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KJ Appliance Center, LLC v. BSH Home Appliances Corp.

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

January 15, 2020

KJ Appliance Center, LLC, Kenneth Johnson, Jim Brantley, Plaintiffs,
BSH Home Appliances Corporation, Defendants.


          Richard M. Gergel United States District Court Judge

         This matter is before the Court on Defendant BSH Home Appliances Corporation's ("BSH") Motion for Judgment on the Pleadings (Dkt. No. 16.). For the reasons set forth below, the Court grants in part and denies in part the motion.

         I. Background

         Kenneth Johnson and Jim Brantley formed KJ Appliance Center, LLC ("KJ") on March 5, 2018. (Dkt. No. 1 ¶ 17.) Previously, Johnson had worked for twenty years in the appliance installation business in and around Charleston. (Dkt. No. 1 ¶ 12.) Brantley had worked as a salesman in the appliance industry for roughly twenty seven years, including eleven years as a District Sales Manager for BSH from 2006 to 2017. (Dkt. No. 1 ¶ 13.) Johnson and Brantley "envisioned combining their knowledge, skills, and experience in the appliance industry to . . .cash in on their goodwill, contacts, and skills [in the Charleston area]." (Dkt. No. 1 ¶ 14.) Johnson and Brantley formulated a business plan to sell "(1) exclusively . . . BSH products, utilizing Mr. Brantley's specific knowledge of BSH's products, sales history, and knowledge of BSH-specific operational procedures; (2) Mr. Johnson's product knowledge, installation services, and connections with builders and the construction industry generally; and (3) both parties 20 years' experience in the Charleston area as a source for geographical knowledge (for optimal site selection), customer leads, and goodwill." (Dkt. No. 1 ¶ 15.) Johnson pitched this idea to Trent i Roth, BSH's District Sales Manager in early 2018. (Dkt. No. 1 ¶ 16.) After BSH gave "the go-ahead on the concept and instructed Mr. Johnson and Mr. Brantley to go find a site," Johnson and Brantley founded KJ. (Dkt. No. 1 ¶¶ 16 - 17.) On March 7, 2018, KJ entered into two Dealer Agreements (the "Agreements")[1] with BSH whereby KJ became an authorized dealer of certain BSH products. (Dkt. No. 1 ¶ 18.)

         The Agreements required KJ to establish a "bona fide 'brick and mortar'" location. (Dkt. No. 1 ¶ 19.) KJ acquired such a location and Johnson and Brantley personally guaranteed the lease for said premises. (Dkt. No. 1 ¶ ¶ 22 - 23.) On June 1, 2018, eight-six days after entering into the Agreements with BSH, BSH terminated the Agreements, noting that "[a]s part of BSH's strategy to remain competitive in the future, we are compelled to reorganize our authorized dealer relationships . . . ." (Dkt. No. 1 ¶¶ 24 - 25.) Both Agreements permit the parties to terminate the Agreements, with or without cause, on thirty days written notice. (Dkt. No. 10-1 § 13; Dkt. No. 10-2 §13.) The termination provided KJ a thirty-day window during which to continue to purchase BSH products. (Dkt. No. 1 ¶ 27.)

         KJ, Brantley, and Johnson (collectively the "Plaintiffs") filed the action in this Court on March 15, 2019, against Defendant BSH. Plaintiffs brought five causes of action: wrongful termination of the Agreements, breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, South Carolina Unfair Trade Practices Act ("SCUTPA") violation, and promissory estoppel. Defendant moved for judgment on the pleadings, and Plaintiffs oppose the motion. (Dkt. Nos. 16, 22, 23.)

         II. Legal Standard

         "After the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). Rule 12(c) motions "dispose of cases in which there is no substantive dispute that warrants the litigants and the court proceeding further." Lewis v. Excel Mech., LLC, 2:13-CV-281-PMD, 2013 WL 4585873, at * 1 (D.S.C. Aug. 28, 2013) (quoting 5C Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, § 1368 (3d ed. 2010)). A judgment on the pleadings is only warranted if "the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law." Id. at * 2 (citations omitted).

