ABC Legal Services Inc v. Korn Law Firm PA et al
Filing
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ORDER and OPINION granting in part and denying in part 30 Motion to Dismiss for Failure to State a Claim. Signed by Honorable Margaret B Seymour on 7/1/2015.(mdea )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
ABC Legal Services, Inc.,
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Plaintiff,
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v.
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Korn Law Firm, P.A.; Peter D.
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Korn, individually; Robert Hall;
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Clarkson Law Firm, LLC, f/k/a
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Clarkson and Korn, LLC; and
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Butler & Hosch, P.A.,
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Defendants.
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______________________________)
Civil Action No. 3:14-04887
ORDER AND OPINION
This matter is before the court on the motion of Defendant Robert Hall (“Defendant Hall”)
pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the causes of action against him for
failure to state a claim upon which relief can be granted.
I. Relevant Factual and Procedural Background
Plaintiff ABC Legal Services, Inc. (“Plaintiff”) filed a Complaint on December 30, 2014,
seeking payment for various debts allegedly incurred by Defendants related to the hiring of process
servers and other legal support services. ECF No. 1.
The Complaint alleges that over time, Defendant Korn and Defendant Korn Law Firm
accrued a sizeable unpaid balance with Plaintiff. Id. at 3, ¶ 16. “[Plaintiff] was consistently
reassured by [Defendant] Hall, who was acting in his capacity as an officer of [Defendant Korn]
Law Firm and an agent of [Defendant] Korn, that the outstanding invoices would be paid.” Id. at
¶ 17. Defendants Korn and Korn Law Firm “gave various explanations for the delay in reimbursing
[Plaintiff] for its work . . . .” Id. “In reliance upon such reassurances and other promises that all
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invoices would be paid,” Plaintiff continued to provide services to Defendants Korn and Korn Law
Firm. Id. at ¶ 18. Eventually, Plaintiff and Defendant Korn Law Firm entered a confession of
judgment in Plaintiff’s favor in the amount of $745,478.08. Id. at 4, ¶ 19; see also ECF No. 1-1.
Plaintiff alleges Defendants Korn and Korn Law Firm arranged for an asset sale to Defendant Butler
& Hosch “in large part as an attempt to avoid [Plaintiff’s] rights as a creditor” of Defendants Korn
and Korn Law Firm. Id. at 6, ¶ 31. Plaintiff alleges that, at the same time as the asset sale to
Defendant Butler & Hosch, Defendant Korn formed a new law firm, Defendant Clarkson and Korn,
LLC, “although its distinction from Defendant [Korn] Law Firm is dubious.” Id. at ¶ 33. Relevant
specifically to Defendant Hall, the Complaint alleges that he was, “upon information and belief . .
. an officer of [Defendant Korn Law Firm].” ECF No. 1 at 2, ¶ 5. The Complaint alleges four causes
of action against Defendant Hall: quantum meruit/unjust enrichment, id. at 9; accounting, id. at 10;
fraud, id. at 11; and violation of the South Carolina Unfair Trade Practices Act (“SCUPTA”), S.C.
Code Ann. § 39-5-140, ECF No. 1 at 13.
In the portion of the Complaint setting forth Plaintiff’s quantum meruit claim, Plaintiff makes
no specific mention of Defendant Hall. Id. at 9-10. With regard to the benefits conferred on
Defendants, Plaintiff alleges that “[b]y providing valuable services to and for the Defendants,
Plaintiff [] has conferred a benefit upon the Defendants. . . . Defendant [Korn] Law Firm has profited
and Defendant Korn has received compensation.” Id. at 9, ¶¶ 49-50. Similarly, Plaintiff makes no
mention of Defendant Hall in its claim for an accounting. Id. at 10-11.
Plaintiff’s fraud claim is alleged in more detail. Plaintiff alleges that “[o]n several occasions,
Defendant[s] Korn, Hall and/or other officers of the [Korn] Law Firm have represented to Plaintiff
[] that the Defendants intended to and would pay the outstanding balance and satisfy the debt owed
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Plaintiff . . . .” Id. at 12, ¶ 66. Plaintiff alleges that this representation was false and that “the
Defendants had knowledge that they could not and did not intend to pay the outstanding balance
. . . Such knowledge is apparent by the Defendants’ actions over two (2) years, the formation of a
new law firm entity, and the merger with/acquisition by Defendant Butler [& Hosch], thereby
attempting to avoid various debts to creditors . . . .” Id. at ¶ 69. Plaintiff alleges that it continued
to provide services to Defendants Korn, Korn Law Firm, and Hall in reliance on these
representations and, absent the representations, it would not otherwise have continued to provide
any services to those Defendants. Id. at ¶¶ 68, 70-74.
