Gupta v. Eli Glob., LLC, 2019 NCBC 39.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE COUNTY OF WAKE SUPERIOR COURT DIVISION 18 CVS 500057 AJAY GUPTA,
Plaintiff,
v.
ELI GLOBAL, LLC; ELI RESEARCH, INC.; AMERICAN ACADEMY HOLDINGS, LLC; MEDFLOW HOLDINGS, LLC; MDOFFICE ORDER & OPINION ON HOLDINGS, LLC; IO MOTION TO DISMISS PRACTICEWARE, INC; PENN MEDICAL INFORMATICS SYSTEMS, LLC; MPLUS HOLDINGS, LLC; GREG LINDBERG, Individually; DUNHILL HOLDINGS, LLC; and STANDARD FINANCIAL LIMITED,
Defendants.
1. THIS MATTER is before the Court on Defendants Eli Global, LLC; Eli
Research, Inc.; American Academy Holdings, LLC; Medflow Holdings, LLC; MDoffice
Holdings, LLC; IO Practiceware, Inc.; Penn Medical Informatics Systems, LLC;
MPlus Holdings, LLC; and Greg Lindberg’s Motion to Dismiss Plaintiff’s Amended
Complaint pursuant to Rule 12(b)(6) and Rule 9(b) (“the Motion”). Having considered
the pleadings, the Motion, and the parties’ briefs, and having heard oral argument,
the Court hereby GRANTS in part and DENIES in part the Motion.
The Noble Law Firm, PLLC by Laura L. Noble and Nicholas J. Sanservino, Jr., for Plaintiff.
Condon Tobin Sladek Thornton, PLLC by Kendal B. Reed and Aaron Z. Tobin, and Fox Rothschild, LLP by Matthew N. Leerberg and Troy D. Shelton, for Defendants Greg Lindberg; Eli Global, LLC; Eli Research, Inc.; American Academy Holdings, LLC; Medflow Holdings, LLC; MDoffice Holdings, LLC; IO Practiceware, Inc.; Penn Medical Informatics Systems, LLC; and MPlus Holdings, LLC.
Dunhill Holdings, LLC and Standard Financial Limited, Defendants for which no counsel has appeared.
Gale, Judge.
I. STATEMENT OF FACTS
2. The Court does not make findings of fact when evaluating a motion to
dismiss pursuant to North Carolina Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”).
The following fact statement is based on the factual allegations of the Amended
Complaint which are accepted as true solely for purposes of ruling on the Motion.
3. Plaintiff Ajay Gupta (“Gupta”) is a citizen and resident of India and a
former employee of one or more of the Defendants. (Am. Compl. ¶¶ 1, 30, ECF No.
38.)
4. Defendant Greg Lindberg (“Lindberg”) is a North Carolina citizen,
resident, and businessman who manages several global businesses under the
umbrella of Defendant Eli Global, LLC, a North Carolina corporation (“Eli Global”).
(Am. Compl. ¶¶ 2, 5–6.)
5. Plaintiff alleges that Defendants Eli Research, Inc., (Am. Compl. ¶ 10);
American Academy Holdings, LLC, (Am. Compl. ¶ 12); Medflow Holdings, LLC, (Am.
Compl. ¶ 13); IO Practiceware, Inc., (Am. Compl. ¶ 14); Penn Medical Informatics
System, LLC, (Am. Compl. ¶ 15); MPlus Holdings, LLC d/b/a MRX Holdings, LLC,
(Am. Compl. ¶ 16); MDoffice Holdings, LLC, (Am. Compl. ¶ 17); Dunhill Holdings,
LLC, (Am. Compl. ¶ 19); and Standard Financial Limited, (Am. Compl. ¶ 18), operate under Eli Global’s umbrella. Defendants Dunhill Holdings and Standard Financial
were first named in the Amended Complaint, but service appears not to have been
made upon them so that they have not appeared and they do not join in the Motion.
6. Gupta alleges that Lindberg organized the various corporations to
obfuscate improper conduct rather than for legitimate corporate purposes, and that
Lindberg has admitted this. (Am. Compl. ¶¶ 102, 179–85.) In addition to his own
allegations, Gupta references similar allegations by Lindberg’s wife in her litigation
with Lindberg. (Am. Compl. ¶ 21.)
7. In 2007, Lindberg recruited Gupta to develop operations for Eli Global
in India, to be known as Eli India. (Am. Compl. ¶ 36.) Prior to that time, Gupta had
found success as a mechanical engineer, as a founding member of the India arm of
the Fortune 500 company Agilent, and in earning degrees in business finance as well
as an MBA degree in marketing. (Am. Compl. ¶ 35.)
