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Carpet Super Mart, Inc. v. Benchmark International Company Sales Specialist, LLC

United States District Court, M.D. North Carolina

March 18, 2019




         Presently before this court is Defendants' Motion to Dismiss Complaint or in the Alternative, Motion for Summary Judgment. (Doc. 6.) Defendants have also moved for sanctions. (See Doc. 13.) Defendants ask this court to dismiss Plaintiffs' request for a declaratory judgment and Plaintiffs' claims for fraud and misrepresentation and unfair and deceptive trade practices for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Defendants further ask this court to impose sanctions on Plaintiffs' counsel for allegedly filing a complaint that lacks factual support, has no chance of success under existing precedent, and was brought for an improper purpose. For the reasons that follow, this court finds that Defendants' motion to dismiss should be granted in full and that Defendants' motion for sanctions should be denied.


         Plaintiff Carpet Super Mart, Inc. (“Carpet”) is a North Carolina corporation that “was engaged in the business of commercial and residential sales and installation of carpet and flooring products.” (First Amended Complaint (“First Am. Compl.”) (Doc. 21) ¶ 17.) Plaintiffs Arthur C. Jordan, Jr. (“Jordan”) and Joyce J. Mobley (“Mobley”) were the owners of Carpet. (Id. ¶ 18.) Plaintiffs entered into a listing agreement with Defendant Benchmark International Company Sales Specialist, LLC (“Benchmark”) on May 27, 2014, pursuant to which Benchmark agreed to provide certain services to facilitate the potential sale of Carpet's business. (Id. ¶¶ 19, 25; Doc. 21-1.) Defendants Dara Shareef and Brian Lockley are each employed by Benchmark. (Id. ¶¶ 9-10.)

         The listing agreement (titled “Terms of Engagement”) states that “upon the closing of a Transaction, Client will pay Benchmark a Transaction Fee equal to 5% of the Transaction Value subject to a minimum Transaction Fee of $100, 000.” (Doc. 21-1). The listing agreement does not define any capitalized terms, but states that “[t]his agreement is made subject to Benchmark's Standard Terms and Conditions which are incorporated herein by reference.” (Id. (emphasis added).) The Standard Terms and Conditions contain a lengthy definition of “Transaction Value” that provides, in part, that the “magnitude shall be based on the total benefit received by Client and any related parties pursuant to the Transaction regardless of the form of . . . consideration” and lists several examples of non-cash benefits that may be used for this calculation. (Doc. 21-2.)

         Plaintiffs allege that they did not receive the Standard Terms and Conditions before signing the listing agreement but did receive this document at some later time. (See First Am. Compl. (Doc. 21) ¶¶ 24-25, 39-40.) Prior to and following the signing of the listing agreement, and up until the final agreement to sell Carpet's business, Jordan and Mobley repeatedly sought to clarify how the commission fee would be calculated. (Id. ¶¶ 21, 27, 50.) Each time, Jordan and Mobley were told by Benchmark employees that the fee was five percent of the sale price. (Id.)

         Benchmark obtained a potential buyer for Carpet in the fall of 2017 and the parties entered into a final agreement for the sale of Carpet's business. (Id. ¶¶ 48-54.) After the final sale agreement was signed, Benchmark sought a commission equal to five percent of the total value of the buyer's lease with Carpet's former landlord, which presumably produced an amount greater than five percent of the sale price.[1] (See Id. ¶¶ 58-59.)

         Plaintiffs filed their initial Complaint in Guilford County Superior Court and Defendants subsequently removed the case to this court. (See Doc. 1-2.) Defendants moved to dismiss the Complaint and submitted a memorandum in support of their motion. (See Doc. 8.) Plaintiffs responded, (Pls.' Resp. to Defs.' Mot. to Dismiss (“Pls.' Resp. Br.”) (Doc. 16)), and Defendants replied, (Doc. 17.) Defendants then moved for Rule 11 sanctions and filed a memorandum, (Defs.' Mem. in Supp. of Rule 11(c)(2) Mot. for Sanctions (“Defs.' Sanctions Mem.”) (Doc. 14)), to which Plaintiffs responded, (Doc. 18), and Defendants replied, (Doc. 19.)

