Gallaher v. Ciszek

Gallaher v. Ciszek, 2020 NCBC 76.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
CUMBERLAND COUNTY 19 CVS 5780

KEITH JAMES GALLAHER; HUGH
SCOTT CAMERON, II; and KRISTEN
B. COGGIN,

Plaintiffs,
ORDER AND OPINION ON
v. PLAINTIFFS’ MOTION TO DISMISS
DEFENDANTS’ COUNTERCLAIM
THOMAS ARTHUR CISZEK and FOR WRONGFUL INTERFERENCE
CAPE FEAR NEONATOLOGY [CORRECTED]
SERVICES, P.A., a North Carolina
Professional Association,

Defendants.

1. THIS MATTER is before the Court upon Plaintiffs Keith James Gallaher

(“Dr. Gallaher”), Hugh Scott Cameron, II (“Dr. Cameron”), and Kristen B. Coggin’s

(“Dr. Coggin”) Motion to Dismiss Defendants Thomas Arthur Ciszek (“Dr. Ciszek”)

and Cape Fear Neonatology Services, P.A.’s (“Cape Fear Neo”) third counterclaim for

wrongful interference with existing and prospective business relations filed February

28, 2020 in the above-captioned case (the “Motion”). (ECF No. 31.)

2. Having considered the Motion, the materials submitted in support of and in

opposition to the Motion, the arguments of counsel at the hearing on the Motion, and

other appropriate matters of record, the Court hereby GRANTS the Motion for the

reasons set forth below and DISMISSES Defendants’ third counterclaim without

prejudice.

The Law Offices of Lonnie M. Player, Jr., PLLC, by Lonnie M. Player,
Jr., and Player McLean, LLP, by James A. McLean, for Plaintiffs Keith
James Gallaher, Hugh Scott Cameron, II, and Kristen B. Coggin.
Hutchens, Senter, Kellam & Pettit, P.A., by H. Terry Hutchens, J.
Haydon Ellis, and J. Scott Flowers, for Defendants Thomas Arthur
Ciszek and Cape Fear Neonatology Services, P.A., a North Carolina
Professional Association.

Bledsoe, Chief Judge.

I.

FACTUAL AND PROCEDURAL BACKGROUND

3. The Court does not make findings of fact on motions to dismiss under Rule

12(b)(6) of the North Carolina Rules of Civil Procedure (“Rule(s)”). See, e.g., Concrete

Serv. Corp. v. Invs. Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758 (1986).

Rather, the Court recites only those facts alleged in Defendants’ counterclaims that

are relevant to the Court’s determination of the Motion.

4. This matter involves claims and counterclaims arising out of Plaintiffs’

resignations from employment with Cape Fear Neo and their alleged entry into a

contract with the Cumberland County Hospital System, Inc. (the “Hospital”) to

provide neonatology services. Of specific interest on this Motion are Defendants’

counterclaims for breach of contract—based on Plaintiffs’ alleged breach of non-

competition agreements with Cape Fear Neo—and for wrongful interference with

Cape Fear Neo’s existing and prospective business relationships—in particular, with

the Hospital. Plaintiffs bring the Motion seeking to dismiss this latter counterclaim

(the “Counterclaim”), contending that the counterclaim should be dismissed both by

operation of the economic loss rule and for Defendants’ failure to plead that Plaintiffs
induced a third party to either breach a contract with Cape Fear Neo or refrain from

contracting with Cape Fear Neo.

5. The relevant background to this dispute is straightforward. Cape Fear Neo

has provided neonatology services to the Hospital since 1985, most recently pursuant

to an independent contractor agreement executed in 2000 (the “Hospital

Agreement”). (Mot. Dismiss, Answer Compl. & Countercls. ¶ 9 [hereinafter

“Countercls.”], ECF No. 4.) Payments made pursuant to the Hospital Agreement are

Cape Fear Neo’s “only source of revenue[.]” (Countercls. ¶ 9.)

