Dillon v. Leazer Group, Inc.

• Decision Date: 18 March 2019
• Docket Number: NO. 5:18-CV-222-FL,5:18-CV-222-FL
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Paul DILLON on Behalf of Himself and All Similarly Situated Persons and Entities, Plaintiff, v. The LEAZER GROUP, INC. a North Carolina Corporation; and Benny Art Leazer an Individual and Citizen of the State of North Carolina, Defendants.

374 F.Supp.3d 547

Paul DILLON on Behalf of Himself and All Similarly Situated Persons and Entities, Plaintiff,

v.The LEAZER GROUP, INC. a North Carolina Corporation; and Benny Art Leazer an Individual and Citizen of the State of North Carolina, Defendants.

NO. 5:18-CV-222-FL

United States District Court, E.D. North Carolina, Western Division.

Signed March 18, 2019

Scott C. Harris, Whitfield, Bryson & Mason, LLP, Raleigh, NC, for Plaintiff.

Jeffrey Lawrence Roether, Shannon R. Joseph, Morningstar Law Group, Durham, NC, for Defendants.

ORDER

LOUISE W. FLANAGAN, United States District Judge

This matter is before the court on defendants' motion to dismiss for failure to state a claim (DE 11). Plaintiff responded and defendants replied. In this posture, the issues raised are ripe for ruling. For the following reasons, defendants' motion is granted.

STATEMENT OF THE CASE

Plaintiff commenced this action on February 20, 2018, in Wake County Superior Court arising out of his work as an insurance agent for defendant The Leazer Group, Inc. ("TLG"), a North Carolina corporation allegedly controlled by defendant Benny Art Leazer ("Leazer"). Plaintiff asserts claims under North Carolina law on behalf of himself and a proposed class of all similarly situated persons and entites who were also TLG agents, based upon breach of contract, fraud, negligent misrepresentation, negligence, unjust enrichment, unfair and deceptive trade practices and civil conspiracy. Plaintiff seeks compensatory damages, trebled damages, punitive damages, declaratory judgment, class certification, jury trial, attorney's fees, costs, expenses, and interest. Plaintiff attaches to his complaint as Exhibit A an "Agent Agreement" that plaintiff allegedly executed with defendant TLG (hereinafter the "Agent Agreement" or the "agreement").

Defendants filed the instant motion to dismiss on June 29, 2018, asserting that all claims fail as a matter of law and should be dismissed pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). The court stayed scheduling activities pending decision on the motion. Plaintiff responded in opposition on August 10, 2018, and defendants replied on August 24, 2018.

STATEMENT OF FACTS

The facts alleged in the complaint may be summarized as follows. Plaintiff is a Tennessee resident. Defendant TLG "is an insurance marketing organization founded and controlled by [defendant Leazer] and specializing in mortgage protection insurance, burial insurance (also known as "final expense insurance"), annuities, and index universal life insurance." (Compl. ¶ 9).

According to plaintiff, "TLG is structured as a ‘multi-level marketing’ or ‘pyramid selling’ scheme, a ... marketing strategy whereby TLG's revenue is obtained by hawking various products and services to a sales team comprised of independent insurance contractors," referenced in the complaint as "TLG Agents," "who are themselves contractually obligated to both purchase these products and services from TLG and to exclusively market and sell TLG's insurance products to retail customers." (Id. ¶¶ 11-12).

"TLG sells so-called ‘leads’ to TLG Agents," where the "leads contain the contact information for potential retail purchasers of the insurance products offered by TLG through TLG Agents." (Id. ¶ 15). "The insurance products themselves are sourced from third party insurance companies who have agreed to provide TLG and Leazer with the rights to market certain policies." (Id. ). According to plaintiff, "TLG erects a pyramid-type commission scheme for commission distribution," which is "created when one TLG Agent recruits a second TLG Agent," and the "second TLG Agent is then deemed ‘down-line’ from the first TLG Agent, and the first TLG Agent receives a portion of the commissions generated from the second TLG Agent's retail sales, as does TLG." (Id. ¶ 13). The process continues "so on down the line" as new agents are recruited. (Id. ).

Plaintiff entered into an "Agent Agreement" with TLG, on or about March 23, 2016, in the position of "Independent Contractor" referenced in the agreement. (Id. ¶ 44; pp. 33-48).¹ The Agent Agreement provides that "in consideration of (i) this contract to sell the products of the Contracted Insurance Companies through TLG's relationship with such companies ... [ii] marketing incentives from time to time made available by the Contracted Insurance Companies through TLJ; (iii) access for a limited time to marketing tools and services and (iv) other good and valuable consideration, including but not limited to a one-time $ 100.00 credit toward each existing Independent Contractor's purchase of leads," the parties agree to certain terms and conditions set forth in the Agent Agreement. (Id. at 34).

