Gibbs International, Inc. v. Sarmad Harake and Eurosa, Inc.

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Gibbs International, Inc., Respondent,

v.

Sarmad Harake, Eurosa, Inc., and Katherine Harake,
Defendants,

of whom Sarmad Harake and Eurosa Inc. are the
Appellants.

Appellate Case No. 2020-001642

Appeal From Spartanburg County
Brian M. Gibbons, Circuit Court Judge

Unpublished Opinion No. 2024-UP-385
Heard February 6, 2024 – Filed November 13, 2024

REVERSED AND REMANDED

John Thomas Lay, Jr. and Curtis Lyman Ott, of Gallivan,
White & Boyd, PA, of Columbia; and Lindsay Anne
Joyner, of Gallivan, White & Boyd, PA, of Charleston,
all for Appellants.

Kevin A. Dunlap, of Parker Poe Adams & Bernstein,
LLP, of Greenville, for Respondent.
PER CURIAM: In this breach of contract action, Sarmad Harake (Harake) and
Eurosa, Inc. (Eurosa) (collectively, Appellants) appeal the circuit court's dismissal
of their counterclaim for tortious interference with economic interest. Appellants
argue the circuit court erred in dismissing this counterclaim because (1) it included
a valid claim for relief, (2) they were not given an opportunity to amend, and (3)
the dismissal was based in part on an instruction not to answer certain questions
during Harake's deposition, and such information is not part of the analysis under
Rules 12(b)(6) and 12(f), SCRCP. We reverse and remand.
FACTS AND PROCEDURAL HISTORY

This matter arose out of a business dispute between Eurosa, which Harake owned,
and Gibbs International Inc. (Gibbs). In March 2017, Gibbs filed a complaint
against Eurosa, IOTive, Inc., Harake, and Katherine Harake alleging breach of
contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duty, and other claims. 1 From January 2018, the parties have participated
in extensive discovery.
During his deposition, Harake stated Gibbs refused to become financially involved
with Paysend UK, another company Harake had acquired. Harake explained that
because he brought Gibbs into Paysend Processing, he was forced to exit Paysend
UK when Gibbs refused to take part. He stated the other investors did not want
him involved in Paysend UK while he was in a dispute with Gibbs. He testified
Paysend UK was worth $173 million at the time of his deposition. While agreeing
to produce the documentation regarding a loan, Harake stated, "Actually it will be
part of . . . the next phase, because there's a big damage that you caused me. And –
yeah somebody has to be responsible for it." When asked the amount of his
damages, Harake's counsel objected and instructed him not to answer the question
on the ground that it related to information protected by the work product doctrine.
Gibbs's counsel argued he had the right to ask the question because Harake raised
the issue. After taking a break, Harake's counsel decided not to withdraw her
objection and instruction because Gibb's counsel's questions related to information
Harake's counsel considered to be protected by attorney-client privilege and the
work product doctrine.
On August 3, 2020, Gibbs filed its third amended complaint, which included
claims for breach of contract and declaratory judgment, breach of the implied