         Rule 12(c) motions limit the court's review to the pleadings and "any documents and exhibits attached to and incorporated into the pleadings." Lewis, 2013 WL 4585873, at * 1 (citation omitted). See also A.S. Abell Co. v. Bait. Typographical Union No. 12, 338 F.2d 190, 193 (4th Cir. 1964). Like motions to dismiss, Rule 12(c) motions call for the pleadings to be construed in the light most favorable to the non-moving party. Burbach Broad. Co. v. Elkins Radio Corp., 278 F.3d 401, 405-06 (4th Cir. 2002). Accordingly, "[t]he court must accept all well pleaded factual allegations in the non-moving party's pleadings as true and reject all contravening assertions in the moving party's pleadings as false." Lewis, 2013 WL 4585873, at * 2 (citation omitted).

         III. Standing

         As an initial matter, Defendant argues that individual plaintiffs Johnson and Brantley do not have standing under North Carolina[2] law to pursue the claims asserted against BSH.[3] North Carolina law forbids "plaintiff shareholders . . . [from] assert[ing] claims against a third party for the loss of their equity investment in the corporation." Energy Inv'rs. Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 335 (2000). The only two exceptions are when a plaintiff: (1) alleges an injury "separate and distinct" to himself; or (2) the injuries arise out of a "special duty" running from the alleged wrongdoer to the plaintiff. Id. Brantley and Johnson's allegations consist of the fact that they personally guaranteed KJ's lease, funded the deposit on said lease, and that the termination of the Agreements harmed Brantley and Johnson "by way of their personal guarantees of the lease . . . ." (Dkt. No. 1 ¶¶ 23, 40.) On the one hand, "[consequential damages incurred as a result of personally guaranteeing corporate debts do not constitute a separate and distinct injury from that suffered by [the] corporation." McDaniel v. Alcon Labs., Inc., No. 1:06CV472, 2007 WL 4553924, at *4 (M.D. N.C. Dec. 19, 2007) (citing Barger v. McCoy Hillard & Parks, 346 N.C. 650, 661 (1997)). However, where there are allegations that a defendant "induced the Plaintiffs into becom[ing] guarantors," a "special duty" may exist. Id. at * 4; Barger, 346 N.C. at 661-62 ("separate and distinct" and "special duty" exceptions apply to guarantors). Brantley and Johnson make such allegations. (Dkt. No. 1 ¶ 45.) ("[BSH] affirmed to Plaintiffs prior to their entry into the Dealer Agreements and undertaking of incidental commitments that [BSH] would not be concerned with, react to, would resolve competitor-dealers' complaints, comments, or pushback relating to KJ's entry into the local market.") Thus, Brantley and Johnson do have standing to pursue their claims against BSH.

         IV. Discussion

         A federal court sitting in diversity must apply the choice of law rules of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). South Carolina "adheres to the view that the parties to a contract are to be afforded some latitude in selecting the law that is to govern their dealings." Associated Spring Corp. v. Roy F. Wilson & Avnet, Inc., 410 F.Supp. 967, 975 (D.S.C. 1976) (enforcing choice of law provision). "Generally, under South Carolina choice of law principles, if the parties to a contract specify the law under which the contract shall be governed, the court will honor this choice of law." Nucor Corp. v. Bell, 482 F.Supp.2d 714, 728 (D.S.C. 2007). "However, a choice-of-law clause in a contract will not be enforced if application of foreign law results in a violation of South Carolina public policy." Id. Here, both Agreements contain choice of law provisions which state the respective "Agreement shall be ... governed by and construed in accordance with the laws of the State of North Carolina, without regard to North Carolina choice of law rules, it being the intent of the parties that the internal laws of the State of North Carolina shall govern any and all disputes arising out of or relating to this Agreement." (Dkt. No. 10-1 § 14.3; Dkt. No. 10-2 § 14.3.)

         Plaintiffs argue that the Court should decline to apply North Carolina law under the "public policy exception." Defendant argues, and Plaintiffs concede, that if North Carolina law governs the instant claims, Plaintiffs' claims for wrongful termination and promissory estoppel may fail. See Allied Distribs., Inc. v. Latrobe Brewing Co.,847 F.Supp. 376, 378 (E.D. N.C. 1993) (generally, under North Carolina law, "a supplier is free to terminate a distributor at will, subject to any contractual restrictions") (citing Bartolomeo v. S.B. Thomas, Inc.,889 F.2d 530, 533 (4th Cir. 1989) (construing North Carolina law)); Crosby v. City of Gastonia,682 F.Supp.2d 537, 547 (W.D.N.C 2010), aff'd,635 F.3d 634 (4th Cir. 2011) ("[T]he clear law in North Carolina prohibits the use of promissory estoppel in an ...

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