8. Gupta alleges that Lindberg made certain representations to induce
Gupta to join Lindberg’s enterprise, including:
a. Lindberg and Eli Global would initially provide Gupta with modest
compensation, but if Gupta expanded the business he would receive
substantial rewards represented by stock appreciation rights (“SARS”)
agreements, (Am. Compl. ¶ 38);
b. Lindberg personally guaranteed that the corporations would fully
honor any agreements executed with Gupta, (Am. Compl. ¶ 38); c. Lindberg would never transfer funds or restructure his companies
in a way that could deprive Gupta of any monies earned, (Am. Compl.
¶ 38); and
d. Lindberg would not interfere with Gupta’s management of the
India operations, (Am. Compl. ¶ 38).
9. Gupta alleges Lindberg knew these representations to be false when
he made them and that Lindberg had no intention to fulfill them. (Am. Compl. ¶ 39.)
10. Gupta confirmed his acceptance of employment with Eli Research
on terms set out in a letter dated March 18, 2007, signed by Lindberg (the “Offer
Letter”). (Am. Compl. Ex. A, Offer Letter, ECF No. 38.1.)
11. The Offer Letter provided that Gupta would receive “SARS in Eli
Research, Inc., entitling [Gupta] to the right to receive the appreciation on
approximately ¼ of 1% of total company stock. [Gupta] may be eligible for additional
stock appreciation rights as [his] responsibilities and our activities in India grow.”
(Am. Compl. ¶ 43.)
12. The Offer Letter also refers to a “Noncompetition, Confidentiality
and Non-Solicitation Agreement.” The record contains no such agreement and Gupta
avers he was never provided with it. (Am. Compl. ¶¶ 46, 96.)
13. Gupta avers that over ten years he successfully grew Eli Global’s
presence in India to 3,000 employees in seven cities, (Am. Compl. ¶ 49), resulting in
significant profits for Eli Global, (Am. Compl. ¶¶ 51–57), and Gupta being given
increasing responsibility within the company, (Am. Compl. ¶ 50). 14. During his ten-year employment, Gupta executed SARS agreements
with Eli Research, Inc. in December 2007; American Academy Holdings, LLC in June
2013; Medlow Holdings, LLC and IO Practiceware, Inc. in February 2015; Penn
Medical Informatics Systems, LLC, MPlus Holdings, LLC, and MDoffice Holdings,
LLC in August 2015; and entered an Equity Based Bonus Agreement with Eli
Research, Inc. in January 2011 (collectively, “SARS and Bonus Agreements”). (Am.
Compl. ¶ 62.)
15. The SARS and Bonus Agreements each provide that Gupta would
receive the promised amounts unless he was dismissed “for cause” or because he
violated “any Company confidentiality or noncompetition agreement to which the
Recipient is a party . . . .”
16. The definitions of “cause” varied in the SARS and Bonus
Agreements but shared common elements. Some, but not all, provided that “cause”
was to be “reasonably determined” by the Company, which determination would then
be binding on Gupta. One agreement defined “cause” as:
. . . (i) conviction or the pleading of nolo contendere to any crime which could reasonably impair the business or reputation of the Company, (ii) any crime or act involving moral turpitude, or (iii) an act involving the Company which would amount to a felony or a misdemeanor, whether or not such act is reported or the Recipient is convicted of such act.
(Am. Compl. Ex. B, at SARS Agreement Eli Research, Inc., December 2007 § 5.4(b),
ECF No. 38.2.) Other agreements defined “cause” as:
. . . willful misconduct . . . or willful failure by the Recipient to perform the Recipient’s responsibilities to the Company and/or any affiliate of the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, noncompetition or other similar agreement between the Recipient and the Company and/or any affiliate of the Company), as reasonably determined by the Company, which determination shall be conclusive.
(Am. Compl. Ex. B, at Equity Based Bonus Agreement Eli Research, Inc., January
2011 § 3(b)(i), ECF No. 38.2; Am. Compl. Ex. B, at SARS Agreement Medflow
Holdings, LLC, February 2015 § 3(b)(i), ECF No. 38.2; Am. Compl. Ex. B, at SARS
Agreement IO Practiceware, Inc., February 2015 § 3(b)(i), ECF No. 38.2; Am. Compl.
Ex. B, at SARS Agreement MPlus Holdings, LLC, August 2015 § 3(b)(i), ECF No.
38.2; Am. Compl. Ex. B, at SARS Agreement MDoffice Holdings, LLC, August 2015
§ 3(b)(i), ECF No. 38.2; Am. Compl. Ex. B, at SARS Agreement Penn Medical, August
2015 § 3(b)(i), ECF No. 38.2.) Still another agreement defined “cause” as:
. . . willful misconduct . . . or willful failure by the Recipient to perform the Recipient’s responsibilities to the Company and/or any affiliate of the Company including any business affiliated with the Eli Global group of companies or affiliated with Greg E. Lindberg (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, noncompetition or other similar agreement between the Recipient and the Company and/or any affiliate of the Company), as reasonably determined by the Company, which determination shall be conclusive.
(Am. Compl. Ex. B, at SARS Agreement American Academy Holdings, LLC, June
2013 § 3(b)(i), ECF No. 38.2.)
