United States District Court, D. Colorado
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.
RECOMMENDATION OF UNITED STATES MAGISTRATE
Michael E. Hegarty, United States Magistrate Judge.
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.
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).
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.
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.
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 ¶
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
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.
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.
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.
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.
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.
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
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.
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.
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.
Choice of Law: North Carolina Partnership Act (Counts Seven,
Nine, and Ten)
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 ...