FS Medical Supplies, LLC v. TannerGAP, Inc. et al

1
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:21-cv-00501-RJC-WCM
FS MEDICAL SUPPLIES, LLC, )
)
Plaintiff, )
) MEMORANDUM AND
) RECOMMENDATION
v. 	)
)
TANNERGAP, INC.; )
TANNER PHARMA UK LIMITED; )
RAYMOND FAIRBANKS BOURNE; )
and STEPHEN JOHN SCALIA, )
)
Defendants. )
_____________________________________ )
This matter is before the Court on the following motions:
1. Tanner Pharma UK Limited’s Rule 12(b)(2) Motion to Dismiss Amended
Complaint (Doc. 62);
2. Tanner Pharma UK Limited’s Rule 12(b)(6) Motion to Dismiss Amended
Complaint (Doc. 65);
3. TannerGAP, Inc.’s Rule 12(b)(6) Motion to Dismiss Amended Complaint
(Doc. 67);
4. Defendant Stephen John Scalia’s Motion to Dismiss Plaintiff’s Amended
Complaint Pursuant to Rule 12(b)(6) (Doc. 69); and
5. Defendant Raymond Fairbanks Bourne’s Motion to Dismiss Amended
Complaint Under Rules 9(b) and 12(b)(6) (Doc. 71).
I. Procedural Background
On or about March 24, 2021, FS Medical Supplies, LLC (“FSMS”) filed a
complaint against TannerGAP, Inc. (“GAP”), Tanner Phrama UK, Limited
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(“TPUK”) and “Does 1 through 50” in California state court. See Doc. 16-7 (the
“Original Action”). GAP and TPUK removed the Original Action to the United
States District Court for the Northern District of California and moved to
dismiss based on a lack of personal jurisdiction.
On July 12, 2021, the court in the Northern District of California granted
the motion and dismissed FSMS’s complaint without prejudice. Doc. 16-7 at
10.
On September 23, 2021, FSMS filed its original complaint in the instant
matter naming GAP and TPUK as defendants. Doc. 1.
In response, GAP and TPUK filed a motion to dismiss asserting, among
other things, that this Court lacked personal jurisdiction over TPUK. See Docs.
15, 16.
On January 14, 2022, the parties filed a Notice stating that they had
agreed to conduct early discovery related to jurisdictional issues. Doc. 19.
On March 8, 2022, the Court stayed this matter to allow the parties to
conduct early jurisdictional discovery, denied the motion to dismiss without
prejudice, and directed FSMS to file an Amended Complaint, or a notice of its
intent not to amend, on or before April 22, 2022. Doc. 21.
Following multiple extensions of the deadline for the parties to complete
jurisdictional discovery, see Docs. 22, 23, 26, 27, 34, 36, FSMS filed both sealed
and redacted versions of an Amended Complaint. Docs. 40, 58. The Amended
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Complaint added Raymond Fairbanks Bourne (“Bourne”) and Stephen John
Scalia (“Scalia”) as defendants.
On October 14, 2022, Defendants filed the pending Motions to Dismiss.
Docs. 62, 65, 67, 69, 71. The Motions have been fully briefed, and a lengthy
hearing was conducted on May 16, 2023, after which the Motions were taken
under advisement. This Memorandum and Recommendation now follows.
II. The Amended Complaint
The Amended Complaint alleges as follows:
A. The Parties
GAP and TPUK (the “Corporate Defendants”) “along with other
affiliates,” hold themselves out as the “Tanner Pharma Group” Doc. 58 at 3.
The Tanner Pharma Group’s website describes the Group as “a 20-year-old
specialist pharmaceutical services provider headquartered in Charlotte.” Id. at
3. FSMS contends that Bourne and Scalia (the “Individual Defendants”)
“direct, control, and coordinate the activities of [the Corporate Defendants]
from the corporate headquarters of Tanner Pharma Group in Charlotte, North
Carolina.” Id. at 4.
Bourne is the sole officer of GAP, the sole director of TPUK, and the
owner of 75% of the shares of TPUK. Doc. 58 at 3. “The Tanner Pharma Group
website says [Bourne] is the ‘founder and CEO of Tanner Pharma Group.’” Id.
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Scalia is described on the Tanner Pharma Group website as being the
“President of ‘Tanner Pharma Group’…” Id.
Both Bourne and Scalia are domiciled in North Carolina. Id. at 3-4.
FSMS was established in March of 2020 “at the beginning of the COVID-
19 pandemic in order to source personal protective equipment (‘PPE’) and other
COVID-related products.” Doc. 58 at 4. FSMS had an established relationship
with Orient Gene, “a well-respected manufacturer of medical supplies and
devices…,” and had executed, on May 25, 2020, a “Framework Purchase
Agreement” with Orient Gene and Healgen (a subsidiary of Orient Gene) for
the purchase of antigen rapid tests and other medical supplies. Id. at 6.
B. The Non-Circumvention Agreement (Doc. 77-3)
On June 2, 2020, Jonathan Bracey (“Bracey”), a TPUK employee located
in the United Kingdom, emailed FSMS on behalf of Bourne. Bracey described
the Tanner Pharma Group as “international distributors of mainly
pharmaceutical products” and stated that many of the Group’s customers were
coming to the Group “with PPE enquiries” such that the Group was “actively
looking for appropriate partners to support that…” Id. at 5-6. It appears that
following a conversation with FSMS, Bracey wrote to FSMS stating that he
needed to “catch up” with his “boss” in Charlotte. Id. The next day, Bracey
requested a follow up call and explained that the “Tanner Pharma Group
wanted to focus on ‘rapid test kits and prices’” from Healgen. Id.
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On June 8, 2020, GAP and FSMS executed a Mutual Non-Disclosure and
Non-Circumvention Agreement (the “Non-Circumvention Agreement”). The
Non-Circumvention Agreement recited that FSMS had relationships with
manufacturers of PPE including diagnostic rapid tests, that GAP had
relationships with “healthcare distributors who purchase such products,” and
that the parties wished to “form a business relationship to sell PPE to such
consumer retailers.” The Non-Circumvention Agreement further stated that
FSMS’s relationships with manufacturers of PPE were considered “Personal
Relationships” to FSMS and that GAP would not conduct business with such
entities “without the express written permission” of FSMS. Id. at 7.
Also on June 8, Scalia promised to send FSMS a distribution agreement
to “memorialize our partnership.” Id. at 7.
C. The Sample Test Kits
On August 29, 2020, Bracey informed FSMS that the Tanner Pharma
Group had an “urgent opportunity to bid on selling a large amount of antigen
rapid test kits to the UK Government” and needed to provide 500 units for
quality testing as quickly as possible. Id. at 8. Based on FSMS’s prior
relationship with Orient Gene, FSMS was able to procure the 500 units on
September 2. Id. at 9. “Because the 500 sample units were a small order, Orient
Gene charged FSMS a price of $5.00 per unit; lower prices would be available
for larger orders.” Id. The 500 sample tests arrived in the United Kingdom on
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September 7, and on September 9, Bracey told FSMS that they had “passed
[the] first stage of validation.” Id. at 9.