6. Cape Fear Neo entered into separate employment contracts with Dr.

Gallaher on February 1, 1990, Dr. Cameron on February 23, 2005, and Dr. Coggin on

August 1, 2012 (collectively, the “Employment Contracts”). (Countercls. ¶¶ 6–8, Exs.

A–C.) Defendants allege that “[t]he terms of the Hospital Agreement were expressly

made a part of Plaintiffs’ Employment Contracts.” (Countercls. ¶ 11.) The non-

competition provision of each Employment Contract provides that Plaintiffs “will not

engage in the practice of neonatology, nor be an officer, director, shareholder or

employee of a corporation, nor an owner, investor or employee of any other business

in competition with the business of [Cape Fear Neo in the identified territory].”

(Countercls. ¶ 12, Ex. A ¶ 23, Ex. B ¶ 26, Ex. C ¶ 26.)

7. According to Defendants, “[i]n or around December 2018, Defendants [Cape

Fear Neo and its sole shareholder, Dr. Ciszek] began negotiating a new contract with

the Hospital for the provision of neonatal services at the Hospital.” (Countercls.

¶ 10.) Shortly thereafter, on or about January 25, 2019, Plaintiffs tendered their
resignations to Cape Fear Neo, effective April 30, 2019. (Countercls. ¶ 15.)

Defendants allege that while Plaintiffs were employed by Cape Fear Neo, they

negotiated with the Hospital in violation of their Employment Contracts and entered

into an agreement with the Hospital to provide neonatology services. (Countercls.

¶¶ 18–19.) Defendants assert that Plaintiffs are currently providing neonatology

services at the Hospital in violation of the non-competition provisions in the

Employment Contracts. (Countercls. ¶ 20.)

8. The Motion has been fully briefed, and the Court held a hearing on the

Motion by videoconference on July 16, 2020 (the “Hearing”), at which all parties were

represented by counsel. The Motion is now ripe for resolution.

II.

LEGAL STANDARD

9. “An inquiry into the sufficiency of a counterclaim to withstand a motion to

dismiss under Rule 12(b)(6) is identical to that regarding the sufficiency of a

complaint to survive the same motion.” Chesapeake Microfilm, Inc. v. E. Microfilm

Sales & Serv., Inc., 91 N.C. App. 539, 542, 372 S.E.2d 901, 902 (1988); see also, e.g.,

Washburn v. Yadkin Valley Bank & Tr. Co., 190 N.C. App. 315, 325, 660 S.E.2d 577,

585 (2008) (noting that a counterclaim is subject to “[t]he same rules regarding the

sufficiency of a complaint to withstand a motion to dismiss”); Recurrent Energy Dev.

Holdings, LLC v. SunEnergy1, LLC, 2017 NCBC LEXIS 18, at *20–21 (N.C. Super.

Ct. Mar. 7, 2017) (applying Rule 12(b)(6) legal standard to counterclaim).
10. The Court must therefore determine “whether, as a matter of law, the

allegations of the [counterclaim], treated as true, are sufficient to state a claim upon

which relief can be granted under some recognized legal theory.” Isenhour v. Hutto,

350 N.C. 601, 604, 517 S.E.2d 121, 124 (1999) (citation and brackets omitted). The

counterclaim must be “liberally construed,” and dismissal is not proper “unless it

appears beyond doubt that the [defendant] could prove no set of facts in support of

his claim which would entitle him to relief.” Turner v. Hammocks Beach Corp., 363

N.C. 555, 559, 681 S.E.2d 770, 774 (2009) (citation omitted).

11. Dismissal under Rule 12(b)(6) is appropriate “(1) when the [counterclaim]

on its face reveals that no law supports [defendant’s] claim; (2) when the

[counterclaim] reveals on its face the absence of fact[s] sufficient to make a [ ] claim;

[or] (3) when some fact disclosed in the [counterclaim] necessarily defeats the

[defendant’s] claim.” Intersal, Inc. v. Hamilton, 373 N.C. 89, 98, 834 S.E.2d 404, 411

(2019) (quoting Oates v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985)).

