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Automotive Dent Technology, Inc. v. Warren

United States District Court, M.D. North Carolina

June 21, 2017

AUTOMOTIVE DENT TECHNOLOGY, INC., doing business as ADT and as ADVANCE DENT TECHNOLOGY, Plaintiff,
v.
JOSEPH WARREN, Defendant.

          MEMORANDUM OPINION AND ORDER

          N. CARLTON TILLEY, JR. SENIOR UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Defendant Joseph Warren's Motion to Dismiss for Failure to State a Claim (“Motion”) [Doc. #8] pursuant to North Carolina General Statutes § 105-230 and § 55-15-02 and Federal Rule of Civil Procedure 12(b)(6). For the reasons explained below, Mr. Warren's Motion will be granted and Plaintiff Automotive Dent Technology, Inc.'s (“ADT”) second, third, fourth, fifth, and sixth claims for relief will be dismissed. However, as Mr. Warren did not move to dismiss ADT's first claim for relief, breach of contract, that claim remains.

         ADT, a Delaware Corporation with its principal office in Forsyth County, North Carolina, filed the present action in response to alleged wrongdoings by Mr. Warren, an ADT officer and shareholder. (Compl. [Doc. #1] ¶¶ 1, 2.) ADT provides repair and restoration services to automobile dealerships and other businesses with inventories of cars when such inventory is damaged by adverse weather conditions (like hail). (Id. ¶¶ 1, 8.) According to the Complaint, in March 2014, ADT contracted with Mr. Warren to secure a national vendor agreement for ADT with Enterprise Holdings (“Enterprise”). (Id. ¶ 9.) In exchange, Mr. Warren would receive one third ownership of ADT, be employed as an officer of the corporation, and receive one third of the net profits. (Id. ¶¶ 10, 11.) In addition to securing the vendor agreement with Enterprise, Mr. Warren's contractual duties included ”developing contacts, servicing contracts, negotiating service agreements with new clients, and generally performing work consistent with that expected of an officer employed by a small corporation.” (Id. ¶ 11.)

         ADT asserts that Mr. Warren breached his employment contract by: (1) forming one or more corporations or limited liability companies which were in direct competition with ADT; (2) diverting and embezzling payments on accounts due to ADT by instructing account debtors to make such payments to one or more corporations or limited liability companies which were in direct competition with ADT; and (3) knowingly and maliciously diverting accounts, customers, and corporate opportunities away from ADT and toward one or more corporations or limited liability companies which were in direct competition with ADT. (Id. ¶ 12.)

         On July 27, 2016, ADT filed the present action alleging (1) breach of contract, (2) interference with contractual relationships, (3) interference with prospective economic advantages, and (4) breach of fiduciary duty, and asking for (5) the imposition of a constructive trust and (6) punitive damages. (Id. ¶¶ 7-32.) In response, Mr. Warren moved to dismiss claims two through six pursuant to North Carolina General Statutes § 105-230 and § 55-15-02 and Federal Rule of Civil Procedure 12(b)(6). [Docs. #8, 9, 11.]

         Mr. Warren's first argument in support of dismissal is that ADT has no North Carolina Certificate of Authority and, thus, pursuant to North Carolina General Statute § 105-230, “all acts on which its claims are based are invalid.” (Def.'s Br. in Supp. of Mot. to Dismiss (“Def.'s Br.”) [Doc. #39] at 3.)

North Carolina General Statute § 105-230 states
(a) If a corporation or a limited liability company fails to file any report or return or to pay any tax or fee required by this Subchapter for 90 days after it is due, the Secretary shall inform the Secretary of State of this failure. The Secretary of State shall suspend the articles of incorporation, articles of organization, or certificate of authority, as appropriate, of the corporation or limited liability company. The Secretary of State shall immediately notify by mail every domestic or foreign corporation or limited liability company so suspended of its suspension. The powers, privileges, and franchises conferred upon the corporation or limited liability company by the articles of incorporation, the articles of organization, or the certificate of authority terminate upon suspension.
(b) Any act performed or attempted to be performed during the period of suspension is invalid and of no effect, unless the Secretary of State reinstates the corporation or limited liability company pursuant to G.S. 105-232.

         In support of his argument, Mr. Warren relies on Ben Johnson Homes, Inc. v. Watkins, 541 S.E.2d 769, 771 ( N.C. Ct. App. 2001). However, the facts in Ben Johnson are distinguishable from the facts here. In that case,

[Ben Johnson Homes, Inc.] entered into the contract with Defendant and performed that contract at a time when its certificate of authority was in a state of suspension. Thus, the contract and any rights, including claims based in equity (i.e., claims based on quantum meruit), arising under that contract are of no force and effect and are not enforceable.

541 S.E.2d at 771 (emphasis added). Presently, unlike in Ben Johnson, there is nothing before the Court showing that ADT had a certificate of authority at the time it entered into the contract with Mr. Warren, much less that any such certificate was suspended at the time of contracting. Therefore, North Carolina General Statute § 105-230 does not apply here. And even if the statute did apply, it is not clear that ADT would be barred from pursuing the present action. See, e.g., Raleigh Swimming Pool Co. v. Wake Forest Country Club, 182 S.E.2d 273, 274 ( N.C. Ct. App. 1971) (holding that even after charter suspension, N.C. Gen. Stat. § 105-230 does not deprive a corporation of “the incidental powers necessary to its survival; the power to protect its property in a court of law, either by assertion or defense of right”).

         Mr. Warren next argues that this action should be dismissed pursuant to North Carolina General Statute § 55-15-02, because ADT is “not registered to do business in North Carolina.” (Def.'s Br. at 9.) North Carolina General Statute § 55-15-02 addresses the consequences of transacting business without authority in North Carolina. Specifically, North Carolina General Statute § 55-15-02 states

(a) No foreign corporation transacting business in this State without permission obtained through a certificate of authority under this Chapter or through domestication under prior acts shall be permitted to maintain any action or proceeding in any court of this State unless the foreign ...

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