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Palmetto Civil Group LLC v. H.G. Reynolds Company, Inc.

United States District Court, D. South Carolina, Charleston Division

January 16, 2019




         The following matter is before the court on defendant H.G. Reynolds Company, Inc.'s (“Reynolds”) motion to dismiss, ECF No. 4. For the reasons set forth below, the court grants the motion to dismiss with respect to the § 1981 claim and remands the remaining claims to state court.

         I. BACKGROUND

         Plaintiff Palmetto Civil Group LLC (“Palmetto”) is a contractor, and plaintiff Joseph H. Jefferson III (“Jefferson”) is the president and owner of Palmetto (collectively, “plaintiffs”). Jefferson is African-American, making Palmetto a minority-owned business. Reynolds is a construction company. Plaintiffs allege that in early 2013, Reynolds and Palmetto formed “an informal joint venture, teaming, and partnership agreement” to pursue construction contracts together. ECF No. 1-1 at 4. Plaintiffs contend that Reynolds and Palmetto agreed to share confidential business information, help each other pursue construction projects, work exclusively with each other on certain construction projects, and assume to each other the duties of good faith, fair dealing, honesty, confidentiality, and loyalty. Plaintiffs allege that Reynolds specifically promised plaintiffs that each member of this joint venture “would be afforded a meaningful opportunity to perform and undertake a significant and meaningful task or commercially useful function, portion or scope of work” for any construction projects they pursued. The parties also generally agreed that Palmetto would be responsible for 10-15% of the project work, and Reynolds would perform 85-90% of the work, with each receiving a fair share of the profits.

         In 2013, Berkeley County School District (“BCSD”) issued a Request for Qualifications and Proposals, seeking proposals from contractors on various projects, including the construction of two elementary schools. Plaintiffs allege that Reynolds invited plaintiffs to work together to submit a proposal for one of the schools. Plaintiffs contributed to preparing the proposal, and they allege that Reynolds represented that plaintiffs would fully participate in the project if it was awarded. The proposal listed Jefferson as the “SWMBE/Local Coordinator” and further identified Jefferson as “a Certified DBE.”[1] This is relevant because South Carolina public policy favors minority businesses. See S.C. Code. Ann. § 11-35-5210(1). Plaintiffs also participated in the interview process, and Jefferson personally gave part of the proposal presentation to BCSD. Reynolds was then awarded the construction project of Bowen's Corner Elementary (“the Project”).

         For funding reasons unrelated to the parties, the Project did not begin until 2017. Plaintiffs continued to believe that they would be working on the Project, as allegedly promised by Reynolds, but in 2017, Reynolds engaged a nonminority subcontractor to complete the work instead of plaintiffs. Plaintiffs allege that to gain business, Reynolds used plaintiffs for Jefferson's racial minority status and Palmetto's minority or disadvantaged business status. Plaintiffs contend that race was a motivating factor in Reynolds's decision to fail to retain or hire plaintiffs for the Project, Reynolds misled plaintiffs about their involvement in the Project, and Reynolds wrongfully terminated plaintiffs from their involvement in the Project.

         Plaintiffs filed their suit on August 7, 2018 in the Court of Common Pleas for the County of Berkeley, South Carolina. Their complaint alleges causes of action for (1) racial discrimination under 42 U.S.C. § 1981; (2) promissory estoppel; (3) quantum meruit; (4) unfair trade practices; (5) breach of fiduciary duty; (6) breach of implied covenants of good faith and fair dealing; (7) negligent misrepresentation; and (8) constructive fraud. Reynolds removed the case to federal court on September 18, 2018 pursuant to 28 U.S.C. §§ 1331, 1367, 1441, and 1446. Reynolds contends that the court has federal question jurisdiction over plaintiffs' § 1981 claim and supplemental jurisdiction over the remaining claims. Reynolds filed its motion to dismiss on September 25, 2018. ECF No. 4. Plaintiffs responded on October 9, 2018, ECF No. 6, and Reynolds replied on October 16, 2018, ECF No. 7. The court held a hearing on the motion on Friday, December 7, 2018. The motion is now ripe for review.

