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Barrett v. USA Service Finance, LLC

United States District Court, E.D. North Carolina, Eastern Division

March 5, 2019

CATHRINE BARRETT; FREDDY JREISAT; and VALOR CAPITOL HOLDINGS, LLC d/b/a United Military Travel, Plaintiffs,
v.
USA SERVICE FINANCE, LLC; HEARTLAND CAPITAL INVESTMENTS, LLC; CHRISTOPHER E. BURNETT; DANIEL T. BURNETT; CEB INVESTMENTS, LLC; and GRACELAND PROPERTIES, LLC, Defendants.

          ORDER

          Louise W. Flanagan United States District Judge

         This matter is before the court on defendants' motions denominated as follows:

1) Motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) by defendant Graceland Properties, LLC (“Graceland”) (DE 15);
2) Motion to dismiss in part for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) by defendants USA Service Finance, LLC, (“USASF”); Heartland Capital Investments, LLC, (“Heartland”); Christopher E. Burnett (“Christopher Burnett”); Daniel T. Burnett (“Daniel Burnett”); and CEB Investments, LLC (“CEB”) (DE 24);
3) Motion to dismiss for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB (DE 24);
4) Motion to dismiss or, in the alternative, motion to transfer venue to the Western District of Kentucky by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB (DE 26);
5) Motions to quash filed by defendant Graceland (DE 51, 54).

         These motions have been briefed fully, and in this posture, the issues raised are ripe for ruling. For the following reasons, the court grants the alternative motion to transfer venue to the Western District of Kentucky and denies the remaining motions.

         STATEMENT OF THE CASE

         This action arises out of a failed business relationship between plaintiffs and defendants, who are allegedly closely affiliated entities and individuals. Plaintiffs commenced this action against defendants in Craven County Superior Court on August 7, 2018, asserting the following claims:

1) Seven breach of contract claims arising out of alleged breaches of agreements governing the parties' business relationships (counts 1-5, 9-10);
2) Fraud in the inducement against defendant Christopher Burnett and Daniel Burnett (count 4);
3) Unfair and deceptive trade practices against defendant Christopher Burnett and Daniel Burnett (count 5);
4) Conversion (in the alternative to fraud in the inducement) against defendant USASF (count 8);
5) Promissory estoppel/quantum meruit/unjust enrichment (in the alternative to breach of contract) (count 11);
6) Piercing the corporate veil and alter ego liability, against defendants USASF, Heartland, Christopher Burnett, Daniel Burnett, CEB, and Graceland (count 12). Plaintiffs seek compensatory damages, treble damages, punitive damages, attorneys' fees, costs, interest, and jury trial.

         Defendants removed to this court on September 7, 2018, on the basis of diversity jurisdiction.[1] On September 11, 2018, defendant Graceland filed the instant motion to dismiss for failure to state a claim, arguing that plaintiffs have not pleaded facts sufficient to support a claim for “reverse piercing” of the corporate veil (count 12) to hold defendant Graceland liable for the conduct of defendant Daniel Burnett. (Mem. (DE 16) at 10).

         On October 5, 2018, all defendants except Graceland filed the instant motion to dismiss in part for failure to state a claim, which motion seeks dismissal of plaintiffs' claim piercing the corporate veil (count 12). Defendants Christopher Burnett and Daniel Burnett also seek dismissal of plaintiffs' claim against them for fraud in the inducement (count 7). At the same time, all defendants except Graceland and Heartland filed the instant motion to dismiss for lack of personal jurisdiction. In support thereof, these defendants rely upon declarations of Christopher Burnett and Daniel Burnett. Heartland also filed an answer to the complaint.

         On the same date, all defendants except Graceland and Heartland filed the instant motion to dismiss or, in the alternative, to transfer the case to the United States District Court for the Western District of Kentucky, arguing that dismissal or transfer is warranted due to the “First-Filed Rule” and 28 U.S.C. §§ 1404, 1406, and 1631. In support thereof, they rely upon a complaint filed in the Western District of Kentucky, in Paducah, Kentucky, on July 19, 2018, in the case captioned USA Service Finance, LLC v. Barrett, et al., No. 5:18-CV-110-TBR (W.D. Ky.) (hereinafter the “Kentucky case”).