1
Katherine Harake was voluntarily dismissed from the litigation on June 1, 2018,
but was brought back into the litigation as part of the third amended complaint.
She is not a party to this appeal.
covenant of good faith and fair dealing, breach of fiduciary duty, accounting,
invasion of privacy, conversion, unfair and deceptive trade practices, fraud, civil
conspiracy, unjust enrichment, and piercing the corporate veil. In their answer and
amended counterclaims, Appellants asserted counterclaims for breach of contract,
negligent misrepresentation, unjust enrichment, and tortious interference with
economic interest (the fourth counterclaim).
Appellants' counterclaim for tortious interference with economic interest stated
Gibbs, Eurosa, and another investor in a company called Paysend Processing came
to an agreement on the capital investments Paysend Processing needed. Gibbs
agreed to invest $1 million in Paysend Processing. Appellants contended that,
despite their agreement, Gibbs later refused to make any investments over
$250,000 in Paysend Processing. They also stated Gibbs knew Harake was the
appointed director of Paysend UK and had acquired a 100% interest in Paysend
UK. They alleged Gibbs's meeting with a potential investor caused the investor to
renege on his investment. Appellants also contended Gibbs refused to allow
another investor to buy it out of Paysend Processing or to transfer its investment in
Paysend Processing to Paysend UK, which would have rolled the two entities into
one. Appellants stated Gibbs's unjustified refusal forced Harake to purchase the
other investor's shares in Paysend Processing and to divest his shares of Paysend
UK. They asserted that if Gibbs had agreed to combine Paysend Processing and
Paysend UK, Eurosa would have owned 6.5% of the combined businesses and its
shares would have been worth $12 million. They also argued Gibbs's refusal to
allow the other investor to buy Gibbs out of Paysend Processing or to roll Paysend
Processing into Paysend UK led to Harake's 100% interest in Paysend UK—which
would have been worth over $10 million—being diluted to 1.16% because he was
unable to participate in the later rounds of investments made by other Paysend UK
investors.
Gibbs filed a motion to dismiss and strike the fourth counterclaim, arguing the
claim was not recognized in the state of South Carolina. Gibbs states that "[p]ast
attempts to bring tortious interference claims in South Carolina have been treated
as the tort of intentional interference with contractual relations." Gibbs's motion
also requested that the circuit court strike the intentional interference with
prospective contractual relations claim that Harake mentioned in his deposition. In
its memorandum in support of the motion to dismiss, Gibbs further argued the
circuit court should strike the fourth counterclaim because discovery on the issue
was wrongfully withheld when Appellants' counsel instructed Harake not to
answer questions during his deposition. It further contended Appellants did not
bring the fourth counterclaim until after Gibbs amended its complaint in August
2020, despite the fact that Appellants were aware of the possible damages at the
time of Harake's deposition in July 2019.

Appellants argued in opposition to Gibbs's motion to dismiss that the label on a
cause of action was not dispositive as to whether it was pled sufficiently. They
contended that even if the circuit court did not permit the cause of action for
tortious interference with an economic interest to proceed, it could disregard the
label and consider the fourth counterclaim as a claim for tortious interference with
contractual relations. Appellants asserted the fourth counterclaim alleged Gibbs
was aware of the existence of a contract requiring him to invest $1 million in
Paysend Processing; "refused without justification to meet its obligation under the
agreement; acted deliberately to discourage other investment; and refused to be
bought out from the agreement in an effort to salvage the company, intentionally
causing a breach of the agreement." Appellants further alleged that damages
resulted from Gibbs's actions. Appellants also argued they did not file a motion for
a protective order after Harake's deposition because Gibbs's counsel never
informed them the motion was needed, and the parties' counsel had agreed that if
such a motion needed to be filed, the opposing counsel would inform counsel who
gave the instruction. Additionally, they argued the instruction given during the
deposition did not provide a legal basis for striking the fourth counterclaim
because the pleading did not contain "redundant, immaterial, impertinent, or
scandalous matter" as required for the circuit court to strike a pleading pursuant to
Rule 12(f), SCRCP. 2

During the motions hearing, Gibbs again argued the circuit court should dismiss
the fourth counterclaim because South Carolina does not recognize the claim of
tortious interference with economic interest. Gibbs further argued the circuit court
should grant his motion to strike the fourth counterclaim pursuant to Rule 12(f),
SCRCP, because Appellants' counsel instructed Harake not to answer questions
regarding the claim during his deposition. Gibbs' counsel stated he would not
oppose Appellants' counsel's statement that the parties had an agreement regarding
when to file a motion for a protective order but argued its filing of a motion to
strike gave Appellants notice they needed to file a motion for a protective order.
Gibbs stated it wanted to ensure it would have the opportunity to depose Harake on
the fourth counterclaim, and it noted a motion to compel further testimony from
Harake on separate issues was under consideration at the time. Gibbs further

