Martinez v. Reynders,
2013 NCBC 35.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 12 CVS 1742
ANDREA SAUD MARTINEZ, )
Plaintiff )
)
v. ) OPINION AND ORDER
) ON MOTION TO DISMISS
LUDO REYNDERS and AL CAVAGNARO, )
Defendants )
THIS MATTER comes before the court upon Defendants Ludo Reynders and Al
Cavagnaro’s Motion to Dismiss ("Motion"); and
THE COURT, having reviewed the Motion, briefs in support and in opposition to
the Motion, arguments of counsel and other appropriate matters of record,
CONCLUDES that the Motion should be GRANTED for the reasons stated herein.
Harris, Winfield, Sarratt & Hodges, L.L.P., by Donald J. Harris, Esq., for Plaintiff
Andrea Saud Martinez.
Ogletree, Deakins, Nash, Smoak & Stewart, P.C. by Philip J. Strach, Esq., and
Margaret S. Scholz, Esq., for Defendants Ludo Reynders and Al Cavagnaro.
Jolly, Judge.
I.
PROCEDURAL HISTORY
[1] On February 3, 2012, Plaintiff Andrea Saud Martinez ("Martinez") filed a
Complaint against Defendants Ludo Reynders ("Reynders") and Al Cavagnaro
("Cavagnaro").
[2] The Complaint asserts claims ("Claim(s)") against Reynders and
Cavagnaro for Fraud/Fraudulent Inducement ("Claim One"), Negligent
Misrepresentation ("Claim Two"), Conspiracy to Defraud ("Claim Three"), violations of
Chapter 75 of the North Carolina General Statutes ("Claim Four") and Punitive
Damages ("Claim Five").
[3] On December 3, 2012, Defendants filed the Motion seeking dismissal of
the Complaint pursuant to Rules 12(b)(6) and 12(c) of the North Carolina Rules of Civil
Procedure ("Rule(s)").
[4] The Motion has been fully briefed and argued and is ripe for
determination.
II.
FACTUAL BACKGROUND
The Complaint alleges, among other things, that:
[5] Plaintiff incorporated Instituto de Pesquisa Clinica São Paolo SC LTDA
("IPCSP"), a pharmaceutical research and development firm in Brazil, in or about
October 2000.1
[6] On or about May 15, 2007, AAIPharma, Inc. ("AAIPharma"), a Delaware
corporation headquartered in Wilmington, North Carolina, entered into a Quota
Purchase Agreement with IPCSP, whereby AAIPharma purchased 100% of IPCSP’s
outstanding shares.2
[7] IPCSP was renamed AAIPharma Pesquisa Clinica Ltda. ("AAIPharma
Brazil").3
[8] Reynders and Cavagnaro were directors and officers of AAIPharma and
were responsible for all actions taken by AAIPharma.4
1
Compl. ¶ 7.
2
Id. ¶ 8.
3
Id.
4
Id. ¶. 9.
[9] At the time of acquisition, IPCSP had no outstanding debt, other than
trade debt incurred in the ordinary course of business and a lease obligation for its
offices.5
[10] On May 15, 2007, Plaintiff entered into an employment-management
agreement with AAIPharma Brazil under which Plaintiff would be the sole manager of
AAIPharma Brazil, reporting directly to Reynders.6 Despite being named manager,
Martinez was excluded from "all decision making related to AAIPharma and AAIPharma
Brazil."7 As a result, Martinez "was not aware of many of the business and financial
decisions made by Defendants which materially affected the business and financial
state of AAIPharma and AAIPharma Brazil."8
[11] Following the acquisition of IPCSP, AAIPharma transferred several of
AAIPharma Brazil’s contracts to itself, which resulted in revenue streams under those
contracts being paid directly to AAIPharma.9
[12] AAIPharma failed properly to fund AAIPharma Brazil’s operations and, as
a result, AAIPharma Brazil began incurring debt.10
[13] In 2008, Plaintiff notified Cavagnaro that AAIPharma Brazil was required
by Brazilian Civil Code to have at least one citizen of Brazil as a quota holder.11 To
5
Id. ¶ 11.
