Liverett v. Island Breeze International Inc et al
Filing
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ORDER granting in part and denying in part 6 Motion to Dismiss for Failure to State a Claim; denying 6 Motion to Dismiss for Lack of Jurisdiction; denying 6 Motion to Transfer Case Signed by Honorable Patrick Michael Duffy on 8/9/12.(jlin, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
Grant Liverett,
Plaintiff,
v.
Island Breeze International, Inc.
Bradley T. Prader, and Michael
Hovdestad,
Defendants.
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C/A No.: 2:12-cv-1285-PMD
ORDER
This matter is before the Court upon Defendants Island Breeze International, Inc. (“IBI”),
Bradley T. Prader (“Prader”), and Michael Hovdestad’s (“Hovdestad”) Motion to Dismiss Prader
and Hovdestad for Lack of Personal Jurisdiction under Federal Rule of Civil Procedure 12(b)(2),
Motion to Transfer Venue pursuant to 28 U.S.C. § 1404(a), and Motion to Dismiss for Failure to
State a Claim under Federal Rule of Civil Procedure 12(b)(6).
For the reasons that follow, the Court denies the Motion to Dismiss Prader and
Hovdestad for Lack of Personal Jurisdiction, denies the Motion to Transfer Venue, grants in part
and denies in part the Motion to Dismiss for Failure to State a Claim, and grants Plaintiff’s
request for leave to amend.
BACKGROUND
Plaintiff alleges the following relevant facts. IBI is incorporated in Delaware, with its
principal place of business in New Jersey. IBI is in the business of entertainment cruising. Both
Prader and Hovdestad are residents of New Jersey, where they are employed by IBI—Prader as
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Chief Executive Officer and Hovdestad as Chief Legal Counsel. While IBI was evaluating
possible port locations for an IBI ship, Prader learned of a potential opportunity in North
Charleston, South Carolina. At some point Prader was introduced to Liverett.
Liverett continued communications over the following months.
entered into a “Consultation Agreement” with Plaintiff.
Prader and
According to Plaintiff, IBI
This agreement was never put in
writing, but in exchange for his acting as a consultant in indentifying $12.5 million of needed
financing for IBI, IBI would agree to pay him 5% of the funding raised and 10% of the stock in a
company that would be formed by IBI to operate the business.
IBI obtained a $3.3 million loan from Platinum Partner Value Arbitrage, L. P. to serve as
bridge financing until the closing of the full financing loan. IBI eventually entered into an
agreement with Malom Group AG for $12.5 million to be provided by Malom to IBI for funding
the project.
Plaintiff alleges that IBI through Prader and Hovdestad entered into a Consultation
Agreement with him to compensate him for contributions to IBI’s attempts to secure financing.
Plaintiff asserts that the agreement was discussed on several occasions and that he is due money
under the agreement. Further, Plaintiff alleges that both individual defendants traveled to
Charleston and that during a dinner meeting in Charleston, they discussed the terms of this
agreement.
Plaintiff commenced this action against Defendants in the Court of Common Pleas for
Charleston County. On May 16, 2012, Defendants removed this action to the U.S. District
Court. The Complaint states seven causes of action. The first cause of action (Breach of
Contract and Breach of Contract Accompanied by a Fraudulent Act) asserts that IBI breached the
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Consultation Agreement by failing to pay Plaintiff for his services. The second cause of action
(Quantum Meruit) alleges that IBI must pay Plaintiff for his services because the service
conferred a benefit upon IBI, IBI accepted the services, and Plaintiff provided the services under
circumstances that notified IBI that he expected to be paid in return for his services. The third,
fourth, and fifth causes of action (Fraud/Misrepresentation, Constructive Fraud, and Negligent
Misrepresentation) all allege that all of the Defendants represented to Plaintiff that he would be
paid 5% of the funding raised and 10% of the stock in a company that would be formed by IBI to
operate the business and that Defendants had no intention of honoring that agreement. The sixth
cause of action (Defamation) alleges that Defendants told a representative of the Malom Group
that Plaintiff would try to extort an improper advantage in business transactions and that this
statement was defamatory. The seventh cause of action (Civil Conspiracy) alleges that Prader,
Hovdestad, and IBI joined together in a scheme to mislead Plaintiff to take the benefits of his
labor without compensating him and to harm his reputation in the business community.
