Monroe Staffing Services, LLC v. Whitaker

Background

The plaintiffs brought a diversity action against Whitaker arising from their purchase of Key Resources Inc. Under the share purchase agreement, the total purchase price was to be paid in three installments: a closing-date payment, a first-year earnout, and a second-year earnout. The parties later amended the agreement to delay the first earnout payment, require interest during the delay, and accelerate the second earnout deadline.

Whitaker alleged that, shortly before the delayed first earnout payment was due, the plaintiffs contacted her about what she characterized as a pretextual buyer setoff claim. She alleged that the plaintiffs lacked the funds to make the payment and had engaged in a pattern of promising deferred compensation or earnout payments and then fabricating reasons not to pay. She asserted unfair-business-practices counterclaims under North Carolina General Statute § 75-1.1 and New York General Business Law § 349(h). The plaintiffs moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

Choice of Law

The court held that New York law governed the unfair-business-practices counterclaim. The agreement stated that New York law governed “all matters arising out of or relating to” the agreements. The court found that this broad language covered the counterclaim because it was intertwined with the purchase agreement, the amended agreement, and the representations in those agreements.

Analysis

To state a claim under New York General Business Law § 349, a claimant must allege that the conduct was consumer-oriented, materially misleading, and caused injury. The court concluded that Whitaker had not plausibly alleged consumer-oriented conduct. It characterized the alleged conduct as a private contractual dispute unique to the parties, rather than conduct with the potential to affect consumers generally.

The court also relied on New York law providing that § 349 generally does not cover complex business transactions between sophisticated parties with comparable bargaining power. It therefore concluded that Whitaker’s unfair-business-practices counterclaim did not adequately state a claim.

Disposition

The court adopted Magistrate Judge Barbara C. Moses’s report and recommendation in full. It granted the plaintiffs’ motion to dismiss Whitaker’s unfair-business-practices counterclaim and directed the Clerk of Court to close the motion at ECF No. 84. The opinion does not state that the dismissal was with or without prejudice.