Kelly v. Metro. Life Ins. Co., 2022 NCBC 70 (N.C. Super. Ct. Nov. 14, 2022) (Robinson, J.)
Key Terms: automatic stay; summary judgment; Ponzi scheme; securities; fraud by omission; concealment; independent contractor; duty to speak; reasonable reliance; respondeat superior
This case arose out of an alleged Ponzi scheme operated by Richard Siskey (deceased), who was, for a period of time, a MetLife employee. Plaintiff had engaged Siskey and his business partner Phillips, another former MetLife employee, as a securities broker, investment advisor, and/or insurance agent. Plaintiff brought 9 claims against Phillips and two MetLife entities, a number of which were previously dismissed pursuant to 12(b)(1) and 12(b)(6). In 2020, Phillips filed a Chapter 13 bankruptcy and the case was stayed as to him. The MetLife Defendants subsequently moved for summary judgment on the remaining claims for fraud by omission, negligent supervision, and negligent misrepresentation and professional negligence under a theory of respondeat superior.
As to the fraud by omission claim, the Court found that MetLife had no duty to speak as a fiduciary relationship did not exist between it and the Plaintiff. Moreover, the Plaintiff could not show reasonable reliance because he failed to investigate Siskey’s past disciplinary history, despite being on notice of it.
As to the negligent supervision claim, the Court found that Plaintiff had failed to put forth sufficient evidence to create a jury issue with respect to the nexus proof requirement that the injury was reasonably foreseeable by the MetLife Defendants.
As to the vicarious liability claims for negligent misrepresentation and professional negligence, the Court found that these claims failed because Siskey and Phillips were independent contractors of MetLife at the time of the complained of conduct and therefore respondeat superior did not apply. Furthermore, even if they had been employees, the claims would fail on other bases as well.
Accordingly, the Court granted the motion and dismissed all claims with prejudice.
N.C. Dep’t of Revenue v. Integon Nat’l Ins. Co., 2022 NCBC 71 (N.C. Super. Ct. Nov. 22, 2022) (Earp, J.)
Key Terms: motion to dismiss; subject matter jurisdiction; Rule (12(b)(1); standing; judicial review; final agency determination; N.C.G.S. § 150B-43; motion to strike; tax credit; admission; mootness
Immediately before a hearing on cross-summary judgment motions before the Office of Administrative Hearings, the Parties, the N.C. Department of Revenue (“Department”) and Integon (“Taxpayer”), submitted a consent order requesting dismissal with prejudice to the administrative law judge (“ALJ”) after the Department withdrew its final determination holding that the Taxpayer could not claim the tax credit at issue and agreed to issue a refund to the Taxpayer. Instead, the ALJ granted the Taxpayer’s summary judgment motion finding that the Department’s proposed order, which was not entered, contained an admission as to the correctness of the Taxpayer’s legal position. The Department sought judicial review.
The Court held that the withdrawal of the final determination by the Department did not deprive the ALJ of subject matter jurisdiction but instead raised the issue of mootness. The Court held that the Department did have standing as an aggrieved party to seek judicial review of the ALJ’s ruling and remanded the case to the ALJ to consider the issue of mootness or otherwise conduct a hearing on the Parties’ cross-motions for summary judgment.
Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St.
Louis, Inc. v. Window World, Inc., 2022 NCBC Order 62 (N.C. Super. Ct. Nov. 11, 2022) (Bledsoe, C.J.)
Key Terms: motion to seal; attorney-client privilege; work-product doctrine; proprietary business information; mistake; billing records; crime-fraud exception; privilege logs
The Court denied Defendants’ motions to seal exhibits that consisted of emails between Defendants’ in-house counsel and Defendants’ executives, directors, and counsel involved in the litigation because the Court found that any potentially privileged information had been redacted. The Court also denied Defendants’ motions to seal various privilege logs it had compiled because the content of the quoted descriptions appeared unredacted elsewhere in the briefs and the Court found privilege logs do not qualify as attorney work-product. The Court granted Defendants’ motion to seal as to certain consulting contracts and executive severance agreements because Defendants had a strong interest in preserving the confidentiality of its proprietary and trade secret information, and Defendants’ proposed redactions were appropriately limited. The Court allowed Defendants to provide supplemental briefing as to sealing exhibits filed by mistake and granted the motion to seal portions of attorney billing records that described confidential settlement communications, governance matters, and personal matters related to individuals associated with Defendants.
McManus v. Dry, 2022 NCBC Order 65 (N.C. Super. Ct. Nov. 16, 2022) (Bledsoe, C.J.)