17. As to confidentiality and noncompetition restrictions, the initial SARS
agreement between Gupta and Eli Research, Inc. provides that:
Notwithstanding any other provision of this Agreement to the contrary, the Recipient shall forfeit his vested and nonvested Incentive Units and all rights to any payments hereunder (including but not limited to rights to payments with respect to previously exercised Incentive Units), and the Company shall have no further obligation hereunder to the Recipient, in the event of the Recipient’s breach of any Company confidentiality or noncompetition agreement to which the Recipient is a party, or in the event of the Recipient’s breach of any shareholders’, stock purchase, buy-sell or similar agreement between the Recipient and the Company or any Company shareholder.
(Am. Compl. Ex. B, SARS Agreement Eli Research, Inc., December 2007 § 7.) The
other SARS and Bonus Agreements included a somewhat different provision
regarding confidentiality and noncompetition restrictions, which reads:
Notwithstanding any other provision of this Agreement to the contrary, the Recipient shall forfeit all rights to any payments hereunder, and the Company shall have no further obligation hereunder to the Recipient, in the event of the Recipient’s breach of any Company confidentiality or noncompetition agreement to which the Recipient is a party, or in the event of the Recipient’s breach of any shareholders’, stock purchase, buy-sell or similar agreement between the Recipient and the Company or any Company shareholder. The provisions of this paragraph 6 will similarly apply to any such agreement between the Recipient and an affiliate of the Company.
(Am. Compl. Ex. B, at Equity Based Bonus Agreement Eli Research, Inc., January
2011 § 6; Am. Compl. Ex. B, at SARS Agreement Medflow Holdings, LLC, February
2015 § 6; Am. Compl. Ex. B, at SARS Agreement IO Practiceware, Inc., February
2015 § 6; Am. Compl. Ex. B, at SARS Agreement MPlus Holdings, LLC, August 2015
§ 6; Am. Compl. Ex. B at SARS Agreement MDoffice Holdings, LLC, August 2015
§ 6; Am. Compl. Ex. B, at SARS Agreement Penn Medical, August 2015 § 6; Am.
Compl. Ex. B, at SARS Agreement American Academy Holdings, LLC, June 2013
§ 6.)
18. Gupta avers that during the course of his employment both he and other
Eli India employees received payments from a number of Eli Global’s entities,
including at least Dunhill and Standard Financial. (Am. Compl. ¶ 59.) 19. Gupta recounts an e-mail from Lindberg that demonstrates the alleged
difficulty of determining how Gupta should have been paid. It states:
the simple solution for keeping [your] bonuses confidential . . . is for me to pay them all through Dunhill – easier than setting up a new co. [sic] So going forward, I will do this . . . Dunhill will then charge AAI parent co [sic] a management fee for all business-related charges . . . there will be no detail on bonuses at that level. Myself, Tisha [Lindberg] and third party accountants will be the only ones with access to bonus info.
(Am. Compl. ¶ 60) (emphasis omitted).
20. Gupta’s bonuses began to vest in January 2017. (Am. Compl. ¶ 124.)
21. To date, Gupta has received no payments under any of the SARS and
Bonus Agreements. (Am. Compl. ¶¶ 99, 125.)
22. Gupta avers that without prior warning he received a letter in
November 2017 stating that he was being dismissed for cause because of multiple
breaches of his noncompetition agreement, his SARS agreements, and for his willful
misconduct and violations of ethical and fiduciary duties. (Am. Compl. ¶¶ 103, 105;
Am. Compl. Ex. C, at Dismissal Letter (“Dismissal Letter”), ECF No. 38.3.) More
specifically, the letter said the dismissal was for “operating multiple side-businesses
that compete with Eli Global . . . . Operating these competitive entities, directly or
indirectly, is a violation of your Employment Agreement . . . .” (Dismissal Letter.)
The letter continues by asserting that Gupta registered two of his own companies as
being located at Eli India’s registered address, contracted with Gupta’s companies in
his role as an Eli Global employee, and “involve[d] Eli India in under-the-table cash
transactions” with Gupta’s companies. (Dismissal Letter.) 23. Lindberg simultaneously terminated three senior employees at Eli
India. (Am. Compl. ¶ 110.) The record does not document the reasons stated for
those terminations.
24. Gupta’s termination letter stated that all of the obligations owed to
Gupta under the various agreements were now void because the dismissal was for
cause. (Am. Compl. Ex. C.)
25. Gupta alleges that he has been deprived of millions of dollars of earned
compensation. He calculates the value of his rights under the SARS Agreement with
Eli Research, Inc. to be at least $1,500,000, (Am. Compl. ¶ 82); under the Equity
Based Bonus Agreement with Eli Research, Inc. to be at least $2,500,000, (Am.
Compl. ¶ 92); and under the remaining agreements to total over $1,500,000, (Am.
Comp. ¶ 100).
