Pitts v. LStar Development Group, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

NO. 5:20-CV-525-FL

WILLIAM HAMPTON PITTS, PATRICK )

SULLIVAN, and RACHEL )

VRADENBURGH, )

)

Plaintiffs, )

)

ORDER

v. )

)

LSTAR DEVELOPMENT GROUP, INC. )

and KYLE V. CORKUM, )

)

Defendants. )

This matter is before the court upon defendants’ partial motion to dismiss (DE 13), pursuant

to Federal Rule of Civil Procedure 12(b)(6).1 The issues raised have been briefed fully, and in this

posture are ripe for ruling. For the following reasons, defendants’ motion is denied.

STATEMENT OF THE CASE

Plaintiffs commenced this action October 5, 2020, and filed the operative amended

complaint October 21, 2020, asserting claims under the Fair Labor Standards Act (“FLSA”) and

the North Carolina Wage and Hour Act (“NCWHA”) against their alleged former employers,

defendant LStar Development Group, Inc. (“LStar Development”), and its majority shareholder,

president, and director, defendant Kyle Corkum (“Corkum”). Plaintiffs William Hampton Pitts

(“Pitts”) and Rachel Vradenburgh (“Vradenburgh”) also assert breach of contract claims against

1 Also pending are plaintiffs’ partial motion for summary judgment (DE 21), plaintiffs’ motion to seal (DE

27), defendants’ motion to deny or defer consideration of plaintiffs’ motion for partial summary judgment (DE 33),

plaintiffs’ motion to strike (DE 43), and plaintiffs’ motion to amend their statement of facts (DE 48), which will be

addressed by separate order.

defendant LStar Development, and plaintiff Patrick Sullivan (“Sullivan”) asserts a claim for

quantum meruit against defendant LStar Development. Plaintiffs request equitable tolling of the

applicable statute of limitations from May 1, 2020, until August 27, 2020, and seek damages for

unpaid wages; overtime compensation; liquidated and statutory damages; as well as fees, costs,

and interest.

Defendants filed the instant partial motion to dismiss on December 4, 2020, arguing that

they are exempt from the minimum wage and overtime provisions of the NCWHA; the FLSA

preempts the breach of contract and quantum meruit claims; and plaintiffs’ claims for damages

accruing prior to October 5, 2018, are time-barred. Plaintiffs responded in opposition January 8,

2021.

STATEMENT OF FACTS

The facts alleged in plaintiffs’ amended complaint may be summarized as follows.

Defendant LStar Development formed in 2011 as a vehicle to conduct business operations, employ

personnel, and provide management services for LStar Management, LLC (“LStar Management”),

a real estate management and development company. (Am. Compl. ¶¶ 4-5). Defendant Corkum

is the majority shareholder of LStar Management and defendant LStar Development, and he also

serves as president and director of defendant LStar Development. (Id. ¶ 6). Until March 26, 2020,

defendants allegedly employed plaintiffs as follows: plaintiff Pitts served as chief operating

officer, plaintiff Vradenburgh served as vice president of human resources, and plaintiff Sullivan

served as an at-will employee. (Id. ¶¶ 17, 21, 24, 48).

During plaintiffs’ employment, defendant Corkum allegedly mismanaged defendant LStar

Development’s and LStar Management’s funds, causing a cash shortage that prevented defendant

LStar Development from discharging its payroll obligations. (Id. ¶ 33). In particular, defendant

Corkum allegedly transferred $325,000.00 of LStar Development’s funds to his personal friend

Andrew Wells (“Wells”), so that Wells could purchase a dental practice, instead of applying the

funds towards their intended purpose, LStar Management’s Union Point project. (Id. ¶ 32).

Moreover, in April 2017, defendant Corkum allegedly told defendant LStar Development’s

accounting department that a Union Point project vendor required a payment to be made through

a certain attorney. (Id.). Based on this instruction, LStar Development wired $310,000.00 to the

attorney and $55,000.00 to a bank account owned by defendant Corkum’s spouse. (Id.). Plaintiffs

allege that defendant Corkum used those funds for his personal benefit, and defendant LStar

Development was required to make a subsequent payment to the vender for $365,825.00. (Id.).