Key Terms: class action; class settlement agreement; cyberattack; personally identifiable information
Upon preliminary review, the Court found that the proposed Settlement Agreement was negotiated at arms-length and was fair, reasonable, adequate, and in the best interests of the Settlement Classes to warrant providing Notice of the Settlement to the Settlement Classes and accordingly preliminarily approved the unopposed motion for class settlement agreement which would settle the case and result in dismissal with prejudice.
Bucci v. Burns, 2022 NCBC Order 63 (N.C. Super. Ct. Nov. 17, 2022) (Conrad, J.)
Key Terms: attorneys’ fees; N.C.G.S. § 6-21.5; costs; N.C.G.S. § 7A-305(d)
Defendant moved to recover costs and attorneys’ fees against two remaining plaintiffs after partially prevailing at summary judgment and settling with five other plaintiffs. The Court awarded but offset costs because Defendant prevailed against some plaintiffs but benefited from settling with certain other plaintiffs and avoiding trial. The Court based award on number of plaintiffs who actively participated in litigation. The Court awarded attorneys’ fees in its discretion because of a complete lack of judiciable issue of law or fact and apportioned fees among the two plaintiffs based on estimated time spent related specifically to defending against their claims and the motions to recover attorneys’ fees.
Auto Club Grp. v. Frosch Int’l Travel LLC, 2022 NCBC Order 64 (N.C. Super. Ct. Nov. 21, 2022) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(8); opposition; trade secret dispute
Plaintiffs had initiated a prior action against Defendant Frosch which included a claim for violation of the N.C. Trade Secrets Protection Act. The action was properly designated a mandatory complex business case but was then dismissed without prejudice after mediation failed. Plaintiffs immediately filed the present action against Frosch and three individuals but did not reassert the trade secrets violation claim. Frosch nonetheless filed a notice of designation contending the case involved a trade secret dispute under N.C.G.S. § 7A-45.4(a)(8). Defendants argued that the current lawsuit was merely a maneuver to avoid Business Court designation since it involved essentially the same subject matter and allegations as the previous action. The Court rejected this argument noting that a plaintiff is master of its complaint and has freedom to choose what claims to bring. Accordingly, the Court found that designation was inappropriate because the complaint did not involve material issues involving trade secrets, made no claim for misappropriation of trade secrets, and did not allege that the confidential information purportedly taken by Defendant constituted trade secrets. The claims involved only misuse of confidential or proprietary information.
By Rachel E. Brinson
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
Posted 11/23/22
North Carolina ex rel. Stein v. Bowen, 2022 NCBC 64 (N.C. Super. Ct. Oct. 27, 2022) (Conrad, J.)
Key Terms: personal jurisdiction; minimum contacts; specific jurisdiction; motion to dismiss
Following the settlement of its 2019 lawsuit against JUUL Labs, Inc., the State of North Carolina filed suit against five officers and directors of JUUL Labs, Inc. individually (“Defendants”). In its complaint, the State alleged that Defendants engaged in unfair and deceptive trade practices under N.C. Gen. Stat. § 75-1.1 “in the course of supervising and directing the marketing of JUUL’s e-cigarette devices and flavored nicotine inserts.” Defendants moved to dismiss for lack of personal jurisdiction and failure to state a claim for relief.
After receiving evidence from the Defendants relating to the Defendants’ contacts with the forum, the Court granted the Defendants’ motion to dismiss for lack of personal jurisdiction. Specifically, the Court held that the State failed to show that Defendants had sufficient minimum contacts or purposefully availed themselves of conducting activities in the forum. The Court held that the State’s allegations, which contained generalized allegations about the Defendants collectively, were facially deficient and failed to address each individual Defendant’s contacts within the state. Noting that the State’s allegations attempted to attribute the corporation’s activities within the state to the individual Defendants, the Court emphasized that “jurisdiction over the individual officers [and directors] of a corporation cannot be predicated merely upon jurisdiction over the corporation.” The Court also noted that the Defendants’ actions were geared towards national marketing campaigns and did not target the State of North Carolina specifically.
Vitaform, Inc. v. Aeroflow, Inc., 2022 NCBC 65 (N.C. Super. Ct. Oct. 27, 2022) (Bledsoe, C.J.)