Finally, Plaintiff alleges that Defendant Hall violated SCUPTA because his actions in
“promising that payment for past due services was forthcoming in order to induce further services,”
in petitioning courts and billing clients for Plaintiff’s services but not passing those collections on
to Plaintiff, and in “structuring the transfer of cases and clients in such a manner as to seek to escape
the indebtedness owed” to Plaintiff constituted “unfair, deceitful, and deceptive actions” negatively
affecting the public interest by impeding the “operation of the legal system” and the “administration
of justice.” Id. at 14, ¶¶ 83-84.
On April 20, 2015, Defendant Hall moved to dismiss the allegations against him for failure
to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). ECF No. 30. Plaintiff filed a response in
opposition on April 22, 2015. ECF No. 31.
II. Legal Standard
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) “for failure to state a claim
should not be granted unless it appears certain that the plaintiff can prove no set of facts which
would support its claim and would entitle it to relief.” Mylan Labs., Inc. v. Matkari, 7 F.3d
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1130, 1134 (4th Cir. 1993). To survive a Rule 12(b)(6) 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 Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). Complaints that merely offer “labels and conclusions” or “a formulaic recitation
of the elements of a cause of action” will not survive. Twombly, 550 U.S. at 555.
“Facts that are ‘merely consistent with’ liability do not establish a plausible claim to relief.”
U.S. ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 455 (4th Cir. 2013) (quoting
Iqbal, 556 U.S. at 678). “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.” Iqbal, 556 U.S. at 668. “In addition, although [the court] must view the facts alleged in the
light most favorable to the plaintiff, [the court] will not accept ‘legal conclusions couched as facts
or unwarranted inferences, unreasonable conclusions, or arguments.’” Nathan, 707 F.3d at 455
(quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012)). The court will treat
factual allegations of the nonmoving party as true. Estate Constr. Co. v. Miller & Smith Holding
Co., 14 F.3d 213, 217-18 (4th Cir. 1994).
III. Discussion
For the reasons below, the court concludes that Plaintiff has failed to state a claim upon
which relief can be granted against Defendant Hall with respect to its quantum meruit, accounting,
and SCUPTA claims. Plaintiff has, however, sufficiently pleaded a cause of action for fraud.1
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Defendant Hall’s motion to dismiss makes much of the Complaint’s characterization
of Defendant Hall as an “officer” of Defendant Korn Law Firm. See ECF No. 1 at 2,
¶ 5. Defendant Hall cites South Carolina Rule of Professional Conduct 5.4 which
prohibits a nonlawyer from being “a corporate director or officer [of a professional
corporation or association authorized to practice law] or occup[ying] a position of
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A. Quantum Meruit
“The elements of a quantum meruit claim are: (1) a benefit conferred upon the defendant by
the plaintiff; (2) realization of that benefit by the defendant; and (3) retention by the defendant of
the benefit under conditions that make it unjust for him to retain it without paying its value.”
Earthscapes Unlimited, Inc. v. Ulbrich, 703 S.E.2d 221, 225 (S.C. 2010) (citation omitted). The
Complaint states Plaintiff conferred a benefit upon all Defendants by providing valuable services
to and for them. ECF No. 1 at 9, ¶ 49. The Complaint also alleges that “Defendants have been and
continue to be unjustly enriched by earning fees and profits, which were only made possible through
the services of [Plaintiff], while at the same time refusing to pay [Plaintiff].” ECF No. 1 at 10, ¶ 55.
These two allegations, among others, satisfy Plaintiff’s pleading obligation as to the first and third
elements of a quantum meruit action.
Plaintiff, however, falters on the second element—the realization of a specific benefit by
Defendant Hall. Plaintiff alleges only that Defendant Korn Law Firm “profited” and that Defendant
Korn “received compensation” because of the unremunerated services of Plaintiff. ECF No. 1 at 9,
similar responsibility in any form of association other than a corporation.” S.C. R.
Prof’l Conduct 5.4(d)(2). Defendant Hall’s position is that he cannot be liable for
Defendant Korn Law Firm’s debts because he is not a lawyer and cannot, therefore,
have been an officer or director of the firm. ECF No. 30 at 3. Plaintiff’s response to
the motion to dismiss, in turn, focuses on the Complaint’s allegation that Defendant
Hall was an agent of Defendant Korn and/or of Defendant Korn Law Firm. ECF No.
