Button v. Level Four Orthotics & Prosthetics, Inc.
| Citation | 2020 NCBC 18 |
| Decision Date | 13 March 2020 |
| Docket Number | 19 CVS 3246 |
| Court | Superior Courts of Law and Equity of North Carolina |
| Parties | JAMES C. BUTTON, Plaintiff, v. LEVEL FOUR ORTHOTICS & PROSTHETICS, INC.; LEVEL FOUR SBIC HOLDINGS, LLC; PENTA MEZZANINE SBIC FUND I, L.P.; REBECCA R. IRISH; and SETH D. ELLIS, Defendants. |
Mullins Duncan Harrell & Russell, PLLC by Alan W. Duncan Stephen M. Russell, and Tyler Nullmeyer, for Plaintiff.
Robinson, Bradshaw & Hinson, P.A. by David C. Wright and Brian L. Church, for Defendants.
1. THIS MATTER is before the Court on Defendants Level Four Orthotics & Prosthetics, Inc., Level Four SBIC Holdings, LLC, Penta Mezzanine SBIC Fund I, L.P., Rebecca R. Irish, and Seth D. Ellis' (collectively referred to herein as "Defendants") Motion to Dismiss pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina Rules of Civil Procedure (the "Rule(s)") filed on August 9, 2019 (the "Motion"). (ECF No. 17.)
2. For the reasons set forth herein, the Court GRANTS in part and DENIES in part the Motion.
3. This action arises out of Plaintiff James C. Button's ("Plaintiff" or "Mr. Button") employment with Defendant Level Four Orthotics & Prosthetics, Inc. ("Level Four Inc."). Plaintiff was employed as Level Four Inc.'s Chief Executive Officer ("CEO") until his employment was terminated on March 20, 2019. Plaintiff alleges that Defendants terminated Plaintiff's employment in an attempt to diminish Plaintiff's ownership rights in Level Four Inc. acquired in connection with his employment and in violation of his employment agreement with Level Four Inc.
4. The Court does not make findings of fact for the purposes of a motion to dismiss, but only recites those factual allegations that are relevant and necessary to the Court's determination of the Motion.[1]
A. The Parties
5. Plaintiff is a citizen and resident of Morris County, New Jersey. (Compl. ¶ 1.)
6. Level Four Inc. is a North Carolina corporation with its principal place of business in Winston-Salem, North Carolina. (Compl. ¶ 2.)
7. Defendant Level Four SBIC Holdings, LLC ("Level Four Holdings") is a Florida corporation with its principal place of business in Winter Park, Florida. (Compl. ¶ 3.) Plaintiff alleges that Level Four Holdings owns a majority interest in Level Four Inc. (Compl. ¶ 3.)
8. Defendant Penta Mezzanine SBIC Fund I, L.P. ("Penta Fund") is a limited partnership existing under the laws of Delaware with its principal place of business in Winter Park, Florida. (Compl. ¶ 4.) Plaintiff alleges that Penta Fund is a manager and majority interest owner of Level Four Holdings. (Compl. ¶ 4.) Plaintiff further alleges that Penta Fund owns a minority interest in Level Four Inc. (Compl. ¶ 4.)
9. Defendant Rebecca R. Irish ("Ms. Irish") is a citizen and resident of Orange County, Florida. (Compl. ¶ 6.) Ms. Irish is a managing partner and investment committee member of Penta Fund. (Compl. ¶ 6.) Ms. Irish also acts as the sole director and current CEO of Level Four Inc. and as the manager of Level Four Holdings. (Compl. ¶ 6.) Plaintiff also alleges that Mrs. Irish "owns a significant interest in Penta Fund." (Compl. ¶ 6.)
10. Defendant Seth D. Ellis ("Mr. Ellis") is a citizen and resident of Lake County, Florida. (Compl. ¶ 7.) Mr. Ellis is a managing partner and investment committee member of Penta Fund. (Compl. ¶ 7.) Plaintiff alleges that Mr. Ellis also "owns a significant interest in Penta Fund." (Compl. ¶ 7.)
B. Terms and Negotiation of Plaintiff's Employment Agreement
11. Plaintiff entered into an employment agreement with Level Four Inc. on or about July 14, 2017 (the "Employment Agreement"), pursuant to which Plaintiff was to act as the CEO of Level Four Inc. for a period of five years. (Compl. ¶ 10; see also Compl. Ex. 1, ECF No. 3 [the "Employment Agreement"].) Plaintiff was employed as Level Four Inc.'s CEO from July 14, 2017 until March 20, 2019. (Compl. ¶ 1.)
12. In connection with his employment, Plaintiff signed five agreements in addition to the Employment Agreement. (See Compl. ¶ 11.) Plaintiff entered into the Warrant Agreement with Level Four Inc. and entered into the Option Agreement, Stock Repurchase Agreement, Go Shop Provision with Future Sale Agreement (the "Go Shop Agreement"), and Shareholder Voting Agreement with Level Four Holdings (the Option Agreement, Stock Repurchase Agreement, and Go Shop Agreement are collectively referred to herein as the "Level Four Holdings Agreements").