12. Where, as here, one or both sides rely on documents which are the subject

of the counterclaim and to which the counterclaim specifically refers, the Court may

consider those documents without converting the motion under Rule 12(b)(6) into a

motion for summary judgment. See Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52,

60, 554 S.E.2d 840, 847 (2001) (recognizing this principle even when documents are

presented by the movant); see also Schlieper v. Johnson, 195 N.C. App. 257, 261, 672

S.E.2d 548, 551 (2009) (“When documents are attached to and incorporated into a

complaint, they become part of the complaint and may be considered in connection
with a Rule 12(b)(6) motion without converting it into a motion for summary

judgment.”). The Court, however, need not accept as true allegations in the

counterclaim “that are contradicted by the documents attached, specifically referred

to, or incorporated by reference in the [counterclaim].” Laster v. Francis, 199 N.C.

App. 572, 577, 681 S.E.2d 858, 862 (2009).

III.

ANALYSIS

13. The Counterclaim that Plaintiffs seek to dismiss on this Motion states, in

relevant part, as follows:

43. Plaintiffs’ actions as set forth in herein above, including, without
limitation, their breach of contract, misappropriation of Cape Fear Neo’s
trade secrets and confidential information, and their unfair methods of
competition constitute wrongful interference with Cape Fear Neo’s
business relationships and with revenues that Cape Fear Neo had
negotiated and expected related to its relationship and agreements with
the Hospital.

44. Plaintiffs interfered with Cape Fear Neo’s existing and
prospective business relations by unlawfully and unjustly using and
taking advantage of Cape Fear Neo’s Trade Secrets and confidential
information and violating the express terms of the Employment
Contracts.

(Countercls. ¶¶ 43–44.) Although phrased as a single counterclaim for “wrongful

interference,” it is clear that Defendants are advancing two counterclaims—one for

tortious interference with contract and another for tortious interference with

prospective economic advantage. 1

1 Nevertheless, to avoid confusion, the Court references the Counterclaim herein as a single

counterclaim for wrongful interference, the nomenclature chosen by Defendants.
14. To state a counterclaim for tortious interference with contract, a defendant

must allege:

(1) a valid contract between the [defendant] and a third person which
confers upon the [defendant] a contractual right against a third person;
(2) the [plaintiff] knows of the contract; (3) the [plaintiff] intentionally
induces the third person not to perform the contract; (4) and in doing so
acts without justification; (5) resulting in actual damage to [defendant].

United Labs., Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988)

(emphasis added).

15. To state a counterclaim for tortious interference with prospective economic

advantage, a defendant “must allege facts to show that the [plaintiff] acted without

justification in inducing a third party to refrain from entering into a contract with

[the defendant] which contract would have ensued but for the interference.” Window

Gang Ventures, Corp. v. Salinas, 2019 NCBC LEXIS 24, at *34 (N.C. Super. Ct. Apr.

2, 2019) (emphasis added) (internal quotation marks omitted) (quoting Walker v.

Sloan, 137 N.C. App. 387, 393, 529 S.E.2d 236, 242 (2000)). “[I]t is sufficient for a

party to state a claim for interference with ‘relations’ or ‘business relations’ when

referring to interference with existing contracts or the prospective likelihood of future

contracts.” Artistic S. Inc. v. Lund, 2015 NCBC LEXIS 113, at *27 (N.C. Super. Ct.

Dec. 9, 2015) (quoting Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C., 2002

NCBC LEXIS 2, at *29 (N.C. Super. Ct. July 10, 2002)).

16. As noted, Plaintiffs advance two grounds for dismissal of the Counterclaim.

First, Plaintiffs argue that the Counterclaim is barred by the economic loss rule.

(Mem. Law Supp. Pls.’ Mot. Dismiss 3 [hereinafter “Pls.’ Supp. Br.”], ECF No. 32.)