ANALYSIS
I. Personal Jurisdiction
When personal jurisdiction is challenged by the defendant, the plaintiff has the burden of
showing that jurisdiction exists. See In re Celotex Corp., 124 F.3d 619, 628 (4th Cir. 1997).
When a court addresses the issue of jurisdiction on the basis of pleadings and supporting legal
memoranda without an evidentiary hearing, “the burden on the plaintiff is simply to make a
prima facie showing of a jurisdictional basis in order to survive the jurisdictional challenge.”
Combs v. Bakker, 886 F.2d 673, 675 (4th Cir. 1989). In deciding such a motion, “the court must
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construe all relevant pleading allegations in the light most favorable to the plaintiff, assume
credibility, and draw the most favorable inferences for the existence of jurisdiction.” Id. at 676.
To validly assert personal jurisdiction over a non-resident defendant, two conditions must
be satisfied. Christian Sci. Bd. of Dirs. of the First Church of Christ v. Nolan, 259 F.3d 209, 215
(4th Cir. 2001). First, the exercise of jurisdiction must be authorized by the long-arm statute of
the forum state, and second, the exercise of personal jurisdiction must not “overstep the bounds”
of Fourteenth Amendment due process. Anita’s New Mexico Style Mexican Food, Inc. v. Anita’s
Mexican Foods Corp., 201 F.3d 314, 317 (4th Cir. 2000). South Carolina’s long-arm statute has
been construed to extend to the outer limits allowed by the Due Process Clause.1 Foster v.
Arletty 3 Sarl, 278 F.3d 409, 414 (4th Cir. 2002). Thus, the dual jurisdictional requirements
collapse into a single inquiry as to whether Defendants have “certain minimum contacts” with
the forum, such that “maintenance of the suit does not offend ‘traditional notions of fair play and
substantial justice.’” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted).
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South Carolina’s long-arm statute provides that :
A court may exercise personal jurisdiction over a person who acts directly or by an agent as to a cause of action
arising from the person’s:
(1) transacting any business in this State;
(2) contracting to supply services or things in the State;
(3) commission of a tortious act in whole or in part in this State;
(4) causing tortious injury or death in this State by an act or omission outside this state if he regularly does
or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods
used or consumed or services rendered in this State;
(5) having an interest in, using, or possessing real property in this State;
(6) contracting to insure any person, property, or risk located within this State at the time of contracting;
(7) entry into a contract to be performed in whole or in part by either party in this State;or
(8) production, manufacture, or distribution of goods with the reasonable expectation that those goods are
to be used or consumed in this State and are so used or consumed.
S.C. CODE 36-2-803(a).
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(a) Minimum Contacts:
The analytical framework for determining whether minimum contacts exist differs
according to which species of personal jurisdiction—general or specific—is alleged.
See
generally ESAB Group v. Centricut, 126 F.3d 617, 623-24 (4th Cir. 1997). When a cause of
action arises out of a defendant’s contacts with the forum, a court may seek to exercise specific
jurisdiction over that defendant if it purposefully directs activities toward the forum state and the
litigation results from alleged injuries that arise out of or relate to those activities.
See
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). However, when
the cause of action does not arise out of the defendant’s contacts with the forum, general
jurisdiction may be exercised upon a showing that the defendant’s contacts are of a “continuous
and systematic” nature. Id. at 416.