Among those terms and conditions, "TLG has developed a lead program (the "Lead Program") to allow its associated insurance agents to buy leads from TLG in connection with the sale of insurance and recruiting insurance agents for TLJ ContractedInsurance Companies." (Id. at 34-35). Pertinent terms of the Lead Program in the agreement are as follows:

a. Request for Leads. The Independent Contractor's acceptance of the terms of this Agreement constitutes his/her request for TLG to supply Independent Contractor with leads at the rate assigned to the applicable commission level at the time of purchase of such leads.

b. Diligent Use of Leads. Independent Contractor agrees to use best efforts to work and solicit the number of leads requested on a weekly basis and to ensure that any leads provided to the Independent Contractor or Independent Contractor's down-line agents are diligently and legally solicited.

(Id. at 35). As part of his obligations as an Independent Contractor under the agreement, plaintiff agreed "that all leads provided to [him] or to [his] down-line agents must only be used (i) to sell insurance or products authorized by TLG through TLG or TLG Contracted Insurance Companies or (ii) to recruit insurance agents to sell insurance or products through TLG Contracted Insurance Companies." (Id. ). Provision of and payment for leads is further governed by the following:

d. TLG to Supply Leads. TLG, by itself or through its agents, contractors or assigns, agrees to use commercially reasonable efforts to make available to Independent Contractor leads on a weekly basis so long as such leads are available and Independent Contractor is in compliance with the terms of this Agreement.

e. Payment for Leads; Default. Independent Contractor agrees to pay for each lead received by It (exclusive of any free leads that may be provided by TLG from time to time), including any associated charges assessed by TLG from time to time relating to the Lead Program, as detailed in Invoices submitted by TLG. In the event of default on any obligation to pay TLG, Independent Contractor shall be responsible for and promptly pay (i) interest on the amount owed at the rate of one and one half percent (1.5%) per month or the highest legally permitted rate, whichever Is lower; and (ii) TLG's costs of collecting such debt, including without limitation, reasonable attorneys' fees.

(Id. ). In addition, plaintiff agreed "to pay all charges or costs for leads received by [his] down-line agents, should such agents fail to pay for such lead costs." (Id. ) He agreed "to guarantee payment and performance of [his] down-line down-line agents ... even if the down-line agent's obligations are discharged in bankruptcy." (Id. at 35-36). The agreement allowed plaintiff to "withdraw from the Lead Program with thirty (30) days prior written notice to TLG." (Id. at 36). It also allowed TLG to "terminate or suspend [plaintiff's] participation in the Lead Program upon written notice by TLG." (Id. ).

As part of the agreement TLG agreed to provide plaintiff temporary access to TLG products, described as "tools, websites, products, services and incentives of TLG as are generally offered to all insurance agents associated with TLG." (Id. at 44). The agreement provided that plaintiff's access to TLG's products may cease when TLG notifies plaintiff in writing, and that plaintiff "may renew [his] access to the TLG products only" under conditions set forth in the agreement. (Id. ). As part of the agreement, plaintiff also acknowledged he "is or will be one of many Independent Contractors associated with TLG." (Id. at 38). Plaintiff also acknowledged that the Agent Agreement "contains the entire Agreement of the parties with respect to the subject matter hereof." (Id. at 46).

Plaintiff alleges in the complaint that "in its marketing materials directed to Plaintiff and other prospective TLG Agents, TLG and Leazer promised ‘fresh, high quality direct mail leads! [O]ur exclusive Mortgage Protection Platinum Direct Mail Lead program is unique and enables our agents to yield a much higher ROI (rate of return) on their marketing investments than other lead sources.’ " (Id. ¶ 19). According to plaintiff, "TLG's leads are neither generated in-house nor proprietary." (Id. ). "Rather, as is common in the industry, TLG and Leazer purchase leads from certain third-party vendors who specialize in selling leads to insurance agents." (Id. ¶ 20). "TLG and Leazer then re-sell these third-party leads to TLG Agents at an inflated price without informing the TLG Agents that the leads they are purchasing were generated by a third party." (Id. ). "TLG would typically purchase the leads from a third-party vendor with a 90-day term of exclusive use." (Id. ¶ 23). "TLG and Leazer do not disclose any of this information to the TLG Agents." (Id. ).

In addition, "TLG and Leazer do not provide the TLG Agents with the dates that TLG purchased its leads from third-party vendors. Accordingly, TLG Agents have no way to know or assess how long they have exclusive use of any particular lead." (Id. ¶ 25). According to plaintiff, defendants knew "that if TLG Agents learned that the leads were sourced from third parties, they would purchase the leads from the third parties at a...