On September 10, Bracey asked FSMS to “press” Orient Gene to provide
an additional 4,250 samples on an urgent basis. FSMS worked with Orient
Gene to obtain these units, and they were provided to the United Kingdom on
September 23. Id. at 10. “Again, because the 4,250 sample units were a small
order, Orient Gene charged FSMS a price of $5.00 per unit.” Id.
FSMS contends that sending the sample products to the United Kingdom
Government for trial testing ahead of other competitors “ensured that Orient
Gene’s products were the first antigen test certified by UK authorities, locked
in the first-mover advantage, and paved the way for what would become a
multi-billion-dollar relationship.” Id. at 10. FSMS further contends that it did
this work “with the understanding that the commercial relationship between
FSMS and the Corporate Defendants would be a ‘profit split’ in which the
Corporate Defendants would pay FSMS its true direct costs, plus half of the
gross profit collected from the sale of the product to the Corporate Defendants’
customers.” Id. at 10.
D. The Distribution Agreement
On September 11, 2020, FSMS signed a Distribution Agreement with
GAP and TPUK. Id.; Doc. 77-1. The Distribution Agreement defined GAP and
TPUK, collectively, as “TANNER” and expressly included Orient Gene antigen
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rapid test kits in the definition of “Covered Products.” Doc. 58 at 10-11; Doc.
77-1, Section 4. In the Distribution Agreement, Tanner agreed that it would
collaborate with FSMS “prior to quoting, shipping or otherwise distributing
Covered Product in any country for the first time.” Doc. 58 at 11; Doc. 77-1,
Section 7.1. The Distribution Agreement also stated that Tanner agreed to
purchase the Covered Products “from FSMS (or directly from the manufacturer
of a Covered Product if directed by FSMS) to supply such Covered Products in
the Territory….” Doc. 58 at 11; Doc. 77-1, Section 7.
Section 9 of the Distribution Agreement provided as follows:
The price (“Unit Price”) payable by TANNER to FSMS
for each package unit of a Covered Product…shall be
the true direct cost (the “Direct Cost”) of the product
as purchased by FSMS from its
manufacturer/supplier, … plus half of the Gross
Product collected from the sale of the product to
TANNERS’s customer.
Id. at 11; Doc. 77-1 at 4.1
Section 10 of the Distribution Agreement provided that:
If TANNER identifies an opportunity to quote the
Covered Products for a customer in the Territory, then
TANNER will collaborate with FSMS to set the best
price to maximize the likelihood of winning the
1 The Distribution Agreement and the Non-Circumvention Agreement may be
considered in connection with the motions made pursuant to Rule 12(b)(6). See
Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009) (stating that courts
may take judicial notice of matters of public record, documents attached to the
complaint, and documents attached to the motion to dismiss so long as they are
integral to the complaint and authentic); Witthohn v. Fed. Ins. Co., 164 Fed. Appx.
395, 396 (4th Cir. 2006).
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business and making a profit. If TANNER's quote is
successful and TANNER desires to purchase units of a
Covered Product, then TANNER shall deliver a
written or electronic purchase order (each, a "Purchase
Order" or "PO"), during the Distribution Term for the
Covered Products stating the quantity of units of the
Covered Product along with a statement from
TANNER that it has received approval from the
government authorities in the Territory to import the
ordered Covered Product(s) into the Territory.
TANNER's order for the Covered Product constitutes
an offer by TANNER to purchase the Covered
Products in accordance with this Agreement.
TANNER's order shall be deemed accepted when
FSMS provides any written confirmation of the PO (a
"Sales Order Confirmation") including via email or
authorizes shipment of the relevant Covered Products
to TANNER through FSMS's standard and usual
distribution channel. This Agreement shall allow
TANNER to enter into a direct PO or contract with the
manufacturer of a Covered Product so long as the
financial arrangement outlined in Section 9 above
shall be maintained as if TANNER purchased Covered
Products directly from FSMS with a 50% gross profit
participation to each Party.
Doc. 58 at 12; Doc. 77-1 at 4.
Additionally, Section 19.1 provided that the parties would “implement
regular product reporting transmitting to FSMS mutually agreed data
elements (‘Data Reports’), on at least a monthly basis, so that FSMS will
receive, for all ordered Covered Products, information as permitted by
Applicable Law, regarding the quantity, use and destination of all ordered
Covered Products.” Doc. 58 at 12; Doc. 77-1 at 7-8.
Section 16.4 of the Distribution Agreement provided that:
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In the case of termination by either Party, the separate
Mutual Non-Disclosure & Non-Circumvention
Agreement dated June 8, 2020 between the Parties
shall remain in place and in effect and neither Party
shall circumvent the other Party with any relationship
originally established by the first Party. To be clear,
the manufacturer of any Covered Product shall be
considered a prior relationship of FSMS in regard to
the Covered Product and TANNER will not do any
business involving of said Covered Products from such
manufacturer.
Doc. 58 at 12; Doc. 77-1 at 7.
E. The Alleged Breaches
1. United Kingdom Sales
FSMS asserts that even before signing the Distribution Agreement,
“Defendants began coopting” FSMS’s relationship with Orient Gene. Doc. 58
at 12. Specifically, on September 9, Bracey “began pressuring FSMS to put
Defendants directly in touch with Orient Gene” and explained that he (Bracey)
needed to know “Who our point of contact is - and talking with them directly.
How the process works for them. Setting up our account (QA and finance
matters related to that). All standard stuff that you do with a new supplier.
But we need to talk with them directly[.]” Id. at 13.
On September 10, FSMS agreed to set up a call with Orient Gene, and
by September 15, “Tanner Pharma Group executives had already set up direct
calls among themselves,” Orient Gene, and representatives of the United
Kingdom Government. Id. at 13-14. FSMS contends that Defendants did not
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keep FSMS informed of these communications, and that on September 23,
TPUK executed a “direct, secret contract with Orient Gene to purchase antigen
rapid test kits to sell to the UK Government.” Id. at 14.
On September 29, FSMS asked Bracey for an update, but Bracey
did not tell FSMS that Tanner Pharma UK had
entered into a contract with Orient Gene. He did not
tell FSMS that Tanner Pharma UK had ordered
hundreds of thousands of units from Orient Gene. He
did not tell FSMS the price Defendants had negotiated
with Orient Gene. He responded deceptively: “waiting
to hear test results next week.”
Doc. 58 at 15.
On October 3, TPUK and the United Kingdom Government signed a
contract for the supply of antigen rapid test kits from Orient Gene in two
shipments for a total price of approximately $13,000,000.00. Id. at 15.
Defendants did not inform FSMS of this fact and did not inform FSMS of
subsequent developments relative to future purchase orders. Id; see also id. at
15-16 (regarding FSMS’s requests for updates on October 9, October 13, and
October 19, and Bracey’s responses).
On October 22, Scalia wrote to FSMS: “[W]e are processing a conditional
transaction for Orient Gene Antigen Rapid Test Cassettes for the UK
Government…. a total of 2mm units…. This is an estimate of how the numbers
are shaping up:…
Cost per unit: $5/ea.” Id. at 16 (emphasis in Amended
Complaint). FSMS contends Scalia’s statement was false and misleading
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because TPUK had paid Orient Gene less than $5.00 per unit, and because
TPUK was working on a much bigger order. Id. FSMS “immediately
responded” to Scalia and stated that “[a]s discussed, we asked to be included
in all conversations and correspondence with [Orient Gene]. Beyond being
informed, it is important for us to [] lead any negotiations with them, including
on pricing.” Id. at 16.
