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Cypress Advisors, Inc. v. Davis

United States District Court, D. Colorado

July 21, 2017

CYPRESS ADVISORS, INC., d/b/a The Cypress Group, Plaintiff/Counter Defendant,
KENT McCARTY DAVIS, a/k/a Carty Davis, d/b/a Cypress International, Inc., Defendant/Counter Claimant/Third-Party Plaintiff,
DEAN ZUCCARELLO, Third-Party Defendant.


          Michael E. Hegarty, United States Magistrate Judge.

         Counter Defendant Cypress Advisors, Inc. and Third-Party Defendant Dean Zuccarello (collectively “Counter Defendants”) seek partial dismissal of Counter Claimant/Third-Party Plaintiff Kent Davis' Amended Counterclaims. ECF No. 74. The Honorable Marcia S. Krieger referred Counter Defendants' motion to this Court for report and recommendation. ECF No. 75. The Court holds that Davis' first, third through tenth, and thirteenth claims are not subject to dismissal. However, dismissal of Davis' twelfth and fourteenth claims is proper. Accordingly, the Court recommends that Counter Defendants' motion be granted in part and denied in part.


         I. Facts

         The following are factual allegations (as opposed to legal conclusions, bare assertions, or merely conclusory allegations) made by Davis in his Amended Counterclaims, which are taken as true for analysis under Fed.R.Civ.P. 12(b)(6) pursuant to Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         In 2000, Davis and Zuccarello began doing business together as “the Cypress Partnership.” Am. Countercls. ¶¶ 31, 33, 36. The parties agreed that the partnership would provide financial advice and related services to the restaurant industry. Id. at ¶¶ 15, 48. Davis contributed $350, 000 for a fifty percent ownership interest in the partnership. Id. at ¶ 33. Because Zuccarello contributed the goodwill of his pre-existing company, Cypress Advisors, he did not pay an initial capital contribution for his fifty percent ownership share. Id. at ¶ 35. The parties agreed that Davis would conduct business and solicit clients out of the company's North Carolina office, while Zuccarello would operate primarily through the company's Colorado office. Id. at ¶¶ 58-62. When one of the parties obtained a new client, the client would sign a financial advisory contract, which detailed the terms of the Cypress Partnership's agreement with the client. Id. at ¶ 216. Although both parties regularly solicited business for the partnership and had the ability to bind the partnership, Counter Defendants were primarily responsible for the company's banking, bookkeeping, and payroll functions. Id. at ¶¶ 51, 58.

         The parties agreed to a specific mechanism for sharing expenses and revenues. Id. at ¶¶ 69-71. First, the company would use the gross revenues from a particular engagement to pay any associated expenses. Id. at ¶ 69. The division of the profit from an engagement depended on which party was responsible for securing the client. Id. at ¶¶ 69-71. If a party obtained a client solely through his own efforts, he was entitled to seventy-five percent of the profits from the engagement, while the other party received a twenty-five percent share. Id. at ¶¶ 70-71. If the parties jointly obtained a client, they would split the profits evenly. Id. at ¶ 71. Additionally, the parties agreed to evenly split any costs not directly attributable to a client. Id. at ¶ 82. Although this constituted the default profit sharing formula, Davis and Zuccarello occasionally agreed to a different arrangement for a particular client. Id. at ¶ 73.

         The parties' conduct conformed to this agreement until 2011, when they began to dispute various matters related to the finances and operations of the partnership. Id. at ¶ 100. After calculating the 2011 profit distributions, Zuccarello informed Davis that Davis had been overpaid more than one million dollars. Id. at ¶ 103. Zuccarello stated that he was entitled to a greater share of profits than he originally received from certain engagements. Id. at ¶ 104. From 2011 through at least 2015, Zuccarello reduced Davis' distributions to correct this imbalance. Id. Davis consistently maintained that the prior distributions were correct. Id. at ¶ 108.

         During this same time period, Zuccarello also concealed clients that he obtained. Id. at ¶ 110. This permitted Counter Defendants to avoid sharing twenty-five percent of the profits from those engagements. Id. Additionally, from 2013 through at least 2016, Counter Defendants required Davis to pay a share of expenses that did not benefit the partnership. Id. at ¶¶ 129-39. For example, Counter Defendants charged Davis for their attorney fees incurred while attempting to renegotiate the partnership agreement, even though they would not reimburse Davis for his legal costs. Id. at ¶¶ 136-38.

         Beginning in 2015, Counter Defendants began to publically assert that Davis was no longer a part owner of the Cypress Partnership. Id. at ¶ 143. On June 20, 2016, Davis informed Counter Defendants that he wished to discontinue the Cypress Partnership once the parties could negotiate the terms for Davis' departure. Id. at ¶ 153. Ten days later, Counter Defendants sent a letter to Davis terminating the Cypress Partnership because of Davis' alleged solicitation of clients in his personal capacity. Id. at ¶¶ 157-58. At the time Counter Defendants sent this letter, Davis was involved in numerous client engagements that had not been completed. Counter Defendants have claimed they are entitled one-hundred percent of the profits for many of these engagements. Id. at ¶¶ 175, 184.

