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Definitive Staffing Solutions, Inc. v. Staffing Advantage, L.L.C.

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

August 6, 2019

DEFINITIVE STAFFING SOLUTIONS, INC., a California corporation, Plaintiff,
v.
STAFFING ADVANTAGE, L.L.C., a North Carolina limited liability company, THE COASTAL GROUP, INC., a North Carolina corporation, RANDAL E. GORE, and SANDRA L. GORE, 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 upon which relief may be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6) (DE 18). The issues raised have been fully briefed, and in this posture are ripe for ruling. For the reasons that follow, defendants' motion to dismiss is denied.

         STATEMENT OF THE CASE

         This case concerns the failure of a business relationship between the parties, precipitated by alleged misrepresentations used to create and maintain the business relationship. Plaintiff, a California corporation, commenced this action on October 15, 2018. In its amended complaint, plaintiff alleges fraudulent inducement, negligent misrepresentation, unfair and deceptive trade practices, civil conspiracy, and breach of contract. Plaintiff seeks various remedies, including compensatory and punitive damages, as well as declaratory judgment and rescission of contract. On January 22, 2019, defendants filed the instant motion to dismiss, directed against all claims save plaintiff's breach of contract claim against defendant Staffing Advantage, L.L.C. (“Staffing Advantage”).

         STATEMENT OF FACTS

         Plaintiff is a California based full-service staffing company that provides staffing for companies seeking to fill management, technical, light industrial and administrative positions. (A m . Compl. ¶ 17). Defendants Staffing Advantage, and defendant Coastal Group, Inc. (“Coastal Group”), are North Carolina companies that hold themselves out as providing outsourced services to manage human resources, administrative benefits and services, and payroll administration. (Id. ¶¶ 18-19). Defendants Randal E. Gore (“R. Gore”) and Sandra L. Gore (“S. Gore”) are managers or officers of defendants Staffing Advantage and Coastal Group. (Id. ¶¶ 20-21).

         In or about October 2015, James Pinedo (“Pinedo”), plaintiff's president, initiated discussions with defendant Staffing Advantage's representatives, defendant R. Gore and Pedro Baez (“Baez”). (Id. ¶ 23). Pinedo reached out regarding the possibility of retaining defendant Staffing Advantage as an outsourced service provider for various human resources and employer responsibilities for plaintiff. (Id. ¶¶ 22-23). Pinedo expressed that plaintiff required detailed reports with breakdowns of the withholdings for plaintiff's employees for each payroll and the amounts defendant Staffing Advantage billed to plaintiff. (Id. ¶ 24). Pinedo also relayed it was important that defendant Staffing Advantage was properly licensed in California to provide employee management services. (Id. ¶ 25). Baez represented defendant Staffing Advantage would provide weekly reports to plaintiff breaking down the amounts defendants Staffing Advantage billed to plaintiff, including the withholdings allegedly owed by plaintiff. (Id. ¶ 24). Defendant R. Gore told Pinedo that defendant Staffing Advantage was properly licensed to provide employee management services and was insured in California and other states. (Id. ¶ 25).

         Following the phone call, Baez provided a written proposal for services to Pinedo, titled “Recommendations for Your Worksite” (“Proposal”). (Id. ¶ 26; see Proposal (DE 17-1)). The Proposal gave an overview of potential services defendant Staffing Advantage offered in areas including personnel administration and risk management, as well as proposed rates for services provided. (See Proposal (DE 17-1) at 8-12). Based on the representations made by Baez and defendant R. Gore, as well as the details of the Proposal, plaintiff hired defendant Staffing Advantage to provide payroll management, federal and state employment tax administration, and other administrative services. (Am. Compl. ¶ 28).