2
Rule 12(f), SCRCP (stating a motion to strike a pleading is proper for any
"insufficient defense or any redundant, immaterial, impertinent[,] or scandalous
matter").
asserted Appellants labeled the fourth counterclaim as tortious interference with
economic interest in their pleadings but were attempting "to slide this over into a
claim called intentional inference" because "they recognized that there is a mens
rea element of intentional interference that heightens what has to be shown [for
Gibbs to prevail]."
Appellants argued counsel instructed Harake not to answer the questions during his
deposition because they related to information protected by the work-product
doctrine and attorney-client privilege. Appellants also noted that when a motion to
strike is used to challenge the sufficiency of a pleading, the motion must be
analyzed as a Rule 12(b)(6), SCRCP, motion to dismiss, not a Rule 12(f), SCRCP,
motion. They contended the fourth counterclaim, which was labeled tortious
interference with economic interest, could be analyzed as a claim for tortious
interference with contractual relations because they alleged the elements of a
tortious interference with contractual relations claim in their pleadings. Appellants
stated Harake could be deposed on the fourth counterclaim, but the deposition
would be limited to questions about the fourth counterclaim.
At the end of the hearing, the circuit court granted Gibbs's motion to dismiss the
fourth counterclaim. Appellants filed a motion to alter or amend before the circuit
court issued a written order dismissing the fourth counterclaim. Appellants argued
the label on the fourth counterclaim was not dispositive when determining if it was
pled sufficiently and that the circuit court could construe the fourth counterclaim as
a claim for tortious interference with contractual relations. Appellants also argued
Rule 37, SCRCP, could not be the basis for striking the fourth counterclaim
because Gibbs did not confer with them before filing the motion as required by
Rule 11(a), SCRCP, and they did not fail to comply with an order as required to
sanction a party under Rule 37(b)(2)(C). They averred that "when a motion to
strike challenges a theory of recovery, the motion is to be treated as a Rule
12(b)(6), SCRCP, motion to dismiss," and therefore Rule 37, could not be the basis
for striking the fourth counterclaim. Appellants further asserted that if the circuit
court could not allow the claim for tortious interference with economic interest to
proceed under the original or revised label, they should be given the opportunity to
amend the pleading under Skydive Myrtle Beach, Inc. v. Horry County.3

3
426 S.C. 175, 826 S.E.2d 585 (2019) ("When a trial court finds a complaint fails
'to state facts sufficient to constitute a cause of action' under Rule 12(b)(6), the
court should give the plaintiff an opportunity to amend the complaint pursuant to
The circuit court issued an order granting Gibbs's motion to dismiss the fourth
counterclaim. It held it was proper to dismiss or strike the fourth counterclaim
because South Carolina does not recognize a claim for tortious interference with
economic interest. The circuit court noted Appellants requested the opportunity to
amend the counterclaim at the motion to dismiss hearing but not in their briefing
and that the circuit court did not allow an amendment at the hearing. The circuit
court also recognized that Appellants argued the fourth counterclaim should be
converted to an intentional interference with contractual relations claim, but the
circuit court stated it did not redraft the counterclaim at the time of the hearing.
The circuit court stated it was undisputed that Appellants failed to file a motion for
a protective order within five business days of Gibbs filing its motion to strike or
within five business days of the hearing where Gibbs notified Appellants that it
based its motion to strike on the instruction not to answer. The circuit court held
that Harake's refusal to testify about the basis for the fourth counterclaim justified
dismissal "pursuant to Rule 12(b)(6), and/or Rule 12(f), SCRCP." The circuit
court issued a separate order denying Appellants' motion to alter or amend without
further explanation. This appeal followed.

ISSUES ON APPEAL

1. Did the circuit court err in dismissing Appellants' fourth counterclaim pursuant
to Rules 12(b)(6) and 12(f), SCRCP, when the counterclaim contained allegations
that state a valid claim for relief?
2. Did the circuit court err in dismissing Appellants' fourth counterclaim without
permitting them an opportunity to amend?

3. Did the circuit court err in dismissing Appellant's fourth counterclaim based on
an instruction not to answer questions in Harake's deposition because such
information is not part of the analysis under Rules 12(b)(6) and 12(f), SCRCP?