In this case, the Court finds that Defendants’ contacts in South Carolina were neither
continuous nor systematic in nature. Therefore, the Court needs only determine whether
Defendants’ contacts related to this case are sufficient to subject Defendants to specific
jurisdiction in South Carolina. A defendant has minimum contacts with a jurisdiction if “the
defendant’s conduct and connection with the forum State are such that he should reasonably
anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S.
286, 297 (1990). Under this standard, “it is essential in each case that there be some act by
which the defendant purposefully avails itself of the privilege of conducting activities within the
forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357
U.S. 235, 253 (1958). The Court is mindful that it must draw all reasonable inferences from both
parties’ pleadings, even if they conflict, in the Plaintiff’s favor.
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See, e.g., Precept Med.
Products, Inc., v. Klus, 282 F. Supp. 2d 381, 385 (W.D.N.C. 2003) (“for the purposes of a Rule
12 (b)(2) motion, the Court will accept the Plaintiff’s version of disputed facts”).
In this case, Plaintiff alleges that he met with Prader and Hovdestad in South Carolina to
discuss business that IBI was conducting in North Charleston. During that meeting, Plaintiff
contends that the terms of the Consultation Agreement were discussed. Pl’s Opp. Mem, Ex. A,
Dec. of Grant Liverett at ¶ 5 (“During their visits to South Carolina, I met personally with Prader
and Hovdestad and others to discuss our agreement, financing and other project details. At a
dinner meeting at O-Ku restaurant on upper King Street, Prader and Hovesdad discussed the
terms of my arrangement.”) Plaintiff further alleges that Defendants came to Charleston, SC on
several occasions in relation to the gambling boat project. Id. at ¶ 8-10.
Defendants maintain that the Complaint fails to allege jurisdictional facts sufficient to
subject Prader and Hovdestad to personal jurisdiction in South Carolina.
Specifically,
Defendants claim that there are no allegations that Prader and Hovdestad committed any tortious
conduct in South Carolina. However, the Complaint as well as Liverett’s affidavit, allege that
Prader and Hovdestad both traveled to South Carolina, met with Plaintiff to discuss the casino
boat project and the terms of the alleged Consultation Agreement, and failed to pay Plaintiff
pursuant to the Consultation Agreement after funding was secured. These allegations are the
factual basis for Plaintiff’s causes of action for Fraud/Misrepresentation, Constructive Fraud, and
Negligent Misrepresentation. Because these allegations place Prader and Hovdestad in South
Carolina, negotiating an agreement to be performed in South Carolina, they are sufficient to
establish minimum contacts. Therefore, Plaintiff has made a prima facie showing that
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Defendants’ conduct and connection with South Carolina are such that they should have
reasonably anticipated being haled into court in South Carolina.
(b) Fair Play and Substantial Justice
Having determined that Defendants have sufficient minimum contacts with South
Carolina to allow for specific jurisdiction, the Court must next consider whether the exercise of
jurisdiction in this case “comport[s] with ‘fair play and substantial justice.’” Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 476 (1985). In determining whether the exercise of jurisdiction
comports with fair play and substantial justice, the court evaluates the following factors:
[ (1) ] the burden on the defendant, [ (2) ] the forum State's interest in adjudicating
the dispute, [ (3) ] the plaintiff's interest in obtaining convenient and effective
relief, [ (4) ] the interstate judicial system's interest in obtaining the most efficient
resolution of controversies, and [ (5) ] the shared interest of the several States in
furthering fundamental substantive social policies.
Christian Science Bd. of Dirs. of the First Church of Christ, Scientist v. Nolan, 259 F.3d 209,
217 (4th Cir.2001) (quoting Burger King, 471 U.S. at 477)). “More generally, [the Fourth
Circuit’s] reasonableness analysis is designed to ensure that jurisdictional rules are not exploited
in such a way as to make litigation so gravely difficult and inconvenient that a party unfairly is at
a severe disadvantage in comparison to his opponent.” Id. (quotations and citations omitted).
