CDI Corporation v. HCL America, Inc., No. 5:2017cv00550 - Document 82 (E.D.N.C. 2019)

Court Description: ORDER granting 40 Motion for Judgment on the Pleadings and DISMISSING plaintiff's claims for tortious interference with contract and unfair and deceptive trade practices. Signed by District Judge James C. Dever III on 3/7/2019. (Sellers, N.)

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CDI Corporation v. HCL America, Inc. Doc. 82 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTII CAROLINA WESTERN DMSION No. 5:17-CV-550-D CDI CORPORATION, Plaintiff, v. HCL AMERICA, INC., Defendant. ) ) ) ) ) ) ) ) ) ORDER . On October 2, 2017, CDI Corporation ("CDr' or ''plaintiff'') filed a complaint in Wake I County Superior Court against HCL America, Inc. ("HCL" or "defendant''), alleging claims for I breach of contract, tortious interference with contract, and violations of the Unfair and Deceptive Trade Practices Act (''UDTPA"), N.C. Gen. Stat. § 75-1.1, et~ [D.E. 1-4]. On October 30, 2017, HCL removed the action to this court pursuant to 28 U.S.C. § 1441 [D.E. 1]. On November 17, 2017; CDI filed an amended complaint [D.E. 14]. On December 1, 2017, HCL answered and counterclaimed for breach of contract [D.E. 24]. On December 21, 2017, CDI answered the counterclaim [D.E. 27]. On June 28, 2018, HCL moved for partial judgment on the pJe,ading~ concerning COi's tortious interference with contract and UDTPA claims [D.E. 40] and filed a memorandum in support [D.E. 41 ]. On July 30, 2018, CDI ~sponded in opposition [D.E. 43]. On August 13, 2018, HCL replied [D.E. 44]. As explained below, the court grants HCL's motion for partial judgment on the pleadings. I. · CDI provides recruitment and staffing solutions for companies in multiple industries, including industrial equipment, aerospace, chemicals, and energy. See Am. Compl. [D.E. 14] ff 1, Dockets.Justia.com 11.1 HCL provides information technology services to companies. See id. ,r 1. On December 1, 2014, CDiandHCL entered a three-y~arcontractunderwhich CDI would provide temporary staffing and recruitment services to HCL. See id. ,r,r 1, 16.; SimonsAff. Ex. A [D.E. 17-1]. "Pursuant to the [a]greement, CDI would identify and provide to HCL certain temporary solutions for staffing projects with personnel who were experienced and skilled in certain computer functions." Am. Compl. [D.E. 14] ,r 17. ; On November 4, 2015, the parties amended the contract See id. ff l, 18, 21. The amendment provided that CDI would pay HCL $1. 75 million to be a "lead vendor'' of HCL, which ''facilitate[d] HCL's efforts to consolidate resources onto CDI's payroll" to improve efficiency and I decrease costs. Id. ,r,r 18, 21; Simons Aff. [D.E. 16-1] ,r,r 9, 12. Because CDI was a lead vendor, the contract required HCL to terminate its contracts with "Other Suppliers." See Am. Compl. [D.E. 14] ,r 22. HCL also agreed not to engage in the practice known in the industry as "delayering." See id. ,r 23. In other words, HCL agreed that it would not contract directly with CDI subcontractors or independent contractors performing work for HCL before December 1, 2017. See id. ,r,r 2, 23; Simons Aff.[D.E. 16-1] ff 14, 20. To perform under the contract, CDI contracted with numerous third-party subcontractors and independent contractors·to provide temporary staffing ~olutions to HCL. See Am. Compl. [D.E. 14] ,r 26. These subcontracts contained post-termination restrictive covenants prohibiting the subcontractors, independent contractors, and suppliers from working directly or indirectlywithHCL "other than t\irough CDI." Id. ,r 27. Thus, while the contract betweenHCL and CDI prohibited HCL from directly or indirectly contracting with CDI' s subcontractors and independent contractors before 1 CDI' s amended complaint contains two sets ofparagraphs listed as paragraphs 10-11. See Am. Compl. [D.E. 14] ,r,r 10-11. The above reference is to the paragraph 11 listed second. This order will otherwise retain the paragraph numbering of CDI's amended complaint. 