6
Id. ¶ 14.
7
Id. ¶ 15.
8
Id. The court notes that the Complaint does not specify which of Defendants' business and financial
decisions were kept from Plaintiff and the extent to which Plaintiff was unaware of the financial condition
of AAIPharma and AAIPharma Brazil.
9
Id. ¶ 16.
10
Id. ¶ 20.
11
Quota holder is, apparently, the Brazilian equivalent of a shareholder.
comply with this law, Cavagnaro asked Plaintiff if she would become a quota holder for
a short period of time.12
[14] At the suggestion of Cavagnaro, Plaintiff agreed to take a 0.004% interest
in AAIPharma Brazil for three months until a new Brazilian quota holder could be
found.13
[15] No new quota holder was found and, on May 18, 2009, Plaintiff
relinquished her quota interest in AAIPharma Brazil.14
[16] In late 2008, AAIPharma Brazil lacked the funds necessary to renew an
existing lease on its office property. At the request of Reynders, Plaintiff provided a
personal guaranty of the lease. Plaintiff agreed to provide the guaranty upon the urging
of Reynders.15 Plaintiff alleges that her agreement with Reynders was to provide the
guaranty for a limited ninety-day period while Defendants raised the capital necessary
to guarantee the lease and relieve Plaintiff of any personal obligation.16
[17] Defendants failed to raise the funds required to release Plaintiff from the
guaranty and, as a result, Plaintiff has incurred in excess of $352,000 in personal
liability on the lease.17
[18] In or about July 2009, Brazilian tax authorities notified Plaintiff that
AAIPharma Brazil owed more than $400,000 in back taxes and that if AAIPharma Brazil
failed to pay the amount owed, Martinez would be held personally liable for the tax debt.
12
Id. ¶¶ 31-32.
13
Id. ¶ 33.
14
Id. ¶ 35.
15
Id. ¶¶ 37-40.
16
Id.
17
Id. ¶¶ 41-42.
After informing Defendants of the tax debt, Defendants refused to pay and Brazilian tax
authorities notified Martinez that she would be held personally liable.18
[19] As a result of the undercapitalization of AAIPharma Brazil, that entity
incurred overdraft fees on certain business accounts at two Brazilian banks. After
Defendants failed to pay the overdraft fees, Martinez paid in excess of $38,000 to both
banks and has committed to paying an additional $90,752.94.19
[20] In December 2009, Defendants announced the closing of AAIPharma
Brazil and the subsequent termination of all its employees in Brazil.20
[21] The circumstances under which some employees of AAIPharma Brazil
were terminated constituted a violation of Brazilian law. As a result, AAIPharma Brazil
was held liable for wrongful termination in lawsuits filed by former employees. With
regard to this liability, the Brazilian courts pierced the corporate veil of AAIPharma Brazil
and found Plaintiff personally liable. To date, Plaintiff’s liability from these lawsuits
exceeds $353,110.92.21
III.
DISCUSSION
[22] When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the court
must determine "whether, as a matter of law, the allegations of the complaint . . . are
sufficient to state a claim upon which relief may be granted . . ." Harris v. NCNB Nat'l
Bank, 85 N.C. App. 669, 670 (1987). To make this determination, courts are to take the
well-pleaded allegations of the complaint as true and admitted, but conclusions of law or
18
Id. ¶ 21.
19
Id. ¶¶ 29-30.
20
Id. ¶ 44.
21
Id. ¶¶ 46-48.
unwarranted deductions are not admitted. Sutton v. Duke,
277 N.C. 94, 98 (1970).
Consistent with the system of notice pleading, a court, when considering a motion to
dismiss pursuant to Rule 12(b)(6), should afford the complaint a liberal construction.