II. PROCEDURAL HISTORY
26. Gupta filed his initial Complaint on February 15, 2018, asserting claims
for breach of contract, (Compl. ¶¶ 63–66, ECF No. 5); violations of the North Carolina
Wage & Hour Act, (Compl. ¶¶ 67–74); unfair or deceptive trade practices under
Chapter 75 (“UDTP” or “Chapter 75”), (Compl. ¶¶ 75–79); fraudulent or negligent
misrepresentation, (Compl. ¶¶ 80–85); unjust enrichment, (Compl. ¶¶ 86–91);
tortious interference with contract by Lindberg, (Compl. ¶¶ 95–103); and civil
conspiracy among Defendants, (Compl. ¶¶ 104–06). Gupta additionally requested
that the Court pierce the veils of the corporate Defendants to reach Lindberg’s assets,
(Compl. ¶¶ 107–13), and award punitive damages, (Compl. ¶¶ 92–94). 27. A notice that the case would be conditionally designated as a Mandatory
Complex Business Case was filed with the Complaint. (Conditional Notice
Designation, ECF No. 6.) The case was designated as a mandatory complex business
case on April 2, 2018, (Designation Order, ECF No. 4), and then assigned to the
undersigned, (Assignment Order, ECF No. 2).
28. Moving Defendants timely filed a Rule 12(b)(6) motion to dismiss.
(Defs.’ Mot. Dismiss, ECF No. 10.) Gupta then moved for leave to amend his
Complaint to add Dunhill Holdings and Standard Financial as Defendants. (ECF No.
27.)
29. On August 29, 2018, the Court held a hearing on the pending motions.
The Court determined that Gupta was entitled to amend his Complaint as a matter
of right and further ordered that Defendants could incorporate their motion to
dismiss as directed against any Amended Complaint, but revise the motion and
supplement the supporting memorandum as necessary to address newly added
allegations. The Court indicated that it would then rule on the Motion without
further hearing.
30. On September 17, 2018, Plaintiff filed the Amended Complaint, adding
Dunhill Holdings and Standard Financial as Defendants and additional claims,
including a second breach of contract claim, (Am. Compl. ¶¶ 122–26); a claim for
breach of the implied covenant of good-faith and fair dealing, (Am. Compl. ¶¶ 131–
36); and a request for a declaratory judgment, (Am. Compl. ¶¶ 118–21). 31. The original Defendants amended their motion to dismiss to address the
new claims and factual allegations. (Defs.’ Mot. Dismiss Am. Compl., ECF No. 39.)
32. The Motion is ripe for disposition.
III. STANDARD OF REVIEW
33. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of
the” disputed pleading, here the Amended Complaint. Concrete Serv. Corp. v. Inv’rs
Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758 (1986). The motion should be
granted only when: (1) the pleading “on its face reveals that no law supports” the
asserted claim; (2) the pleading “on its face reveals the absence of facts sufficient to
make a good claim;” or (3) the pleading “discloses some fact that necessarily defeats”
the claim. Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729,
736–37 (2018) (citation and quotation marks omitted).
34. In deciding a Rule 12(b)(6) motion, the Court must treat the well-
pleaded allegations of the counterclaims as true and view the facts and permissible
inferences “in the light most favorable to” the non-moving party. Ford v. Peaches
Entm’t Corp., 83 N.C. App. 155, 156, 349 S.E.2d 82, 83 (1986). “[T]he court is not
required to accept as true any conclusions of law or unwarranted deductions of fact.”
Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 56, 554 S.E.2d 840, 844 (2001).
IV. ANALYSIS
A. Declaratory Judgment
35. Gupta seeks a declaratory judgment that Defendants breached the
SARS and Bonus Agreements. (Am. Compl. ¶ 119.) Defendants attack the declaratory judgment claim as unnecessary because it does nothing more than recast
Gupta’s breach of contract claims. (Br. Supp. Mot. Dismiss Am. Compl. ¶¶ 22–25.)
36. A court may, in its discretion, decline to issue declaratory relief when
“(1) the requested declaration will serve no useful purpose in clarifying or settling the
legal relations at issue; or (2) the requested declaration will not terminate or afford
relief from the uncertainty, insecurity, or controversy giving rise to the proceeding.”
Augur v. Augur, 356 N.C. 582, 588–89, 573 S.E.2d 125, 130 (2002). Properly pleading
a declaratory judgment claim requires “pleading all facts necessary to disclose the
existence of an actual controversy between the parties . . . with regard to their
respective rights and duties[.]” N.C. Consumers Power, Inc. v. Duke Power Co., 285
N.C. 434, 447, 206 S.E.2d 178, 187 (1974) (quoting Lide v. Mears, 231 N.C. 111, 118,
56 S.E.2d 404, 409 (1949)). A motion to dismiss “is seldom an appropriate pleading
in actions for declaratory judgments.” Id. at 439, 206 S.E.2d 178, 182.