Thus, for exercise of jurisdiction to be constitutionally reasonable the “defendant’s conduct and
connection with the forum State [must be] such that he should reasonably anticipate being haled
into court there.” World–Wide Volkswagen, 444 U.S. at 297.
In this case, Defendants traveled to South Carolina for business purposes on numerous
occasions, demonstrating that travel to this state is not an enormous burden. South Carolina
clearly has an interest in adjudicating disputes involving harm to one of its residents when the
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person resides in South Carolina and the damage is felt locally, and likewise, Plaintiff has a
similar interest. Defendants came to South Carolina with the intention of doing business here
and continued to travel here for that purpose. Furthermore, they made local business connections
in this state in association with the same potential business transaction. Because Defendants’
conduct and connection with South Carolina are such that they should have reasonably
anticipated being haled into court in South Carolina, the exercise of jurisdiction in this case
comports with fair play and substantial justice.
II. Motion to Transfer Venue under 28 U.S.C. § 1404(a)
Transfer of venue under 28 U.S.C. § 1404(a) provides that “[f]or the convenience of
parties and witnesses, in the interest of justice, a district court may transfer any civil action to
any other district or division where it might have been brought or to any district or division to
which all parties have consented.” 28 U.S.C. § 1404(a). This provision “is intended to place
discretion in the district court to adjudicate motions for transfer according to an ‘individualized,
case-by-case consideration of convenience and fairness.’” Stewart Organization, Inc. v. Ricoh
Corp., 487 U.S. 22, 29 (1988) (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)).
In order to transfer venue, it must be determined whether the proposed venue is proper.
See Selective Ins. Co. of South Carolina v. Schremmer, 465 F.Supp.2d 524, 527 (D.S.C. 2006).
In this case, as both of the individual defendants reside in New Jersey venue is proper in New
Jersey. However, “[a] promotion of the interests of justice, as well as convenience to parties and
witnesses, must be shown to justify a change of venue.” Gerber v. Canfield, 315 F. Supp. 1175,
1178 (D.S.C. 1970). Factors to be considered for the interest of justice include the need for a
view by a jury, the location and convenience of evidence, and the financial ability to transport
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witnesses. Id. at 1179. New Jersey may be a more convenient venue for Defendants and some
of their witnesses, but “[i]n making the determination as to whether a § 1404 motion should be
granted, the ‘plaintiff's choice of forum should rarely be disturbed’ unless ‘the balance is
strongly in favor of the movant.’” Figgie Intern., Inc. v. Destileria Serralles, Inc., 925 F. Supp.
411, 413-14 (D.S.C 1996) (quoting Avant v. Travelers Ins. Co., 668 F. Supp. 509, 510
(D.S.C.1987)).
Furthermore, “[a] court should not transfer venue merely to shift the
inconvenience of litigating from one party to another, and the party seeking a transfer of venue
must make a strong showing that the forum is inconvenient.” Sleepy Lagoon, Ltd. v. Tower
Group, Inc., 809 F.Supp.2d 1300, 1305 (N.D.Okla. 2011). Though Defendants allege that access
to proof would be more efficient because the documents would be located in offices closer to
New Jersey, the Court finds that the proximity to documents does not necessarily impact the
convenience of those documents. Furthermore, documents as a form of evidence are particularly
suited for travel. Defendants also allege that witnesses would be better able to reach a New
Jersey venue. However, many of the witnesses for this case will have to travel to either
Charleston or New Jersey. Transferring the case to New Jersey would serve only to “shift the
inconvenience” to the Plaintiff. Because that is not the purpose of a transfer of venue, the Court
denies the Motion to Transfer.
III. Motion to Dismiss for Failure to State a Claim
(a) Legal Standard under Fed. R. Civ. P. 12(b)(6)
“A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief
can be granted is a challenge to the legal sufficiency of a complaint.” Federal Trade Comm’n v.