Zenobile v. McKecuen,
144 N.C. App. 104, 110 (2001).
[23] Following the standard set by Rule 12(b)(6), a complaint may be properly
dismissed if (a) the complaint on its face reveals that no law supports plaintiff’s claim,
(b) the complaint on its face reveals the absence of facts sufficient to make a good
claim or (c) any fact disclosed in the complaint necessarily defeats plaintiff’s claim.
Jackson v. Bumgardner, 318 N.C. 172, 175 (1986).
A.
Claim One: Fraud/Fraud in the Inducement
[24] To state a claim for fraud, a plaintiff must plead that (a) the defendant
made a false representation or concealment of a material fact, (b) that was reasonably
calculated to deceive, (c) that was made with the intent to deceive, (d) which did in fact
deceive the plaintiff, (e) resulting in damage to the plaintiff. Myers & Chapman, Inc. v.
Thomas G. Evans, Inc., 323 N.C. 559, 568-69 (1988) (internal citations omitted).
Plaintiff’s reliance on any fraudulent statement or concealment must be reasonable.
MacFadden v. Louf,
182 N.C. App. 745, 747 (2007). A representation must be of past
or existing fact, not merely a statement of opinion. Warfield v. Hicks,
91 N.C. App. 1, 8
(1988).
[25] Plaintiff alleges that Defendants fraudulently induced her into becoming a
quota holder of AAIPharma Brazil and into personally guaranteeing the AAIPharma
Brazil lease for office space. Plaintiff alleges that Defendants made false
representations when they told Plaintiff they would replace her as quota holder and
would release her from her personal guaranty of AAIPharma’s lease for office space.
i.
Quota Interest
[26] It is unclear from the Complaint in what manner the circumstances
surrounding Plaintiff becoming a quota holder of AAIPharma Brazil rise to the level of
fraud. The Complaint discloses that it was actually Plaintiff who informed Defendants
that AAIPharma Brazil needed a citizen of Brazil to serve as a quota holder in order to
comply with Brazilian law.22 In response to this information, Cavagnaro asked Plaintiff
to take a fractional interest in AAIPharma Brazil on a temporary basis.23 In addition, the
interest taken by Plaintiff in AAIPharma Brazil apparently could be relinquished at
Plaintiff's discretion, as it eventually was on May 18, 2009.24
[27] It appears from the Complaint that Plaintiff's theory is that Defendants
induced her to become a quota holder knowing that (a) AAIPharma Brazil was in
serious financial trouble and (b) Plaintiff, as the domestic quota holder, would ultimately
become personally liable for the debts and obligations of AAIPharma Brazil described in
the Complaint.
[28] As mentioned above, the Complaint discloses that the idea of AAIPharma
Brazil having a Brazilian quota holder originated with Plaintiff. While this fact, standing
alone, does not preclude Plaintiff's Fraud Claim, it strongly suggests the lack of any
fraudulent intent or scheme on the part of Defendants as to making Plaintiff a quota
holder. The inference that Defendants somehow knew, at the time Plaintiff proposed
22
Id. ¶ 31.
23
Id. ¶¶ 32-33.
24
Id. ¶ 35.
the inclusion of a Brazilian quota holder, that Plaintiff would ultimately become
personally liable for the debts and obligations of AAIPharma Brazil were she to serve as
the Brazilian quota holder is too attenuated to adequately allege fraudulent intent on the
part of Defendants.
[29] Further, the allegation that Cavagnaro asked Plaintiff to become a quota
holder for three months, until a new quota holder was found, on its face is not a
misrepresentation of a past or existing fact. Defendants' assurance that it would replace
Plaintiff as a quota holder within three months is, at most, a statement of future intent or
promissory representation which cannot typically serve as the basis of a fraud claim.
Leftwich v. Gaines, 134 N.C. App. 502, 508 (1999). A promissory representation may
only serve as the basis of a fraud claim where the promissory representation is made
with a present intent not to carry it out and may therefore be said to be a statement of
existing fact.
Id. In order for a promissory representation to be the basis of an action
for fraud, facts must be alleged from which it may reasonably be inferred that the
defendant did not intend to carry out such representation when it was made. Whitley v.