On October 23, FSMS spoke with Scalia and Bracey, who “finally
admitted” that TPUK had entered into a direct contract with Orient Gene. Id.
at 17. FSMS requested all correspondence and contracts between TPUK and
Orient Gene, but Scalia and Bracey “refused to provide the information,
referencing a non-disclosure provision included in” the contract between TPUK
and Orient Gene. Id. Scalia did admit the following day, though, that TPUK
had gotten a “better price” than $5.00 per unit. Id.
On November 15, Scalia provided FSMS with “‘the profit split in
accordance with our agreement’ for Tender No. 1 in the amount of the
2,000,000 units.” Id. at 17.2 That calculation reflected a cost basis of $5.00 per
unit and indicated that the amount due to FSMS would be $1,200,000.00. Id.
On February 11, 2021, Scalia sent reconciliation sheets to FSMS
purporting to compute FSMS’s share of gross profits on the first three sales to
2 The Amended Complaint references Tenders 1, 2, and 3, but does not give further
details regarding the amount of units included in each.
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the United Kingdom. Id. at 18. The reconciliations all used $5.00 per unit as
the cost, “despite the fact that the true cost was far less.” Id. Scalia claimed
that FSMS had already been paid with respect to “Tender No. 1,” was owed a
profit share of $5,300,000.00 for “Tender No. 2,” and that “because the antigen
rapid test kits were sold to the UK Government for less than the $5.00 per-unit
price purportedly paid to Orient Gene, no profit split was owed” with respect
to “Tender No. 3.” Id.
FSMS alleges that the United Kingdom Government has awarded
approximately $2 billion in contracts to TPUK for the sale of Orient Gene’s
antigen rapid test kits through August 2022, and that GAP, TPUK “and other
affiliates” continue to sell Orient Gene-supplied products to the United
Kingdom Government and other customers without paying the amounts owed
to FSMS. Id.
2. Other Sales
FSMS also alleges that in January 2021, GAP, and later TPUK,
generated purchase orders addressed to Orient Gene for antigen rapid test kits
to be supplied to the Turks and Caicos Hotel & Tourism Association. Id. at 19.
In March 2021, TPUK completed additional orders of Orient Gene’s
antigen rapid test kits to the “Caribbean and Turks and Caicos.” Id. at 20.
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In April 2021, Scalia sent FSMS a reconciliation for these sales, again
using the $5.00 per unit cost basis “even though that was not the true cost….”
Id.
FSMS alleges that in addition to these sales, employees of GAP and
TPUK continued to sell Orient Gene test kits in additional markets including
Australia, Mexico, Brazil, and Argentina, without collaborating with FSMS.
Id.
F. Claims by FSMS
FSMS asserts the following claims: (1) breach of the Distribution
Agreement (against the Corporate Defendants); (2) breach of the Non-
Circumvention Agreement (against the Corporate Defendants); (3) breach of
the implied covenant of good faith and fair dealing (against the Corporate
Defendants); and (4) Unfair and Deceptive Trade Practices in violation of
North Carolina General Statute § 75-1.1
et seq. (the “Chapter 75 claim”)
(against the Corporate and Individual Defendants).
III. Legal Standards
A. Rule 12(b)(2)
“Under Rule 12(b)(2), a defendant must affirmatively raise a personal
jurisdiction challenge, but the plaintiff bears the burden of demonstrating
personal jurisdiction at every stage following such a challenge.” Grayson v.
Anderson, 816 F.3d 262, 267 (4th Cir. 2016).
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If the court “addresses the personal jurisdiction question by reviewing
only the parties’ motion papers, affidavits attached to the motion, supporting
legal memoranda, and the allegations in the complaint, a plaintiff need only
make a prima facie showing of personal jurisdiction to survive,” id. at 268, with
the court “draw[ing] all reasonable inferences arising from the proof, and
resolv[ing] all factual disputes, in the plaintiff's favor.” Mylan Lab'ys, Inc. v.
Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993).
However, if the court provides “the parties a fair opportunity to present
both the relevant jurisdictional evidence and their legal arguments,” “it must
hold the plaintiff to its burden of proving facts, by a preponderance of the
evidence, that demonstrate the court's personal jurisdiction over the
defendant.” Grayson, 816 F.3d at 268.
Here, because the parties have been given an opportunity to conduct
jurisdictional discovery and present their arguments during a hearing, the
question is whether FSMS has carried its burden of establishing personal
jurisdiction over TPUK by a preponderance of the evidence. See Sneha Media
& Entertainment, LLC v. Associated Broadcasting, 911 F.3d 192, 197 (4th Cir.
2018); Grizzard v. LG Chem Ltd., --- F.Supp.3d ---, 2022 WL 17076706, at *4
n. 10 (E.D. Va. Nov. 18, 2022) (noting that not all evidentiary hearings involve
evidence taken orally in open court and finding that "the jurisdictional
discovery conducted by the Parties and the presentation of evidence to this
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court in the thorough submissions, with supporting documentation ... and
accompanying text, satisfies the 'evidentiary hearing' requirement").
B. Rule 12(b)(6)
When considering a motion made pursuant to Rule 12(b)(6), the court,
accepting the allegations in the complaint as true and construing them in the
light most favorable to the plaintiff, determines “whether the complaint on its
face states plausible claims upon which relief can be granted.” Francis v.
Giacomelli, 588 F.3d 186, 189, 192 (4th Cir. 2009); accord Nemet Chevrolet,
Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009).
The court, however, is not required to accept “legal conclusions, elements
of a cause of action, and bare assertions devoid of further factual
enhancement.” Consumeraffairs.com, 591 F.3d at 255; see Giacomelli, 588 F.3d
at 192. That is, while “detailed factual allegations” are not required, the
complaint must contain “enough facts to state a claim to relief that is plausible
on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); accord
Consumeraffairs.com, 591 F.3d at 255. “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009); accord Consumeraffairs.com, 591 F.3d at 255.
In short, the well-pled factual allegations must move a plaintiff’s claim from
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conceivable to plausible. Twombly, 550 U.S. at 570; Consumeraffairs.com, 591
F.3d at 256.
IV. Discussion
A. Rule 12(b)(2) Motion to Dismiss (Doc. 62)
In its Amended Complaint, FSMS alleges that the Corporate Defendants
contractually consented to personal jurisdiction in this district. FSMS
additionally alleges that all Defendants are subject to general and specific
personal jurisdiction here, and that TPUK is likewise subject to personal
jurisdiction, because it is the alter ego of GAP.
In the instant Motion, TPUK asserts that this Court lacks personal
jurisdiction over it, and, consequently, that FSMS’s claims against TPUK must
be dismissed without prejudice. The Corporate Defendants also assert that this
Court should dismiss this entire action under the doctrine of	
forum non
conveniens so that the case may be adjudicated in England.