STANDARD OF REVIEW

"In reviewing the dismissal of an action pursuant to Rule 12(b)(6), SCRCP, the
appellate court applies the same standard of review as the trial court." Doe v.
Marion, 373 S.C. 390, 395, 645 S.E.2d 245, 247 (2007). "A motion to dismiss a
counterclaim must be based solely on the allegations set forth in the counterclaim."
Charleston Cnty. Sch. Dist. v. Laidlaw Transit, Inc., 348 S.C. 420, 424, 559 S.E.2d

Rule 15(a)[, SCRCP,] before filing the final order of dismissal." (quoting Rule
12(b)(6))).
362, 364 (Ct. App. 2001). "If the facts alleged and inferences reasonably deducible
therefrom, viewed in the light most favorable to the [claimant], would entitle the
[claimant] to relief on any theory, then dismissal under Rule 12(b)(6) is improper."
Doe, 373 S.C. at 395, 645 S.E.2d at 247. "The counterclaim should not be
dismissed merely because the trial court doubts the complainant will prevail in the
action." Charleston Cnty. Sch. Dist., 348 S.C. at 424, 559 S.E.2d at 364.
"A motion to strike, challenging a theory of recovery in the complaint, is
comparable to a motion to dismiss under Rule 12(b)(6), SCRCP." Robinson v.
Code, 384 S.C. 582, 585, 682 S.E.2d 495, 496 (Ct. App. 2009). "A court should
not strike a cause of action merely because the court doubts the [claimant] will
prevail in the action." Id. at 585, 682 S.E.2d at 496. "[A motion to strike] cannot
be sustained if the facts alleged and the inferences reasonably deducible therefrom
would entitle the plaintiff to any relief on any theory of the case." McCormick v.
England, 328 S.C. 627, 633, 494 S.E.2d 431, 433 (Ct. App. 1997). "The question
is whether in the light most favorable to the [claimant], and with every reasonable
doubt resolved in her behalf, the complaint states any valid claim for relief." Id. at
633, 494 S.E.2d at 433-34.

LAW AND ANALYSIS

I. Valid Claim for Relief
Appellants argue the circuit court erred in dismissing the fourth counterclaim
because it stated a valid claim for relief. They assert the dismissal was based on the
title of the fourth counterclaim, not the substance of the law. They contend that even
if no cause of action exists in South Carolina for "tortious interference with an
economic interest," this court should "consider whether the substantive allegations
[within] that counterclaim state any valid claim or theory of relief – such as for
tortious interference with contractual relations." Appellants argue the elements of a
claim for tortious interference with contractual relations were pled. We agree.

We hold the circuit court erred in dismissing the fourth counterclaim because,
viewed in the light most favorable to Appellants, the fourth counterclaim included
facts sufficient to support a cause of action for intentional interference with
contractual relations. See Doe, 373 S.C. at 395, 645 S.E.2d at 247 ("If the facts
alleged and inferences reasonably deducible therefrom, viewed in the light most
favorable to the [claimant], would entitle the [claimant] to relief on any theory, then
dismissal under Rule 12(b)(6) is improper."). In the fourth counterclaim, which was
labeled "tortious interference with economic interest," Appellants alleged Gibbs
knew Harake was appointed as a director of, and had acquired a 100% interest in,
Paysend UK. The counterclaims stated Gibbs refused without justification to allow
another investor to buy it out of Paysend Processing or to roll Paysend Processing
into Paysend UK, and this decision damaged Appellants because it forced Harake to
divest his shares in Paysend UK. Therefore, we hold Appellants' pleadings included
the elements required for an intentional interference with contractual relations claim
despite the fact that it was labeled as a claim for tortious interference with economic
interest. See Kinard v. Crosby, 315 S.C. 237, 240, 433 S.E.2d 835, 837 (1993) ("To
establish intentional interference with a contractual relationship[,] the plaintiff must
prove: (1) a contract; (2) the wrongdoer's knowledge thereof; (3) his intentional
procurement of its breach; (4) the absence of justification; and (5) the damage
resulting therefrom."); see also Camp v. Springs Mortg. Co., 310 S.C. 514, 426
S.E.2d 304 (1992) (listing the same elements for a tortious interference with a
contract cause of action as those required for an intentional interference with a
contractual relationship cause of action); Prior v. S.C. Med. Malpractice Liab. Ins.
Joint Underwriting Ass'n, 305 S.C. 247, 249, 407 S.E.2d 655, 657 (Ct. App. 1991)
(per curiam) (providing the court, in examining the complaint, must look beyond the
labels describing the acts to the acts themselves that form the basis of the claim).
Accordingly, we hold the circuit court erred in dismissing Appellants' fourth
counterclaim under Rule 12(b)(6).
II. Opportunity to Amend
Appellants argue the circuit court erred in dismissing the fourth counterclaim
without giving them the opportunity to amend the claim pursuant to Skydive. They
contend the amendment was not futile and that allowing the amendment would not
amount to undue delay or put Gibbs at a disadvantage in defending the merits.
Because we hold that the circuit court erred in dismissing Appellant's fourth
counterclaim when they alleged facts that would support a claim for intentional
interference with contractual relations, this court need not address this issue. See
Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d
591, 598 (1999) (providing an appellate court need not address the appellant's
remaining issues when its determination of a prior issue is dispositive of the
appeal).
III. Instruction not to Answer Deposition Question

