United States District Court, E.D. North Carolina, Western Division
PAUL DILLON on behalf of himself and all similarly situated persons and entities, Plaintiff,
v.
THE LEAZER GROUP, INC. a North Carolina corporation; and BENNY ART LEAZER an individual and citizen of the State of North Carolina, Defendants.
ORDER
LOUISE
W. FLANAGAN, UNITED STATES DISTRICT JUDGE
This
matter is before the court on defendants' motion to
dismiss for failure to state a claim (DE 11). Plaintiff
responded and defendants replied. In this posture, the issues
raised are ripe for ruling. For the following reasons,
defendants' motion is granted.
STATEMENT
OF THE CASE
Plaintiff
commenced this action on February 20, 2018, in Wake County
Superior Court arising out of his work as an insurance agent
for defendant The Leazer Group, Inc. (“TLG”), a
North Carolina corporation allegedly controlled by defendant
Benny Art Leazer (“Leazer”). Plaintiff asserts
claims under North Carolina law on behalf of himself and a
proposed class of all similarly situated persons and entites
who were also TLG agents, based upon breach of contract,
fraud, negligent misrepresentation, negligence, unjust
enrichment, unfair and deceptive trade practices and civil
conspiracy. Plaintiff seeks compensatory damages, trebled
damages, punitive damages, declaratory judgment, class
certification, jury trial, attorney's fees, costs,
expenses, and interest. Plaintiff attaches to his complaint
as Exhibit A an “Agent Agreement” that plaintiff
allegedly executed with defendant TLG (hereinafter the
“Agent Agreement” or the
“agreement”).
Defendants
filed the instant motion to dismiss on June 29, 2018,
asserting that all claims fail as a matter of law and should
be dismissed pursuant to Federal Rules of Civil Procedure
9(b) and 12(b)(6). The court stayed scheduling activities
pending decision on the motion. Plaintiff responded in
opposition on August 10, 2018, and defendants replied on
August 24, 2018.
STATEMENT
OF FACTS
The
facts alleged in the complaint may be summarized as follows.
Plaintiff is a Tennessee resident. Defendant TLG “is an
insurance marketing organization founded and controlled by
[defendant Leazer] and specializing in mortgage protection
insurance, burial insurance (also known as “final
expense insurance”), annuities, and index universal
life insurance.” (Compl. ¶ 9).
According
to plaintiff, “TLG is structured as a
‘multi-level marketing' or ‘pyramid
selling' scheme, a . . . marketing strategy whereby
TLG's revenue is obtained by hawking various products and
services to a sales team comprised of independent insurance
contractors, ” referenced in the complaint as
“TLG Agents, ” “who are themselves
contractually obligated to both purchase these products and
services from TLG and to exclusively market and sell
TLG's insurance products to retail customers.”
(Id. ¶¶ 11-12).
“TLG
sells so-called ‘leads' to TLG Agents, ”
where the “leads contain the contact information for
potential retail purchasers of the insurance products offered
by TLG through TLG Agents.” (Id. ¶ 15).
“The insurance products themselves are sourced from
third party insurance companies who have agreed to provide
TLG and Leazer with the rights to market certain
policies.” (Id.). According to plaintiff,
“TLG erects a pyramid-type commission scheme for
commission distribution, ” which is “created when
one TLG Agent recruits a second TLG Agent, ” and the
“second TLG Agent is then deemed ‘down-line'
from the first TLG Agent, and the first TLG Agent receives a
portion of the commissions generated from the second TLG
Agent's retail sales, as does TLG.” (Id.
¶ 13). The process continues “so on down the
line” as new agents are recruited. (Id.).
Plaintiff
entered into an “Agent Agreement” with TLG, on or
about March 23, 2016, in the position of “Independent
Contractor” referenced in the agreement. (Id.
¶ 44; pp. 33-48)).[1] The Agent Agreement provides that
“in consideration of (i) this contract to sell the
products of the Contracted Insurance Companies through
TLG's relationship with such companies . . . [ii]
marketing incentives from time to time made available by the
Contracted Insurance Companies through TLJ; (iii) access for
a limited time to marketing tools and services and (iv) other
good and valuable consideration, including but not limited to
a one-time $100.00 credit toward each existing Independent
Contractor's purchase of leads, ” the parties agree
to certain terms and conditions set forth in the Agent
Agreement. (Id. at 34).
Among
those terms and conditions, “TLG has developed a lead
program (the “Lead Program”) to allow its
associated insurance agents to buy leads from TLG in
connection with the sale of insurance and recruiting
insurance agents for TLJ Contracted Insurance
Companies.” (Id. at 34-35). Pertinent terms of
the Lead Program in the agreement are as follows:
a, Request for Leads. The Independent Contractor's
acceptance of the terms of this Agreement constitutes his/her
request for TLG to supply Independent Contractor with leads
at the rate assigned to the applicable commission level at
the time of purchase of such leads.
b. Diligent Use of Leads. Independent Contractor agrees to
use best efforts to work and solicit the number of leads
requested on a weekly basis and to ensure that any leads
provided to the Independent Contractor or independent
Contractor's down-line agents are diligently and legally
solicited.