1. Consent to Jurisdiction
Section 8 of the Distribution Agreement, which is entitled “Sale and
Purchase of Product,” includes the following provision:
Upon and subject to the terms and conditions of this
Agreement, FSMS hereby agrees to supply TANNER
Covered Product for sale and distribution and use in
the Territory, as specified herein. FSMS shall use
commercially reasonable efforts to supply Covered
Products in quantities requested by TANNER. The
Parties acknowledge that FSMS is not the
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manufacturer of any Covered Product and is subject to
availability of Covered Products from the
manufacturer of such Covered Product. The Parties
shall work together to satisfy Covered Product
requirements to TANNER customers. FSMS is not in
a position to guarantee Covered Product quantity or
quality. That can only come from the relevant
manufacturer of such Covered Product FSMS has
entered into or will enter into a contract with each
manufacturer of a Covered Product that will include
language of the delivery timing and product quality
with any recourse for delivery or quality issues. FSMS
will pass this through to any contract or PO with
TANNER and TANNER will look only to the
manufacturer for any issues or damages related to late
delivery or quality issues.	
Notwithstanding the
foregoing sentences, FSMS shall comply with
TANNER's standard terms and conditions which are
attached hereto and made part hereof as Exhibit B; in
the event of a conflict between the terms and
conditions set forth in Exhibit B and this Agreement,
this Agreement shall control.
Doc. 77-1 at 3-4 (emphasis added).
The Distribution Agreement also includes a choice of law provision that
provides that the Distribution Agreement is “governed by the laws of the State
of Delaware, without regard to that state’s conflict of law provisions.” Doc. 77-
1 at 10. The parties agree, though, that the Distribution Agreement does not
include a forum selection clause. See Doc. 58 at 29; Doc. 82 at 9.
The parties also agree that certain terms and conditions (the “Terms and
Conditions,” Doc. 77-2) appeared on Tanner Pharma Group’s website on
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September 11, 2020 (the day the Distribution Agreement was signed), and
included the following provision:
This Agreement shall be governed by, and construed
in accordance with, the laws of the State of North
Carolina and the United States, as though made and
to be fully performed therein without regard to
conflicts of laws principles thereof.
Each party hereby
irrevocably consents to the personal jurisdiction of
such courts and each party hereto waives and agrees
that it shall not assert that such forum is inconvenient
or improper. The parties specifically waive any rights
and obligations under any applicable provisions of the
United Nations Convention for the International Sale
of Goods.
Doc. 77-2 (emphasis added); Doc.75 (Joint
Stipulation).3
The parties agree that the Terms and Conditions include a North
Carolina choice of law provision, as well as a “consent to jurisdiction” clause
pointing to North Carolina. However, despite the reference in the Distribution
Agreement, no terms and conditions were physically attached to the
Distribution Agreement as an Exhibit B, and FSMS did not read the Terms
and Conditions prior to signing the Distribution Agreement. Doc. 75.
3 As described below, no Exhibit B was attached to the Distribution Agreement.
TPUK initially argued that was because “back in September 2020 when the parties
executed the Distribution Agreement,
no standard terms and conditions appeared on
the TPG companies’ website.” Doc. 64 at 15 (emphasis in briefing). However, TPUK
has since acknowledged that the Terms and Conditions did appear at that time on
the website. See Doc. 75. TPUK does not concede, though, that the Terms and
Conditions are “Tanner’s standard terms and conditions” that should have been
attached to the Distribution Agreement.
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However, generally, parties to a contract are bound by the terms of the
contract, including terms they have not read, as well as those that are
expressly incorporated by reference. See McAnulla Elect. Const., Inc. v. Radius
Techs., LLC, No. N10C-03-076, 2010 WL 3792129, at *4 (Del. Super. Sept. 24,
2010) (“The obligation of a contracting party to read any contract it signs
extends to documents incorporated by reference, which become part of the
terms of the parties' agreement at the time of execution”); Rose Heart v.
Ramesh C. Batta Assocs., P.A., 1994 WL 164581, at *4 (Del.Super.Apr.12,
1994) (holding that by executing a contract, a party agrees “to be bound by the
terms set forth in the agreement and those incorporated by reference”); Healy
v. Silverhill Constr. Co., 2007 WL 2769799, at *2 (Del.Com.Pl. Sept.19, 2007)
(“[A] sophisticated party to a construction contract at the least should have
read the contract and sought out the incorporated terms”).
Here, in addition to contending that the Terms and Conditions are not
the “terms and conditions” referenced in the Distribution Agreement, TPUK
argues that application of the Terms and Conditions’ consent to jurisdiction
clause would be inappropriate because the provision in which that clause
appears also includes a North Carolina choice of law clause that conflicts with
the Delaware choice of law clause in the Distribution Agreement. TPUK also
argues that, to the extent the Terms and Conditions apply, they bind only
FSMS.
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The undersigned is persuaded that, based on the current record, it is
appropriate at this stage of the proceedings to consider the Terms and
Conditions as being the “terms and conditions” referenced by the Distribution
Agreement.
Further, the Distribution Agreement states that in the event of a conflict
between the Terms and Conditions and the Distribution Agreement, the
Distribution Agreement will control. Bbecause the Distribution Agreement
includes a Delaware choice of law provision, Delaware law governs
interpretation of the Distribution Agreement. During the hearing, TPUK
acknowledged that choice-of-law clauses are distinct from forum selection or
consent to jurisdiction clauses, and that the Distribution Agreement did not
include a forum selection clause. See Green America Recycling, LLC v. Clean
Earth, Inc., No. N20C-08-189, 2021 WL 2211696, at *7 (Del. Super. June 1,
2021) (“a Delaware choice-of-law clause, without more, does not express or
imply consent to jurisdiction in Delaware”); McWilliams, Murphy and
Associates, Inc. v. Heart and Vascular Clinic of Northern Colorado, PC, No.
1:08CV361, 2008 WL 4933956, at *2 (M.D.N.C. Nov. 14, 2008) (discussing
choice of law, forum selection, and consent to jurisdiction clauses) (citing Mark
Group Intern., Inc. v. Still, 151 N.C.App. 565, 566 S.E.2d 160 (2002)); see also
Johnston County, N.C. v. R.N. Rouse & Co., Inc., 331 N.C. 88, 92-93 (1992)
(discussing the “very distinct purposes” of these clauses).
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Finally, TPUK argues that the Distribution Agreement purports to
incorporate the Terms and Conditions, if at all, into the “sale and purchase of
product” paragraph (rather than the “governing law” section), and that the
Terms and Conditions are applicable only “to FSMS’s obligations” (and not
TPUK’s). However, the Terms and Conditions themselves appear to reference
general obligations that apply to both parties, and the Distribution Agreement
does not state that TPUK would not be bound by the Terms and Conditions.
2. Specific Personal Jurisdiction
“A lawful assertion of personal jurisdiction over a defendant requires
satisfying the standards of the forum state's long-arm statute and respecting
the safeguards enshrined in the Fourteenth Amendment's Due Process
Clause.” Tire Eng'g & Distribution, LLC v. Shandong Linglong Rubber Co., 682
F.3d 292, 301 (4th Cir. 2012). North Carolina's long-arm statute, N.C. Gen.