31 at 1-2. For the purposes of this motion, the court accepts as true Plaintiff’s
allegation that Hall was an agent of Defendants Korn and the Korn Law Firm. This
principal-agent relationship is in effect conceded by Defendant Hall in an affidavit of
Defendant Korn that states that “Hall was a salaried employee of Korn Law Firm,
P.A.” ECF No. 30-1 at ¶ 5. The court does not at this stage in the litigation attempt
to delineate the precise scope of Defendant Hall’s actual or apparent authority as an
agent. Nonetheless, characterizing Defendant Hall as an agent for other Defendants
cannot entirely cure several of the Complaint’s failures to state a claim upon which
relief can be granted.
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¶ 50. The Complaint fails to identify any particular “realization” of benefit by Defendant Hall.
Plaintiff therefore fails to plead a complete claim of quantum meruit against Defendant Hall. Cf.
Boykin Contracting, Inc. v. Kirby, 748 S.E.2d 795, 798-99 (S.C. Ct. App. 2013) (requiring a
quantum meruit defendant to “individually” or “personally” realize a benefit in order to be held
liable). Defendant Hall’s motion to dismiss Plaintiff’s quantum meruit claim is granted because the
Complaint fails to identify any benefit realized by Defendant Hall.
B. Accounting
Plaintiff’s second claim against Defendant Hall is for an accounting. ECF No. 1 at 10-11,
¶¶ 57-64. “An action for an accounting is an action in equity.” Consignment Sales, LLC v. Tucker
Oil Co., 705 S.E.2d 73, 76 (S.C. Ct. App. 2010). Although usually a remedy “designed to prevent
unjust enrichment by disclosing and requiring the relinquishment of profits received as the result of
a breach of a confidential or fiduciary duty,” it is also available in certain circumstances where no
confidential or fiduciary duty exists. Rogers v. Salisbury Brick Corp., 382 S.E.2d 915, 917 (S.C.
1989). These limited circumstances are “(1) [ ] actions involving long and complicated accounts
where it would not be practicable for a jury to comprehend the issues and correctly make
adjustment; and (2) when there is a need for discovery.” Id. (citations omitted) (allowing an
accounting to discover the percentage of manufacturing materials used by defendant, the amount
previously paid by defendant, and the total number of truckloads delivered by plaintiff to defendant);
see also Tucker Oil Co., 705 S.E.2d at 77 (permitting an accounting where an oil company had
exclusive access to the information needed to determine the amount owed to a trucking company,
such as the number of contracts in existence, the amount of the product delivered, and the gross
proceeds from the contracts).
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Plaintiff’s Complaint nowhere alleges that Defendant Hall owed it a confidential or fiduciary
duty. Further, because the debt owed to Plaintiff by Defendant Korn Law Firm has already been
reduced to a confession of judgment, ECF No. 1-1, the court cannot conclude that this case involves
“long and complicated accounts” beyond the comprehension of a jury. Finally, both parties
recognize that Defendant Hall is a former employee of Defendant Korn Law Firm, presumably no
longer with access to any firm records which may be helpful to Plaintiff as a discovery matter.
Plaintiff has not alleged sufficient facts entitling it to an accounting from Defendant Hall. Defendant
Hall’s motion to dismiss Plaintiff’s claim for an accounting is, therefore, granted.
C. Fraud
Plaintiff’s third claim against Defendant Hall is one for fraud. “To prove fraud under South
Carolina law, a plaintiff must prove by clear, cogent, and convincing evidence: (1) representation;
(2) its falsity; (3) its materiality; (4) either the speaker’s knowledge of its falsity or reckless
disregard of its truth or falsity; (5) the speaker’s intent that the representation be acted upon; (6) the
hearer’s ignorance of its falsity; (7) the hearer’s reliance on its truth; (8) the hearer’s right to rely
thereon; and (9) the hearer’s consequent and proximate injury.” Toney v. LaSalle Bank Nat’l Ass’n,
896 F. Supp. 2d 455, 480 n.11 (D.S.C. 2012), aff’d, 512 F. App’x 363 (4th Cir. 2013); see also
Regions Bank v. Schmauch, 582 S.E.2d 432, 444-45 (S.C. Ct. App. 2003). “[A] mere showing that
a party has failed to keep his promises ‘is not sufficient to demonstrate actionable fraud.’” Tom
Hughes Marine, Inc. v. Am. Honda Motor Co., Inc., 219 F.3d 321, 324 (4th Cir. 2000) (quoting
Woodward v. Todd, 240 S.E.2d 641, 643 (S.C. 1978)). “Under the elements for both fraud and
negligent misrepresentation, the representation at issue must be false.” Turner v. Milliman, 708
S.E.2d 766, 770 (S.C. 2011); see also Fields v. Melrose Ltd. P’ship, 439 S.E.2d 283, 285 (S.C. Ct.
