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[co-author: Ashley Oldfield]

N.C. Business Court Dismisses All Counterclaims in a Dispute Stemming from a Failed Romance.


In Rabinowitz v. Suvillaga, 2019 NCBC 7 (N.C. Super. Jan. 28, 2019), Judge Robinson granted the Plaintiff’s motion to dismiss the Defendant’s counterclaims in an action involving an alleged agreement “predicated on the Defendant’s expectation” that the couple “would live together and remain in a relationship indefinitely.” Op. ⁋ 2. While the Court refused to dismiss the responsive pleading in its entirety, it did dismiss all of the counterclaims asserted therein, providing the Plaintiff with a significant win. This unlikely Business Court case provides a trove of valuable nuggets for court watchers. See Order and Opinion.

Takeaways:

  • A party may seek Business Court designation based on an opposing party’s amended pleading even when the amendment is filed in violation of a court order and even though the designating party seeks to strike it.
  • Neither Rule 12(b)(1), nor Rule 12(f), nor Rule 15(a) permits the Court to strike or dismiss an untimely amended pleading.
  • Rule 41(b) permits a court to dismiss counterclaims in a pleading for failure to comply with the Rules of Civil Procedure or a court order. This authority derives from the inherent power of the Court to manage its proceedings.
  • A trial court has discretion pursuant to Rule 41(b) to dismiss counterclaims with prejudice, but this action is imposed only when the Court determines less drastic sanctions are insufficient.
  • Contracts between parties in a romantic relationship can be enforced so long as illicit services do not provide consideration for that contract.
  • An indispensable element of the formation of a partnership is co-ownership of a business venture.
  • The Business Court requires negligent misrepresentation to be pled with particularity pursuant to Rule 9(b).
  • Equitable estoppel is a proper defense, but not a proper claim.

Allegations

The Plaintiff, Mr. Rabinowitz, and the Defendant, Ms. Suvillaga, carried on a romantic relationship for about ten years. They began a dating in Spring Valley, New York in 2006. When Ms. Suvillaga got a job about two hours away. Mr. Rabinowitz purchased an apartment for Ms. Suvillaga to use, but Ms. Suvillaga paid for rent and utilities.

On weekends, Ms. Suvillaga would return to Spring Valley. While there, she performed what she called “relationship duties”—cooking; cleaning; doing laundry; helping with Mr. Rabinowitz’s doctors’ appointments, medical problems, and hygienic needs; and engaging in a sexual relationship with Mr. Rabinowitz.

In 2015, Mr. Rabinowitz wanted to move to North Carolina. The couple ventured to Wilmington to tour homes, and Mr. Rabinowitz purchased one. He allegedly told Ms. Suvillaga that after the move, she would not have to work again, she could live with him forever, and he would leave her money and the Wilmington property in his will. Ms. Suvillaga quit her job, and the couple moved south. Ms. Suvillaga alleged that the parties “expressly formed a contract that obligated [them] to act as if they were married,” but, after the move, Mr. Rabinowitz ended the relationship abruptly.

Procedure

Mr. Rabinowitz filed the lawsuit in January 2017 for Ms. Suvillaga’s alleged failure to pay for her portion of the Wilmington house. He alleged breach of contract and various tort claims.

Ms. Suvillaga answered. Six months later, she moved to amend her response. In the amendment, she would reassert her answer and affirmative defenses and would add counterclaims including breach of contract, breach of a partnership agreement, negligent misrepresentation, and equitable estoppel. But, the motion was never calendared.

Later, Mr. Rabinowitz noticed his own motions for a hearing as well as Ms. Suvillaga’s motion to amend. The Court granted Ms. Suvillaga’s motion to amend. It ordered her to file the amended pleading within five days. She filed it over a month later.

Ten days after Ms. Suvillaga’s late filing, Mr. Rabinowitz filed a Notice of Designation to the Business Court based on the breach of partnership claim asserted in the untimely pleading. Once the Business Court had jurisdiction, Mr. Rabinowitz moved to dismiss the entire amended pleading pursuant to Rule 15(a) and all the counterclaims therein pursuant to Rule 12(b)(6).

Analysis

Rule 15(a)

Mr. Rabinowitz urged the Court to dismiss Ms. Suvillaga’s amendment because she violated Rule 15(a). Rule 15(a) requires that after a responsive pleading is served, a party may amend a pleading only with leave of court. Since Ms. Suvillaga filed her amendment outside the time allotted, Mr. Rabinowitz argued that she lacked the Court’s leave.

Ms. Suvillaga countered that Mr. Rabinowitz wholly relied on the amendment for its designation notice, thereby waiving his right to object it.

The Court found no merit in Ms. Suvillaga’s waiver argument. It held that Mr. Rabinowitz has “a statutory right to have [the] matter designated to the Business Court” without waiving “any right to dispute the validity of [the] counterclaims.” Op. ¶ 28 (citing N.C. Gen. Stat. 7A-45.4).

Then the Court considered Mr. Rabinowitz’s Rule 15(a) argument. It determined the rule provides no authority to dismiss an untimely amendment. At Mr. Rabinowitz’s urging, the Court considered whether it could dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), or whether it could strike the pleading as “redundant, irrelevant, immaterial, impertinent, or scandalous” under Rule 12(f). The court determined that Rule 12(b)(1) did not apply and Rule 12(f) did not permit the Court to strike Ms. Suvillaga’s amended pleading.