Stat. § 1-75.4(1)(d), “permits the exercise of personal jurisdiction over a
defendant to the outer limits allowable under federal due process.” Universal
Leather, LLC v. Koro AR, S.A., 773 F.3d 553, 558-59 (4th Cir. 2014) (citing
Dillon v. Numismatic Funding Corp., 291 N.C. 674 (1977)). Because “North
Carolina's long-arm statute is construed to extend jurisdiction over
nonresident defendants to the full extent permitted by the Due Process Clause,
... the dual jurisdictional requirements collapse into a single inquiry.”
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Christian Sci. Bd. of Dirs. of First Church of Christ, Scientist v. Nolan, 259
F.3d 209, 215 (4th Cir. 2001).
“A court's exercise of jurisdiction over a nonresident defendant comports
with due process if the defendant has ‘minimum contacts’ with the forum, such
that to require the defendant to defend its interests in that state ‘does not
offend traditional notions of fair play and substantial justice.’” Carefirst of
Maryland, Incorporated v. Carefirst Pregnancy Centers, Incorporated, 334
F.3d 390, 397 (4th Cir. 2003) (quoting Int'l Shoe Co. v. Washington, 326 U.S.
310, 316, (1945)). This standard can be satisfied “through two different
approaches—by finding specific jurisdiction ... or by finding general
jurisdiction.” ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707,
711 (4th Cir. 2002); Universal Leather, 773 F.3d at 559.
Specific jurisdiction requires “demonstrating that the defendant
purposely established minimum contacts in the forum state such that it should
reasonably anticipate being haled into court there on a claim arising out of
those contacts,” and reaches only the specific “claims [that] ... arise out of or
relate to the defendant's contacts with the forum.” Sneha Media & Ent., LLC
v. Associated Broad. Co. P Ltd., 911 F.3d 192, 198 (4th Cir. 2018).
When considering whether the exercise of specific personal jurisdiction
over a nonresident defendant would be proper, courts consider: “(1) the extent
to which the defendant purposefully availed itself of the privilege of conducting
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activities in the forum state; (2) whether the plaintiff's claims [arose] out of
those activities; and (3) whether the exercise of personal jurisdiction is
constitutionally reasonable.” Universal Leather, 773 F.3d at 559 (quoting Tire
Eng'g v. Shandong Linglong Rubber Co., 682 F.3d 292, 301 (4th Cir. 2012)).
The Fourth Circuit has explained that whether a defendant has “purposefully
availed” itself of the privilege of conducting business in the forum state is a
flexible analysis and that, in the business context, courts may consider:
(1) “whether the defendant maintains offices or agents
in the forum state;” (2) “whether the defendant owns
property in the forum state;” (3) “whether the
defendant reached into the forum state to solicit or
initiate business;” (4) “whether the defendant
deliberately engaged in significant or long-term
business activities in the forum state;” (5) “whether
the parties contractually agreed that the law of the
forum state would govern disputes;” (6) “whether the
defendant made in-person contact with the resident of
the forum in the forum state regarding the business
relationship;” (7) “the nature, quality and extent of the
parties' communications about the business being
transacted;” and (8) “whether the performance of
contractual duties was to occur within the forum.”
Id.
“In breach of contract actions, only those contacts directly related to the
contract at issue are relevant for purposes of establishing personal
jurisdiction.” Mountain East Conference v. Franklin University, No. 1:21-CV-
104, 2022 WL 949901 at *6 (N.D. W. Va. March 29, 2022) (citing CEM Corp. v.
Pers. Chemistry, AB, 55 F. App'x 621, 625-26 (4th Cir. 2003) (“[O]ne visit to
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the state, accompanied by a few telephone calls and faxes to settle litigation ...
would not put [the defendant] on notice that it ‘should reasonably anticipate
being haled into court’ in North Carolina’”) (quoting World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297 (1980)); see also CSS Antenna, Inc. v.
Amphenol-Tuchel Electronics, GmbH, 764 F.Supp.2d 745, 750 (D. Md. 2011)
(“In the Fourth Circuit, a breach of contract claim may arise out of contacts
with a forum state where a meeting in the state is ‘the genesis of [the] dispute’”)
(quoting CFA Inst. v. Inst. of Chartered Fin. Analysts of India, 551 F.3d 285,
295 (4th Cir. 2009) (concluding that the plaintiff's breach of contract claim
arose out of business transactions directed at Virginia because the defendant's
visit to the state prompted the parties to enter into the contract, the defendant
visited the forum state on at least one other occasion, and the defendant
corresponded and collaborated with the plaintiff in Virginia for several years)).
Here, the undersigned is persuaded that this Court may exercise specific
personal jurisdiction over TPUK.
First, significant activities related to both the negotiation and execution
of the Distribution Agreement occurred in North Carolina. TPUK’s verified
jurisdictional discovery responses reflect that the following individuals
associated with the Corporate Defendants participated in the drafting and
negotiation of the Distribution Agreement: Maryori Alvarenga, Jonathan
Bracey, Steve Scalia, William Taylor (in house counsel for “Tanner Pharma
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Group”), and Lizza Pinch (Mr. Taylor’s paralegal). Bracey is located in the
United Kingdom, but the rest of these individuals live and work in North
Carolina. See Doc. 77-24 at 9. Additionally, the Distribution Agreement was
signed in North Carolina by Bourne on behalf of both GAP and TPUK.4
Second, the Distribution Agreement referenced North Carolina for other
purposes, and included a “notice address” for both Corporate Defendants in
Charlotte, North Carolina. See Doc. 77-1, Section 7.2 (“TANNER will maintain
confidential records in its Charlotte warehouse facility of the name, address
and local licensing evidence of the entity it supplies Covered Products to in the
Territory to distribute to local Customers along with the government
permission allowing TANNER to import Covered Product(s) into the Territory
pursuant to Special Importation Authorization requests….”).
Third, TPUK’s alleged breaches of the Distribution Agreement have ties
to North Carolina. See Mattiaccio v. Cantu Apiaries of Florida, LLC, No. 1:21-
cv-00421, 2022 WL 1597826, at *6 (E.D. Va. May 19, 2022) (“Sufficient contacts
exist where the cause of action arises in the forum, including both execution
and performance of the contract”). FSMS’s payment for the original 500 sample
test kits came from Tanner Pharmaceuticals, Inc. in Charlotte. Doc. 77-11.
4 With regard to the Non-Circumvention Agreement, that document was signed by
Mr. Taylor in North Carolina. During the hearing, counsel for TPUK agreed that,
although the Non-Circumvention Agreement was executed by GAP and FSMS, TPUK
was also bound by the Non-Circumvention Agreement as an affiliate of GAP.
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Additionally, North Carolina-based GAP employees approved TPUK purchase
orders for Orient Gene antigen tests. Doc. 77-4 (69:9-70:12). TPUK has also
stated in its discovery responses that Scalia, who is located in North Carolina,
prepared the reconciliation spreadsheets (relative to TPUK’s sales to the
United Kingdom Government) for FSMS’s review. See Doc. 77-24 at 10.