O'Neal,
5 N.C. App. 136, 139 (1969). The court finds no facts alleged in the Complaint
from which it might reasonably be inferred that Defendants did not intend to remove
Plaintiff as a quota holder at the time they represented they intended to do so.
[30] Further, it is unclear how the representation that Defendants would
replace Plaintiff as quota holder may be considered "reasonably calculated to deceive"
or in what manner Plaintiff was actually deceived by it. The Complaint suggests that
Plaintiff's quota interest in AAIPharma Brazil could be freely relinquished by her at her
discretion.25 To the extent Defendants failed to replace Plaintiff as quota holder within
three months, it appears Plaintiff had the ability to simply relinquish her quota interest in
AAIPharma Brazil. In light of this fact, the court concludes that Defendants
representations to Plaintiff were not "reasonably calculated to deceive" so as to give rise
to a claim for fraud.
[31] Lastly, the Complaint contains insufficient allegations as to what damage
Plaintiff suffered as a result of being made a quota holder in AAIPharma Brazil. Plaintiff
paid nothing for her quota interest in AAIPharma Brazil.26 There is no allegation in the
Complaint that Plaintiff's personal liability for certain tax debts of AAIPharma Brazil,
overdraft fees incurred by AAIPharma Brazil and AAIPharma Brazil's lease obligations
accrued to her by virtue of her status as a quota holder. Indeed, the Complaint provides
no indication of how and in what manner Plaintiff incurred these personal liabilities.27
The Complaint does allege that Plaintiff was held personally liable as a quota holder by
the Brazilian courts for AAIPharma Brazil's violations of Brazilian law in terminating
certain of its employees. As to that specific liability, the Complaint states that "Martinez'
liability was based upon her status as a former quota holder and manager of
AAIPharma Brazil."28 The Complaint therefore discloses that Plaintiff's liability in this
regard would have accrued to her personally regardless of whether she had ever
become a quota holder or whether Defendants had replaced her as a quota holder
within three months.
25
Id. ¶ 35.
26
Id. ¶ 33.
27
At a hearing on the Motion, Plaintiff's counsel was unable to represent whether these liabilities accrued
to Plaintiff by virtue of her status as a quota holder, her status as a manager or both.
28
Compl. ¶ 47.
ii.
Lease Guaranty
[32] Plaintiff alleges that she agreed to provide a personal guaranty for
AAIPharma Brazil's real estate lease for a limited ninety-day period while Defendants
raised the funds necessary to guarantee the lease from the sale of AAIPharma's
German unit or from its United States investors.29 Plaintiff alleges that Defendants
specifically represented to her that she would be released from the personal guaranty
within ninety days.30 Plaintiff alleges that Defendants hid the troubled financial
condition of AAIPharma Brazil from her when making this representation and knew they
would be unable to raise the funds necessary to relieve Plaintiff from her personal
guaranty.
[33] Plaintiff does not allege with any particularity which facts concerning the
financial condition of AAIPharma and AAIPharma Brazil were concealed. 31 Plaintiff
alleges only that the financial condition of both entities in general was not disclosed to
her. Thus, the allegation that Defendants concealed the financial condition of
AAIPharma Brazil from Plaintiff is likely in violation of Rule 9(b).
[34] An actionable fraud claim requires not only reliance, but reasonable or
justified reliance. MacFadden, 182 N.C. App. at 749-50. Plaintiff alleges, despite her
role in AAIPharma Brazil as its "sole manager,"32 that Defendants hid from her entirely
the state of AAIPharma Brazil’s financial condition. However, Plaintiff’s own complaint
acknowledges that Plaintiff was aware that "in 2008, AAIPharma and AAIPharma
29
Id. ¶ 37.
30
Id.
31
See N.C. R. Civ. P. 9(b) (requiring claims of fraud to be "stated with particularity").
32
Compl. ¶ 14.