Key Terms: misappropriation of trade secrets; fraud; fraudulent concealment; summary judgment; UDTPA
Plaintiff Vitaform, Inc., a designer and manufacturer of post-partum compression garments, filed suit against Defendant Aeroflow, Inc., a nationwide Durable Medical Equipment (“DME”) distributor. Plaintiff designed compression garments specifically for post-partum recovery that qualified as a DME for health insurance purposes. After working with one of Defendant’s subsidiary regional distributors, Plaintiff entered into an oral agreement with Defendant on July 19, 2018 to distribute the products nationally and process the related insurance claims (the “July 19 Call”). Plaintiff agreed to provide Defendant with its products, marketing material, and insurance coding information in exchange for payment of shipments received. In its complaint, Plaintiff alleged its business information was only provided on the basis that Defendant would maintain its confidentiality. Plaintiff alleged that Defendant used the information obtained from Plaintiff to design a competing product through Defendant’s wholly-owned subsidiary, which Defendant eventually began to distribute to customers in place of Plaintiff’s product.
Following the dismissal of four of Plaintiff’s claims and two of Defendant’s counterclaims, Defendant moved for summary judgment on Plaintiff’s remaining claims of: (i) trade secret misappropriation; (ii) breach of the duty of good faith and fair dealing; (iii) fraud and fraudulent concealment in relation to the July 19 Call; (iv) common law unfair competition and violations of the UDTPA and Lanham Act; (v) common law unfair competition and violations of the UDTPA in relation to the July 19 Call; and (vi) unjust enrichment.
The Court granted Defendant’s motion as to Plaintiff’s trade secret claim, on the basis that Plaintiff’s unpatented product design specifications and business model information were publicly available and readily ascertainable, and Plaintiff failed to make reasonable efforts to maintain secrecy. Plaintiff’s breach of the duty of good faith and fair dealing was dismissed by the Court on the grounds that Plaintiff failed to present facts sufficiently specific to warrant a finding that Plaintiff and Defendant entered into an enforceable oral confidentiality agreement during the July 19 Call.
Defendant’s motion was denied as to Plaintiff’s fraud and fraudulent concealment claims, as the Court held that the evidence created an issue of fact as to whether Defendant made fraudulent misrepresentations on the July 19 Call and fraudulently concealed its intent to use Plaintiff’s business model in the following weeks.
The Court granted Defendant’s motion as to Plaintiff’s Lanham Act, unfair competition, and UDTPA claims (except to the extent the unfair competition and UDTPA claims were based on the July 19 Calls). In addressing Plaintiff’s Lanham Act claim, the Court held that Defendant did not falsely designate the origin of its product and did not create customer confusion by indicating to customers that they would be receiving Plaintiff’s product rather than Defendants. The court likewise found that Plaintiff had failed to create an issue of triable fact for its unfairness and UDTPA claims, as it did not proffer evidence that Defendant had designated its shipped products as coming from a specific supplier and sent appropriately branded products. The Court denied Defendant’s motion as to Plaintiff’s unjust enrichment and punitive damages claims, as Plaintiff had presented sufficient evidence of Defendant’s “wrongful” conduct.
Anderson v. Beresni, 2022 NCBC ORDER 59 (N.C. Super. Ct. Oct. 27, 2022) (Davis, J.)
Key Terms: preliminary injunction, TRO; mediation; homeowners’ association
Plaintiffs are property owners in a planned community called Mystic Lands and members of the Mystic Lands Property Owners’ Association (the “Association”). Plaintiffs, on behalf of the Association, filed suit against current and former members of the Association’s board of directors for breach of fiduciary duty related to the board of directors’ failure to collect assessments from the declarant for property owned in the community. Plaintiffs also sought preliminary and permanent injunctive relief. A temporary restraining order was entered in August 2022, enjoining the board of directors from participating in any mediation or settlement discussions with the property owners owing assessments without Plaintiffs’ participation.
The Court denied Plaintiff’s motion for a preliminary injunction on the basis that Plaintiffs failed to demonstrate irreparable harm. Specifically, the Court noted that Plaintiffs failed to show that they lacked an adequate remedy at law, such as monetary damages, that would make the Associate whole if Plaintiffs succeeded in the underlying suit.
Hartsell v. Mindpath Care Ctrs., N.C., PLLC, 2022 NCBC 66 (N.C. Super. Ct. Nov. 2, 2022) (Earp, J.)
Key Terms: breach of fiduciary duty; constructive fraud; motion to dismiss
Defendant Mindpath operates as a mental and behavioral healthcare organization. Plaintiff, a nurse practitioner, signed an operating agreement and participating provider agreement to become a member, minority interest holder, and employee of Mindpath in 2001. Mindpath’s majority interest holder (“Yvonne”) shared ownership with Mindpath’s president (“Stanley”) in MISO, LLC, a company Mindpath used for billing services. In her complaint, Plaintiff alleged that Defendants deducted funds owed to Plaintiff pursuant to the operating agreement, concealed the terms of Mindpath’s “insider transactions” with MISO, refused to redeem Plaintiff’s ownership interest in Mindpath when requested, and refused to permit Plaintiff to access Mindpath’s records.