Finally, exercising personal jurisdiction over TPUK in North Carolina
would be constitutionally reasonable. In addition to the contacts discussed
above, TPUK acknowledges that, in the last five years, it has entered into
“approximately 98 agreements to which it is a party or co-party containing a
term providing for the application of North Carolina law or to have disputes
litigated in the Courts of North Carolina or heard before alternative dispute
resolution providers in the State of North Carolina.” Doc. 77-23 at 13. Also, the
purchase orders sent by TPUK to Orient Gene also incorporate the “Tanners
terms and conditions…which can be found” on the Tanner Pharma Group
website. See Doc. 77-10.5
3. Forum Non Conveniens
The Corporate Defendants also argue that the only forum “where all the
entities concerned – FSMS, TPUK, and the Chinese manufacturer – could
5 Because the Court may exercise specific personal jurisdiction over TPUK, it is not
necessary to reach the question of whether TPUK is also subject to the general
personal jurisdiction in this district or may be subject to personal jurisdiction based
on an alter ego theory.
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27
appear before a common adjudicator is in the Courts of England and Wales”
and that if this matter were to proceed in this Court, any judgment against
TPUK would have to be “relitigated” in an English court “essentially from
scratch.” Doc. 64 at 7.
During the hearing, however, the Corporate Defendants acknowledged
that the existence of the Terms and Conditions – even if the Terms and
Conditions do not apply to the parties’ relationship here – indicate generally
that requiring TPUK to litigate in North Carolina would not be inconvenient.
See Pacific Chloride Incorporated v. Universal Protection Service LLC, No.
3:15-CV–490–RJC–DSC, 2016 WL 1158733, at *1 (W.D.N.C. Feb. 3, 2016)
(“Defendant has failed to carry the burden of showing that its own forum
selection clause should not be upheld by the Court”), recommendation adopted,
2016 WL 1123108 (W.D.N.C. March 21, 2016); see also Doc. 75 (“Each party …
hereto waives and agrees that it shall not assert that such forum is
inconvenient or improper”).
Accordingly, the undersigned will recommend that the Rule 12(b)(2)
Motion to Dismiss Amended Complaint (Doc. 62) be denied.
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B. Rule 12(b)(6) Motions to Dismiss (Docs. 65, 67, 69, 71)
1. Breach of the Distribution Agreement
a. Against TPUK
TPUK asserts that FSMS has failed to state a claim for breach of the
Distribution Agreement because TPUK’s interpretation of the profit split
provision was correct, and because TPUK was authorized by the Distribution
Agreement to deal directly with Orient Gene. TPUK relies on Sections 7, 9, and
10 of the Distribution Agreement, which provide, in relevant part:
TANNER hereby agrees to purchase the Covered
Products from FSMS (or directly from the
manufacturer of a Covered Product if directed by
FSMS) to supply such Covered Products in the
Territory…
Doc. 77-1 at 3 (Section 7)
This Agreement shall allow TANNER to enter into a
direct PO or contract with the manufacturer of a
Covered Product so long as the financial arrangement
outlined in Section 9 above shall be maintained as if
TANNER purchased Covered Products directly from
FSMS with a 50% gross profit participation to each
Party.
Doc. 77-1 at 4 (Section 10)
The price…payable by TANNER to FSMS…shall be
the true direct cost…of the product as purchased by
FSMS from its manufacturer/supplier…plus half of
the Gross Profit collected from the sale of the product
to TANNER’s customer.
Doc. 77-1 at 4 (Section 9).
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TPUK interprets these provisions as allowing it to use $5.00/unit as the
“the true direct cost…of the product as purchased by FSMS,” because
$5.00/unit is the only price FSMS has alleged in the Amended Complaint.
TPUK further argues that the Amended Complaint alleges that TPUK was
directed by FSMS to contact Orient Gene.6
The undersigned is not persuaded that FSMS’s claim against TPUK for
breach of the Distribution Agreement should be dismissed on these grounds.
With respect to the use of $5.00/unit, although TPUK is correct that
$5.00/unit is the only specific price allegedly paid by FSMS to obtain test kits,
FSMS has also alleged that this price was paid for the “small” orders of
“sample” kits (500 and 4,250 units), and that “lower prices would be available
for larger orders.” Doc. 58 at ¶ 42; see also id. at ¶ 46. It is not clear that the
“as if” language in Section 10 of the Distribution Agreement was intended to
set the price per unit as $5.00 in all cases even if the actual price per unit was
less than $5.00.
With respect to TPUK’s contacts with Orient Gene, FSMS has alleged
that when FSMS asked why such contacts were necessary, Bracey responded:
“Who our point of contact is – and talking with them directly. How the process
6 Specifically, TPUK relies on paragraphs 65 through 67 of the Amended Complaint,
which allege that on September 9, 2020, Bracey “began pressuring” FSMS to put
Defendants in touch directly with Orient Gene and that on September 10, “after
repeated requests,” FSMS agreed to set up a call.
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works for them. Setting up our account (QA and finance matters related to
that). All standard stuff that you do with a new supplier. But we need to talk
with them directly.” Doc. 58 at ¶ 66. FSMS then allowed TPUK to contact
Orient Gene directly about these matters. However, there is no allegation that
FSMS directed TPUK to purchase test kits directly from Orient Gene.
The undersigned will therefore recommend that TPUK’s Rule 12(b)(6)
motion to dismiss, to the extent it seeks dismissal of FSMS’s claim for breach
of the Distribution Agreement, be denied. See Goldberg, M.D. v. Bruck, No.
2020-1058-JRS, 2021 WL 2584197, at *4 (Del. Ch. June 23, 2021) (unpubl.)
(“[D]ismissal [of a claim grounded in contract], pursuant to Rule 12(b)(6), is
proper only if the defendants’ interpretation is the only reasonable
construction as a matter of law’”) (citations omitted).
b. Against GAP
GAP argues that, although it signed the Distribution Agreement, the
alleged breaches are attributable only to TPUK because the parties’ actual
obligations were based on subsequent purchase orders. See Doc. 68 at 5
(arguing that GAP was not the seller of the products to the United Kingdom or
to the Turks and Caicos); id. at 14 (“TPUK was the entity that made all the
sales, received all profit, and split that profit with FSMS”); id. at 17 (“each of
Tanner GAP and TPUK is only liable to FSMS for the profit split resulting
from any sales that it made”).
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However, considering that the Distribution Agreement was entered into
by GAP and TPUK collectively and that they are referred to throughout the
Agreement as “TANNER,” as well as the relationship between TPUK and GAP,
described above, the undersigned will recommend that FSMS’s claim for
breach of the Distribution Agreement against GAP be allowed to proceed. See
6 Del. C. § 2701 (“An obligation or written contract of several persons shall be
joint and several, unless otherwise expressed”).
2. Breach of the Non-Circumvention Agreement
As noted, FSMS and the Corporate Defendants agreed during the
hearing that the Non-Circumvention Agreement applied to both GAP and
TPUK. The parties disagree, though, about the effect of the Distribution
Agreement on any obligations imposed by the Non-Circumvention Agreement.
The Distribution Agreement states that it:
… constitutes the entire agreement and
understanding of the Parties regarding the subject
matter of this Agreement and supersedes all prior
written and oral agreements, proposals, and
understandings between the Parties regarding the
subject matter of this Agreement. No changes to this
Agreement shall be effective unless signed by each
Party.
Doc. 77-1 at 10.
