Dunn Holdings I, Inc. v. Confluent Health LLC
| Decision Date | 10 December 2018 |
| Docket Number | 17 CVS 9321 |
| Parties | DUNN HOLDINGS I, INC. (previously DUNN PHYSICAL THERAPY, INC.), a North Carolina corporation, Individually and Derivatively on behalf of BREAKTHROUGH CARY PT, LLC; CHRISTOPHER F. DUNN; and THERESA M. DUNN, Plaintiffs, v. CONFLUENT HEALTH LLC, a Delaware limited liability company; LAURENCE N. BENZ, Manager of Breakthrough Cary PT, LLC; BREAKTHROUGH CARY PT, LLC, a North Carolina limited liability company; MARK F. WHEELER; JEFFREY HATHAWAY; and BREAKTHROUGH PHYSICAL THERAPY, INC., Defendants. |
| Court | Superior Court of North Carolina |
Smith Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP, by J. Mitchell Armbruster for Plaintiffs Dunn Holdings I, Inc. Christopher Dunn; and Theresa Dunn.
Stites & Harbison PLLC, by Chadwick A. McTighe (pro hac vice) and Timothy D. Thompson (pro hac vice), and Robinson Bradshaw & Hinson, P.A., by Edward F. Hennessey, IV for Defendants Confluent Health LLC; Laurence N. Benz Breakthrough Cary PT, LLC; Mark F. Wheeler; Jeffrey Hathaway; and Breakthrough Physical Therapy, Inc.
ORDER AND OPINION ON PLAINTIFFS' MOTION TO DISMISS COUNTERCLAIMS
THIS MATTER comes before the Court on Plaintiffs Dunn Holdings I, Inc., individually and derivatively on behalf of Breakthrough Cary, PT, LLC, Christopher F. Dunn, and Theresa M. Dunn's (collectively, "Plaintiffs") Motion to Dismiss Counterclaims. ("Motion"; ECF No. 60.)
THE COURT, having considered the Motion, the briefs in support of and in opposition to the Motion, the arguments of counsel at the hearing, and other appropriate matters of record, concludes that the Motion should be GRANTED, in part, and DENIED, in part, for the reasons set forth below.
1. The Court does not make findings of fact on motions to dismiss under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure (). In this case, the Court only recites those facts included in the counterclaims that are relevant to the Court's determination of the Motion. All facts herein are drawn from the allegations in Defendants' counterclaims. (Answ. and Countercl., ECF No. 59 at CC, pp. 27-38.)
2. Defendants Breakthrough Cary, LLC ("Breakthrough Cary") and Breakthrough Physical Therapy, Inc. ("Breakthrough PT") are affiliated entities organized under the laws of North Carolina, which engage in the business of providing physical therapy treatment to patients at multiple locations across North Carolina. (ECF No. 59 at CC, ¶¶ 1-2.) Breakthrough Cary is a part of the overall Breakthrough PT practice. (Id.)[1]
3. Defendant Confluent Health, LLC ("Confluent") is a Delaware limited liability company based in Kentucky that acts as a holding company for numerous physical therapy practices, including Breakthrough Cary and Breakthrough PT. (Id. at ¶ 3.)
4. Defendant Dr. Laurence Benz ("Benz") is the manager of Breakthrough Cary and Confluent. (Id. at ¶ 4.)
5. Plaintiff Dunn Holdings I, Inc. ("Dunn Holdings") is a North Carolina corporation owned by Plaintiffs Dr. Christopher F. Dunn ("Christopher") and his wife, Theresa M. Dunn ("Theresa", collectively "the Dunns"). (Id. at ¶ 6.) In 2014, the Dunns sold substantially all of the assets of Dunn Holdings to Breakthrough Cary ("the Transaction"). (Id. at ¶ 11.) The Transaction was accomplished through the parties' execution of an Asset Purchase Agreement. ("APA", ECF No. 50.2.) As a result of the Transaction, Dunn Holdings is a member of, and owns a 20% interest in, Breakthrough Cary. The remaining 80% interest in Breakthrough Cary is currently held by Confluent.[2] (Breakthrough Cary Op. Ag., ECF No. 50.1, at p. 30 (hereinafter "Operating Agreement").) Dunn Holdings is a party to Breakthrough Cary's Operating Agreement. (Id. at p. 1.)
6. The APA contains the following provision regarding confidentiality:
From and after the Closing, [Dunn Holdings]and [the Dunns] shall, . . . use its commercially reasonable efforts to cause its or their respective representatives to hold, in confidence any and all information, whether written or oral, concerning the … Transaction Documents or the [Transaction].