Plaintiffs also allege that defendant Corkum arranged for Global Premier Soccer Real

Estate Massachusetts, LLC (“Global Premier”) to loan him $410,050.02, instead of making a

$500,000.00 capital contribution to its joint venture with LStar Management. (Id.). When the

joint venture’s creditor required proof of Global Premier’s capital contribution, defendant Corkum

allegedly instructed defendant LStar Development to pay Global Premier $410,050.02. (Id.).

Although defendant Corkum told LStar Development’s accounting department that the payment

was a loan for the joint venture, plaintiffs allege that it was used to pay off the personal loan that

Global Premier made to defendant Corkum. (Id.).

On June 16, 2017, defendant Corkum allegedly instructed the accounting department at

defendant LStar Development to wire $252,593.07 to KVC Builders, LLC and to treat the payment

as loan to himself, which he would repay “by next Friday.” (Id.). According to plaintiffs, the

funds were used to pay for construction work on defendant Corkum’s personal residence, and he

never repaid defendant LStar Development. (Id.). Later, in July 2017, defendant Corkum

allegedly instructed defendant LStar Development to wire $50,000.00 to John Walker (“Walker”),

an attorney, as payment for services. (Id.). When defendant LStar Development’s accounting

department subsequently contacted Walker for an invoice and tax document, Walker allegedly

indicated that the funds were not payment for services, but rather a pass-through payment on behalf

of defendant Corkum. (Id.). Finally, defendant Corkum caused defendant LStar Development to

loan him $750,000.00, so that he could purchase a $6,900,000.00 residential property. (Id.).

Defendant Corkum allegedly fail to repay $100,000.00 of the loan amount. (Id.).

Overall, defendant Corkum’s expense reports and company credit card records allegedly

reveal that defendant Corkum failed to reimburse defendant LStar Development “and/or” LStar

Management for at least $750,000.00 in personal charges. (Id.). In addition, defendant Corkum

allegedly caused defendant LStar Development and LStar Management to pay more than

$3,300,000.00 for his personal debts. (Id.). As a result, defendant LStar Development experienced

a cash shortage and failed to pay plaintiffs’ salaries on the regular scheduled payday of May 25,

2018. (Id. ¶¶ 33-34). Defendant Corkum allegedly reassured plaintiffs that they would be paid

once defendant LStar Develop received management fees. (Id. ¶ 34). However, on the next

regularly scheduled payday of June 8, 2018, defendant LStar Development allegedly failed to pay

plaintiffs again. (Id. ¶ 36). Defendant LStar Development briefly resumed regular salary payments

on June 22, 2018, but began missing salary payments again on August 31, 2018, and allegedly

failed to make up the missed salary payments from May 25 and June 8, 2018. (Id. ¶ 37).

In August 2018, LStar Management, through its minority shareholder Steven Vining

(“Vining”), instituted a lawsuit against defendant Corkum, seeking to remove him as an officer,

director, and manager of LStar Management and its affiliate companies, due to his alleged financial

mismanagement. (Id. ¶ 38). Because of the lawsuit, defendant LStar Development allegedly failed

to pay the plaintiffs any wages from August 31, 2018, until March 1, 2019, and again between

April 26, 2019, and June 7, 2019. (Id. ¶ 39). Defendant LStar Development paid plaintiffs a

portion of their salaries during the periods of March 1, 2019, through April 12, 2019, and June 7,

2019, through March 20, 2020. (Id. ¶ 40). Plaintiffs were reassured that they would receive their

salary payments once the lawsuit terminated and defendant LStar Development received sufficient

profit participation fees. (Id. ¶ 42).

On March 9, 2020, the United States District Court for the Eastern District of North

Carolina appointed a receiver for LStar Management, which had a significant adverse impact on

LStar Development’s financial condition and ability to pay its employees. (Id. ¶¶ 46-47).

Plaintiffs were terminated from their employment at defendant LStar Development on March 26,

2020. (Id. ¶ 48). In their termination letters, defendant LStar Development stated: “Due to the

economic circumstances the company has been forced to work through over the last two years,

you are owed a significant amount of back wages . . . This termination does not negate the

Company’s obligation to pay what is due for work services rendered.” (Id. ¶ 49).

At a March 26, 2020, meeting of defendant LStar Development’s board of directors,

defendant Corkum allegedly caused a board resolution to be passed that removed Vining and

plaintiff Sullivan from their positions as officers of defendant LStar Development. (Id. ¶ 52).

Following the board meeting, defendant Corkum exercised sole and exclusive management control

of defendant LStar Development, and allegedly refused to pay plaintiffs’ salaries for work

performed through March 26, 2020. (Id. ¶¶ 52-54).

