Global Hookah Distribs., Inc. v. Avior, Inc., 3:19-CV-00177-GCM

• Decision Date: 25 July 2019
• Docket Number: 3:19-CV-00177-GCM
• Citation: 401 F.Supp.3d 653
• Court: U.S. District Court — Western District of North Carolina
• Parties: GLOBAL HOOKAH DISTRIBUTORS, INC., Plaintiff, v. AVIOR, INC., Defendant.

401 F.Supp.3d 653

GLOBAL HOOKAH DISTRIBUTORS, INC., Plaintiff,

v.AVIOR, INC., Defendant.

3:19-CV-00177-GCM

United States District Court, W.D. North Carolina, Charlotte Division.

Signed July 25, 2019

Sara Salehi Ash, MacKenzie Willow-Johnson, Troutman Sanders LLP, Charlotte, NC, for Plaintiff.

Philip James Mohr, Womble Bond Dickinson (US) LLP, Winston-Salem, NC, Jonathan T. Sink, Womble Bond Dickinson (US), LLP, Greensboro, NC, for Defendant.

ORDER GRANTING MOTION TO DISMISS

Graham C. Mullen, United States District Judge

THIS MATTER COMES before this Court on Defendant Avior, Inc.'s ("Defendant") Motion to Dismiss for Failure to State a Claim (Doc. No. 2). Plaintiff Global Hookah Distributors, Inc. ("Plaintiff") responded to the Motion (Doc. No. 6). Defendant submitted a reply brief (Doc. No. 7). As such, this matter is ripe for disposition.

I. FACTUAL BACKGROUND

Plaintiff is a distributor of tobacco products and accessories. (Compl. ¶ 5). Defendant is a company that provides automated tax filings and other taxation services. (Id. ¶ 6). Defendant sells a tobacco tax compliance service, known as "Tobtax Compliance," to help tobacco companies handle transaction data, file necessary returns, and acquire needed licenses in various jurisdictions. (Id. ¶¶ 7-12). Defendant advertises these services on its website, stating that they, inter alia , "ensure tax compliance, eliminate tax errors and penalties," and help businesses "quickly expand to new regions, transaction types, or products." (Id. ¶¶ 49-50).

In July of 2017, Plaintiff and Defendant began discussions for Defendant to provide its tax services in the twenty-three states in which Plaintiff is licensed. (Id. ¶ 11). During negotiations, an employee of Defendant stated that it would be able to "do license renewals for [Plaintiff], and also get[ ] new licenses." (Id. ¶ 14). The employee further said that Defendant "can renew licenses for [Plaintiff]" in states that allow it, and in those that do not, Defendant could "provide everything [Plaintiff would] need" to renew itself. (Id. ).

On August 1, 2017, Plaintiff and Defendant entered into an agreement for one year of Defendant's Tobtax Compliance service, for which Plaintiff paid Defendant a lump sum of $10,998.87. (Id. ¶¶ 16-22). Plaintiff uploaded tax data into Defendant's tax software system, accessible to either party through its web account. (Id. ). Plaintiff also granted Defendant access to various state tax and licensing online accounts in order to file Plaintiff's taxes and meet license renewal requirements. (Id. ).

Plaintiff alleges that Defendant failed to perform the contract. It failed to timely file returns or remit payments in eight states, resulting in penalties charged to Plaintiff. (Id. ¶ 23-24). Defendant paid these penalties out of Plaintiff's accounts. (Id. ¶ 25). Defendant's failure to timely file renewals led to two states withholding Plaintiff's license, and one state terminating Plaintiff's license. (Id. ¶ 26). Defendant withdrew money from its account in excess of written authorizations and "in amounts inconsistent with [its] corresponding tax returns." (Id. ¶ 27). Defendant attempted to raise the price of its services, and then terminated its services and locked Plaintiff's accounts in July of 2018, prior to the expiration of the contract. (Id. ¶¶ 28-29). Closing Plaintiff's accounts left Plaintiff unable to renew its licenses or file tax returns on its own behalf, a problem it was unable to rectify by contacting Defendant. (Id. ¶¶ 31-39). Ultimately, Plaintiff had to contact state governments itself to rectify the issue and had to "identify another provider to perform these services in the future." (Id. ¶¶ 39-40).

On January 9, 2019, Plaintiff sued on four causes of action in North Carolina Superior Court: (1) breach of contract; 2) fraudulent inducement; 3) conversion; and 4) violation of the North Carolina Unfair and Deceptive Trade Practices Act ("UDTPA"). Defendant timely removed the action to this Court and filed a Rule 12(b)(6) motion challenging Plaintiff's second and fourth claims.

