M-Tek Kiosk, Inc. v. Clayton

• Decision Date: 23 May 2016
• Docket Number: 1:15CV886
• Court: U.S. District Court — Middle District of North Carolina
• Parties: M-TEK KIOSK, INC., Plaintiff, v. RYAN CLAYTON and JOHN W. GOSNELL, Defendants.

M-TEK KIOSK, INC., Plaintiff, v. RYAN CLAYTON and JOHN W. GOSNELL, Defendants.

1:15CV886

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

May 23, 2016

MEMORANDUM OPINION AND ORDER

This matter comes before the Court on Defendant John W. Gosnell's Motion to Dismiss Plaintiff's Second Amended Complaint ("Motion") [Doc. #26¹]. Plaintiff M-Tek Kiosk, Inc. ("MTEK") initially filed this action against Defendants Ryan Clayton and John W. Gosnell in the United States District Court for the Western District of North Carolina. (Compl. Case No. 3:14-cv-609 [Doc. #1].) Gosnell moved to dismiss the Complaint, after which MTEK filed an Amended Complaint that Gosnell then moved to dismiss. [Docs. #11, 14, 16.] The Magistrate Judge recommended denying the motion and allowing MTEK to file a Second Amended Complaint because "[i]n short, the [Court] finds that there are inconsistencies, and perhaps errors, in the Amended Complaint that make proper evaluation of that pleading difficult." (Mem. R. & Order at 4 [Doc. #20] ("Recommendation").) The Court adopted the Recommendation [Doc. #22], after which MTEK filed a SecondAmended Complaint [Doc. #23] and a motion to change venue [Doc. #24]. In turn, Gosnell moved to dismiss the Second Amended Complaint. [Doc. #26]. While the Motion was pending, the Court granted MTEK's motion to change venue and transferred the case to the Middle District of North Carolina. [Doc. #33.]

In his Motion, Gosnell argues that the Second Amended Complaint ("Complaint") should be dismissed because, pursuant to Rules 8, 9, 10, 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, (1) the Complaint is an improper "shotgun" pleading, (2) the Court lacks subject matter jurisdiction over MTEK's claims against Gosnell, and (3) the Complaint fails to allege any claim against Gosnell upon which relief may be granted. [Doc. #26.] The Motion has been fully briefed and is ripe for review. For the reasons explained herein, the Motion is granted.

I.

According to the Complaint,² MTEK, an Oregon corporation with its principal place of business in Portland, Oregon, is owed at least $376,887.92 for unpaid invoices. (Compl. ¶¶ 1, 127.) In the summer of 2013, Luxury Tec, LLC ("Luxury Tec"), a North Carolina corporation with its principal place of business in Winston-Salem, North Carolina, began discussions with MTEK about the prospect of doing business together. (Id. ¶¶ 7, 11, 17.) Ryan Clayton, then Senior Vice President ofInternational Business for Luxury Tec, approached David Thibeau, MTEK's President, in May of 2013 about ordering specialized electronic equipment from MTEK. (Id. ¶¶ 15, 17.) In July 2013, Clayton visited Thibeau and other MTEK representatives in Oregon, toured the MTEK facilities, and discussed various projects. (Id. ¶ 18.) That same month, Thibeau traveled to Winston-Salem, North Carolina to meet with Clayton and Brian Reid, the founder, manager, and president of Luxury Tec³ at Luxury Tec's office. (Id. ¶¶ 8, 14, 19.) Clayton and Reid took Thibeau on a tour of the office and showed him Gosnell's desk and workspace. (Id. ¶ 19.) After MTEK delivered equipment prototypes to Luxury Tec in September 2013, Clayton traveled to Oregon multiple times to discuss additional business with MTEK. (Id. ¶¶ 21, 22.)

"During this time period,"⁴ Clayton and Reid represented to Thibeau that Luxury Tec was adequately capitalized, that Gosnell was a significant investor and played an active role in Luxury Tec's strategy and business planning, that Luxury Tec had other investors providing operational funding, that Luxury Tec had secured a $3 million line of credit, and that Luxury Tec had adequate funding for its projects with MTEK. (Id. ¶¶ 23-27.) MTEK alleges that Clayton and Reid knew their representations were false and intended to induce MTEK to enter intobusiness with Luxury Tec. (Id. ¶¶ 28, 29; see also id. ¶ 34.) MTEK also alleges that Gosnell knew that Clayton and Reid were falsely representing information material to Luxury Tec's financial status because Clayton and Reid called Gosnell repeatedly in Thibeau's presence as early as September 2013 to discuss related issues and because Gosnell was copied on relevant emails. (Id. ¶ 30.) Despite purported opportunities to do so, Gosnell failed to notify MTEK of these false representations. (Id.)

On November 7, 2013, Gosnell paid for debt or bankruptcy counseling on behalf of Luxury Tec Holdings, LLC and Luxury Tec. (Id. ¶¶ 31, 32.) The following week, on November 14, 2013, Luxury Tec Holdings, LLC and Luxury Tec filed for Chapter 7 bankruptcy in the Middle District of North Carolina. (Id. ¶ 33.) Because MTEK was not a creditor of Luxury Tec, it did not receive notice of the bankruptcy and had no reason otherwise to know of the bankruptcy "in light of misrepresentations and omissions by" Clayton, Reid, and Gosnell. (Id. ¶ 36.)