         II. STANDARD

         A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”). To be legally sufficient, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A Rule 12(b)(6) motion should not be granted unless it appears certain that the plaintiff can prove no set of facts that would support his claim and would entitle him to relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a Rule 12(b)(6) motion, the court should accept all well-pleaded allegations as true and should view the complaint in a light most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir.1999); Mylan Labs., Inc., 7 F.3d at 1134. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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.” Id.


         Although Reynolds asserts several arguments in its motion to dismiss, the court focuses on the § 1981 claim, as the dismissal of this claim would require the court to remand plaintiffs' remaining claims to state court. As such, the court will first address whether plaintiffs have sufficiently pleaded an action under § 1981. The court finds that plaintiffs have not, warranting dismissal of the claim and a remand of the remaining state-law claims.

         Plaintiffs first allege that “Reynolds failed to enter into a binding subcontract and/or binding joint venture agreement with [plaintiffs] or allow [plaintiffs] the opportunity to meaningfully participate in the Project in violation of 42 U.S.C. § 1981.” ECF No. 1-1 at 11. Reynolds's argument for dismissal of the § 1981 claim is two-fold. First, Reynolds argues that plaintiffs “fail to provide any evidence that [Reynolds's] hiring of another contractor was racially motivated.” ECF No. 4-1 at 6. Then Reynolds contends that Jefferson individually has no standing to assert a claim under § 1981 because if Reynolds were to contract to do work on the Project, it would contract with Palmetto as a business, not Jefferson as an individual. Plaintiffs respond that the fact that Reynolds hired another contractor instead of plaintiffs provides sufficient circumstantial evidence of discrimination to survive a motion to dismiss. Plaintiffs also argue that Jefferson has standing because he is the sole owner and president of Palmetto, and as such he suffered just as much injury as Palmetto.[2]

         Section 1981 provides that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens.” The Supreme Court has interpreted this statute to “prohibit[] racial discrimination in the making and enforcement of private contracts.” Runyon v. McCrary, 427 U.S. 160, 168 (1976). Section 1981(b) defines the phrase “make and enforce contracts” as “the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.” Because § 1981 applies to the making of contracts, the Supreme Court has held that “a contractual relationship need not already exist” because the statutes protects the “would-be contractor.” Domino's Pizza, Inc. v. McDonald, 546 U.S. 470, 475 (2006).

         To survive a motion to dismiss a race discrimination claim, a plaintiff “need not plead facts sufficient to establish a prima facie case of race-based discrimination to survive a motion to dismiss.” Woods v. City of Greensboro, 855 F.3d 639, 648 (4th Cir. 2017). Instead, under the pleading standard announced in Twombly and Iqbal, a plaintiff must allege facts “to support a plausible claim” so that the court can “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 647 (citations omitted). The Fourth Circuit has recently applied this pleading standard in McCleary-Evans v. Md. Dep't of Transp., where the court held that the plaintiff, an African-American woman, did not allege sufficient facts to show that the defendant failed to hire her “under circumstances giving rise to an inference of unlawful discrimination.” 780 F.3d 582, 583-84, 588 (4th Cir. 2015). The plaintiff's complaint alleged that the people who made hiring decisions were either male or not African-American, and the African-American candidates were overlooked so that white male and female candidates would be selected for the job. Id. at 583-84. The complaint did not contain any allegations about the qualifications of the people who were hired. Id. at 584. The Fourth Circuit explained that “[o]nly speculation can fill the gaps in her complaint-speculation as to why two ‘non-Black candidates' were selected to fill the positions instead of her” and found that while these allegations are “consistent with discrimination, ” they “do[] not alone support a reasonable inference that the decisionmakers were motivated by bias.” Id. at 586. The Fourth Circuit concluded that “the consequence of allowing [the plaintiff's] claim ...

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