Additionally, the Distribution Agreement provides:
In the case of termination by either Party, the separate
Mutual Non-Disclosure & Non-Circumvention
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Agreement dated June 8, 2020 between the Parties
shall remain in place and in effect and neither Party
shall circumvent the other Party with any relationship
originally established by the first Party. To be clear,
the manufacturer of any Covered Product shall be
considered a prior relationship of FSMS in regard to
the Covered Product and TANNER will not do any
business involving of said Covered Products from such
manufacturer.
Doc. 77-1 at 7 (emphasis added).
The Corporate Defendants contend that FSMS cannot assert a claim for
breach of the Non-Circumvention Agreement because that Agreement was
superseded by the Distribution Agreement and only “became effective again”
upon termination of the Distribution Agreement. Doc. 66 at 26.
In response, FSMS argues that the language of the Distribution
Agreement stating that the Non-Circumvention Agreement “shall remain in
place and in effect” upon termination of the Distribution Agreement indicates
that the obligations set out in the Non-Circumvention Agreement remained
active and that such a reading is confirmed by the “to be clear” language (which
reflects that prior relationships were still significant). See Doc. 78 at 54.
The Distribution Agreement, which was entered after the Non-
Circumvention Agreement, states that it supersedes all prior agreements
between the parties, yet it also references the Non-Circumvention Agreement
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33
specifically and states that the obligations set forth in the Non-Circumvention
Agreement “remain in place.”7
In light of this ambiguity, the undersigned will recommend that this
claim be allowed to proceed. See e.g., Ruffalo v. Transtech Serv. P'rs Inc., Civil
Action No. 5039-VCP, 2010 WL 3307487, at *10 (Del. Ch. Aug. 23, 2010)
(“When a motion to dismiss requires interpretation of a contract, the finding of
an ambiguity will scuttle the defendant's chances of dismissing the plaintiff's
claim, insofar as the defendant's motion relies on a specific interpretation of
the contract.”).
3. The Implied Covenant of Good Faith and Fair Dealing
In Truinhect Corp. v. Nestle Skin Health, SA, No. 19-592-LPS-JLH, 2020
WL 70981 (D. Del. Jan. 7, 2020), the court explained the scope of “implied
covenant” claims under Delaware law as follows:
Every contract governed by Delaware law is subject to
the implied covenant of good faith and fair dealing.
The implied covenant “requires a party in a
contractual relationship to refrain from arbitrary or
unreasonable conduct which has the effect of
preventing the other party to the contract from
receiving the fruits of the bargain.” The implied
covenant does not impose a “free-floating requirement
that a party act in some morally commendable sense.”
The implied covenant does provide “a way to deal with
unanticipated developments or to fill gaps in [a]
contract's provisions[,]” but only where it is clear that
7 During the hearing, counsel for the Corporate Defendants acknowledged that the
use of “remain in place” was inartful.
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34
the parties would have agreed to the obligation had
they considered the issue. The implied covenant
cannot be used when the contract already speaks to
the obligation at issue.
Application of the implied covenant is a “limited and
extraordinary legal remedy.” It is “rarely invoked
successfully.” To plead a claim for breach of the
implied covenant “a litigant must allege a specific
obligation implied in the contract, a breach of that
obligation, and resulting damages.”
2020 WL 70981, at *13-14 (internal citations omitted).
Here, TPUK argues that FSMS cannot state an “implied covenant” claim
because any obligations between the parties were set out in the Distribution
Agreement. Doc. 66 at 27.
In response, FSMS argues that there was an implied promise that
“Defendants would not mislead FSMS as to the facts and circumstances of
purchases from Orient Gene,” and that the implied covenant claim raises
factual issues that should not be resolved on a motion to dismiss. Doc. 78 at 56
(citing Baldwin v. New Wood Resources LLC, 283 A.3d 1099, 1123 (Del. 2022)
(“a fairly pleaded claim of good faith/bad faith raises essentially a question of
fact which generally cannot be resolved on the pleadings or without first
granting an adequate opportunity for discovery”)).
The Amended Complaint alleges, in part, as follows:
147. The implied covenant prevented Defendants
TannerGAP and Tanner Pharma UK from dealing
direct with Orient Gene, hiding the truth from FSMS,
cutting FSMS out of the chain of communication,
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35
secretly ordering product from Orient Gene, and
keeping the fruits of the bargain all for themselves.
148. Similarly, the implied covenant prevented
Defendants TannerGAP and Tanner Pharma UK from
deceiving FSMS by using an artificially inflated cost of
$5.00 in computing the amount they owed to FSMS.
Defendants TannerGAP and Tanner Pharma UK did
not pay Orient Gene $5.00 per antigen rapid test kit.
Instead, Orient Gene offered, and Defendants
TannerGAP and Tanner Pharma UK paid, a bulk
discount price ranging between [redacted] depending
on sales volume.
149. To the extent the Distribution Agreement left any
discretion to Defendants TannerGAP and Tanner
Pharma UK to compute the amount owed to FSMS, or
to deal directly with Orient Gene, the implied
covenant of good faith and fair dealing forbade them to
compute the amount they owed to FSMS on the basis
of a fake price of $5.00 per unit.
Doc. 58 at 31.
As discussed above, the Corporate Defendants’ authority to deal directly
with Orient Gene, as well as the formula for determining FSMS’s share of the
profits from relevant sales, are referenced by the Distribution Agreement.
Because the contract itself speaks to these obligations, the undersigned will
recommend that FSMS’s claim for breach of the implied duty of good faith and
fair dealing be dismissed. See Sharma v. TriZetto Corp., No. 15-419-LPS, 2016
WL 1238709, at *5 (D. Del. Mar. 29, 2016) (granting motion to dismiss implied
covenant claims because “Plaintiffs’ allegations relate to conduct governed by
the express terms of the SPA” and plaintiffs failed to allege “facts
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36
demonstrating that the parties’ conflict falls into a gap in the contract”); Fisk
Ventures, LLC v. Segal, No. 3017-CC, 2008 WL 1961156, at *10 (Del. Ch. May
7, 2008) (“[B]ecause the implied covenant is, by definition, implied, and
because it protects the spirit of the agreement rather than the form, it cannot
be invoked where the contract itself expressly covers the subject at issue”); see
also Nadendla v. WakeMed, 24 F.4th 299, 308 (4th Cir. 2022) (a plaintiff may
base a claim on the implied covenant when “the implied duty is not contrary to
an express provision of the contract”).
4. Chapter 75 Claim
During the hearing, the parties confirmed their view that North Carolina
law governs this claim, and that the Court may consider the Non-
Circumvention Agreement, Distribution Agreement, and the Terms and
Conditions.8
“To set out a valid claim for unfair and deceptive trade practices, a
plaintiff must allege that (1) defendant has committed unfair and deceptive
acts or practices; (2) defendant’s conduct was in commerce or affected
8 During the hearing, counsel for Scalia presented various email chains and argued
that they may also be considered in the context of the Rule 12(b)(6) motions because
they were referred to in the Amended Complaint. Counsel for FSMS objected to the
Court’s consideration of those email chains. The undersigned has not considered any
specific emails or email chains between the parties except to the extent language from
those messages is quoted in the Amended Complaint.
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commerce; (3) defendant’s conduct caused injury to plaintiff.” Norman v. Nash
Johnson & Farms, Inc., 140 N.C.App. 390, 417 (2000).