Additional facts pertinent to the instant motion will be discussed in the court’s analysis.

COURT’S DISCUSSION

A. Standard of Review

“To survive a motion to dismiss” under Rule 12(b)(6), “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 Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“Factual allegations must be enough to raise a right to relief above the speculative level.”

Twombly, 550 U.S. at 555. In evaluating whether a claim is stated, “[the] court accepts all well-

pled facts as true and construes these facts in the light most favorable to the plaintiff,” but does not

consider “legal conclusions, elements of a cause of action, . . . bare assertions devoid of further

factual enhancement[,] . . . unwarranted inferences, unreasonable conclusions, or arguments.”

Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009) (citations

omitted).

B. Analysis

1. NCWHA Exemptions

Defendants seek dismissal of plaintiffs’ NCWHA claims, on grounds that defendant LStar

Development is exempted from the NCWHA.

The NCWHA sets forth certain “exemptions” to claims in the context of plaintiffs subject

to the FLSA, as follows:

The provisions of [§] 95-25.3 (Minimum Wage) [and §] 95-25.4 (Overtime) . . . do

not apply to: (1) Any person employed in an enterprise engaged in commerce or in

the production of goods for commerce as defined in the [FLSA] . . . .

N.C. Gen. Stat. § 95-25.14(a).

Here, plaintiffs allege that defendant LStar Development is engaged in commerce within

the meaning of the FLSA. (See Am. Compl. ¶ 12). Taking plaintiffs’ allegation as true, the

exemption set forth in North Carolina General Statute § 95-25.14(a) applies to plaintiffs’ NCWHA

claims for minimum wage and overtime. Nevertheless, plaintiffs argue that they assert their

NCWHA claims for minimum wage and overtime, in the alternative to their FLSA claims, in the

event that their employment is not covered by the FLSA. Pleading claims in the alternative is

proper at this stage of the case. See Fed. R. Civ. P. 8(d)(2); see also Blount v. Carlson Hotels,

Inc., No. 3:11-CV-452-MOC-DSC, 2012 WL 1021735, at *5 (W.D.N.C. Mar. 1, 2012) (rejecting

argument that plaintiff’s NCWHA overtime claim must be dismissed because plaintiff “is

permitted at this early stage of the proceedings to plead her NCWHA claims in the alternative to

her FLSA claims”). Accordingly, defendants’ motion to dismiss is denied in this part.

Regardless of whether plaintiffs’ employment is covered by the FLSA, the NCWHA does

not exempt plaintiffs’ “pay day” claims, asserted under North Carolina General Statute §§ 95-25.6

and 95-25.7, to the extent those claims are separate and distinct from plaintiffs’ FLSA minimum

wage and overtime claims. See N.C. Gen. Stat. § 95-25.14(a); see also Lima v. MH & WH, LLC,

No. 5:14-CV-896-FL, 2019 WL 2602142, at *16 (E.D.N.C. Mar. 8, 2019). Accordingly,

defendants’ motion to dismiss must be denied in this part with respect to plaintiffs’ pay day claims.

2. FLSA Preemption

Defendants seek to dismiss plaintiffs Pitts’s and Vradenburgh’s breach of contract claims

and plaintiff Sullivan’s quantum meruit claim, on grounds that they are precluded under a theory

of obstacle preemption.2 Defendants rely exclusively upon Anderson v. Sara Lee Corp., 508 F.3d

181 (4th Cir. 2007).

In Anderson, plaintiffs sought to enforce their rights under the FLSA by bringing state

common law claims for breach of contract, negligence, and fraud against their employer, but they

did not assert any claims under the FLSA or the NCWHA. 508 F.3d at 183-84. In considering

2 Defendants do not argue that the FLSA preempts plaintiffs’ NCWHA claims.

whether the FLSA preempted the plaintiffs’ state law claims, the United States Court of Appeals

for the Fourth Circuit first observed that “[w]ithout doubt, [plaintiffs’] state claims essentially

require the same proof as claims asserted under the FLSA itself.” Id. at 194. Then, because

“Congress prescribed exclusive remedies in the FLSA for violations of its mandates”, the Fourth

Circuit concluded that plaintiffs’ “FLSA-based contract, negligence, and fraud claims are

precluded under a theory of obstacle preemption.” Id. at 193-94. The Fourth Circuit further

explained that “its conclusion [wa]s consistent with the rulings of several district courts deeming

state claims to be preempted by the FLSA where those claims have merely duplicated FLSA

claims.” Id. at 194 (citations omitted).