         II. Procedural History

         Based on these factual allegations, Davis filed a Complaint in North Carolina state court on July 28, 2016 alleging breach of partnership agreement, among other claims. See ECF Nos. 6, 34-1. Shortly thereafter, Counter Defendants filed the present case. ECF No. 1. In an Amended Complaint filed on October 28, 2016, Counter Defendants assert the following eight claims for relief: (1) declaratory judgment stating, inter alia, that Davis performed services as an independent contractor; (2) missaprorpriation of trade secrets; (3) civil theft of trade secrets; (4) civil theft; (5) conversion; (6) intentional interference with contractual relations; (7) breach of contract; and (8) unjust enrichment. Am. Compl. ¶¶ 77-120, ECF No. 28.

         After Counter Defendants removed the North Carolina state court case to the Middle District of North Carolina, ECF No. 34-3, Davis filed a motion to transfer the present case to North Carolina. ECF No. 34. On January 18, 2017, Judge Krieger denied Davis' motion, but stated that she would defer to the North Carolina court's ruling on Counter Defendants' motion to transfer. Id. at 5. The North Carolina court later granted Counter Defendants' motion, leaving this District with sole jurisdiction over the present dispute. Order, Davis v. Cypress International, Inc., No. 16-cv-01086-TDS-JLW, (M.D. N.C. July 11, 2017), ECF No. 29.

         On March 31, 2017, Davis filed his Amended Answer and Counterclaims. ECF No. 60. Davis asserts the following fifteen causes of action: (1) breach of partnership agreement; (2) wrongful dissociation; (3) breach of joint venture agreements (in the alternative); (4) breach of fiduciary duty; (5) breach of contract (in the alternative); (6) promissory estoppel; (7) a declaratory judgment stating that Counter Defendants wrongfully terminated the Cypress Partnership; (8) constructive fraud; (9) wind-up and accounting of the Cypress Partnership; (10) judicial dissociation and dissolution; (11) receivership; (12) failure to pay wages in violation of the North Carolina and Colorado wage acts (in the alternative); (13) unjust enrichment (in the alternative); (14) quantum meruit (in the alternative); and (15) tortious interference with prospective economic advantage. Id. at 200-322.

         On May 19, 2017, Counter Defendants timely filed the present Partial Motion to Dismiss Amended Counterclaims. ECF No. 74. Counter Defendants first assert that all claims based on the North Carolina Partnership Act should be dismissed, because Colorado law governs this dispute. Id. at 5-7. Next, Counter Defendants argue that Davis' third, fourth, fifth, seventh, and eighth claims are barred by the statute of frauds. Id. at 8-10. Third, Counter Defendants contend that eight of Davis' claims are barred by a three-year statute of limitations. Id. at 10-12. Fourth, according to Counter Defendants, the Court should dismiss Davis' quantum meruit claim as duplicative of Davis' unjust enrichment claim. Id. at 13. Finally, Counter Defendants argue that Davis' employee wage claim relies on impermissibly inconsistent allegations and otherwise fails to state a claim. Id. at 13-17. Accordingly, Counter Defendants seek dismissal of each of Davis' claims other than his second, eleventh, and fifteenth causes of action.

         Davis filed his response to Counter Defendants' motion on June 16, 2017. ECF No. 79. Davis argues that the motion should be denied in its entirety. Id. Counter Defendants filed their reply in support of their motion on June 30, 2017. ECF No. 83.


         “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 Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Twombly requires a two prong analysis. First, a court must identify “the allegations in the complaint that are not entitled to the assumption of truth, ” that is, those allegations which are legal conclusions, bare assertions, or merely conclusory. Id. at 679-80. Second, the Court must consider the factual allegations “to determine if they plausibly suggest an entitlement to relief.” Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 680.

         Plausibility refers “to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs ‘have not nudged their claims across the line from conceivable to plausible.'” Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012) (quoting Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)). “The nature and specificity of the allegations required to state a plausible claim will vary based on context.” Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011). Thus, while the Rule 12(b)(6) standard does not require that a plaintiff establish a prima facie case in a complaint, the elements of each alleged cause of action may help to determine whether the plaintiff has set forth a plausible claim. Khalik, 671 F.3d at 1191.


         The Court first finds that, at this stage of the proceeding, it need not determine whether North Carolina or Colorado law applies to Davis' counterclaims. Second, the Court holds that, as alleged, the statute of frauds does not bar Davis' causes of action. Third, the Court recommends dismissing Davis' quantum meruit claim as duplicative of his unjust enrichment claim. Regarding the statute of limitations, the Court holds that Davis timely asserted his breach of contract, promissory estoppel, and unjust enrichment claims. However, to the extent Davis bases his breach of fiduciary duty and constructive fraud claims on actions occurring after July 29, 2013, the Court holds that these claims are barred by the statute of limitations. Finally, the Court holds that Davis fails to state an employee wage claim, because Davis does not allege he was Counter Defendants' employee.

         I. Choice of Law: North Carolina Partnership Act (Counts Seven, Nine, and Ten)

         Counter Defendants argue the Court should dismiss Davis' claims for a declaratory judgment, partnership wind up and accounting, and judicial dissolution, because Davis brings these claims under the North Carolina Partnership Act. Mot. to Dismiss Countercls. 5-7. According to Counter Defendants, because Colorado's choice of law rules favor applying Colorado law, the North Carolina claims fail as a matter of law. Id. Davis contends the Court need not reach the choice of law issue at this time, and if it does, Colorado choice of law rules favor North Carolina. Resp. to Mot. to Dismiss Countercls. 5-9. Although it appears from ...

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