Brazil's business began to decline as a result of certain poor management decisions
and the world-wide recession."33 It appears that Plaintiff was aware that once
AAIPharma acquired AAIPharma Brazil, all contracts were made payable to
AAIPharma, leaving AAIPharma Brazil with no independent source of income.34
[35] Despite her awareness of these clear warning signs as to the financial
condition of AAIPharma and AAIPharma Brazil, Plaintiff alleges that she relied on the
"concealment" of the financial condition by Defendants. Further, Plaintiff does not
allege that the financial state of AAIPharma and AAIPharma Brazil could not have been
discovered through the performance of due diligence or that Defendants denied her the
opportunity to discover the true state of AAIPharma Brazil's financial affairs. Given the
facts as alleged in the Complaint, Plaintiff's alleged reliance was unreasonable.
[36] It appears from the Complaint that at the time Defendants asked Plaintiff
to provide a personal guaranty of AAIPharma Brazil's real estate lease, Plaintiff
understood that AAIPharma Brazil lacked the necessary funds to provide the guaranty
itself. The Complaint further discloses that Plaintiff was aware that Defendants' ability to
raise the funds necessary to provide the guaranty was contingent upon their ability to
either sell AAIPharma's German unit or raise funds from investors.
[37] As with the representations related to Plaintiff becoming a quota holder,
these representations are, at most, statements of future intent or promissory
representations. Similar to the representations discussed above, there are no facts
alleged from which it may reasonably be inferred that Defendants did not intend to
relieve Plaintiff of her personal guaranty at the time they represented they would do so.
33
Id. ¶ 17.
34
Id. ¶ 21.
All that is alleged is that Defendants ultimately failed to raise the funds necessary to
release Plaintiff from the personal guaranty.
[38] Based on the foregoing, Plaintiff has failed to state a claim upon which
relief can be granted with regard to Plaintiff's Claim for Fraud/Fraudulent Inducement,
and as to said Claim, the Motion should be GRANTED.
B.
Claim Two: Negligent Misrepresentation
[39] Negligent misrepresentation occurs when a party justifiably relies to his
detriment on information provided without reasonable care by another who owes the
relying party a duty of care. Jordan v. Earthgrains Baking Cos., 155 N.C. App. 762, 766
(2003). A plaintiff must show that the defendant owed a duty to provide "complete and
accurate information" and that such duty was breached before a negligent
misrepresentation claim will lie. Simms v. Prudential Life Ins. Co. of Am.,
140 N.C. App.
529, 533 (2000).
[40] In the context of an action for negligent misrepresentation, North Carolina
courts have described a breach of the duty of care owed as, ". . . one who, in the course
of his business, profession or employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the guidance of others in their business
transactions, [and thus] is subject to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information." Simms, 140 N.C. App. at
534, citing Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP,
350 N.C. 214, 218,
513 S.E.2d 320, 323-24 (1999). In Simms, the court affirmed dismissal of the plaintiff's
claim for negligent misrepresentation because nothing in the complaint suggested the
defendant was engaged in the business of giving the type of advice or information which
was the basis for plaintiff's negligent misrepresentation claim. The court in Simms
further found to be dispositive of plaintiff's claim the lack of any allegation that
defendants had a pecuniary interest in, or obtained any pecuniary gain from, the
provision of the allegedly negligent advice or information.
[41] In the present action, Plaintiff alleges that Defendants negligently
misrepresented that they were seeking a quota holder to replace her and that
Defendants would release Plaintiff from her personal guaranty of AAIPharma Brazil’s
lease.35 Plaintiff further alleges that the statements as to these representations were
false, intended to deceive and were reasonably relied upon by her.36
[42] As in Simms, there is nothing in the present Complaint suggesting that
Defendants were engaged in the business of providing the type of information which is
the basis of Plaintiff's Negligent Misrepresentation Claim. Further, there is no allegation
that either of the Defendants received any pecuniary gain from representing to Plaintiff
that they would seek another quota holder and that they would relieve her of the
personal guaranty within ninety days. Whatever indirect pecuniary benefit arose from
both of those representations flowed to AAIPharma, not to Defendants individually.