Following the Fourth Circuit’s decision in Anderson, several courts within this circuit,

including this one previously, have concluded that the FLSA does not preempt state law claims

directed at wages that are not covered by the FLSA, such as compensation for work below forty

hours per week and at a rate above federal minimum wage. See, e.g., Martinez-Hernandez v.

Butterball, LLC, 578 F. Supp. 2d 816, 820 (E.D.N.C. 2008) (“The first and third claims set forth

above are separate and distinct from plaintiffs’ FLSA claims. They invoke neither the minimum

wage nor the overtime provisions of the FLSA. As such, they are not preempted by the FLSA.”);

Epps v. Scaffolding Sols., LLC, No. 2:17-CV-562, 2019 WL 11254781, at *2 (E.D. Va. Jan. 4,

2019) (“[T]he FLSA does not preempt any and all state law wage claims. Instead, claims for

unpaid work below forty hours per week and at a rate above minimum wage are left for state

contract law. Therefore, contract claims remain cognizable under state law if they are based on

employment contracts with terms that are more generous than the guarantees in the FLSA.”

(internal quotations and citations omitted) (emphasis in original)); Hanson-Kelly v. Weight

Watchers Int’l, Inc., No. 1:10CV65, 2011 WL 2689352, at *5 (M.D.N.C. July 11, 2011) (“[U]nlike

in Anderson, Plaintiffs here are not seeking overtime pay or asserting that they received less than

the federal minimum wage in their Second Claim, alleging unpaid wages under Section 95–25.6

of the NCWHA; rather, they are seeking unpaid wages for time they actually worked. Thus,

Plaintiffs’ NCWHA unpaid wage claim is not preempted by the FLSA.”). This conclusion is

consistent with Anderson because, in seeking to recover unpaid wages for work below forty hours

per week and at a rate above federal minimum wage, a plaintiff would not be seeking a state law

remedy for an FLSA violation, but rather a state law remedy for a state law violation.

Here, plaintiffs Pitts and Vradenburgh assert breach of contract claims based on

defendants’ alleged failure to pay their respective salaries of $300,000.00 and $150,000.00, as

required by their employment contracts. (Am. Compl. ¶¶ 73-74). Likewise, plaintiff Sullivan

asserts a quantum meruit claim, based on defendants’ alleged failure to pay his salary of

$300,000.00, under an alleged implied in law contract. (Id. ¶¶ 22, 76-81). Plaintiffs’ salaries

exceeded the federal minimum wage, and therefore, plaintiffs are not seeking to enforce their rights

under the FLSA through state law claims. Accordingly, the FLSA does not preempt plaintiffs

Pitts’s and Vradenburgh’s breach of contract claims and plaintiff Sullivan’s quantum meruit claim,

and defendants’ motion to dismiss is denied in this part.

Defendants also argue that the FLSA preempts plaintiffs’ fifth “claim”, which is a request

that the court equitably toll the statute of limitations on from May 1, 2020, to August 27, 2020.

(Am. Compl. ¶ 91). Although this portion of the complaint contains no reference to state law,

defendants argue that plaintiffs are seeking to use state law to override the statute of limitations

under the FLSA. (Mem. (DE 14) at 7). However, as explained in plaintiffs’ response, plaintiffs

are seeking equitable tolling under federal law. (Mem. (DE 20) at 12-13). Accordingly, that part

of defendants’ motion, seeking to dismiss this request on the basis of FLSA preemption, is denied.

See generally Anderson, 508 F.3d at 191 (“Federal law may preempt state law under the

Supremacy Clause . . .”) (emphasis added) (citations omitted)).

3. Quantum Meruit

Defendants seek to dismiss plaintiff Sullivan’s quantum meruit claim, on grounds that an

express contract precludes recovery for quantum meruit.

Quantum meruit, also known as unjust enrichment, “operates as an equitable remedy based

upon a quasi[-]contract or a contract implied in law which provides a measure of recovery for the

reasonable value of services rendered.” Ron Medlin Const. v. Harris, 364 N.C. 577, 580 (2010)

(internal quotations omitted) (quoting Whitfield v. Gilchrist, 348 N.C. 39, 42 (1998); Potter v.