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App. 1993) (“To be actionable, the representation must relate to a present or pre-existing fact and
be false when made.”).
A claim of fraud is subject to Fed. R. Civ. P. 9(b), which requires fraud to be pleaded with
particularity. Fed. R. Civ. P. 9(b). “[T]he circumstances required to be pled with particularity under
Rule 9(b) are 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.” McCauley v. Home Loan Inv.
Bank, F.S.B., 710 F.3d 551, 559 (4th Cir. 2013) (internal quotations and citation omitted); see also
S.C. R. Civ. P. 9(b) (“In all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.”).
Defendant Hall first objects that Plaintiff has not pleaded its fraud claim with sufficient
particularity. The court disagrees. The Complaint states that “on several occasions, [Defendant
Hall] . . . represented to Plaintiff [ ] that the Defendants intended to and would pay the outstanding
balance and satisfy the debt owed Plaintiff . . . .” ECF No. 1 at 12, ¶ 66. These representations were
made between October 2011 and August 5, 2014, when Plaintiff was “consistently reassured by
[Defendant] Hall . . . . that the outstanding invoices would be paid.” See id. at 3, ¶¶ 16-18. The
Complaint alleges that Defendant Hall and the other Defendants obtained continued services from
Plaintiff as a result of the false representations that the invoices would be paid. Id. at ¶ 18. These
allegations put Defendant Hall on sufficient notice as to 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” in order to satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b).
See McCauley, 710 F.3d at 559.
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Defendant Hall next objects that a claim of fraud can only be based on a pre-existing fact and
not a promise of future action. ECF No. 30 at 7. Defendant Hall argues that “[f]raud cannot be
premised on an ‘unfulfilled promise to perform in the future or statements as to future events.’” Id.
(quoting Emerson v. Powell, 321 S.E.2d 629, 631 (S.C. Ct. App. 1984)). However, reference to
Emerson reveals the complete quotation to be: “[a]s a general rule and of particular relevance here,
the fraudulent representation must relate to a present or preexisting fact and it cannot ordinarily be
based on unfulfilled promises or statements as to future events.” Emerson, 321 S.E.2d at 631
(emphasis added). A future promise may, however, be fraudulent under certain conditions. “A
future promise is not fraudulent unless such promise was part of a general design or plan, existing
at the time, to induce a party to enter into a contract or act as he or she otherwise would not have
acted, to his or her injury.” Turner, 708 S.E.2d at 770 (citing Bishop Logging Co. v. John Deere
Indus. Equip. Co., 455 S.E.2d 183, 187 (S.C. Ct. App. 1995)).
Viewing the factual allegations as true and giving the Plaintiff the benefit of all reasonable
inferences, the Complaint gives rise to an inference that Defendant Hall’s promises of future
payment were part of a “general design or plan” to induce Plaintiff to act as it “otherwise would not
have acted” to its injury. See Turner, 708 S.E.2d at 770. First, Plaintiff alleges in the Complaint
that the “Defendants made the Representation to Plaintiff [ ] with the intent of inducing Plaintiff
[ ] to continue to provide legal support services while knowing that they could not and would not
pay for services rendered.” ECF No. 1 at 12, ¶ 70. Second, Plaintiff alleges the representation
caused Plaintiff to act as it otherwise would not have acted because, but for the representations,
“Plaintiff [ ] would not have continued to provide legal support services to and for the Defendants,
which, as a result, increased the total outstanding balance due Plaintiff [ ].” Id. at ¶ 68. Third, the
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consistent nature of the reassurances given by Defendant Hall, id. at 3, ¶ 17, coupled with Plaintiff’s
characterization of the other Defendants’ business dealings over the course of two years as “an
attempt to avoid [Plaintiff’s] rights as a creditor,” id. at 6-7, ¶¶ 30-35, raise the possibility that the
representations were part of a general design or plan. Therefore, the representations by Defendant
Hall as alleged by Plaintiff may constitute a fraudulent future promise and will survive a motion to
dismiss.
Finally, Defendant Hall urges the court to use restraint and not convert what is, in Defendant
Hall’s view, essentially a breach of contract action into an action in tort. ECF No. 30 at 7-8.
