United States District Court, E.D. North Carolina, Southern Division
DEFINITIVE STAFFING SOLUTIONS, INC., a California corporation, Plaintiff,
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.
W. FLANAGAN UNITED STATES DISTRICT JUDGE.
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.
OF THE CASE
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.
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).
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).
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).
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
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. ¶¶
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).
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).
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).
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. ¶¶ 66-67). No. ...