II. STANDARD OF REVIEW

When faced with motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must "accept as true all well-pleaded allegations and ... view the complaint in a light most favorable to the plaintiff." Mylan Labs., Inc. v. Matkari , 7 F.3d 1130, 1134 (4th Cir. 1993). The Court "assume[s] the[ ] veracity" of these facts, and "determine[s] whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal , 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). However, the Court "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts., Inc. v. J.D. Assocs. LLP , 213 F.3d 175, 180 (4th Cir. 2000). The complaint must be supported by "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "Threadbare recitals of a cause of action's elements, supported by mere conclusory statements, do not suffice." Id. (citation omitted).

III. DISCUSSION

a. Plaintiff's Fraud in the Inducement Claim

Plaintiff sued for fraud in the inducement, claiming that Defendant willfully posted statements on its website with the intent to deceive customers and to induce it to purchase Defendant's services. It also alleges that Defendant falsely represented that it could renew Plaintiff's licenses. Defendant argues that this claim is captured in full by Plaintiff's breach of contract claim, and thus requires a separate non-contractual duty, one that Plaintiff does not show. Additionally, Defendant argues that Plaintiff does not allege enough facts to show that it made a material misrepresentation of fact separate from puffery, that it knew its statements were false, or that it never intended to carry out the contract.

To state a claim for fraud under North Carolina law, a plaintiff must allege: (1) that the defendant made a representation of some material past or existing fact; (2) that the representation was false; (3) that the defendant knew it was false when made; (4) that the defendant intended the plaintiff to act on the assertion; (5) that the plaintiff reasonably relied on the assertion and then acted upon it; (6) and that the plaintiff was then injured. Myers & Chapman, Inc. v. Thomas G. Evans, Inc. , 323 N.C. 559, 374 S.E.2d 385, 391 (1988). Rule 9(b) of the Federal Rules of Civil Procedure states that when "alleging fraud ... a party must state with particularity the circumstances constituting fraud," but that "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b).

Plaintiff's fraud claim accompanies a breach of contract claim. To "keep open-ended tort damages from distorting contractual relations, North Carolina has recognized an ‘independent tort’ arising out of breach of contract only in ‘carefully circumscribed’ circumstances." Broussard v. Meineke Disc. Muffler Shops, Inc. , 155 F.3d 331, 346 (4th Cir. 1998) (quoting Strum v. Exxon Company, U.S.A. , 15 F.3d 327, 330-31 (4th Cir. 1994) ). North Carolina law requires that any asserted tort claim be "identifiable" and "distinct from the primary breach of contract claim." Id. "The mere failure to carry out a promise in contract ... does not support a tort action for fraud." Strum , 15 F.3d at 331 (citing Hoyle v. Bagby , 253 N.C. 778, 117 S.E.2d 760, 762 (1961) ).

Thus, in North Carolina, to maintain a fraud action alongside a breach of contract, Plaintiff must show "a duty owed [it] ... separate and distinct from any duty owed under a contract." Lowe's Companies, Inc. v. Pac. Research Grp., Inc. , No. 5:05-CV-275, 2007 WL 1040481, at *1 (W.D.N.C. Mar. 29, 2007) (applying North Carolina law) (footnote and citations omitted). Accordingly, the allegations that Defendant failed to file Plaintiff's returns, failed to withdraw money in appropriate amounts, failed to renew Plaintiff's licenses, or failed to maintain service through the end of the contract cannot form the basis of its fraud claim, as all constitute the terms of the contract. "Something more is required." Broussard , 155 F.3d at 346.

Plaintiff argues that Defendant made eight specific misrepresentations of fact during negotiations that induced them to enter the contract, an act they would not have undertaken but for the misrepresentations. Defendant stated that it could "provide everything [Plaintiff would] need" to secure licenses and explained the benefits of its services on its websites, listing inter alia , an experienced customer support team, a cheap cloud solution, and reduced IT and tax accounting costs. (Pl.'s Br. at 7-8).

Defendant argues that these statements refer to future conduct and outcomes rather than past or present (i.e. subsisting) facts. "The general rule is that a plaintiff cannot predicate an action for fraud upon statements which are promissory in nature at the time they are made and which relate to future actions and conduct." Forstmann v. Culp , 648 F. Supp. 1379, 1386 (M.D.N.C. 1986) (citing Pierce v. Am. Fidelity Fire Ins. Co. , 240 N.C. 567, 83 S.E.2d 493 (1954) ). See also Nat'l Cash Register Co. v. Townsend Grocery Store , 137 N.C. 652, 50 S.E. 306, 307 (1905) ("The law will not give relief unless the misrepresentation be of a subsisting fact.") (citation omitted). Promises looking to the future are "on par with false affirmations and opinions ... and do not generally constitute legal fraud." Id.

Defendant's statements that it could provide Plaintiff with everything it needs to secure licenses constitute unactionable future promises. Generally, if statements can be interpreted as predicting or promising some outcome, courts have held them as immaterial. See Nat'l Cash Register Co. , 50 S.E. at 307 (noting that statements representing ...