13. Plaintiff negotiated the terms of his employment with Level Four Inc. with Ms. Irish and Mr. Ellis. (Compl. ¶ 13.) Plaintiff alleges that during these negotiations Ms. Irish and Mr. Ellis were simultaneously representing Level Four Inc., Level Four Holdings, and Penta Fund. (Compl. ¶ 13.)
14. At the time Plaintiff was negotiating his employment with Level Four Inc., Level Four Inc. owed Penta Fund $9, 967, 413 in long-term debt bearing various interest rates up to 18% per annum. (Compl. ¶¶ 17, 19.) Plaintiff believed this debt to be an ongoing challenge to Level Four Inc., which significantly diminished its value to its shareholders. (Compl. ¶ 20.) As a part of Plaintiff's employment negotiations, Plaintiff requested that Penta Fund reduce the interest rate on the debt owed by Level Four Inc. (Compl. ¶ 21.) The parties ultimately agreed on an interest rate of two and one-half percent (2.5%) as evidenced by paragraph 21 of the Employment Agreement. (Compl. ¶¶ 23-24; Employment Agreement ¶ 21.)
15. Paragraph 21 of the Employment Agreements provides that Level Four Inc. "shall cause the interest rates on the promissory notes payable to [Penta Fund] to be reduced to no greater than the two-and-one-half percent (2.5%) at all times subsequent to July 1, 2016."[2] (Compl. ¶ 23; Employment Agreement ¶ 21.) Plaintiff contends that paragraph 21 of the Employment Agreement was intended to apply to all existing and future debt. (Compl. ¶ 23.)[3]
16. The Employment Agreement also allows Level Four Inc.[4] to terminate Plaintiff's employment for or without cause. (Compl. ¶¶ 32, 35; Employment Agreement ¶ 7.A., 7.B.) In the event that Plaintiff's employment was terminated without cause, Plaintiff was entitled to thirty-day written notice with various severance benefits. (Compl. ¶¶ 32-33; Employment Agreement ¶ 7.B.) However, if Plaintiff's employment was terminated for cause, Plaintiff was not entitled to the thirty-day notice or the severance benefits. (Compl. ¶ 34; Employment Agreement ¶ 7.A.)
17. Paragraph 7.A. of the Employment Agreements provides that Plaintiff could be terminated "for cause" if Plaintiff engaged in "any willful misconduct or gross negligence which could reasonably be expected to have a material adverse affect (sic) on the business and affairs of [Level Four Inc.]" (Employment Agreement ¶ 7.A.; see also Compl. ¶ 35.)
18. Plaintiff's rights under the Warrant Agreement and the Level Four Holdings Agreements are dependent on whether Plaintiff's employment was terminated by Level Four Inc. for cause or without cause pursuant to the terms of the Employment Agreement.
19. Pursuant to the terms of the Option Agreement, Plaintiff had a right to purchase 21% of Level Four Holdings' fully diluted common stock and an economic participation interest in Penta Funds' notes, plus accrued interest thereon, due from Level Four Inc. to Penta Fund. (Compl. ¶ 44; Option Agreement 1-2.) In the event that Plaintiff's employment was terminated without cause pursuant to the Employment Agreement, Plaintiff's rights under the Option Agreement would be set to expire July 14, 2022. (Compl. ¶¶ 45, 47.) However, if Plaintiff was terminated for cause or voluntarily resigned pursuant to the Employment Agreement he would no longer be able to exercise his rights pursuant to the Option Agreement. (Compl. ¶ 46; Option Agreement § 1.1(iii).)
20. The Stock Repurchase Agreement gives Level Four Holdings the option to purchase certain Level Four Inc. stock owned by Plaintiff after Plaintiff's employment with Level Four Inc. ends. (Compl. ¶ 48.) Depending on whether Plaintiff's termination is for or without cause, the calculation of the purchase price of the Level Four Inc. stock and Level Four Holdings' ability to purchase stock obtained by Plaintiff pursuant to the Option Agreement varies. (Compl. ¶¶ 49-50; Stock Repurchase Agreement ¶¶ 1.a., 1.b., 2.)
21. The Go Shop Agreement gives Plaintiff the right to make a competing offer to purchase Level Four Inc. as a condition of Level Four Holdings agreeing to an offer to sell Level Four Inc. to a third-party. (Compl. ¶ 51.) If Plaintiff voluntarily resigned or his employment with Level Four Inc. was terminated for cause, then Plaintiff's repurchase rights terminated immediately. (Compl. ¶ 52; Go Shop Agreement ¶ 2.) If Plaintiff was terminated without cause, then his rights pursuant to the Go Shop Agreement continued for six months from his termination before expiring. (Compl. ¶ 53; Go Shop Agreement ¶ 2.)
22. The Warrant Agreement provided Plaintiff the right to purchase 30% of Level Four Inc.'s common stock, subject to certain vesting requirements. (Compl. ¶ 37.)
23. On August 14, 2017, September 15, 2017, October 16, 2017, and March 31, 2018, Plaintiff exercised his rights pursuant to the Warrant Agreement and requested that Ms. Irish provide the certificates for the...
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