Service Agreement without
meeting the necessary licensing provisions provided under South Carolina law. Therefore, the
court finds that Plaintiff has sufficiently stated a claim that would entitle it to declaratory relief if
the Defendants entered into the Service Agreement without having legal authority to perform the
services agreed to therein.
B. Fraud/ Misrepresentation
1. The Parties’ Arguments
Defendants argue that Plaintiff’s Amended Complaint fails to allege with particularity the
facts and circumstances necessary to support a claim for fraud, and, as a result, the claim for fraud
should be dismissed. (ECF No. 20-1 at 11.) Defendants additionally argue that Plaintiff has failed
to illustrate specific factual information concerning the content or materiality of the alleged
misrepresentation, the time, place, or manner in which it was communicated to Plaintiff, the person
who made the representation or the person to whom it was made. (Id. at 12.)
In response, Plaintiff contends that Defendants seek to impose a greater duty of
particularity than is required. (ECF No. 23 at 6.) Plaintiff further states that it engaged in multiple
communications with various employees or agents of Defendants during the time period leading
up to the execution of the Service Agreement, as Plaintiff has pled the same in its Amended
Complaint. (Id. at 7.)

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2. The Court’s Review
Defendants assert that dismissal is warranted because Plaintiff’s allegations of fraudulent
conduct fail to satisfy the heightened pleading standard that requires the allegation of fraud to be
stated with particularity pursuant to Fed. R. Civ. P. 9(b).
When a plaintiff alleges fraud, courts must apply a heightened pleading standard to those
claims. Fed. R. Civ. P. 9(b). Rule 9(b) requires that, when “alleging fraud ... a party must state
with particularity the circumstances constituting fraud.” Id. The heightened pleading standard
contained in Rule 9(b) requires plaintiffs to plead with particularity “the time, place, and contents
of the false representations, as well as the identity of the person making the misrepresentation and
what he obtained thereby. “ Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th
Cir. 1999) (citation omitted). Plaintiff’s Amended Complaint fails to state which agents of
Defendants misrepresented Defendants’ licensure status to Plaintiff, and fails to specifically state
how the misrepresentation was made. Accordingly, the court finds that Plaintiffs’ allegations of
fraud regarding inducement of the contractual Service Agreement fail to satisfy Plaintiff’s burden
under Fed. R. Civ. P. 9(b). Therefore, Plaintiffs’ claim of fraud or misrepresentation must be
dismissed pursuant to Fed. R. Civ. P. 12(b)(6).

C. SCUTPA Claim
1. The Parties’ Arguments
Defendants argue that Plaintiff’s claim under the SCUTPA should be dismissed because it
concerns actions or transactions permitted under laws administered by a state regulatory body
which are exempt from the Act under S.C. Code Ann. § 39-5-40(a). (ECF No. 20-1 at 14.) Section
39-5-40(a) states “[n]othing in this article shall apply to: (a) Actions or transactions permitted

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under laws administered by any regulatory body or officer acting under statutory authority of this
State or the United States or actions or transactions permitted by another South Carolina State
Law.” (Id.) Defendants specifically assert that the licensing requirements governing professional
employer organizations as related to the services provided by Defendants under the Service
Agreement is under the authority of the Department of Consumer Affairs, thus the regulatory
exemption set forth in the SCUTPA precludes Plaintiff’s claim under the Act as a matter of law.
(Id. at 15-16.)
In response, Plaintiff asserts that the language cited by Defendants under S.C. Code Ann §
39-5-40(a) is not applicable to the present matter. (ECF No. 23 at 7.) Plaintiff specifically states
that its claims do not concern any action or transaction permitted by law or regulatory provision,
rather its claims concern actions that are prohibited by law or regulatory provision. (Id.) Plaintiff
argues that the plain language of section 39-5-40(a) is simply inapplicable to the present matter
due to this distinction. (Id.)
2. The Court’s Review
SCUTPA provides that “[u]nfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce are ... unlawful.” S.C. Code Ann. § 39–5–20
(2014). It also provides that “any person who suffers any ascertainable loss of money or property,
real or personal, as a result of the use or employment by another person of an unfair or deceptive
method, act or practice ... may bring an action ... to recover actual damages.” S.C. Code Ann. §
39–5–140(a) (2014). A plaintiff bringing a private cause of action under SCUTPA must allege and
prove that the defendant’s actions adversely affected the public interest. Noack Enters. Inc. v.
Country Corner Interiors, Inc., 351 S.E.2d 347, 349–50 (S.C. Ct. App. 1986). Conduct that affects
only the parties to the transaction provides no basis for a SCUTPA claim. Robertson v. First Union

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Nat’l Bank, 565 S.E.2d 309, 315 (S.C. Ct. App. 2002). “An impact on public interest may be shown
if the acts or practices have the potential for repetition.” Singleton v. Stokes Motors, Inc., 595
S.E.2d 461, 466 (S.C. 2004).
“The potential for repetition may be shown in either two ways: (1) by showing
the same kind of actions occurred in the past, thus making it likely they will
continue to occur absent deterrence; or (2) by showing the company’s
procedures created a potential for repetition of the unfair and deceptive acts.”
Id.
However, a plaintiff must use specific facts to show that members of the public were or
were likely to be affected. Jefferies v. Phillips, 451 S.E.2d 21, 23 (S.C. Ct. App. 1994) (emphasis
added). Absent specific facts, a plaintiff is merely offering a speculative claim about adverse public
impact. Id. “In the course of human endeavor, every action has some potential for repetition. The
mere proof that the actor is still alive and engaged in the same business is not sufficient to establish
this element.” Id. at 24.
Upon review, the court finds that the Amended Complaint does not establish a claim under
SCUTPA. Plaintiff did not allege facts which suggest Defendants’ actions have a potential to
impact the public interest. Plaintiff failed to provide any specific facts that suggest that its
experience is likely to be the experience of others. Moreover, Plaintiff has not established that the
alleged conduct is standard business practice for Defendants.
IV. CONCLUSION
Based on the foregoing, Defendants’ Motion to Dismiss (ECF No. 5) is DENIED as moot.
Defendants’ Motion to Dismiss Amended Complaint, (ECF No. 20), is GRANTED as to
Plaintiff’s claims of fraud and unethical trade practices—counts two and three of the Amended
Complaint—and DENIED as to Plaintiff’s declaratory judgment claim—count one of the
Amended Complaint.
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IT IS SO ORDERED.

United States District Judge
August 29, 2016
Columbia, South Carolina

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