(Id. at 35). As part of his obligations as an
Independent Contractor under the agreement, plaintiff agreed
“that all leads provided to [him] or to [his] down-line
agents must only be used (i) to sell insurance or products
authorized by TLG through TLG or TLG Contracted Insurance
Companies or (ii) to recruit insurance agents to sell
insurance or products through TLG Contracted Insurance
Companies.” (Id.). Provision of and payment
for leads is further governed by the following:
d. TLG to Supply Leads. TLG, by itself or through its agents,
contractors or assigns, agrees to use commercially reasonable
efforts to make available to Independent Contractor leads on
a weekly basis so long as such leads are available and
Independent Contractor is in compliance with the terms of
this Agreement.
e. Payment for Leads; Default, independent Contractor agrees
to pay for each lead received by It (exclusive of any free
(each that may be provided by TLG from time to time),
including any associated charges assessed by TLG from time to
time relating to the Lead Program, as detailed In Invokes
submitted by TLG. In the event of default on any obligation
to pay TLG, Independent Contractor shall be responsible for
and promptly pay (i) interest on the amount owed at
the rate of one and one half percent (1.5%) per month or the
highest legally permitted rate, whichever Is lower; and (ii)
TLG's costs of collecting such debt, including without
limitation, reasonable attorneys' fees,
(Id.). In addition, plaintiff agreed “to pay
all charges or costs for leads received by [his] down-line
agents, should such agents fail to pay for such lead
costs.” (Id.) He agreed “to guarantee
payment and performance of [his] down-line down-line agents .
. . even if the down-line agent's obligations are
discharged in bankruptcy.” (Id. at 35-36). The
agreement allowed plaintiff to “withdraw from the Lead
Program with thirty (30) days prior written notice to
TLG.” (Id. at 36). It also allowed TLG to
“terminate or suspend [plaintiff's] participation
in the Lead Program upon written notice by TLG.”
(Id.).
As part
of the agreement TLG agreed to provide plaintiff temporary
access to TLG products, described as “tools, websites,
products, services and incentives of TLG as are generally
offered to all insurance agents associated with TLG.”
(Id. at 44). The agreement provided that
plaintiff's access to TLG's products may cease when
TLG notifies plaintiff in writing, and that plaintiff
“may renew [his] access to the TLG products only”
under conditions set forth in the agreement. (Id.).
As part of the agreement, plaintiff also acknowledged he
“is or will be one of many Independent Contractors
associated with TLG.” (Id. at 38). Plaintiff
also acknowledged that the Agent Agreement “contains
the entire Agreement of the parties with respect to the
subject matter hereof.” (Id. at 46).
Plaintiff
alleges in the complaint that “in its marketing
materials directed to Plaintiff and other prospective TLG
Agents, TLG and Leazer promised ‘fresh, high quality
direct mail leads! [O]ur exclusive Mortgage Protection
Platinum Direct Mail Lead program is unique and enables our
agents to yield a much higher ROI (rate of return) on their
marketing investments than other lead sources.'”
(Id. ¶ 19). According to plaintiff,
“TLG's leads are neither generated in-house nor
proprietary.” (Id.). “Rather, as is
common in the industry, TLG and Leazer purchase leads from
certain third-party vendors who specialize in selling leads
to insurance agents.” (Id. ¶ 20).
“TLG and Leazer then re-sell these third-party leads to
TLG Agents at an inflated price without informing the TLG
Agents that the leads they are purchasing were generated by a
third party.” (Id.). “TLG would
typically purchase the leads from a third-party vendor with a
90-day term of exclusive use.” (Id ¶ 23).
“TLG and Leazer do not disclose any of this information
to the TLG Agents.” (Id.).
In
addition, “TLG and Leazer do not provide the TLG Agents
with the dates that TLG purchased its leads from third-party
vendors. Accordingly, TLG Agents have no way to know or
assess how long they have exclusive use of any particular
lead.” (Id ¶ 25). According to plaintiff,
defendants knew “that if TLG Agents learned that the
leads were sourced from third parties, they would purchase
the leads from the third parties at a lower price rather than
through TLG and Leazer at the inflated price.”
(Id.).
According
to plaintiff, “TLG's leads are offered through a
tiered purchasing system and pricing structure wherein leads
are offered and priced based upon the age of leads, ”
described as follows:
According
to its published materials, TLG offers five levels o Heads as
follows:
• "PLATINUM LEADS - Our direct mail Platinum are
our most elusive leads and are highly sought after by all of
our agents - A Platinum lead is a fresh direct mail lead that
is uploaded into our lead management system within 24 hours
of receipt. Agents have access to purchasing these leads 24/7
utilizing our state of the art lead management system, OPT.
• TLG GOLD LEADS - A Gold lead is simply a Platinum lead
that has not been sold to an agent but is now reached an age
of 90 days. The lead is then changed to a Gold lead with a
discounted price to the agent.
• TLG B-1 LEADS - These are leads that were distributed
1 x to another TLG agent but did not sell a policy within a 5
week exclusive period.
• TLG B-2 LEADS These are leads that were distributed 1
x to another TLG agent as a B1 lead and they did not sell a
policy within a 5 week exclusive period or the leads were
sold as a Platinum lead but never resold as a Bl lead, then
the lead will automatically become a B2 lead after 12 weeks
from the date it was originally sold as a Platinum lead in
OPT.
• TLG RW (Re-work) LEADS - Leads that were never sold a
policy and were distributed to another agent (non-TLG) and
were generated 10-18 months prior to becoming an RW lead.
These can be a great source of income for many agents who are
working with limited budget as well who need to improve their
phone and closing skills."
(Id. ¶ 28).
“In
his role as a TLG Agent, [plaintiff] began purchasing leads
from TLG in April 2016, as is required by the Agent
Agreement.” (Id. ¶ 57). Plaintiff
“purchased Platinum leads from TLG and Leazer,
typically at a price in excess of $40.00 per lead.”
(Id. ¶ 58). “Had [plaintiff] been
informed by TLG and Leazer that the leads were purchased from
third party vendors, that the leads were not proprietary, and
that he did not have 90-days exclusive use, [plaintiff] would
never have purchased leads from TLG and Leazer.”
(Id.). “Indeed, the market price for may such
leads is as low as $3.00-$4.00” (Id. ΒΆ
58). ...