37. As explained below, the Court has determined that Gupta’s breach of
contract claims should survive the Motion. While the Court may later seek to narrow
claims to be decided, in its discretion, the Court will allow the declaratory judgment
claim to proceed at this time.
B. Breach of Contract
38. The Amended Complaint asserts two claims alleging a breach of
contract. The first claim asserts that the initial December 2007 SARS agreement with
Eli Research, Inc. was breached when the payment due in January 2017 was not
made. (Am. Compl. ¶¶ 122–26.) The second claim asserts that the December 2007 agreement and all other SARS and Bonus Agreements were breached when Gupta
was terminated based on only a pretextual determination of cause for the sole purpose
of avoiding paying him amounts to which he was due. (Am. Compl. ¶¶ 127–30.)
39. The elements of a breach of contract claim are the “(1) existence of a
valid contract and (2) breach of the terms of that contract.” Cordaro v. Harrington
Bank, FSB, 817 S.E.2d 247, 256 (N.C. Ct. App. 2018) (citation and quotation marks
omitted). Gupta has adequately alleged that he entered a valid contract with each
of the moving corporate Defendants.
40. Defendants argue, however, that each of those contracts have been
terminated, and each contract by its express terms provides that the Company’s
determination of “cause” is binding on Gupta, so that the Amended Complaint on its
face defeats any breach of contract claim. (Defs.’ Br. Supp. Mot. Dismiss Compl.
¶ 56, (“Br. Supp. Mot. Dismiss Compl.”), ECF No. 11.) Defendants’ position would
have the Court ignore that the contracts bind Gupta only to a “reasonable
determination” of cause and that Gupta clearly alleges that no such reasonable
determination could have been made. The Court concludes that Gupta has
adequately alleged facts sufficient to allow the breach of contract claims to proceed at
least as against the corporate Defendants with which Gupta entered contracts.
41. The Court must view the Motion separately as to Lindberg, because he
was not a nominal party to any of the contracts at issue. (Br. Supp. Mot. Dismiss
Compl. ¶ 17.) In his brief, Gupta alleges that Lindberg is properly a party to the
breach of contract claims because Gupta may prove that Lindberg so dominated the corporations for his own purposes such that their corporate veil should be pierced,
and contractual obligations should be imposed on Lindberg. (Br. Opp’n Defs.’ Mot.
Dismiss 7, ECF No. 22.)
42. The Court views these assertions against Lindberg as a question of
remedies once a breach of contract has been proven rather than a basis to assert an
independent claim against Lindberg personally. See Green v. Freeman, 367 N.C. 136,
146, 749 S.E.2d 262, 271 (2013) (noting that piercing the corporate veil is not a theory
of liability and holding that a separate claim is required to establish liability). Other
claims may continue against Lindberg individually as discussed below, but the breach
of contract claims against him should be dismissed, without prejudice to Gupta’s
ability to later prove that Lindberg should be charged with responsibility for such
liability as may be adjudged against the corporate Defendants.
C. Breach of Implied Covenant of Good-Faith and Fair Dealing
43. Gupta asserts a separate contract claim based on an alleged breach of
the implied covenant of good-faith and fair dealing. (Am. Compl. ¶¶ 131–36.)
44. “In every contract there is an implied covenant of good faith and fair
dealing that neither party will do anything which injures the right of the other to
receive the benefits of the agreement.” Heron Bay Acquisition, LLC v. United Metal
Finishing, Inc., 245 N.C. App. 378, 385, 781 S.E.2d 889, 894 (2016) (citation and
quotation marks omitted). A claim based on the implied covenant requires proving
that “the [defendant] took action which injured the right of the other to receive the
benefits of the agreement thus depriving the other of the fruits of the bargain.” McDonald v. Bank of N.Y. Mellon Trust Co., 816 S.E.2d 861, 864 (N.C. Ct. App. 2018)
(quoting Conleys Creek Ltd. P’ship v. Smoky Mountain Country Club Prop. Owners
Ass’n, Inc., 805 S.E.2d 147, 158 (N.C. Ct. App. 2017)) (internal quotations omitted).
The claim is often used in an effort to recover under a contract that is otherwise
terminable at-will. See, e.g., Eagle Servs. & Towing, LLC v. Ace Motor Acceptance
Corp., 801 S.E.2d 179 (N.C. Ct. App. 2017) (affirming a trial court’s denial of a Rule
12(b)(6) motion to dismiss a claim of breach of the implied covenant of good faith and
fair dealing in a non-employment context). But the implied covenant is not properly
used to avoid express contractual terms properly employed. See Campbell v. Blount,
24 N.C. App. 368, 371, 210 S.E.2d 513, 515 (1975).
45. Ultimately, it appears that Gupta’s contract claims will be governed by
the express contract terms and specifically whether those contracts were properly
terminated based on a reasonable determination of cause. The Court may later
determine that the express contract terms control over any contrary implied duty,
but that determination should not be made at this early stage of the litigation.