2 December 1, 2017, the subcontracts contained restrictive covenants prohibiting HCL from doing so after that date. See id. ,r 28. In March 2016, CDI learned that HCL hired a CDI subcontractor in violation ofthe contract. See id. ,r 30; Simons Aff. [D.E. 16-1] ,r 21. CDI raised this issue with HCL, and HCL assured CDI that HCL would not engage in any further delayering. See Am. Compl. [D.E. 14] ,r 30. HCL, however, continued to do so. See id. ,r,r 30-31, 36. Moreover, HCL demanded that CDI pay extracontractual rebates ''to receive the benefit of [COi's] bargain." Id. ,r 31. CDI alleges that HCL's conduct, including the demands for extra-contractual rebates and delayering ofCDI' s subcontractors, negatively affected CDI. See DentA:ff. [D.E. 15-1] ,r,r 7-8; Simons Aff. [D.E. 16-1] ,r,r 29--31. On March 14, 2017, and May 23, 2017, CDI notified HCL that COi's financial performance triggered a contractual condition requiring HCL to repay the $1.75 million that CDI paid for lead vendor status to CDI. See Am. Compl. [D.E. 14] ,r 32; [D.E. 17-2]; [D.E. 16-5]. HCL's management allegedly acknowledged that HCL owes the $1.75 million to CDI, but HCL failed to repay CDI. See Am. Compl. [D.E. 14] ,r,r 33. CDI also complied with an audit that HCL demanded concerning CDI' s financial circumstances, which CDI alleges "confirmed CDI' s entitlement to the $1. 75 million pa~ent." Id. ,r 34. CDI further alleges that HCL' s true intent in demanding the audit ,,was to force renegotiation of the contract's anti-delayering terms. See id. ,r 35. In July 2017, the parties met, and HCL conditioned resolving the repayment issue on an amendment to the contract that would perm.it HCL to contract with some of COi's subcontractors directly. See id. CDI alsp claims that HCL's complaint that CDI deployed resources at a rate exceeding the ''rate card" was ' also pretextual. See id. ,r,r 37-38. Finally, CDI alleges that HCL failed to terminate its relationships with a majority of CDI' s subcontractors and suppliers identified by CDI as required by the contract. See id. ,r 39. 3 II. A party may move for judgment on the pleadings at any time "[a]fter the pleadings are closed-but early enough not to delay trial." Fed. R. Civ. P. 12(c). A court should grant the motion . that no material issue of fact remains to be resolved and if''the moving party has clearly established . . the party is entitled to judgment as a matter oflaw." Park Univ. Enters. v. Ain. Cas. Co. of Reading. I 442 F.3d 1239, 1244 (10th Cir. 2006) (quotation omitted), abrogated on other grounds by Magnus, Inc. v. Diamond State Ins. Co., 545 F. App'x 750 (10th Cir. 2013) (unpublished); see Mayfield v. Nat'lAss'nfor Stock Car Auto Racing, Inc., 674F.3d369, 375 (4th Cir. 2012); Burbach Broad. Co. of Del. v. Elkins Radio Com., 278 F.3d 401, 405--06 (4th Cir. 2002). A court may consider the pleadings and any materials referenced in or attached to the pleadings, which are incorporated by reference. See Fed. R. Civ. P. lO(c); Fayetteville Inv'rs v. Commercial Builders, Inc., 936 F.2d 1462, 1465 {4th Cir. 1991 ). A court also may consider ''matters of which a court may take judicial notice." Tellabs, Inc. v. Mak:or Issues & Rights, Ltd., 551 U.S. 308,322 (2007). The same standard applies under Rule 12(c) and Rule 12(b)(6). See Burbach Broad. Co., 278 F.3d at 405--06. Thus, a court construes the facts and reasonable inferences "in the light most favorable to the [nonmovingparty]." Masseyv. Ojaniit, 759F.3d343, 347, 352-53 (4th Cir. 2014) (quotation omitted); see Clatterbuck v. City of Charlottesville, 708 F.3d 549,557 (4th Cir. 2013), abrogated on other grounds by Reed v. Town of Gilbert, 135 S. Ct. 2218 (2015); Burbach Broad. Co., 278 F.3d at 406. Nevertheless, when analyzing a motion for judgment on the pleadings, a court must determine whether a pleading is legally and factually ~cient. See Ashcroft v. Iqbal, 556 U.S. 662, 677-80, 684 (2009); BellAtl. Com. v. Twombly, 550 U.S. 544, 554-70 (2007); Giarratano v. J~hnson, 521 F.3d 298, 302 (4th Cir. 2008). Therefore, a pleading ''must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 556 U;S. at 678 4 (quotation omitted); see Twombly. SS0 U.S. at S70; Giarratano, S21 F.3d at 302. Moreover, a court need not accept a pleading's legal conclusions drawn from the facts. 1 See Iqbal, S56 U.S. at 67~79; Giarratano, S21 F.3d at 302. Similarly, a court ''need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." Giarratano, S21 F.3d at 302 (quotation omitted). Because subject-matter jurisdiction is based on diversity, the court applies state substantive law and federal procedural rules. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-80 (1938); Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002). The parties agree that North Carolina law applies to all claims. Accordingly, this court must predict how the Supreme Court of North Carolina would rule on any disputed state-law issue. See Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. ofS.C., 433 F.3d 36S, 369 (4th Cit. 200S). In doing so, the court must look first to opinions of ' the Supreme Court ofNorth Carolina. See id. at 369; Wade v. Danek Med., Inc., 182 F.3d 281, 286 (4th Cir. 1999). If there are no governing opinions from that court, this court may consider the opinions ofthe North Carolina Court ofAppeals, treatises, and "the practices ofother states." Twin City Fire Ins. Co., 433 F.3d at 369 (quotation omitted). In applying state law, a federal court should not create or expand a state's public policy. See Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Blee. Membership Corp., S06 F.3d 304, 314-1S (4th Cir. 2007); Wade, 182 F.3d at 286; St. Paul Fire & Marine Ins. Co. v. Jacobson, 48 F.3d 778, 783 (4th Cir. 199S). A. CDI alleges that HCL is liable for tortious interference with contract. See Am. Compl. [D.E. 14] ,r,r 49--S9. Under North Carolina law, a plaintiff must prove five elements to state a claim for tortious interference with contract: (1) a valid contract between the plaintiff and a third-party that gives the plaintiffa contractual right against the third-party, (2) the defendant knows ofthe contract, (3) the defendant intentionally induces the third-party ''not to perform the contract," (4) the defendant 5 ' acts withoutjustificatio~ and (5) the defendant's conduct causes actual damages to the plaintiff. Krawiec v. Manly, 370 N.C. 602~ 606--07, 811 S.E.2d 542, 546 (2018); Embree Const. {hp. v. Rafcor; Inc., 330N.C. 487,498,411 S.E.2d 916,924 (1992); United Labs., Inc. v. Kuykendall, 322 · N.C. 643, 661, 370 S.E.2d 375, 387 (1988). Under North Carolina's "economic loss rule," a plaintiff generally cannot recover in tort for purely economic loss·where a contract, a warranty, or the UCC operates to allocate risk. See N.C. StatePortsAuth. v. LloydA.FzyRoofingCo.,294N.C. 73, 81-82,240 S.E.2d345,350-51 (1978); rejected in part on other grounds by Trs. of Rowan Tech. Coll. v. J. Hyatt Hammond Assocs., Inc., 313 N.C. 230, 328 S.E.2d 274 (1985); Legacy Data Access, Inc. v. Cadrillion, LLC, 889 F.3d 158, 164 (4th Cir. 2018); Kellyv. Ga.