The day before Luxury Tec filed for bankruptcy, The Mirrenium Group, LLC ("Mirrenium") was formed in Delaware with its principal place of business in Winston-Salem, North Carolina and its sole members as Clayton, Reid, and Gosnell. (Id. ¶¶ 37-39.) Clayton and Reid each owned 29.80515%, and Gosnell owned 22.80094% of Mirrenium. (Id. ¶¶ 82-84.) The Complaint refers to Clayton, Reid, and Gosnell as "the sole members of Mirrenium[,]" but does not account for the remaining 17.58856% ownership in Mirrenium. Reid was the Chief Marketing and Business Development Officer, and Clayton was the Chief Technology Architectand Managing Director of Global Markets. (Id. ¶¶ 42, 43.) Gosnell is not alleged to have been an officer or director, but, instead, is alleged to have been a member with control over Mirrenium including decision-making authority over strategy, business planning and development, accounting, and contracts. (Id. ¶¶ 44, 150.)

MTEK alleges that Clayton, Reid, and Gosnell intentionally concealed Luxury Tec's bankruptcy filing by telling MTEK that the name change to Mirrenium was simply rebranding. (Id. ¶¶ 40, 41.) (But see id. ¶ 41 (alleging that only Clayton misrepresented to MTEK that Luxury Tec had changed its name as a strategic branding decision but that Reid and Gosnell had participated in that branding decision).)

According to the Complaint, Clayton, Reid, and Gosnell formed Mirrenium to conceal Luxury Tec's insolvency and to fraudulently induce MTEK to continue to do business. (Id. ¶¶ 45, 54, 87 (alleging that Clayton, Reid, and Gosnell fraudulently induced MTEK to enter into and fulfill the agreements described below), 96.) Clayton, Reid, and Gosnell allegedly knew Mirrenium was undercapitalized when it was formed because it was functionally the same company as Luxury Tec. (Id. ¶¶ 49, 86.) In other words, Mirrenium was formed to create a fake partition from Luxury Tec. (Id. ¶¶ 46, 46.a.-f.; see also id. ¶ 54, 54.a.-d.) Because Gosnell coordinated and financed Luxury Tec's debt and bankruptcy counseling, he allegedly knew that Mirrenium was the same company as Luxury Tec and in grave financial difficulty; yet, he intentionally caused and allowed MTEK to believe that Mirrenium was solvent. (Id. ¶¶ 46.e., 54.e.) MTEKalleges as evidence of Gosnell's "intimate[] involve[ment] with Mirrenium's discussions with MTEK" Clayton's and Reid's telephone calls to Gosnell in Thibeau's presence, as early as September 2013,⁵ during which Reid, Clayton, and Gosnell discussed aspects of the business between Mirrenium and MTEK. (Id. ¶ 54.f.)

From approximately December 2013 through January 2014, MTEK and Mirrenium entered into three agreements ("Agreements") for Mirrenium's purchase of countertop display units totaling more than $376,887.92. (Id. ¶¶ 55-80, 127.) Of the money owed to MTEK, Mirrenium has paid approximately $54,000 for the prototypes and associated services provided to Luxury Tec in September 2013 and $30,000 for money owed under the various agreements. (Id. ¶¶ 53, 95.)

In December 2013 and January 2014, Clayton promised to pay MTEK for the products and services purchased under the agreements. (Id. ¶¶ 98-101.) Then, in May 2014, Thibeau spoke on the telephone with Gosnell who represented that Mirrenium was adequately capitalized and that it would pay MTEK "soon[.]" (Id. ¶ 188.) Despite the fact that Mirrenium owed money to MTEK under theAgreements, between December 2013 and April 2014, Mirrenium made payments to Reid of at least $87,683 and to Clayton of at least $72,486.65. (Id. ¶¶ 91, 131.) Mirrenium is not alleged to have made payments to Gosnell, although Gosnell is alleged to have approved with full knowledge the payments to Reid and Clayton. (Id. ¶ 92.) In July 21, 2014, Mirrenium filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. (Id. ¶ 81.)

MTEK has asserted nine claims against Clayton and Gosnell:⁶ (1) pierce the corporate veil, (2) fraud, (3) breach of fiduciary duty, (4) constructive fraud, (5) fraudulent transfers, (6) unfair and deceptive trade practices, (7) civil conspiracy, (8) negligent misrepresentation, and (9) punitive damages. (Id. ¶¶ 125-97.)

II.

Gosnell first argues that the Complaint is a "shotgun" pleading and should be dismissed. While MTEK asserts its fraudulent transfer claim against "Defendants" (Compl. ¶¶ 161-72) and otherwise periodically refers to "Defendants" (id. ¶¶ 89, 93-98, 102), it is sufficiently clear from the Complaint what MTEK alleges Gosnell did with or independently of Clayton and Reid such that Gosnell is on notice of the allegations against him and can defend himself accordingly. There are instances where MTEK has replaced references to "Defendants" in its First Amended Complaint with "Gosnell, Clayton, and Reid" in this Complaint, but, in context, those references appear to be purposefulallegations of conduct by all three individuals. As Gosnell notes, there are also instances where allegations contradict themselves, but those are not so plentiful as to support dismissing the Complaint as a shotgun pleading. Therefore, after a thorough...