Defendant Hall cautions that if the court accepts Plaintiff’s fraud claim “then every collection action,
or case involving bad debts would result in a fraud action.” Id. at 7. As a corollary, Defendant Hall
argues that “Plaintiff should not be allowed to seek personal liability against a non-lawyer employee
of Korn Law Firm, P.A. for statements allegedly made in the course and scope of his employment
involving an outstanding balance that Korn Law Firm, P.A. owed.” Id. at 8. Defendant Hall thus
invokes “the general rule that if a contract is made with a known agent acting within the scope of
his authority for a disclosed principal, the contract is that of the principal alone and the agent is not
liable for the breach of such contract.” Lawlor v. Scheper, 101 S.E.2d 269, 271 (S.C. 1957) (citing
Green v. Indus. Life & Health Ins. Co., 18 S.E.2d 873 (S.C. 1942)).
However, “[t]his principle has no application here.” Lawlor, 101 S.E.2d at 271. As in
Lawlor, here “[t]he complaint clearly discloses that this action is not on the contract of sale but one
in tort for the recovery of damages for an alleged false and fraudulent representation.” Id. “All the
authorities agree that an agent is liable to a third person for damages resulting from the violation of
a duty which such agent owes to the third person, and that it matters not whether that violation be
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one of malfeasance, misfeasance, or nonfeasance.” Id. (internal citations and quotations omitted).
“The law imposes, not only upon the principal but also upon an agent concerned in a sale, a duty not
to make false statements of fact as inducements to the sale. If this duty was violated by the
defendant he is liable.” Id. (quoting Coe v. Ware, 171 N.E. 732, 733 (Mass. 1930)). Here, Plaintiff
has alleged that Defendant Hall made false statements to Plaintiff to induce continued contractual
relations between Plaintiff and Defendant Hall’s principal. An agent can be held liable for his
tortious conduct. “In this case, Plaintiff has alleged that Defendant violated a duty imposed by tort
law, i.e., the duty not to commit fraud.” Enhance-It, LLC v. Am. Access Techs., Inc., 413 F. Supp.
2d 626, 631 (D.S.C. 2006). Neither Defendant Hall’s position as an agent nor the existence of a
contract between Defendant Hall’s principal and Plaintiff can shield him from liability for his own
tortious conduct. Defendant Hall’s motion to dismiss Plaintiff’s fraud claim is, therefore, denied.
D. South Carolina Unfair Trade Practices Act
The final cause of action Plaintiff asserts against Defendant Hall is violation of SCUPTA.
SCUTPA states: “Unfair methods of competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce are hereby declared unlawful.” S.C. Code Ann. § 39-5-20(a)
(1976). To succeed in a claim under SCUTPA, a plaintiff must show three elements: “(1) the
defendant engaged in an unfair or deceptive act in the conduct of trade or commerce; (2) the unfair
or deceptive act affected [the] public interest; and (3) the plaintiff suffered monetary or property loss
as a result of the defendant’s unfair or deceptive act(s).” Health Promotion Specialists, LLC v. S.C.
Bd. of Dentistry, 743 S.E.2d 808, 816 (S.C. 2013) (internal quotations and citations omitted). “An
act is ‘unfair’ when it is offensive to public policy or when it is immoral, unethical, or oppressive.”
Id. at 816 (quoting Gentry v. Yonce, 522 S.E.2d 137, 143 (S.C. 1999)). “An act is ‘deceptive’ when
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it has a tendency to deceive.” Id. “To sustain a cause of action under the SCUTPA, the plaintiffs
must establish, by specific facts, that members of the public were adversely affected by [the
defendant’s actions].” Bessinger v. Food Lion, Inc., 305 F. Supp. 2d 574, 584 (D.S.C. 2003).
Plaintiff’s Complaint makes no mention of Defendant Hall in the section alleging that he violated
SCUPTA. After a thorough review of the Complaint, the court agrees with Defendant Hall that there
are no factual allegations in the Complaint that the alleged conduct of Defendant Hall, specifically,
had any impact on the public interest at large. Therefore, Defendant Hall’s motion to dismiss
Plaintiff’s SCUPTA claim is granted.
IV. Conclusion
Based on the foregoing, Defendant Hall’s motion to dismiss the Complaint pursuant to Fed.
R. Civ. P. 12(b)(6), ECF No. 30, is granted in part and denied in part. Plaintiff’s claims against
Defendant Hall for quantum meruit, an accounting, and violation of SCUPTA are dismissed with
prejudice.
IT IS SO ORDERED.
s/ Margaret B. Seymour
Margaret B. Seymour
Senior United States District Judge
Columbia, S.C.
July 1, 2015
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