Appellants argue the circuit court erred in basing its dismissal of the fourth
counterclaim in part on their failure to file a motion for a protective order
following counsel's instruction for Harake not to answer a question regarding
privileged information during his deposition. They contend striking the fourth
counterclaim pursuant to Rules 12(b)(6) and 12(f), SCRCP was improper because
it "conflated a discovery dispute with a dismissal standard." They also aver the
circuit court erred because Gibbs did not identify an order they violated and the
circuit court did not determine such an order existed when striking the claim
pursuant to Rule 12(f). We agree.

Rule 30(j)(3), SCRCP, states
Counsel shall not direct or request that a witness not
answer a question, unless that counsel has objected to the
question on the ground that the answer is protected by a
privilege or a limitation on evidence directed by the court
or unless that counsel intends to present a motion under
Rule 30(d), SCRCP. . . . Counsel directing that a witness
not answer a question on those grounds or allowing a
witness to refuse to answer a question on those grounds
shall move the court for a protective order under Rule
26(c), SCRCP, or 30(d), SCRCP, within five business
days of the suspension or termination of the deposition.
Failure to timely file such a motion will constitute waiver
of the objection, and the deposition may be reconvened.

(footnote omitted). "Violation of this rule may subject the violator to sanctions
under Rule 37, SCRCP." Rule 30(j)(9), SCRCP. "Actions taken in a deposition
designed to prevent justice, delay the process, or drive up costs are improper and
warrant sanctions." In re Anonymous Member of S.C. Bar, 346 S.C. 177, 194, 552
S.E.2d 10, 18 (2001). "In addition to their traditional contempt powers, judges
may issue orders as a sanction for improper deposition conduct . . . striking out
pleadings or parts thereof . . . ." Id.; Rule 37(b)(2)(C) (stating the court may make
an order striking out pleadings if a party fails to comply with an order to permit
discovery).

"A court must consider four factors when determining the appropriate discovery
sanction: the nature of discovery sought, the discovery stage of the case,
willfulness, and the degree of prejudice." Richardson ex rel. 15th Cir. Drug Enf't
Unit v. Twenty-One Thousand & no/100 Dollars ($21,000.00) U.S. Currency &
Various Jewelry, 430 S.C. 594, 600, 846 S.E.2d 14, 17 (Ct. App. 2020). "If the
court does not consider these factors, an abuse of discretion occurs." Id.
In their reply brief, Appellants argue that Gibbs's motion pursuant to Rule 37,
SCRCP, should not be considered as an additional sustaining ground because
Gibbs failed to consult with Appellants before filing its motion to strike as required
by Rule 11, SCRCP.

All motions filed shall contain an affirmation that the
movant's counsel prior to filing the motion has
communicated, orally or in writing, with opposing
counsel and has attempted in good faith to resolve the
matter contained in the motion, unless the movant's
counsel certifies that consultation would serve no useful
purpose, or could not be timely held.

Rule 11, SCRCP. "The penalty for noncompliance [with Rule 11] is to strike the
motion unless the attorney promptly amends the document to comply with the
rule." Jackson v. Speed, 326 S.C. 289, 310, 486 S.E.2d 750, 761 (1997). In
Jackson, our supreme court held the circuit court did not abuse its discretion in
refusing to strike the motion for attorney's fees because its finding that consultation
would have been pointless was adequate to cure the deficiency under the facts of
the case. Id. at 310-11, 486 S.E.2d at 761.