Second, in an argument advanced for the very first time at the Hearing but without
objection by Defendants, Plaintiffs contend that the Counterclaim must be dismissed

for failure to allege that Plaintiffs induced the Hospital not to perform its contract

with Cape Fear Neo and to refrain from further contracting with Cape Fear Neo. The

Court addresses each contention in turn.

A. Economic Loss Rule

17. In North Carolina, the economic loss rule “prohibits recovery for purely

economic loss in tort, as such claims are instead governed by contract law.” Lord v.

Customized Consulting Specialty, Inc., 182 N.C. App. 635, 639, 643 S.E.2d 28, 30

(2007) (citing Moore v. Coachmen Indus., Inc., 129 N.C. App. 389, 401, 499 S.E.2d

772, 780 (1998)). The rule’s rationale posits that while “[t]he average plaintiff in a

tort lawsuit does not choose his or her tortfeasors[,] [c]ontracting parties, by

comparison, have the ability to allocate risk among themselves at the outset of a

transaction and are encouraged to do so.” Crescent Univ. City Venture, LLC v. AP

Atl., Inc., 2019 NCBC LEXIS 46, at *76 (N.C. Super. Ct. Aug. 8, 2019) (citing Lord,

182 N.C. App. at 639, 643 S.E.2d at 30).

18. The result is that “[t]he tort claim ‘must be grounded on a violation of a duty

imposed by operation of law, and the right invaded must be one that the law provides

without regard to the contractual relationship of the parties.’ ” Window Gang

Ventures, 2019 NCBC LEXIS 24, at *24 (quoting Rountree v. Chowan Cty., 252 N.C.

App. 155, 160, 796 S.E.2d 827, 831 (2017)). In short, “a plaintiff must allege a duty

owed to him by the defendant [that is] separate and distinct from any duty owed
under a contract.” Artistic S., 2015 NCBC LEXIS 113, at *24 (quoting Akzo Nobel

Coatings, Inc. v. Rogers, 2011 NCBC LEXIS 42, at *48 (N.C. Super. Ct. Nov. 3, 2011)).

19. Plaintiffs contend that the Counterclaim is indistinct from Defendants’

counterclaim for breach of contract and is thus barred by the economic loss rule.

Plaintiffs argue that because the Hospital Agreement was fully incorporated into the

Employment Contracts, the Counterclaim—which is based on Plaintiffs’ alleged

interference with the Hospital Agreement—essentially seeks recovery for Plaintiffs’

alleged interference with their own Employment Contracts—which is the subject of

Defendants’ breach of contract counterclaim. Contending that a wrongful

interference claim cannot be based on a party’s inducement of a breach of the party’s

own contract, Plaintiffs argue that Defendants’ tort and breach of contract

counterclaims are fundamentally the same and that dismissal of the tort

counterclaim under the economic loss rule is appropriate. (July 16, 2020 Hr’g Tr.

11:22–12:5, 12:17–23, 23:11–23 [hereinafter “Tr.”], ECF No. 44; Pls.’ Supp. Br. 4–5.)

20. Defendants’ vigorously dispute Plaintiffs’ contention on both legal and

factual grounds. They argue that the breach of contract and wrongful interference

counterclaims are identifiable and distinct because the breach of contract

counterclaim is based on Plaintiffs’ alleged breach of the Employment Contracts’ non-

competition provisions and the wrongful interference counterclaim is based on

Plaintiffs’ alleged interference with Cape Fear Neo’s existing and prospective

contractual relationship with the Hospital. As such, Defendants contend that the

duty forming the basis of their wrongful interference counterclaim—namely, that
Plaintiffs have a legal duty arising from law to refrain from interfering with Cape

Fear Neo’s contract with the Hospital—is separate and distinct from Plaintiffs’

contractual duties not to compete with Cape Fear Neo. (Defs.’ Responsive Br. Opp’n

Pls.’ Mot. Dismiss 3–5, ECF No. 37.)

