Johnson v. Barner

Charles Johnson and Randy Watson Holdings, LLC, Plaintiffs, v. Reginal Barner, The Barner Group, LLC,MNK Holdings, LLC, and Michelle Koch, Defendants.

Civil Action No.: 3:19-cv-01129-JMC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA COLUMBIA DIVISION

August 5, 2020

ORDER AND OPINION

This matter is before the court on Defendants MNK Holdings, LLC ("MNK") and Michelle Koch's (together "Koch Defendants") Motion to Dismiss all causes of action listed in the Second Amended Complaint (ECF No. 32) of Plaintiffs Charles Johnson ("Johnson") and Randy Watson Holdings, LLC ("RWH"), (together "Plaintiffs"), pursuant to Rule 12(b) of the Federal Rules of Civil Procedure.¹ (ECF No. 34.) For the reasons that follow, the court DENIES Koch Defendants' Motion to Dismiss. (Id.)

I. FACTUAL AND PROCEDURAL BACKGROUND

Johnson is a former professional football player who has conducted "business ventures" through RWH, Johnson's limited liability company. (ECF No. 32 at 1 ¶ 2, 2 ¶ 14.) Plaintiffs allege that Johnson had a financial advisor named Paul Koch,² who "came up with numerous businessventures in which t[o] invest[] Plaintiffs' monies."³ (Id. at 3 ¶¶ 16, 17.) Plaintiffs allege that Paul Koch invested their money into various businesses ranging from janitorial services to secondhand clothing stores. (ECF No. 32 at 3 ¶ 17.) Plaintiffs further allege that these businesses were carried out through several entities ("hereafter referred to as Ventures").⁴ These Ventures were allegedly created during the years 2013 to 2015. (Id. at 3 ¶ 19-4 ¶ 28.) As to the allegations supporting their claims, Plaintiffs allege that Koch Defendants used Plaintiffs' assets to fund the Ventures, create for themselves an ownership interest without any financial investment on their part, and provide themselves with improper monetary distributions. (Id. at 5 ¶¶ 37-41.)

As a result, on April 17, 2019, Plaintiffs filed a Complaint (ECF No. 1) against Koch Defendants alleging claims for breach of fiduciary duty, negligence, and conversion. Thereafter, on June 21, 2019, Plaintiffs filed an Amended Complaint, which alleged the same claims but added Defendants Reginal Barner and The Barner Group, LLC ("TBG") as Defendants.⁵ On July 12, 2019, Koch Defendants filed a Motion for More Definite Statement, alleging that the Complaint was "too vague" to answer, which the court granted on February 21, 2020. (ECF Nos. 12, 30.) Thereafter, Plaintiffs filed their Second Amended Complaint on March 3, 2020, adding new information to their allegations. (See ECF No. 32.)

Koch Defendants filed the instant Motion to Dismiss on March 17, 2020. (ECF No. 34.) Plaintiffs filed their Response in Opposition to the Motion to Dismiss, on March 31, 2020. (ECF No. 37.) On April 7, 2020, Koch Defendants filed a Reply to the opposition brief. (ECF No. 41.)

II. JURISDICTION

The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332, because the parties are citizens of different states and the amount in controversy exceeds $75,000,00, exclusive of interest and costs. For jurisdictional purposes, Plaintiffs allege that RWH is a limited liability company organized under the laws of the State of North Carolina with its principal place of business in Charlotte, North Carolina and its sole-member, Johnson, is a citizen of North Carolina. (ECF No. 32 at 1 ¶ 1.) Plaintiffs further allege that TBG is a corporation organized under the laws of the State of South Carolina and its sole member, Barner, is a citizen of South Carolina. (Id. ¶¶ 4, 5.) Plaintiffs also allege that MNK is a corporation organized under the laws of the State of Minnesota and its sole member, Michelle Koch, is a citizen of Minnesota. (Id. ¶¶ 6, 7.) The court is satisfied that the amount in controversy exceeds $75,000.00, exclusive of interest and costs. (Id. at 2 ¶ 13.)

III. LEGAL STANDARD

"A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted is a challenge to the legal sufficiency of a complaint, as governed by Rule 8." Fed. Trade Comm'n v. Innovative Mktg., 654 F. Supp. 2d 378, 384 (D. Md. 2009). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus, "[i]n ruling on a 12(b)(6) motion, a court must accept as true all of the factual allegations contained in the complaint and draw all reasonable inferences in favor of the plaintiff." Kensington Volunteer Fire Dep't, Inc. v. Montgomery Cnty., Md., 684 F.3d 462, 467 (4th Cir. 2012) (internal quotations omitted). Furthermore, "a court may consider documents attached to the complaint or the motion to dismissso long as they are integral to the complaint and authentic." Id. Under the Federal Rules of Civil Procedure, a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) ("A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.").