Defendants filed a motion to dismiss Plaintiff’s claims for: (i) breach of fiduciary duty against Stanley for failure to redeem Plaintiff’s membership interest; (ii) breach of fiduciary duty against Stanley and Yvonne for self-dealing transactions with MISO; and (iii) constructive fraud against all defendants. Noting that no de jure fiduciary duty existed between the parties, the Court held that each claim’s survival depended upon a finding that a de facto fiduciary existed in each situation respectively. The Court concluded that Plaintiff failed to sufficiently allege that Stanley or Yvonne exercised sufficient dominion or control over Mindpath to warrant the imposition of fiduciary duties to Plaintiff. The Court likewise held that no fiduciary duties were owed to Plaintiff by Mindpath or MISO. As Plaintiff failed to allege the existence of a fiduciary duty, the Court granted Defendant’s motion in full.
Lee v. McDowell, 2022 NCBC ORDER 60 (N.C. Super. Ct. Nov. 2, 2022) (Bledsoe, C.J.)
Key Terms: shareholder notice; proposed settlement agreement
This order stems from an opposed proposed settlement agreement to resolve Plaintiffs’ individual and derivative claims for breach of fiduciary duty. The Court held that notice to the Plaintiff corporation’s shareholders of the proposed settlement was not required under statute, as it was within the Plaintiff corporation’s best interest to approve the settlement.
Gallaher v. Ciszek, 2022 NCBC 67 (N.C. Super. Ct. Nov. 4, 2022) (Bledsoe, C.J.)
Key Terms: breach of contract; employment agreement; Wage and Hour Act; piercing corporate veil
Plaintiffs, former employees of Defendant Cape Fear Neonatology Services, P.A. (“Cape Fear Neo”), filed suit against Cape Fear Neo for breach of their employment contracts and violations of the North Carolina Wage and Hour Act (“NCWHA”) for unilaterally reducing Plaintiffs’ salaries and withholding bonuses. Plaintiffs also requested the Court to pierce Cape Fear Neo’s corporate veil and hold its owner, Defendant Ciszek, personally liable on both claims. Defendants filed a counterclaim for breach of contract. Both sides moved for summary judgment.
On the breach of contract claim, the Court determined that Cape Fear Neo had breached its employment agreements with Plaintiffs by unilaterally reducing Plaintiffs’ salaries. However, after analyzing the parties’ conduct using the Wheeler elements, the Court held that this breach had been waived by Plaintiffs, who continued their employment with Cape Neo after receiving notice of the breach. Noting that North Carolina is an at-will employment state, the Court interpreted Plaintiffs’ continued employment with Cape Fear Neo to constitute a waiver. The Court also held that no breach occurred as to the withholding of year-end bonuses, as the employment contracts’ language did not give Plaintiffs a right to year-end bonuses for the years at issue.
The Court held that Cape Fear Neo violated the NCWHA by failing to tender prior notice of Plaintiffs’ salary reduction as required under N.C. Gen. Stat. § 95-25.13(3). Plaintiffs did not receive notice of the salary reduction until the first reduced paycheck was received with a memo line noting the payment reflected an alteration in salary payments. The Court entered judgment in favor of Plaintiffs for the amount of unpaid salary withheld during that pay period, and awarded Plaintiffs liquidated damages pursuant to statute. However, the Court further held that Plaintiffs received the requisite statutory notice on the day the first reduced paycheck was received, and no subsequent violation of the NCWHA occurred. No costs or attorneys’ fees were awarded. The Court concluded that Cape Fear Neo’s withholding of annual bonuses did not violate the NCWHA, as the employment contract did not create a calculable bonus formula, and consequently dismissed Plaintiffs’ NCWHA claim as it related to the unpaid bonuses.
The Court employed the instrumentality test to determine that piercing the corporate veil was appropriate in this situation and held Defendant Ciszek personally liable for the judgments entered against Cape Fear Neo. Defendants’ counterclaim for breach of contract was dismissed.
Woodcock v. Cumberland Cnty. Hosp. Sys., Inc., 2022 NCBC 68 (N.C. Super. Ct. Nov. 7, 2022) (Davis, J.)