         On November 4, 2015, defendant Staffing Advantage and plaintiff entered an affiliation agreement for professional employer services (“Agreement”). (Id. ¶ 29). Defendant Staffing Advantage agreed to “[p]ay wages to [e]mployees, and prepare, administer, compile, and file all payroll information and distribute payroll checks to employees” and “. . . assume responsibility for the withholding and remittance of federal and state employment taxes.” (Id. ¶ 30; Agreement (DE 17-2) at 3). These taxes included federal, state, and local income taxes, as well as federal and state unemployment taxes. (Am. Compl. ¶ 30; Agreement (DE 17-2) at 3). In return, plaintiff agreed to pay service fees set forth in the Agreement to defendant Staffing Advantage, along with “all wages, payroll taxes and benefit costs incurred by or payable to all employees.” (Agreement (DE 17-2) at 4, 13-15).

         In or about December 2015, defendant Staffing Advantage began calculating, withholding, filing and paying to the appropriate government agencies, all federal and state unemployment taxes, worker's compensation, and health insurance obligations on behalf of plaintiff. (Am. Compl. ¶ 33). Federal and state unemployment taxes are paid by employers to fund unemployment programs and compensation benefits. (Id. ¶ 36). In 2016 and 2017, a 2.4% federal unemployment tax was assessed on each employee's first $7, 000.00 of gross pay, while in California a 4.5% state unemployment tax was assessed on each employee's first $7, 000.00 of gross pay. (Id. ¶¶ 37-39).

         Defendant Staffing Advantage started its first week of payroll responsibilities for plaintiff on January 11, 2016. (Id. ¶¶ 40, 42). It issued weekly invoices purporting to show the amounts defendant Staffing Advantage paid on behalf of plaintiff in federal and state unemployment taxes, worker's compensation, and health insurance withholdings. (Id. ¶¶ 45-46). However, defendant Staffing Advantage invoiced plaintiff for federal and state unemployment taxes for hundreds of employees in 2016 who received gross pay in excess of $7, 000.00, where plaintiff was not required to pay unemployment taxes on that excess income. (Id. ¶¶ 43-45). Defendant Staffing Advantage also inflated workers' compensation and health insurance withholdings for plaintiff's employees. (Id. ¶ 45-46). Plaintiff received these invoices from defendant Staffing Advantage and paid them. (Id. ¶ 46).

         In or about September or October 2016, defendant R. Gore informed Pinedo that defendant Staffing Advantage had “switched over” to defendant Coastal Group, that defendant Coastal Group was taking over employer of record responsibilities for defendant Staffing Advantage, and that defendant Coastal Group would provide plaintiff with those services going forward. (Id. ¶ 52). Defendant Coastal Group never provided plaintiff a new contract. (Id.). However, defendant Coastal Group continued the same invoicing practices as defendant Staffing Advantage, issuing invoices to plaintiff purporting to show amounts that defendant Coastal Group claimed it had calculated and paid on behalf of plaintiff. (Id. ¶¶ 53-55). Plaintiff then sent a check or wire to defendant Staffing Advantage. (Id. ¶ 55).

         In or about January 2017, plaintiff began to have concerns about the invoices received for amounts claimed for reimbursement for withholdings for plaintiff's employees. (Id. ¶ 58). Plaintiff requested defendants Staffing Advantage and Coastal Group provide a breakdown of previous invoices, payroll receipts for plaintiff's employees, and costs reports so that plaintiff could audit the invoices. (Id. ¶ 60). Defendants Staffing Advantage and Coastal Group failed to provide plaintiff with the requested materials. (Id. ¶ 61).

         Plaintiff subsequently learned that defendant Staffing Advantage was not licensed to provide professional employer services in California or in North Carolina. (Id. ¶ 63). Plaintiff alleges defendants were operating as a professional employer organization, and violated the North Carolina Professional Employer Organization Act. (Id. ¶¶ 63-65). Specifically, defendant Staffing Advantage was legally required to hold a license from the North Carolina Department of Insurance and file a surety bond in the amount of $100, 000.00 with the Commissioner of Insurance. (Id. ΒΆΒΆ 66-67). No. ...


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