D. Wage & Hour Act
46. Gupta asserts that he had earned bonus compensation prior to his
termination and that he would have continued to be entitled to such additional
compensation but for Defendants’ pretextual termination for cause. (Am. Compl.
¶¶ 142–44.) Defendants counter that the contracts were terminable at will, so that
the Wage and Hour Act affords Gupta no protection. (Br. Supp. Mot. Dismiss Compl.
¶¶ 35–36.) First, Defendants’ position assumes that the contracts were, in fact, terminated in accordance with their terms. Second, the position would not defeat
Gupta’s right to recover compensation he had earned prior to his termination. The
Wage and Hour Act dictates that “[e]mployees whose employment is discontinued for
any reason shall be paid all wages due on or before the next regular payday[.]” N.C.
Gen. Stat. § 95-25.7.
47. Moving Defendants further contend that any Wage and Hour Act claim
must be limited to Eli Research with which Gupta entered an employment contract.
However, that contracts at issue contemplate that Gupta would be paid by other
corporations for his employment services. The Wage and Hour Act defines an
“employer” broadly to include “any person acting directly or indirectly in the interest
of an employer in relation to an employee.” Id. § 95-25.2(5). Courts liberally construe
the term “employer” and employ the “economic reality” test, which considers factors
including whether the person had the power to hire and fire, whether the person
supervised and controlled employee schedules, whether the person determined the
rate and method of payment, and whether the person maintained employment
records. Powell v. P2Enters., LLC, 247 N.C. App. 731, 735, 786 S.E.2d 798, 801
(2016).
48. The Court concludes that Gupta’s Wage and Hour Act claims should
survive against each moving Defendant, including Lindberg, who Gupta alleges was
directly involved both in Gupta’s hiring and firing. See Garcia v. Frog Island Seafood,
Inc., 644 F. Supp. 2d 696, 721 (E.D.N.C. 2009) (holding executive officer can be deemed an “employer” if that executive officer controls significant functions of the
business, including hiring and salary decisions).
E. Unfair or Deceptive Trade Practices
49. Gupta seeks to present a UDTP claim in addition to his contract claims,
alleging that the breaches of which he complains were accompanied by aggravated
circumstances. (Am. Compl. ¶ 148.) It is now well understood that a breach of
contract does not support a UDTP claim if not accompanied by such circumstances.
See Eastover Ridge, LLC v. Metric Constructors, Inc., 139 N.C. App. 360, 367–68, 533
S.E.2d 827, 832–33 (2000). However, notwithstanding this issue, the fatal defect in
Gupta’s UDTP claim is instead that the Amended Complaint affords no basis to find
that the acts of which he complains were “in or affecting commerce” as required in
Chapter 75. N.C. Gen. Stat. § 75-1.1.
50. The basic elements of a UDTP claim include that “(1) defendants
committed an unfair or deceptive act or practice, (2) in or affecting commerce, and (3)
that plaintiff was injured thereby.” Strickland v. Lawrence, 176 N.C. App. 656, 665,
627 S.E.2d 301, 307 (2006) (citations omitted). The “in or affecting commerce”
element restricts the otherwise broad scope of the claim, so that the statute does not
address all wrongs arising in a business setting, including most employer-employee
disputes. See Dalton v. Camp, 353 N.C. 647, 657, 548 S.E.2d 704, 711 (2001); see also
HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d 483, 492
(1991); Buie v. Daniel Int’l Corp., 56 N.C. App. 445, 448, 289 S.E.2d 118, 119–20 (1982) (holding employer-employee relationships outside the scope of N.C. Gen. Stat.
§ 75-1.1).
51. However, “the mere existence of an employer-employee relationship
does not in and of itself serve to exclude a party from pursuing an unfair trade or
practice claim.” Durling v. King, 146 N.C. App. 483, 488, 554 S.E.2d 1, 4 (2001)
(quoting Dalton, 353 N.C. at 656, 541 S.E.2d at 197); see Esposito v. Talbert & Bright,
Inc., 181 N.C. App. 742, 746, 641 S.E.2d 695, 698 (2007) (holding that even assuming
arguendo that actions taken by an employer were unfair or deceptive, they could not
be the basis of a UDTP claim because they did not have any impact beyond the
employment relationship and were not “in or affecting commerce”).
52. The North Carolina Supreme Court has recognized generally a UDTP
claim between an employer and employee where the claim was based on the
employee’s acts in commerce outside his employment duties. Sara Lee Corp. v.
Carter, 351 N.C. 27, 34, 519 S.E.2d 308, 312 (1999). This Court has previously
distinguished the holding in Sara Lee when determining that the case does not
support a UDTP claim based on the employment relationship itself when such
additional acts in commerce are absent. Urquhart v. Trenkelbach, 2017 NCBC LEXIS
12, at *14 (N.C. Super. Ct. Feb. 8, 2017); Kingsdown, Inc. v. Hinshaw, 2015 NCBC
LEXIS 30, at *27–29 (N.C. Super. Ct. Mar. 25, 2015).