Key Terms: judgment on the pleadings; declaratory judgment; standing
The Court ruled on two motions for partial judgment on the pleadings related to claims surrounding the validity of an equity purchase agreement. Plaintiff was a limited partner of Fayetteville Ambulatory Surgery Center, L.P. (“FASC”). The general partner of FASC, NSC Fayetteville, Inc. (“NSCF”), was a wholly-owned subsidiary of National Surgery Centers, LLC (“NSC”), which itself was a wholly-owned subsidiary of Surgical Care Affiliates, LLC (“SCA”). Through two separate but related transactions, Defendant Cumberland County Hospital System, Inc. (“CCHS”), acquired 100% of NSCF’s equity, and through that ownership, owned 100% of the general partner units of FASC. Plaintiff, on behalf of himself and the other limited partners of FASC, filed suit to challenge the validity of these transactions.
Defendants filed a motion for partial judgment on the pleadings related to Plaintiff’s standing to assert individual claims. The Court ruled in Defendants’ favor on Plaintiff’s claims for breach of contract, tortious interference with contractual relationship, and civil conspiracy. The Court reasoned that since FASC was not a party to either of the transactions at issue, Plaintiff lacked standing.
The Court denied Defendants’ motion as to Plaintiff’s eighth claim for tortious interference with contractual relationship against SCA, as this claim was not based upon the equity transactions, but rather a Cash Management Agreement that bound FASC. As FASC was bound by the agreement, Plaintiff maintained standing to assert this claim. The Court also denied Defendants’ motion as to Plaintiff’s individual claim for declaratory judgment.
Lastly, the Court dismissed Plaintiff’s claim for punitive damages, noting that North Carolina does not recognize an independent cause of action for punitive damages. The Court dismissed this claim without prejudice to Plaintiffs’ right to seek punitive damages for his remaining claims to the extent such damages would be recoverable under North Carolina law.
Aspen Specialty Ins. Co. v. Nucor Corp., 2022 NCBC 69 (N.C. Super. Ct. Nov. 8, 2022) (Earp, J.)
Key Terms: summary judgment; Rule 30(b)(6) deposition; evidential admission v. judicial admission; motion to amend complaint; UDTPA
This case arose from an industrial incident that occurred at an iron ore processing facility owned by Defendant Nucor Corp. Plaintiffs are two groups of insurers, each of which sought a declaratory judgment regarding whether their policies covered the losses incurred by Nucor. Following certain discovery, Nucor moved for partial summary judgment and to amend its complaint.
Regarding summary judgment, Nucor asserted that the testimony of one of the insurer’s Rule 30(b)(6) deponent contained admissions that established as a matter of law that certain policy provisions and allegations in the complaint could not be the basis for the denial of Nucor’s claim. The Court disagreed, finding that the deponent’s testimony was not sufficiently deliberate and unequivocal to constitute a judicial admission warranting summary judgment.
Regarding the motion to amend, Nucor sought to add a UDTPA claim premised on unfair claim settlement practices as defined in N.C.G.S. § 58-63-15(11). Despite Nucor’s years-long delay in adding this claim, the Court did not find undue delay or undue prejudice. However, it did find that the part of the proposed UDTPA claim based on misrepresentation was futile because it did not allege reasonable reliance. The remaining portions of the claim were sufficient and the Court, therefore, granted the motion to amend in part.
Sneed v. Sneed, 2022 NCBC ORDER 61 (N.C. Super. Ct. Nov. 8, 2022) (Earp, J.)
Key Terms: receivership; corporate dissolution
The Court approved a consent order providing for the judicial dissolution of three corporations owned by separated spouses. Pursuant to the consent order, the Court appointed a receiver to protect and manage the assets of the three corporations pending a resolution of the equitable distribution proceedings in their marriage dissolution case.
North Carolina ex rel. Stein v. E. I. Du Pont de Nemours & Co., 2022-NCSC-110 (Earls, J.)
Key Terms: personal jurisdiction; specific jurisdiction; corporate restructuring; successor liability
In an opinion addressing a lawsuit by North Carolina relating to Old Dupont for its alleged release of harmful chemicals into the environment and a corporate restructuring by Old Dupont, the N.C. Supreme Court held Defendants that were Delaware holding companies were subject to personal jurisdiction in North Carolina because the successor entities expressly assumed Old Dupont’s liabilities for the chemicals at issue, including the liabilities arising in North Carolina, even though the successors themselves had no direct contact with North Carolina. The Court also noted that Old Dupont engaged in the corporate restructuring to fraudulently deprive its creditors of judicial recourse, serving as a second independent ground to exercise personal jurisdiction over the successor entities. Accordingly, the Court affirmed the order and opinion by Business Court Judge Michael Robinson, which had denied a motion to dismiss for lack of personal jurisdiction.
By Natalie Kutcher and Matthew Tomsic
The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
Posted 11/09/22