-Pac. LLC, 671 F. Supp. 2d 785, 791-92 (E.D.N.C. 2009); Beaufort Builders, Inc. v. White Plains Church Ministries, Inc., 246 N.C. App. 27, 33, 783 S.E.2d 35, 39 (2016); Lord v. Customized Consulting Specialty, Inc., 182 N.C. App. 635, 639, 643 S.E.2d 28, 30-31 (2007); Moore v. Coachmen Indus., Inc., 129 N.C. App. 389, 401-02, 499 S.E.2d 772, 780 (1998). No tort action lies "against a party to a contract who ... fails to properly perform the terms _ ofthe contract, even ifthat failure to perform was due to the negligent or intentional conduct of that party, when the injury resulting from the breach is damage to the subject matter of the contract." Lord, 182 N.C. App. at 639,643 S.E.2d at 30-31 (quotation omitted); see Legacy Data Access, Inc., 889 F.3d at 164; Beaufort Builders, Inc., 246 N.C. App. at 33, 783 S.E.2d at 39; Rountree v. Chowan Cty., 796 S.E.2d 827,830 (N.C. Ct. App. 2017); Kelly, 671 F. Supp. 2d at 791-92. The policy underlying the economic loss rule is that ''the sale of goods is accomplished by contract and the parties are free to include, or exclude, provisions as to the parties' respective rights and remedies." Moore, 129 N.C. App. at 401, 499 S.E.2d at 780; see Kelly, 671 F. Supp. 2d at 791-92; Lord, 182 N.C. App. at 639, 643 S.E.2d at 30. The rule reflects the fundamenttl differences between the goal 6 of awarding damages in tort law (i.e., to compensate the victim and punish the wrongdoer for the tort) and the goal of awarding damages in contract law (i.e., to compensate the injured party for the breach). See Strum v. Exxon Co., USA, 15 F.3d 327, 330 (4th Cir. 1994). Thus, the rule confines parties to a contract's terms should a party seek redress concerning the contract. See Crop Prod. Servs., Inc. v. Ormond, No. 4:11-CV-41-D, 2012 WL 147950, at *7 (E.D.N.C. Jan. 18, 2012) (unpublished). North Carolina courts recognize limited exceptions to the economic loss rule. See, e_.g._, Ellis v. La.-Pac. Corp., 699 F.3d 778, 783-84 (4th Cir. 2012). If a defendant owed a duty independent of and distinguishable from a duty owed by contract, then a plaintiff can r~ver in both tort and contract for the same course of conduct. See Strum, 15 F.3d at 330-31; Kelly, 671 F. Supp. 2d at 791. In other words, ''where there is an identifiable tort even though the tort also constitutes, or accompanies, a breach of contract, the tort itself may give rise to a claim." Newton v. Standard Fire Ins. Co., 291 N.C. 105, 111, 229 S.E.2d 2~7, 301 (1976). Aggravating elements (e.g., fraud, malice, reckless indifference, or oppression) also must accompany the allegedly tortious conduct. See Newton. 291 N.C. at 112, 229 S.E.2d at 301; Strum, 15 F.3d at 331. To determine whether an exception to the economic loss rule applies, courts focus on whether the plaintiff has plausibly alleged a duty that exists independently of a duty arising from a contract. See Legacy Data Access, Inc., 889 F.3d at 165-66; Rountree, 796 S.E.2d at 830-32; Croker v. Yadkin Inc., 130 N.C. App. 64, 69, 502 S.E.2d 404, 407 (1998). As for CDI' s tortious interference with contract claim, CDI argues that ''the contractual duties . and tort duties are not coextensive, but independent and distinct." [D.E. 43] 9. Specifically, CDI contends that the contract did not prohibitHCL from delayering its subcontractors and did