“[A] mere breach of contract, even if intentional, is not sufficiently unfair
or deceptive to sustain an action” under Chapter 75; however, “North Carolina
courts have consistently held that a party may demonstrate and prove such a
claim in conjunction with a breach of contract claim if it can show substantially
aggravating and egregious circumstances attending the breach.” Foodbuy,
LLC v. Gregory Packinging, Inc., 987 F.3d 102, 121 (4th Cir. 2021) (citing Post
v. Avita Drugs, LLC, No. 17-CVS-798, 2017 WL 4582151, at *4 (N.C. Super.
Oct. 11, 2017)). “Examples of such aggravating and egregious behavior include:
(1) lying and concealing a breach combined with acts to deter further
investigation; and (2) intentional deception for the purpose of continuing to
receive the benefits of an agreement.” Foodbuy, 987 F.3d at 121.
Stated another way, a Chapter 75 claim “cannot ‘piggyback’ on a breach
of contract action, even where the breach of contract was clearly intentional.”
ACS Partners, LLC v. American Group, Inc., 3:09cv464–RJC–DSC, 2010 WL
883663, at *9 (W.D.N.C. Mar. 5, 2010) (citing Broussard v. Meineke Discount
Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998)); see also PCS Phosphate
Co., Inc. v. Norfolk Southern Corp., 559 F.3d 212 (4th Cir. 2009) (refusing to
award treble damages pursuant to Chapter 75 for claims that were essentially
contractual in nature because it would be tantamount to re-writing the parties’
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contract); Kerry Bodenhamer Farms, LLC v. Nature's Pearl Corporation, 16
CVS 217, 2017 WL 1148793, at *8 (N.C. Super. Ct. Mar. 27, 2017) (finding false
and fraudulent statements and “concealed plans to breach the Agreement” did
“not constitute unfair or deceptive trade practices”).
Here, the Corporate Defendants argue that the parties negotiated
TPUK’s right to buy directly from Orient Gene, and that TPUK did nothing
deceptive by exercising that right. In addition, Scalia argues that the
allegations in the Amended Complaint show that he was “direct and
transparent with FSMS in disclosing TPUK’s position as to how profits should
be split under the Distribution Agreement.” Doc. 81 at 2. Finally, Bourne
contends that there are no sufficiently specific allegations regarding his actions
to support a Chapter 75 claim against him.9
FSMS contends, in contrast, that it has alleged a pattern of behavior
tending to show that Defendants intended to breach the Distribution
Agreement, concealed the status of their relationship with Orient Gene and
the UK Government even after FSMS asked Defendants for updates, and sent
deceptive reconciliation statements to lull FSMS into believing $5.00/unit was
the actual unit price of the test kits.
9 During the hearing, the parties agreed that any Chapter 75 claim against either
Scalia or Bourne would have to be based on that individual defendant’s actions.
Although not necessary to the analysis herein, the undersigned agrees that FSMS’s
allegations regarding Bourne are sparse. See Doc. 58, ¶ 168.
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However, the allegations of the Amended Complaint, read as a whole,
describe circumstances involving possible breaches of contract, rather than
circumstances that would support a Chapter 75 claim.
First, the Amended Complaint includes allegations acknowledging that
FSMS complied with Defendant’s request to provide contact information for
Orient Gene so that Defendants could contact that company directly. Doc. 58,
¶¶ 65-67.
Further, while FSMS contends that Defendants intended to deceive
FSMS about Defendants’ business with Orient Gene, FSMS has also alleged
that, as of October 22, 2020, Scalia informed FSMS that TPUK was processing
a “conditional” transaction to purchase 2,000,000 units from Orient Gene for
the United Kingdom Government, that FSMS immediately asked to be
involved in discussions with Orient Gene, and that the following day, Bracey
“admitted” that TPUK had entered into a direct contract with Orient Gene. See
Doc. 58, ¶¶ 82-84.
Additionally, the Amended Complaint alleges that on October 24, 2020,
Defendant Scalia claimed “now Tanner was doing all
the work on the sourcing side” and that FSMS did not
deserve to be paid other than at the initial sample
price of $5 per unit. When pressed by FSMS that it
could have helped secure a better price to maximize
the profit under the Distribution Agreement to both
parties, Defendant Scalia admitted that they had, in
fact, negotiated a lower price than $5 per unit, saying,
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in words or substance: “we’re not stupid, we did get a
better price.”
Id. at ¶ 85.
Finally, the Amended Complaint alleges that the reconciliations were
subsequently sent to FSMS.
FSMS’s allegations do indicate that the Corporate Defendants were not
initially transparent and forthcoming with FSMS regarding the status of the
Corporate Defendants’ dealings with Orient Gene. However, the Amended
Complaint does not set forth “substantially aggravating and egregious
circumstances” related to the alleged breach of contract to support a Chapter
75 claim. See Foodbuy, 987 F.3d at 121.
Under these circumstances, the undersigned will recommend that
FSMS’s Chapter 75 claim be dismissed. See Broussard v. Meineke Discount
Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998) (stating that a Chapter
75 claim was “out of place” “[g]iven the contractual center of this dispute”).
V. Recommendation
The undersigned RESPECTFULLY RECOMMENDS:
1. That Tanner Pharma UK Limited’s Rule 12(b)(2) Motion to Dismiss
Amended Complaint (Doc. 62) be DENIED;
2. That Tanner Pharma UK Limited’s Rule 12(b)(6) Motion to Dismiss
Amended Complaint (Doc. 65) be GRANTED IN PART and FSMS’s
claims for breach of the implied covenant of good faith and fair dealing
and for violation of North Carolina General Statute § 75-1.1 et seq. (the
“Chapter 75 claim”) against TPUK be DISMISSED;
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3. That TannerGAP, Inc.’s Rule 12(b)(6) Motion to Dismiss Amended
Complaint (Doc. 67) be GRANTED IN PART and FSMS’s claims for
breach of the implied covenant of good faith and fair dealing and for
violation of Chapter 75 against GAP be DISMISSED;
4. That Defendant Stephen John Scalia’s Motion to Dismiss Plaintiff’s
Amended Complaint Pursuant to Rule 12(b)(6) (Doc. 69) be GRANTED;
and
5. That Defendant Raymond Fairbanks Bourne’s Motion to Dismiss
Amended Complaint Under Rules 9(b) and 12(b)(6) (Doc. 71) be
GRANTED.
In the event these recommendations are accepted, the following claims
would proceed against the Corporate Defendants only: breach of the
Distribution Agreement and breach of the Non-Circumvention Agreement.
Signed: July 14, 2023
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Time for Objections
The parties are hereby advised that, pursuant to Title 28, United States
Code, Section 636, and Federal Rule of Civil Procedure 72(b)(2), written
objections to the findings of fact, conclusions of law, and recommendation
contained herein must be filed within fourteen (14) days of service of same.
Responses to the objections must be filed within fourteen (14) days of service
of the objections. Failure to file objections to this Memorandum and
Recommendation with the presiding District Judge will preclude the parties
from raising such objections on appeal. See Thomas v. Arn, 474 U.S. 140, 140
(1985); United States v. Schronce, 727 F.2d 91, 94 (4th Cir. 1984).
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