[43] Additionally, Plaintiff has failed to allege that Defendants owed Plaintiff a
duty of care. Corporate directors owe a duty of care to the corporation itself, not to
individual employees. Jordan, 155 N.C. App. at 767. At the time the alleged
misrepresentations were made, Plaintiff was an employee of AAIPharma Brazil, a
35
Id. ¶¶ 65-66
36
Id. ¶¶ 67-71.
position she took as part of an arms-length business transaction. As a result,
Defendants did not owe Plaintiff fiduciary duties in the course of their employee-
employer relationship. Further, the court finds no allegations in the Complaint
concerning any free-standing duty of care owed to Plaintiff by Defendants.
[44] Based on the foregoing, Defendants' Motion as to Plaintiff's Negligent
Misrepresentation Claim should be GRANTED.
C.
Claim Three: Conspiracy to Defraud
[45] Because Plaintiff has failed to state a claim for either fraud or fraudulent
inducement, Plaintiff has also failed to state a claim for her derivative Conspiracy to
Defraud Claim. Therefore, Defendants Motion as to Plaintiff's Conspiracy to Defraud
Claim should be GRANTED.
D.
Claim Four: Violations of N.C. Gen. Stat. § 75-1.1 ("UDTPA")
[46] A party violates North Carolina’s UDTPA when it engages in "unfair or
deceptive acts or practices in or affecting commerce." N.C. Gen. Stat. § 75-1.1. To
prevail on a UDTPA claim, a plaintiff must show that there was an unfair or deceptive
practice, that was in or affecting commerce and that the practice proximately caused
injury to the plaintiff. Walker v. Fleetwood Homes of N.C., Inc.,
362 N.C. 63, 71-72
(2007). Commerce is statutorily defined as including "all business activities, however
denominated, with the only exclusion being professional services."
N.C. Gen. Stat. §
75-1.1(b). The North Carolina Supreme Court has defined business activities with a
focus on the "activities the business regularly engages in and for which it is organized,"
or its "regular, day-to-day activities." HAJMM, Inc. v. House of Raeford Farms, Inc.,
328
N.C. 578, 594 (1991). Following HAJMM, courts have held that activities outside the
scope of a firm’s regular business activity are in not "in or affecting commerce" for
UDTPA purposes. See, e.g., Malone v. Topsail Area Jaycees,
113 N.C. App. 498
(1994) (holding a charitable golf tournament was not a "business activity"). Additionally,
matters of internal corporate management are not "in or affecting commerce" for
UDTPA purposes. Wilson v. Blue Ridge Elec. Mbrshp. Corp.,
157 N.C. App. 355, 358
(2003).
[47] Plaintiff has alleged that while she was an employee of AAIPharma Brazil,
Defendants engaged in certain activities and made representations that were unfair and
deceptive as to her. However, the activities and representations upon which Plaintiff
bases the Complaint are matters of internal corporate management, including the
internal financial operations of AAIPharma and AAIPharma Brazil. Plaintiff has not
alleged any activity that is unfair or deceptive that occurred in AAIPharma or
AAIPharma Brazil’s regular, day-to-day activities for which those firms were organized.
The issues of internal corporate management upon which Plaintiff bases her Complaint
are not "in or affecting commerce" and, therefore, Plaintiff has failed to state a claim for
violations of the UDTPA.
[48] Based on the foregoing, Defendants Motion as to Plaintiff's Claim for
Unfair and Deceptive Trade Practices should be GRANTED.
E.
Claim Five: Punitive Damages
[49] Because Plaintiff has failed to state any substantive Claim upon which
relief may be granted, Plaintiff’s claim for punitive damages should be DISMISSED.
NOW THEREFORE, it is hereby ORDERED that:
[50] Defendants’ Motion to Dismiss is GRANTED as to all Claims.
Accordingly, this civil action is DISMISSED.
[51] Taxable costs are charged to Plaintiff.
This the 10th of July, 2013.