not extend 7 beyond December 1, 2017. See [D.E. 43] 9--13.2 CDI also contends that, in any event, HCL owed a general duty to not interfere with CDl's contracts under North Carolina law. See id. at 13-16. In opposition, HCL argues that the contract controlled when and in what circumstances HCL could engage in delayering; therefore, the economic loss rule precludes CDl's tortious interference with contract claim. See [DE. 44] 4-5. The purpose ofthe economic loss rule---to encourage parties to allocate risk ofeconomic loss amongst themselves-applies here because the parties negotiated the circumstances in which HCL could engage in delayering. See Legacy Data Access, Inc., 889 F.3d at 164; cf. Broussard v.. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 34~6 (4th Cir. 1998). This case fundamentally concerns whether HCL or CDI br~ached the contract, including whether HCL did so by engaging in delayering. Cf. Am. Compl. [D.E. 14] ft 23, 28, 30, 4~6. Moreover, North Carolina common law does not impose a general duty on business competitors like CDI and HCL to not interfere with competitors' contracts. See Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC, 368 N.C. 693, 700, 784 S.E.2d 457, 462 (2016); Peoples Sec. Life Ins. Co. v. Hooks, 322 N.C. 216, 220--21, 367 S.E.2d 647, 650 (1988); Clinical Staffing. Inc. v. Worldwide Travel Staffing Ltd., 60 F. Supp. 3d 618, 627 (E.D.N.C. 2013). As a federal court sitting in diversity, this court declines to expand North Carolina's common lai on this issue. See Time Warner Entm't, 506 F.3d at 314-15; Wade, 182 F.3d at 286; Jacobson, 48 F.3d at 783. Without a duty to avoid delayering independent of the contract, the economic loss rule precludes CDl's claim 2 In CDl's amended complaint, CDI alleges that the contract's anti-delayering terms extended to its subcontractors and independent contractors. See Am. Compl. [D.E. 14] ft 23, 30. The court draws "all reasonable factual inferences" in CDl's favor, and the court must "accept all well-pleaded allegations of [CDl's] complaint as true." Massey, 759 F.3d at 353; see Drager v. PLNA USA. Inc., 741 F.3d'470, 474 (4th Cir. 2014); Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). Thus, the court accepts as true that the contract's terms extended to CDl's subcontractors. 8 for tortious interference with contract. See, ~. Foodbuy, LLC v. Gregocy: Packaging, Inc., No. 3:16-CV-809-FDW-DCK,2018WL4603159,at*27-29(W.D.N.C.Sept.25,2018)(unpublished); ACS Partners, LLC v. Americon Gr,p., Inc., No. 3:09cv464-RJC-DSC, 2010 WL 883663, at *7-9 (W.D.N.C.Mar. 5,2010)(unpublished). Accordingly, thecourtgrantsHCL'smotionforjudgment · on the pleadings concerning CDl's tortious interference with contract claim. B. CDI also alleges that HCL violated the UDTPA. See Am. Compl. [D.E. 14] ff 60-67. To state a claim under the UDTPA, a plaintiffmust plausibly allege that "(l) [the] defendant committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to the plaintiff." Dalton v. Camp. 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001); Grayv. N.C. Ins. UnderwritingAss'n, 352 N.C. 61, 68,529 S.E.2d 676,681 (2000); Spartan Leasing Inc. v. Pollard, 101 N.C. App. 450, 460-61, 400 S.E.2d 476, 482 (1991). As for the first element, whether an act or practice is unfair or deceptive is a question oflaw for the court. See Gray, 352 N.C. at 68, 529 s.p:.2d at 681; Gandecha v. Metro. Prop. & Cas. Ins. Co., No.. 5:13-CV-688-F, 2014 WL 4243797, at *4 (E.D.N.C. Aug. 26, 2014) (unpublished). A practice is deceptive "ifithasthetendencyto deceive." Gray. 352N.C. at 68,529 S.E.2dat681; see Marshall