53. The factual allegations of the Amended Complaint do not fall within the
scope of the Sara Lee holding. With no basis to satisfy the “in or affecting commerce”
element, Gupta’s UDTP claim is not saved by his allegations of misrepresentations made to induce the employment relationship. See Post v. Avita Drugs, LLC, 2017
NCBC LEXIS 95, at *10–12 (N.C. Super. Ct. Oct. 11, 2017) (allowing a UDTP claim
based on misrepresentation to proceed when a breach of contract claim would not
support such a claim absent aggravating circumstances).
F. Fraudulent/Negligent Misrepresentation
54. In addition to his contract claims, Gupta alleges tort claims based on
fraud or, alternatively, negligent misrepresentations. (Am. Compl. ¶¶ 152–57.)
These are distinct claims. See Ausley v. Bishop, 133 N.C. App. 210, 218, 515 S.E.2d
72, 78 (1999) (“Fraudulent misrepresentation focuses on plaintiff’s knowing action,
while negligent misrepresentation turns on plaintiff’s lack of reasonable care.”).
Negligent misrepresentation “occurs when a party justifiably relies to his detriment
on information prepared without reasonable care by one who owed the relying party
a duty of care.” Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200,
206, 367 S.E.2d 609, 612 (1988). A negligent misrepresentation claim fails when the
defendant owes the plaintiff no duty. Even when liberally read, the Amended
Complaint here demonstrates no basis to impose a duty on any Defendant arising
from the negotiations for the employment relationship. Gupta’s negligent
misrepresentation claim fails for this reason.
55. Plaintiff’s fraud claim does not require this separate duty. The elements
of that claim are “(1) [a f]alse representation or concealment of a material fact, (2)
reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in
fact deceive, (5) resulting in damage to the injured party.” S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 609, 659 S.E.2d 442, 449 (2008)
(citation omitted). Fraud must be alleged with particularity. N.C. R. Civ. P. 9(b). A
claimant is expected to allege “time, place, and content of the fraudulent
representation, identity of the person making the representation and what was
obtained as a result of the fraudulent acts or representations.” S.N.R. Mgmt. Corp.,
189 N.C. at 610, 659 S.E.2d at 449 (emphasis and citation omitted).
56. The Amended Complaint asserts that Lindberg made
misrepresentations to induce Gupta’s agreement to become employed while Lindberg
had no intention to perform the contracts at the time. That is adequate to state a
claim of fraud unless it is barred by a separate defense disclosed on the face of the
Amended Complaint. Moving Defendants assert that such a defense is evident,
because Gupta’s tort claims are barred by the economic loss rule. (Br. Supp. Mot.
Dismiss Compl. ¶ 46.)
57. Moving Defendants in their brief fail to recognize that the economic loss
rule applies differently to claims based on negligence and those based on fraud.
“[W]hile claims for negligence are barred by the economic loss rule where a valid
contract exists between the litigants, claims for fraud are not so barred and, indeed,
‘[t]he law is, in fact, to the contrary: a plaintiff may assert both [breach of contract
and fraud] claims[.]” Bradley Woodcraft, Inc. v. Bodden, 251 N.C. App. 27, 34, 795
S.E.2d 253, 259 (2016) (quoting Jones v. Harrelson & Smith Contractors, LLC, 194
N.C. App. 203, 215, 670 S.E.2d 242, 250 (2008)). 58. Ultimately, if Gupta affirms the contracts at issue and bases his relief
on them, his remedy may be exclusively a contract remedy resulting in dismissal of
his fraud claim. See Rountree v. Chowan County, 252 N.C. App. 155, 159, 796 S.E.2d
827, 830 (2017) (“It is the law of contract and not the law of negligence which defines
the obligations and remedies of the parties in such a situation.”). That is a
determination to be made at a later time. The Court determines that at this stage of
the litigation, Gupta is entitled to pursue both his breach of contract claims and his
fraudulent misrepresentation claim.1
59. However, the Amended Complaint only alleges misrepresentations by
Lindberg made on behalf of Eli Global or Eli Research. While the Court finds these
allegations to be sufficiently specific to satisfy Rule 9, Gupta’s fraud claim should
then be limited to Lindberg, Eli Global, and Eli Research.