21. Defendants also point out that, contrary to Plaintiffs’ core premise, the

Employment Contracts expressly provide that they incorporate only “certain terms

and conditions” of the Hospital Agreement, not the Hospital Agreement in its

entirety. (Tr. 18:10–18, 22:13–23:1; Countercls. Ex. A ¶¶ 3, 17, 25 (incorporating

“certain terms and conditions” of the 1985 agreement between the Hospital and Dr.

Ciszek attached at ECF No. 41), Ex. B ¶¶ 3, 20, 28 (incorporating “certain terms and

conditions” of the 2000 Independent Contractor Agreement between the Hospital and

Cape Fear Neo), Ex. C ¶¶ 3, 20, 28 (same).) As such, Defendants argue that Plaintiffs’

“single contract” theory necessarily fails.

22. The Court concludes that Defendants have the better of this dispute,

although for somewhat different reasons. While the Court agrees with Defendants

that the Employment Contracts only partially incorporate the Hospital Agreement,

the Court does not find the resolution of this dispute dispositive on Plaintiffs’ Motion.

23. Rather, the question posed by the economic loss rule is whether Defendants’

Counterclaim is premised on the same legal duty as Defendants’ breach of contract

counterclaim. See, e.g., Akzo Nobel, 2011 NCBC LEXIS 42, at *48. Here, the answer

is no.
24. Defendants’ breach of contract counterclaim is based on Plaintiffs’ alleged

breach of their contractual duty to “not engage in the practice of neonatology, nor be

an officer, director, shareholder or employee of a corporation, nor an owner, investor

or employee of any other business in competition with the business of [Cape Fear Neo

in the identified territory].” (Countercls. ¶ 12, Ex. A ¶ 23, Ex. B ¶ 26, Ex. C ¶ 26.) By

the Employment Contracts’ plain terms, therefore, the duty not to compete that

underlies Defendants’ breach of contract counterclaim is limited to Plaintiffs’

performance of neonatology services and Plaintiffs’ participation in a business in

competition with Cape Fear Neo.

25. In contrast, Defendants’ wrongful interference counterclaim is based on

Plaintiffs’ alleged breach of their duty not to interfere with Cape Fear Neo’s existing

and prospective business relationships—in particular, its relationship with the

Hospital. Rather than arise from a duty under contract, this latter counterclaim

“arises from a common law duty of a third party not to interfere with another’s right

to freedom of contract or to enjoy the benefits thereof.” Smith Jamison Constr. v.

Apac-Atl., Inc., 257 N.C. App. 714, 719, 811 S.E.2d 635, 639 (2018).

26. As pleaded here, the duties underlying Defendants’ contract and tort

counterclaims are not the same. Significantly, Defendants have not alleged that Cape

Fear Neo’s existing and prospective contracts with the Hospital required that Cape

Fear Neo serve as the Hospital’s sole and exclusive supplier of neonatal services. As

a result, Plaintiffs’ alleged breach of their contractual duty not to compete by

providing neonatal services to the Hospital does not necessarily require or imply that
Plaintiffs have by this same conduct breached their duty in tort not to intentionally

induce the Hospital to breach the Hospital Agreement.

27. The Court thus concludes that Defendants’ wrongful interference

counterclaim is based on Plaintiffs’ common law duty to refrain from interfering in

the contractual and business affairs of others, which, as pleaded, is a duty separate

and distinct from any obligations imposed by the Employment Contracts. The

economic loss rule therefore does not bar Defendants’ Counterclaim. See, e.g.,

Provectus Biopharmaceuticals, Inc. v. RSM US LLP, 2018 NCBC LEXIS 101, at *55

(N.C. Super. Ct. Sept. 28, 2018) (declining to bar tort claims against accountant under

the economic loss rule where accountant “owed a duty to competently perform its

services independent of the contractual engagements between the parties”); Austin v.