         This court previously entered an order, (Doc. 20), granting Plaintiffs' motion to amend their Complaint, (Doc. 15), to withdraw their Civil RICO claim. Therefore, the First Amended Complaint, (Doc. 21), is now the operative pleading and this court will refer to that document as the Complaint. Plaintiffs bring the following claims: (1) a request for declaratory judgment that the contractual commission is five percent of the sale price (or $188, 600.00), (2) fraud and misrepresentation, and (3) unfair and deceptive trade practices. (First Am. Compl. (Doc. 21) ¶¶ 63-68, 69-89, 90-93.)


         A. Standard on Motion to Dismiss

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In other words, the plaintiff must plead facts that “allow[] the court to draw the reasonable inference that the defendant is liable” and must demonstrate “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678.

         When ruling on a motion to dismiss, this court must accept the complaint's factual allegations as true. Iqbal, 556 U.S. at 678. Further, “the complaint, including all reasonable inferences therefrom, [is] liberally construed in the plaintiff's favor.” Estate of Williams-Moore v. All. One Receivables Mgmt., Inc., 335 F.Supp.2d 636, 646 (M.D. N.C. 2004) (citation omitted). Despite this deferential standard, a court will not accept legal conclusions as true, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, [will] not suffice.” Iqbal, 556 U.S. at 678.

         B. Jurisdiction and Applicable Law

         This court has jurisdiction over this case pursuant to 28 U.S.C. § 1332. The parties are diverse. (See Id. ¶¶ 1-4, 11, 13.) In a declaratory judgment action, “the amount in controversy is measured by the value of the object of the litigation.” Hunt v. Wash. State Apple Advert. Comm'n, 432 U.S. 333, 347 (1977). Here, the object of the litigation is the commission fee that Benchmark is owed for procuring a buyer. Plaintiffs concede the value of this fee is at least $188, 600.00, (see First Am. Compl. (Doc. 21) ¶ 68), while Defendants assert they are owed a higher amount. Therefore, the amount in controversy here is at least $188, 600.00 and this court may exercise diversity jurisdiction. See Dixon v. Edwards, 290 F.3d 699, 710-11 (4th Cir. 2002) (finding that the amount in controversy for a declaratory judgment action seeking to invalidate a contract was equal to the value of services rendered under the contract).

         A federal court sitting in diversity jurisdiction applies the relevant substantive law of the state in which the court sits, while applying federal procedural law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 72-73, 79-80 (1938); Hanna v. Plumer, 380 U.S. 460, 465-66 (1965). In contract disputes, courts apply the law of the state where the parties entered into the contract or where delivery was made. Mut. Life Ins. Co. of N.Y. v. Johnson, 293 U.S. 335, 339 (1934); see also Roomy v. Allstate Ins. Co., 256 N.C. 318, 322-23, 123 S.E.2d 817, 820 (1962) (holding that the law of the state where a contract is entered into governs its interpretation). Here, the Complaint alleges that the contract was signed and delivered in North Carolina. (First Am. Compl. (Doc. 21) ¶ 25.)

         This court, sitting in diversity jurisdiction, “appl[ies] the operative state law as would the highest court of the state” whose law governs. Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 957 F.2d 1153, 1156 (4th Cir. 1992). If the state's highest court has not addressed an issue, then a “state's intermediate appellate court decisions constitute the next best indicia of what state law is although such decisions may be disregarded if the federal court is convinced by other persuasive data that the highest court of the state would decide otherwise.” Id. (quoting 19 Charles A. Wright, Arthur R. Miller & Edward H. Cooper Federal Practice and Procedure § 4507, at 94- 95 (1st ed. 1982)) (internal quotation marks omitted).

         III. ...

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