Innovative Mktg., 654 F. Supp. 2d 378, 384 (D. Md. 2009). The Supreme Court recently held
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that “[t]o 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 (citation omitted). The Supreme Court noted that “[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,” and noted that “[d]etermining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. at 678-79; see also
Harman v. Unisys Corp., 356 Fed. Appx. 638, 640 (4th Cir. 2009). The Court added that “the
tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions,” and that “[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id. at 678. The Court further
noted that “[w]hen there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at
679.
(b) Illegality Defense
Defendants raise illegality as a defense. A defense may be reached by a motion to
dismiss only when “facts sufficient to rule on an affirmative defense . . . are alleged in the
complaint”. See Pressley v. Tupperware Long Term Disability Plan, 553 F.3d 334, 336 (4th Cir.
2009) (internal quotation marks and citation omitted).
Generally, a contract that provides compensation for illegal activity is unenforceable. See
e.g. Jackson v. Bi-Lo Stores, Inc. 437 S.E.2d 168, 170 (S.C. Ct. Apps. 1993) (“It is a well
founded policy of law that no person be permitted to acquire a right of action from their own
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unlawful act and one who participates in an unlawful act cannot recover damages for the
consequence of that act. This rule applies at both law and in equity and whether the cause of
action is in contract or in tort.”) (citations omitted).1
Under both federal and South Carolina law, it is illegal for any person to operate as a
broker, dealer, or broker-dealer unless he is registered as such. Specifically, under federal law, it
is illegal for a broker “to make use of the mails or any means or instrumentality of interstate
commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of
any security . . . unless such broker or dealer is registered. . . .” 15 U.S.C. § 78o(a)(1). South
Carolina law is similar. See S.C. CODE § 35-1-401(a) (providing that “it is unlawful for any
person to transact business in this State as a broker-dealer unless the person is registered under
this chapter as a broker-dealer or is exempt from registration. . . ”).
Liverett admits he was not registered as a securities broker-dealer, but argues that he was
not required to be in order to help secure the financing for the casino boat project because the
transaction did not involve a security, but rather a commercial loan. Federal law provides that a
“security” is “any note, stock, treasury stock, bond, debenture, [or] evidence of indebtedness,
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In the securities context, Congress has specifically provided that contracts violating federal
securities laws are unenforceable. See 15 U.S.C. § 78cc(b). That code section provides:
Every contract made in violation of any provision of this chapter or of any rule or
regulation thereunder, and every contract . . . heretofore or hereafter made, the
performance of which involves the violation of, or the continuance of any
relationship or practice in violation of, any provision of this chapter or any rule or
regulation thereunder, shall be void (1) as regards the rights of any person who, in
violation of any such provision, rule, or regulation, shall have made or engaged in
the performance of any such contract….
15 U.S.C. § 78cc(b).
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transferable share, investment contract. . . .” 15 U.S.C. 78(c)(a)(10). Like the federal statute,
South Carolina law provides that a security includes “any note, stock, bond, debenture, [or]
evidence of indebtedness . . . transferable share, investment contract. . . . S.C. CODE § 35-1102(29). It is well established that not every loan transaction necessarily involves a security.
See eg. Reves v. Ernst & Young, 494 U.S. 56, 62 (1990) (“Unlike ‘stock,’ . . . ‘note’ may now be
viewed as a relatively broad term that encompasses instruments with widely varying
characteristics, depending on whether issued in a consumer context, as commercial paper, or in
some other investment context.”) (citations omitted); South Carolina Nat. Bank v. Darmstadter,
622 F.Supp. 226, 230 (D.S.C. 1985) (holding that “[t]he facts of this case establish that the loan
transactions did not constitute or involve securities,” where the notes issued were for a fixed
sum, fixed rate of interest, fixed due date, and there was no reliance on managerial abilities of
others or on success of investment for repayment).