But … , what about Rule 41(b)?

Rule 41(b)

Rule 41(b) permits a court to dismiss counterclaims in a pleading for failure to comply with the N.C. Rules of Civil Procedure or any court order. Since Ms. Suvillaga violated Rule 15(a) (and the prior order) by filing the amendment late, the counterclaims were subject to dismissal under Rule 41(b). Judge Robinson noted that Mr. Rabinowitz did not move to dismiss pursuant to Rule 41(b), but the Court still had the power to do so. See, e.g., Plasman ex rel. Bolier & Co. v. Decca Furniture (USA), Inc., 811 S.E.2d 616 (N.C. Ct. App. 2018) (affirming dismissal under Rule 41(b) for a Rule 8(a) violation when the plaintiffs were on notice that defendants were seeking dismissal). The Court used its authority under Rule 41(b) to dismiss Ms. Suvillaga’s untimely amendment.

But … , would the dismissal be with or without prejudice?

Judge Robinson had discretion to dismiss with prejudice under Rule 41(b), but he noted the Court should do so only when less drastic sanctions are insufficient. Here, despite the “flagrant” rule violation, Judge Robinson determined that dismissal with prejudice was not warranted because counsel had neither engaged in repeated rule violations, nor did anything further to aggravate the Rule 15(a) violation. Op. ¶ 39.

Having found dismissal without prejudice appropriate on procedural grounds, Judge Robinson then considered the merits of Ms. Suvillaga’s individual claims.

Substantive Allegations

Pursuant to Rule 12(b)(6), Judge Robinson dismissed seven of Ms. Suvillaga’s eight counterclaims with prejudice and one without prejudice.

Breach of Contract

Ms. Suvillaga alleged that the parties contracted to act as if they were married, and they exchanged various promises related to that agreement. Mr. Rabinowitz argued the alleged contract is not recognized by North Carolina law. Ms. Suvillaga countered that the contract is enforceable because it is not based solely upon illicit services.

The Court stated that contracts between two people in a romantic relationship can be enforced “so long as illicit services do not provide consideration for that contract.” The Court distinguished cases where the parties had contracts related to activities independent from their relationship. Here, though, the alleged contract went to the very essence of the parties’ personal relationship. Accordingly, North Carolina law will not enforce it. Judge Robinson dismissed the claim with prejudice.

Breach of Partnership

Ms. Suvillaga alleged that the parties “formed an equal partnership both assuming equally responsible roles which included maintaining the household.”

An indispensable element to the formation of a partnership is co-ownership of a business venture. The amendment contained no allegations that the parties “participated in any business venture, let alone operated as co-owners of that business.” Op. ¶ 58. Thus, the claim could not satisfy “the elements minimally necessary to assert a valid breach of partnership counterclaim.” Op. ¶ 59. Judge Robinson apparently did not think much of the claim. He dismissed it with prejudice.

Misrepresentation

Ms. Suvillaga alleged that Mr. Rabinowitz misrepresented that he would take care of her and help her pay off her debt. She did not specify whether Mr. Rabinowitz’s misrepresentation was fraudulent or negligent.

The Court did not quibble about the oversight. It held that Ms. Suvillaga failed to properly allege either claim with the required particularity. Op. ⁋ 61. Rule 9(b) requires a claimant to plead “averments of fraud, duress, and mistake” with particularity. But, the rule is silent as to negligent misrepresentation. The Court cited another Business Court case, Deluca v. River Bluff Holdings II, LLC, 2015 NCBC LEXIS 12, at *20 (N.C. Super. Ct. Jan. 28, 2015) (Judge Gale), for the rule that negligent misrepresentation must meet the same pleading standard as fraud. Deluca, in turn, cited an earlier Business Court case, BDM Invs. v. Lenhil, Inc., 2012 NCBC LEXIS 7, at *56 (N.C. Super. Ct. Jan. 18, 2012) (Judge Gale), and a case from the Middle District, Breedon v. Richmond Cmty. Coll., 171 F.R.D. 189, 199 (M.D.N.C. 1997) (holding the particularity requirements of Rule 9(b) of the Federal Rules of Civil Procedure apply to negligent misrepresentation to “more accurately comport[] with the basis behind the rule and its original rationale”).

In order to plead fraudulent or negligent misrepresentation with particularity, “one must allege (1) the time, place and content of the misrepresentation, (2) the identity of the person making the representation and (3) what was obtained as a result of the fraudulent acts or representations.” Op. ⁋ 61. “Additionally, the representation must be definite and specific, more than ‘mere puffing, guesses, or assertions of opinions’ but actual representations of material facts.” Id. (quoting Rowan County Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 17, 418 S.E.2d 648, 659 (1992)). Ms. Suvillaga failed to meet these requirements. Thus, the Court dismissed the misrepresentation claim without prejudice.

Equitable Estoppel

Ms. Suvillaga pled equitable estoppel as a claim. The doctrine cannot be used as a sword, but only as a shield. The Court dismissed the claim, but allowed Ms. Suvillaga’s corresponding defense to stand.

Ms. Suvillaga never filed a second amended complaint. The parties settled the matter shortly before a bench trial was to begin.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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