IV. DISCUSSION

Koch Defendants seek dismissal of all counts of Plaintiffs' Second Amended Complaint. (ECF No. 34.) In their Memorandum in support of their Motion, Koch Defendants argue that Plaintiffs' Second Amended Complaint should be dismissed because (1) Johnson's claims are derivative in nature; (2) Plaintiffs' claims against MNK are barred by a "Mutual Release" executed between parties; (3) they did not breach any negligence standard of care; (4) they did not breach any fiduciary duty to Plaintiffs; (5) they did not engage in actionable conversions; and (6) FINRA Arbitration Rules expressly limit claims in this forum. (ECF No. 34-1.)

1. Documents Considered

Before turning to the parties' arguments regarding the Motion to Dismiss, the court preliminarily must determine what extrinsic documents appropriately may be considered in its Rule 12(b) assessment. Koch Defendants have attached three (3) exhibits to their Motion to Dismiss: (1) Plaintiffs' Second Amended Complaint (ECF No. 34-2); (2) Michelle Koch's Affidavit (ECF No. 34-3); and (3) the December 31, 2017 Redemption Agreement between Chamire and MNK (ECF No. 34-4).

Courts "generally do not consider extrinsic evidence when evaluating the sufficiency of a complaint" in a Rule 12(b)(6) motion to dismiss. Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014). A court's consideration of extrinsic documents in deciding a Rule12(b)(6) motion converts the motion into one for summary judgment. See Fed. R. Civ. P. 12(d); E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011). Such conversion is inappropriate when the parties lack sufficient notice and a reasonable opportunity for discovery. See Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015); Greater Balt. Ctr. for Pregnancy Concerns, Inc. v. Mayor of Balt., 721 F.3d 264, 281 (4th Cir. 2013) (en banc).

However, there are exceptions to the general rule. For instance, the court "may properly take judicial notice of matters of public record" in deciding a Rule 12(b)(6) motion without converting it into a summary judgment motion. Phillips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009) (citing Hall v. Virginia, 385 F.3d 421, 424 (4th Cir. 2004)); see Papasan v. Allain, 478 U.S. 265, 268 n.1 (1986) ("Although this case comes to us on a motion to dismiss under [Rule 12(b)(6)], we are not precluded in our review of the complaint from taking notice of items in the public record."). The court also "may properly consider documents attached to a complaint . . . 'so long as they are integral to the complaint and authentic.'" Anand, 754 F.3d at 198 (quoting Phillips, 572 F.3d at 180). Thus, the court may consider documents that are "integral to the complaint." Zak, 780 F.3d at 606-07. The Fourth Circuit has explained that a court may properly consider a concededly authentic document upon which the complaint is based when the defendant attaches such a document to its motion to dismiss . . . [o]therwise, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document.

The Fourth Circuit has not definitively set forth a standard for deciding when a document attached to a motion to dismiss should be considered "integral" to a complaint. See Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 166 (4th Cir. 2016). In numerous cases, the U.S. DistrictCourt for the District of Maryland has adopted what appears to be a higher standard than that suggested in Goines: "To be 'integral,' a document must be one 'that by its very existence, and not the mere information it contains, gives rise to the legal rights asserted.'" Royster v. Gahler, 154 F. Supp. 3d 206, 227 (D. Md. 2015) (quoting Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC, 794 F. Supp. 2d 602, 611 (D. Md. 2011)) (emphasis added). Other courts within the Fourth Circuit, including this court, have employed this standard prior to the Fourth Circuit's recent opinion in Goines. See Tinsley v. OneWest Bank, FSB, 4 F. Supp. 3d 805, 819 (S.D. W. Va. 2014); Tisdale v. Enter. Leasing Co.-Se., LLC, No. 3:13-cv221-MU, 2013 WL 3227927, at *2 n.2 (W.D.N.C. June 25, 2013); Mozingo v. Orkin, Inc., No. 4:10-cv-71, 2011 WL 845896, at *4 (E.D.N.C. Mar. 8, 2011); Alexander v. City of Greensboro, 762 F. Supp. 2d 764, 822 (M.D.N.C. 2011); Hendrix Ins. Agency, Inc. v. Continental Cas. Co., No. 7:10-2141-HMH, 2010 WL 4608769, at *4 (D.S.C. Nov. 3, 2010); Walker v. S.W.I.F.T. SCRL, 517 F. Supp. 2d 801, 806 (E.D. Va. 2007).

Here, Koch Defendants contend that because their Exhibit C ("Mutual Release") is "incorporated...