7. In conjunction with the Transaction, Christopher was employed by Breakthrough Cary and Breakthrough PT under a written Employment Agreement executed between Christopher and Breakthrough PT. The Employment Agreement provided in relevant part as follows:
[Christopher] shall devote his full business time and effort to [Breakthrough PT]. [Christopher] agrees to perform his duties hereunder to the best of his ability and at a level of competency consistent with the position occupied, to act on all matters in a manner that is in the best interest of [Breakthrough PT], and to use his best efforts, skill and ability to promote the profitable growth of [Breakthrough PT]. The duties and responsibilities of [Christopher] under this Agreement shall include providing physical therapy services to the patients of [Breakthrough PT], and performing such other duties as may be assigned to [Christopher] by [ ] Benz …
8. Benz assigned certain responsibilities to Christopher that otherwise would have been performed by Benz as the manager of Breakthrough Cary. (Id. at ¶ 8.) Defendants allege that, by acting on behalf of Breakthrough Cary in a managerial capacity, Christopher occupied a position of trust and confidence with, and owed fiduciary duties to, Breakthrough Cary and Breakthrough PT. (Id. at ¶¶ 7- 8.)
9. Defendants allege that Christopher and Dunn Holdings engaged in repeated acts of misconduct during and after Christopher's time as an employee for Breakthrough Cary and Breakthrough PT. (Id. at ¶¶ 10-21.) The alleged wrongdoing includes: (1) diversions of Breakthrough Cary's funds, (2) misuse of Breakthrough Cary's resources, (3) engaging in unauthorized actions; (4) disclosures of confidential information; (5) defaming Breakthrough Cary, Confluent, and Benz; and (6) failing to comply with the terms of the Operating Agreement. (Id.)
10. Following the Transaction, Dunn Holdings' accounts receivable became the property of Breakthrough Cary. (Id. at ¶ 11.) On June 2, 2014, Dunn Holdings entered into an "Interim Billing Agreement" with Breakthrough Cary. (Id. at ¶ 12; Interim Bill. Agr., ECF No. 63.1 (hereinafter "Billing Agreement").) The Billing Agreement required Dunn Holdings to collect the accounts receivable and deposit them to an account designated by Breakthrough Cary. (ECF No. 59, at ¶ 12.) However, instead of depositing payments received to the Breakthrough Cary account, Christopher diverted them to accounts under his control. (Id. at ¶ 11.) The Billing Agreement expired on December 31, 2014. (Id.)
11. Christopher negotiated a deal between Breakthrough PT and the school that his children attend to provide services to the school at below market rates in an effort to obtain personal benefits from the school. (Id. at ¶ 14.) Breakthrough PT did not authorize or approve of the arrangement, which inured to its detriment and to Christopher's benefit. (Id.)
12. Christopher, unilaterally and without authority, removed a covenant not to compete from the employee contract of at least one of Breakthrough Cary and Breakthrough PT's employees. (Id. at ¶ 16.) The employee has now resigned and made clear her intention to compete with the Breakthrough companies.
13. Christopher also, unilaterally and without authority, increased the compensation of certain employees with "full knowledge that [Benz] would not approve of the [ ] increases." (Id. at ¶ 17.)
14. In his pleadings filed in this lawsuit, Christopher disclosed confidential financial information about Breakthrough Cary and Breakthrough PT, and the terms of the Transaction. Defendants allege the disclosures were made in violation of the confidentiality provisions of the APA. (Id. at ¶ 19.)
15. In November of 2017, Christopher intentionally or recklessly made representations to various employees "about alleged embezzlement" by Breakthrough Cary, Confluent, and Benz. (Id. at ¶ 20.) Defendants allege the statements were defamatory. (Id. at ¶ 45.)
16. In December of 2017, Christopher resigned as an employee of Breakthrough Cary and Breakthrough PT. (Id. at ¶¶ 5, 56.) Section 16.8 of the Breakthrough Cary Operating Agreement states that "[i]n the event Christopher's employment with Breakthrough [PT] is terminated for any reason whatsoever, then such termination of employment shall be deemed as an offer by Dunn [Holdings] to sell all of its Membership Interests to [Breakthrough Cary], and [Breakthrough Cary] shall purchase such Membership interests." (ECF No. 50.1, at pp. 22-23; ECF No. 59 at CC, at ¶ 51.) The Operating Agreement provides that the purchase price shall be "the fair market value" of the transferring member's interest as determined by agreement among the members within 30 business days of the triggering event. (ECF No. 50.1, at pp. 21-22.) If the parties cannot reach agreement, the fair market value is determined through a detailed appraisal process. (Id.)
17. Following Christopher's resignation, Breakthrough Cary notified Dunn Holdings that it was invoking the provisions of section 16.8, but Dunn Holdings has refused to engage in the process for...
To continue reading
Request your trial