Homestead Pres. Ass’n, 330 N.C. 569, 578 (1992)). If “there is a contract between the parties the

contract governs the claim and the law will not imply a contract.” Booe v. Shadrick, 322 N.C.

567, 570 (1988). Thus, the existence of an express contract precludes recovery for unjust

enrichment and in quantum meruit. Gilchrist, 348 N.C. at 42 (“Only in the absence of an express

agreement of the parties will courts impose a quasi contract or a contract implied in law in order

to prevent an unjust enrichment.”); Booe, 322 N.C. at 570.

Here, plaintiff Sullivan allegedly worked for LandQuest, LLC, a corporate predecessor of

defendant LStar Development, until defendant LStar Development’s formation, at which time

“Plaintiff Sullivan was made an at-will employee of [defendant LStar Development] at the same

salary and with the same title he had held at LandQuest.” (Am. Compl. ¶ 21). Then, in February

2016, defendant “Corkum orally informed Plaintiff Sullivan of a raise in his annual salary to

$300,000 per year.” (Id. ¶ 22). Plaintiff Sullivan’s paystubs issued between February 2016 and

April 2018 reflected bi-weekly payments consistent with an annual salary of $300,000.00, and

defendant LStar Development’s books and records reflected the same. (Id. ¶¶ 22-23).

Although a close question, the court cannot conclude, on these allegations alone, that an

express contract was formed—that is, that a definite “offer [was] communicated, [was] complete,

and [was] accepted in its exact terms.” Yeager v. Dobbins, 252 N.C. 824, 828 (1960). Defendants

may raise this argument again at a later stage of this case, after further development of the record.

However, at this preliminary stage, the court will not assume the existence of an express contract.

Accordingly, defendants’ motion to dismiss is denied in this part.

4. Statute of Limitations

Defendants move to dismiss plaintiffs’ NCWHA and FLSA claims for damages accruing

prior to October 5, 2018, on grounds that they are barred by the statute of limitations.

“Ordinarily, a defense based on the statute of limitations must be raised by the defendant

through an affirmative defense, see Fed. R. Civ. P. 8(c), and the burden of establishing the

affirmative defense rests on the defendant.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th

Cir. 2007). “[A] motion pursuant to Rule 12(b)(6) invites an inquiry into the legal sufficiency of

the complaint, not an analysis of potential defenses to the claims set forth therein.” Brockington

v. Boykins, 637 F.3d 503, 506 (4th Cir. 2011). Dismissal under Rule 12(b)(6) based on affirmative

defenses “is appropriate when the face of the complaint clearly reveals the existence of a

meritorious affirmative defense.” Id.; Brooks v. City of Winston-Salem, N.C., 85 F.3d 178, 181

(4th Cir. 1996).

With respect to plaintiffs’ FLSA claims, the statute of limitations is two years, “except that

a cause of action arising out of a willful violation may be commenced within three years after the

cause of action accrued.” 29 U.S.C § 255(a). Plaintiffs allege that defendants’ FLSA violations

were willful, (Am. Compl. ¶¶ 57-61), and they commenced this action on October 5, 2020.

Accordingly, the amended complaint does not clearly reveal a meritorious statute of limitations

defense to all alleged damages accruing before October 5, 2018.7 Defendants’ motion to dismiss

is denied in this part.

The statute of limitations for plaintiffs’ claims under the NCWHA is two years. See N.C.

Gen. Stat. § 95-25.22(f). In support of equitable tolling, plaintiffs allege that they were delayed

in asserting their claims because defendants “refused to engage in pre-litigation mediation for

several months.” (Am. Compl. § 90). Viewing the facts in light most favorable to plaintiffs, the

amended complaint does not clearly reveal a meritorious statute of limitations defense. See Cruz

v. Maypa, 773 F.3d 138, 146-47 (4th Cir. 2014) (reversing in part the district court’s decision to

grant the defendant's motion to dismiss because the plaintiffs claims were time-barred and

remanding for discovery so the district court could determine if any or all of plaintiffs claims were

equitably tolled). Accordingly, defendants’ motion to dismiss is denied in this part.

CONCLUSION

Based on the foregoing, defendants’ partial motion to dismiss (DE 13) is DENIED.

SO ORDERED, this the 16th day of September, 2021.

nited States District Judge

3 Defendants do not address the plausibility of plaintiffs’ allegations on willfulness in briefing.

12