G. Unjust Enrichment
60. Gupta’s unjust enrichment claim is an alternative claim to his contract
claims. Defendants contend that the claim should be dismissed at the early pleading
stage pursuant to S.E. Shelter Corp. v. BTU, Inc., which held that, because a contract
existed and no breach of contract claim was asserted, the law would not imply a
1 While its ruling on the Motion is confined to its reading of the Amended Complaint and documents to which it refers, and Defendants have not yet answered the Amended Complaint. The Court notes that at oral argument Defendants’ counsel responded to the allegations that Lindberg had no intention to honor his promises at the time he made them by asserting clearly that Defendants do not and will not argue that the various agreements were not validly entered and enforceable in accordance with their terms. Their position is rather that those terms allowed for Defendants to determine that cause existed to terminate the contracts, thereby defeating Gupta’s right to recover under them, and that Gupta is bound by this determination. contract, 154 N.C. App. 321, 330, 572 S.E.2d 200, 206 (2002). (Br. Supp. Mot. Dismiss
Compl. ¶ 48.) The Court has previously determined that Gupta has alleged breach of
contract claims. It is proper to plead unjust enrichment in the alternative to a breach
of contract claim “even if [the] plaintiff may not ultimately be able to prevail on both.”
James River Equip., Inc. v. Mecklenburg Utils., Inc. 179 N.C. App. 414, 419, 634
S.E.2d 557, 560 (2006).
61. The Court concludes that the unjust enrichment claim is properly plead
in the alternative to the breach claims and that the claim should survive the Motion.
H. Punitive Damages
62. Defendants challenge whether one can assert an independent claim for
punitive damages. (Br. Supp. Mot. Dismiss Compl. ¶ 49.) Punitive damages is a tort
remedy rather than a contract remedy. See N.C. Gen. Stat. § 1d-15(d) (“Punitive
damages shall not be awarded against a person solely for breach of contract.”). The
Court defers its ruling on whether Gupta can pursue any recovery of punitive
damages.
I. Tortious Interference with Contract
63. Gupta seeks to impose personal liability on Lindberg for having
tortiously interfered with the SARS and Bonus Agreements. (Am. Compl. ¶¶ 167–
75.) Lindberg responds that, as a corporate insider, he is entitled to a presumption
his actions with respect to the contracts were in the interests of the corporations
which made the agreements and that the exception to that presumption (which applies when a non-outsider acts maliciously) should not apply. (Br. Supp. Mot.
Dismiss Compl. ¶¶ 27–28.)
64. The acts of a corporate officer are generally presumed to have been done
in the interests of the corporation, but that presumption may be “overcome when the
means or the officer’s motives are improper.” Embree Constr. Grp., Inc. v. Rafcor,
Inc., 330 N.C. 487, 498, 411 S.E.2d 916, 924 (1992). As the Supreme Court recognized
in Embree, the issue of qualified privilege of an officer is inherently one of fact such
that dismissal at the Rule 12(b)(6) stage is improper where adequate facts
challenging an insider’s justification are pleaded. Id.
First, the qualified privilege of officers and directors to interfere with the corporation's contracts rests upon the assumption that their actions are "in good faith and for the best interests of their corporation." The question of "good faith" is one of fact to be resolved by the jury and cannot be resolved on a motion to dismiss. Therefore, insofar as the element "without justification" evokes inquiry into defendants' motives, it is enough to allege, as plaintiff did, that the action was done "in their own interest to avoid liability to [plaintiff] for their [personal] guarantees. . . ."
Embree Constr. Group Inc. at 499, 411 S.E.2d at 925.
65. Gupta has sufficiently alleged that Lindberg acted without
justification. As a result, his tortious interference claim survives the Motion.
J. Civil Conspiracy & Piercing the Corporate Veil
66. Gupta alleges a civil conspiracy among the various Defendants to
commit fraud and other wrongs against him, so that their respective corporate veils
must be pierced. (Am. Compl. ¶¶ 179–85.) North Carolina does not recognize an
independent claim of conspiracy. See Toomer v. Garrett, 155 N.C. App. 462, 483, 574 S.E.2d 76, 92 (2002). Likewise, piercing of the corporate veil is not an independent
claim or theory of liability but “an avenue to pursue legal claims against corporate
officers of directors who would otherwise be shielded by the corporate form.” Green,
367 N.C. at 146, 749 S.E.2d at 271. Nevertheless, the allegations related to those
claims are so interwoven with other claims the Court has allowed to survive the
Motion, so that the Court’s further consideration of the conspiracy claim should be
deferred.
V. CONCLUSION 67. For the foregoing reasons:
a. The Motion is DENIED as to Gupta’s claims for declaratory judgments,
breach of contract claims against the movant corporations, breach of
implied covenant of good faith and fair dealing, violation of the Wage &
Hour Act, unjust enrichment, fraud to Lindberg, Eli Global, and Eli
Research; and tortious interference with contract;
b. The Motion is GRANTED as to Gupta’s breach of contract claim against
Lindberg individually; negligent misrepresentation; unfair or deceptive
trade practices; fraud as to all moving Defendants other than Lindberg,
Eli Global, and Eli Research; and
c. The Court DEFERS further consideration of claims or remedies related
to punitive damages, civil conspiracy, and piercing of the corporate veil
of any corporate Defendant. SO ORDERED, this the 19th day of June, 2019.
/s/ James L. Gale James L. Gale Senior Business Court Judge