         On October 19, 2018, plaintiffs filed a response in opposition to defendant Graceland's motion to dismiss. On October 26, 2018, plaintiffs filed a response in opposition to the remaining motions to dismiss and the alternative motion to transfer. In opposition to the motion to dismiss for lack of personal jurisdiction, plaintiffs rely upon a declaration by plaintiff Cathrine Barrett (“Barrett”). In opposition to the motion to dismiss or transfer, plaintiffs rely upon the same as well as documents filed in the Kentucky case.

         Defendant Graceland replied in support of its motion on November 2, 2018. The remaining defendants replied in support of their motion to dismiss for lack of personal jurisdiction and in part for failure to state a claim on November 16, 2018, relying upon a second declaration of defendants Christopher Burnett and Daniel Burnett. These defendants, except for Graceland and Heartland, filed a reply in support of the venue motion, relying upon the same second set of declarations.

         Upon leave of court, plaintiffs filed a sur-reply in opposition to the venue motion, relying upon emails between plaintiff Barrett and defendants Christopher Burnett and Daniel Burnett.

         On February 13, 2019, defendant Graceland filed a motion to quash subpoenas served upon John H. Stevens, IberiaBank, Wesbanco Bank, Inc., and Robert S. Wainwright, on the basis that they seek information irrelevant to the claims against Graceland, and on the basis that an additional protective order is required. On February 26, 2019, defendant Graceland filed a motion to quash subpoenas served on John Carr; Jonathan Kennemore; Clayton, Byrd, & Meeks LLP; and Citizens Deposit Bank of Arlington, Inc., on the same grounds. Plaintiffs have responded in opposition to the motions to quash.

         STATEMENT OF FACTS

         A. Complaint

         Plaintiff Barrett is a citizen of Craven County, North Carolina, and the President and sole owner of plaintiff Valor Capital Holdings, LLC (“Valor”), a Virginia company with principal place of operations in Craven County, which “offers travel planning, booking, and financing for military members and other government personnel.” (Compl. ¶ 22). Plaintiff Valor does business as United Military Travel. Plaintiff Freddy Jreisat is a citizen of Craven county and an employee of Valor.

         Defendant Christopher Burnett is a citizen and resident of Graves County, Kentucky. He holds a 50% ownership stake in defendant USASF, a company with principal place of business in Mayfield, Kentucky, which “purchases loans offered to military, retired military, and government employees to pay for travel and accommodations.” (Id. ¶ 13).

         Defendant Christopher Burnett also owns defendant Heartland, a company with principal place of business in Mayfield, Kentucky, and registered to do business in North Carolina, which “manages lending leases for multiple investors, manages military travel contracts, and also pays payroll for employees of affiliated entities, including USASF.” (Id. ¶ 14). He is the managing member of USASF and Heartland. He also owns defendant CEB Investments, LLC, a company with principal place of business in Mayfield, Kentucky.

         Defendant Daniel Burnett is a citizen and resident of Carlisle County, Kentucky. He holds a 50% ownership stake in USASF, and he owns defendant Graceland, a company with principal place of business in Carlisle County, Kentucky.

         Plaintiffs summarize the core operative facts in the complaint as follows:

2. In 2015, Defendants Christop her and Daniel B urnett turned to Plaintiff Cathrine Barrett for help. Their loan servicing company-USA Service Finance, LLC ("USASF")-was failing. USASF bought loans at a discount and collected the premiums paid over time by borrowers. But Christopher and Darnel Burnett did not know how to manage the enterprise. They did not know how to identify borrowers who would repay or how to avoid borrowers who would default, They did not know how to service and collect payments on the loans to maximize recovery. As a result, USASF was facing delinquencies far in excess of industry norms and the company was in financial turmoil.
3, Aware they needed help, Christopher and Daniel Burnett turned to Cathrine Barrett. They discovered in her someone talented, someone experienced in the industry, and ...

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