v. Miller, 302 N.C. 539,548,276 S.E.2d 397, 403 (1981). A practice is unfair ''when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to customers." Marshall, 302 N.C. at 548,276 S.E.2d at 403. A ''mere breach of contract, even if intentional, is not an unfair or deceptive act'' by itself. Bob Timberlake Collection, Inc. v. Edwards, 176 N.C. App. 33, 42, 626 S.E.2d 315, 323 (2006); see PCS Phospate Co. v. Norfolk S. Cor,p., 559 F.3d 212,224 (4th Cir. 2009); Walker v. Fleetwood 9 I Homes ofN.C., Inc., 362 N.C. 63, 72,653 S.E.2d 393,399 (2007); Gray, 352 N.C. at 75, 529 S.E.2d at685; Branch Banking & Tr. Co. v. Thompso~ 107N.C. App. 53, 62,418 S.E.2d 694, 700 (1992). North Carolina law "does not permit a party to transmute a breach of contract claim into a . . . UDTPA claim ... because awarding punitive or treble damages would destroy the parties' bargain." PCS Phosphate, 559 F.3d at 224; see Broussard, 155 F.3d at 346-47 (collecting cases); cf. Strum, 15 F.3d at 330. If substantial aggravating circumstances accompany a breach of contract, then those circumstances can give rise to an UDTPA claim. See Bartolomeo v. S.B. Thomas, Inc., 889 F.2d 530, 535 (4th Cir. 1989); United Roasters, Inc. v. Colgate-Palmolive Co., 649 F.2d 985, 992 (4th Cir. 1981); Burrell v. Sparkk:les Reconstruction Co., 189 N.C. App. 104, 111, 657 S.E.2d 712, 717 (2008); Branch :Ranking & Tr. Co., 107 N.C. App. at 62, 418 S.E.2d at 700. As for COi's UDTPA claim, COi does not claim that substantial aggravating circumstances accompanied HCL's alleged breach of contract. See Am. Compl. [D.E. 14] ,r 61. Rather, COi alleges thatHCL' s extra-contractual conduct, such as HCL' s alleged torti.ous interference with COi' s subcontracts, violates the UDTPA. See id. ft 62--66. HCL responds that COi's allegation is essentially a breach of contract claim, not an UDTPA claim. See [D.E. 41] 14-17. COi identifies four acts as the basis for its UDTPA claim: (1) HCL' s false assurances that it would cease interfering in COi's subcontracts, (2) HCL's demand that COI make extra-contractual payments to ''to receive the benefit of its bargain," (3) HCL's allegedly pretextual use. of the contract's audit procedures and rate-card setting to compel renegotiation of the contract and to maximize HCL's benefit from breaching the contract, and (4) HCL's use of a secret rate-card unauthorized by the contract to evaluate vendors. See Am. Compl. [D.E. 14] ft 30-31, 36, 38; [D.E. 27] ft 18, 51; [D.E. 43] 20. All four ofthese acts concern. the rights and duties ofthe parties under the contract. Because 10 substantial aggravating circumstances did not accompany HCL's alleged breach of contract, these actions do not violate the UDTPA. See, e.g., Bob Timberlake Collection, Inc., 176 N.C. App. at 41-42, 626 S.E.2d at 323. Alternatively, conduct giving rise to a tortious interference with contract claim can give rise to an UDTPA claim. See, e.g.• Edmondson v. Am. Motorcycle Ass'n, Inc., 7 F. App'x 136, 152-53 (4th Cir. 2001) (per curiam) (unpublished); McDonald v. Scarboro, 91 N.C. App. 13, 21, 370 S.E.2d 680, 685 (1988). Nonetheless, because COi's tortious interference with contract claim fails under the economic loss rule, CDl's UDTPA claim based on the same conduct also fails. m. In sum, the court GRANTS defendant's motion for partial judgment on the pleadings [D.E. 40] and DISMISSES plaintiff's claims for tortious interference with', contract and unfair and L deceptive 1rade practices. SO ORDERED. This i day of March 2019. JSC.DEVERill United States District Judge 11

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