The Complaint includes the following allegations regarding the transactions Liverett
allegedly acted as a consultant in identifying:
14. As a direct and proximate result of the consultation services of the Plaintiff,
IBI obtained a $3.3 million loan from Platinum Partner Value Arbitrage, L.P. to
serve as bridge financing until the closing of full funding.
15. IBI Obtained the Platinum loan.
16. As a direct and proximate result of the consultation services of the Plaintiff,
IBI has entered [into] an agreement with Malom Group AG, pursuant to which
Malom has agreed to provide $12.5 million in funding for the project.
First Am. Compl. ¶¶ 14-16. The details of the transactions will determine if the transaction
involved a security, but the facts as stated in the Complaint are insufficient to determine whether
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these transactions involved securities or not. Therefore, because the facts needed to rule on the
affirmative defense are not available in the Complaint, the Court denies the Motion to Dismiss.
(c) Civil Conspiracy Claim
Defendants also move pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss Plaintiff’s Civil
Conspiracy cause of action. “Civil conspiracy consists of three elements: (1) a combination of
two or more persons, (2) for the purpose of injuring the plaintiff, (3) which causes him special
damage.” Vaught v. Waites, 387 S.E.2d 91, 95 (S.C. Ct. App. 1989). Plaintiff has alleged that
Prader, Hovdestad, and IBI joined together in a scheme to mislead him, to take the benefits of his
labor without compensating him, and to harm his reputation in the business community. Prader
and Hovdestad are officers of IBI, and Plaintiff has failed to allege facts that either of them acted
outside of their normal corporate duties or had any independent stake in achieving the objective
of the alleged conspiracy.
Therefore, Plaintiff’s civil conspiracy claim fails under the
intracorporate conspiracy doctrine which provides that “no conspiracy can exist if the conduct
challenged is a single act by a single corporation acting exclusively through its own directors,
officers, and employees, each acting within the scope of his employment.” McMillan v. Oconee
Memorial Hosp., Inc., 626 S.E.2d 884, 887 (S.C. 2006).
In opposing the Motion to Dismiss, Plaintiff states that “the core of the conspiracy claim
is an agreement between the defendants and the leader of Malom to deprive the Plaintiff of his
rightful commissions.” Pl.’s Opp. Mem., at 8.
According to Plaintiff, “[t]he fact that the
Complaint does not mention Malom’s participation in the civil conspiracy is not grounds to
dismiss the case . . . [because] [t]here is no need to join every party to a conspiracy in order to
state a claim for conspiracy because the Plaintiff can choose whether or not to sue all liable
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parties.” Id.2 Plaintiff is correct that he is allowed to decide who he would like to sue.
However, he must allege sufficient facts to state a claim. He has only alleged facts relating to an
alleged conspiracy between Prader, Hovdestad, and IBI and if he were able to prove that
allegation, the intracorporate conspiracy doctrine would preclude his claim. Therefore, he has
failed to state a claim upon which relief could be grant and that cause of action is hereby
dismissed.
CONCLUSION
Therefore, it is ORDERED, for the forgoing reasons, that Defendants’ 12(b)(2) Motion
to Dismiss is DENIED, it is ORDERED that Defendants’ Motion to Transfer Venue is
DENIED, and it is ORDERED that Defendants’ 12(b)(6) Motion to Dismiss the first five causes
of action is DENIED. Finally, it is ORDERED that Defendants’ 12(b)(6) Motion to Dismiss
the civil conspiracy claim is GRANTED.
August 9, 2012
Charleston, SC
2
Plaintiff states that “[i]n as much as the Complaint fails to state a cause of action for
conspiracy, the Plaintiff moves for leave to amend the complaint to add the necessary allegations
to demonstrate that the conspiracy goes beyond the actions of the corporation and its officers,
pursuant to Rule 15 FRCP.” Pl.’s Opp. Mem., at 8-9. The Court declines to grant leave to amend
without a proposed Amended Complaint and without Defendants having an opportunity to
respond to the proposed amendments.
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