Regal Inv. Advisors, LLC, 2018 NCBC LEXIS 3, at *27 (N.C. Super. Ct. Jan. 8, 2018)

(declining to bar breach of fiduciary duty claim under the economic loss rule where

plaintiff had a fiduciary duty under law independent of contract).

B. Failure to Plead Intentional Inducement

28. Plaintiffs’ second argument—alleging an absence of requisite pleaded

facts—posits that Defendants have not pleaded that Plaintiffs intentionally induced

the Hospital both not to perform its contract with Cape Fear Neo and to refrain from

further contracting with Cape Fear Neo. (Tr. 5:16–23, 15:9–17.) Defendants argue

to the contrary and principally rely on Paragraphs 9 and 37 of the counterclaims for

their support. (Tr. 21:13–23.)
29. Defendants allege in Paragraph 9 that the Hospital Agreement was Cape

Fear Neo’s sole contractual relationship and its only source of revenue. Paragraph

37 is more expansive and provides:

Upon information and belief, Plaintiffs have used Cape Fear Neo’s trade
secrets and confidential and proprietary information to interfere with
Cape Fear Neo’s business relationships and clients and have thereby
diverted income from Cape Fear Neo to Plaintiffs through the use of
Cape Fear Neo’s trade secrets and confidential information.

(Countercls. ¶ 37 (emphasis added).) Defendants contend that the “business

relationships” referenced in Paragraph 37 refer to Cape Fear Neo’s business

relationship with the Hospital and that, read together, these paragraphs provide the

necessary allegations of intentional inducement to sustain Defendants’ wrongful

interference counterclaim under Rule 12(b)(6).

30. The Court disagrees. At most, Defendants have alleged that Plaintiffs

entered into a contract with the Hospital and that the Hospital terminated its

contract with Cape Fear Neo. As noted above, Defendants have not alleged facts

showing that Cape Fear Neo had or was negotiating for an exclusive contract to

provide neonatology services at the Hospital, and the Counterclaim contains no

allegations of any “purposeful conduct,” “active persuasion,” “request,” or “petition”

by Plaintiffs to induce the Hospital not to perform its contract with Cape Fear Neo or

to refrain from entering a future contract with Cape Fear Neo. Charah, LLC v.

Sequoia Servs. LLC, 2019 NCBC LEXIS 18, at *18 (N.C. Super. Ct. Mar. 11, 2019)

(“This Court has interpreted ‘induce’ to mean ‘purposeful conduct,’ ‘active persuasion,
request, or petition.’ ” (quoting KRG New Hill Place, LLC v. Springs Invs., LLC, 2015

NCBC LEXIS 20, at *14–15 (N.C. Super. Ct. Feb. 27, 2015))).

31. The Court therefore concludes that the Motion should be granted and that

Defendants’ counterclaim for wrongful interference should be dismissed. See, e.g., Se.

Anesthesiology Consultants, 2019 NCBC LEXIS 52, at *31, *34–35, *37–38 (N.C.

Super. Ct. Aug. 20, 2019) (dismissing claims for tortious interference with contract

and prospective business relationships and economic advantage where plaintiffs

failed to sufficiently plead inducement). Because it appears to the Court that

Defendants’ pleading deficiencies may potentially be cured by amendment, however,

the Court elects to dismiss Defendants’ Counterclaim without prejudice. See, e.g.,

First Fed. Bank v. Aldridge, 230 N.C. App. 187, 191, 749 S.E.2d 289, 292 (2013) (“The

decision to dismiss an action with or without prejudice is in the discretion of the trial

court[.]”).

IV.

CONCLUSION

32. WHEREFORE, the Court hereby ORDERS that Plaintiffs’ Motion is

GRANTED, and Defendants’ counterclaim for wrongful interference is hereby

DISMISSED without prejudice.

SO ORDERED, this the 16th day of October, 2020.

/s/ Louis A. Bledsoe, III
Louis A. Bledsoe, III
Chief Business Court Judge