We hold the circuit court did not abuse its discretion in considering Gibbs's
argument regarding sanctions under Rule 37, SCRCP. We acknowledge Gibbs
failed to consult with Appellants in an effort to resolve the issue before filing the
motion to dismiss, but we hold such efforts would have likely been futile
considering Gibbs's motion was to dismiss Appellants' fourth counterclaim due to
their failure to file a motion for a protective order. 4 Although the circuit court did
not make a specific ruling excusing Gibbs's Rule 11 violation, the circuit court's
denial of Appellant's motion to alter or amend, which included their argument that
Gibbs did not consult with them before filing its motion to strike as required by
Rule 11, implicitly found consultation with opposing counsel would be futile. See
Rule 11, SCRCP (requiring "[a]ll motions filed shall contain an affirmation that the
movant's counsel prior to filing the motion has communicated, orally or in writing,
with opposing counsel and has attempted in good faith to resolve the matter . . .
unless the movant's counsel certifies that consultation would serve no useful
purpose, or could not be timely held"); Jackson, 326 S.C. at 310-11, 486 S.E.2d at
761 (holding the circuit court did not abuse its discretion in refusing to strike the

4
Gibbs did not raise the argument that dismissal of the fourth counterclaim was an
appropriate sanction under Rule 37, SCRCP, in the motion to dismiss, but instead
raised it in its memorandum supporting the motion, which it filed the day of the
hearing.
motion for attorney's fees because its finding that consultation would have been
pointless was adequate to cure the deficiency under the facts of the case).

However, we hold the circuit court erred in striking the fourth counterclaim based
on Rule 37, SCRCP. See Rule 37(b)(2)(C), SCRCP (stating the court may make an
order striking out pleadings if a party fails to comply with an order to permit
discovery). First, we hold Appellants likely did not violate Rule 30(j)(3) when
Appellants' counsel instructed Harake not to answer questions during his
deposition because the questions related to information counsel asserted was
protected by the work-product doctrine and attorney-client privilege. See Rule
30(j)(3), SCRCP ("Counsel shall not direct or request that a witness not answer a
question, unless that counsel has objected to the question on the ground that the
answer is protected by a privilege. . . ."). Second, we hold Appellants' counsel's
failure to file a motion for a protective order after instructing Harake not to answer
questions during his deposition entitled Gibbs to reconvene the deposition to
question Harake further on the issues, as permitted by Rule 30(j)(3), but it did not
warrant sanctions. See Rule 30 (j)(3) (stating that counsel instructing a witness not
to answer a question during a deposition must file a motion for a protective order
within five days, and failure to do so constitutes a waiver of the objection and
allows the deposition to reconvene). There is no indication in the record that Gibbs
attempted to reconvene the deposition to further question Harake about the
damages related to the fourth counterclaim. Additionally, even if the circuit court's
finding that Appellants' behavior required sanctions was correct, we hold the
circuit court abused its discretion in striking the fourth counterclaim because it
failed to consider the four factors for determining the appropriate discovery
sanction as required. See Richardson, 430 S.C. at 600, 846 S.E.2d at 17 ("A court
must consider four factors when determining the appropriate discovery sanction:
the nature of discovery sought, the discovery stage of the case, willfulness, and the
degree of prejudice."); id. ("If the court does not consider these factors, an abuse of
discretion occurs."). We also note that Gibbs failed to inform Appellants they
needed to file a motion for a protective order despite the fact that Appellants and
Gibbs had agreed that if such a motion needed to be filed, the opposing counsel
would inform counsel who gave the instruction. Accordingly, we hold the circuit
court erred in basing its decision to dismiss the fourth counterclaim on Appellants'
failure to file a motion for a protective order.

CONCLUSION
Based on the foregoing, the circuit court's grant of Gibbs's motion to dismiss
Appellants' fourth counterclaim is
REVERSED AND REMANDED.

GEATHERS, HEWITT, and VINSON, JJ., concur.