Archive for October, 2023
Woodcock v. Cumberland Cnty. Hosp. Sys., Inc., 2023 NCBC 72 (N.C. Super. Ct. Oct. 18, 2023) (Davis, J.)
Key Terms: summary judgment; limited partnership; general partner; breach of limited partnership agreement; implied covenant of good faith and fair dealing; breach of fiduciary duty
This action involves a limited partnership dispute relating to Fayetteville Ambulatory Surgery Center Limited Partnership (“Fayetteville ASC”), which had Cape Fear Valley ASC as its General Partner and twelve Limited Partners, including Cape Fear Valley ASC, Cumberland County Hospital System, Village ASA, and Michael Woodcock. In April 2019, Cumberland County Hospital System conveyed, pursuant to a Contribution Agreement, its Limited Partner Units to Cape Fear Valley ASC and, pursuant to an Equity Purchase Agreement, purchased 100% of the equity of Cape Fear Valley ASC (the “April Transactions”). Thus, upon the completion of these transactions, Cumberland County Hospital System purported to own 100% of the equity of Cape Fear Valley ASC and to indirectly own 100% of the General Partner Units and approximately 44% of the Limited Partner Units of Fayetteville ASC. Woodcock filed suit alleging, inter alia, that the transactions violated Fayetteville ASC’s limited partnership agreement (the “LPA”). Defendants moved for summary judgment on all remaining claims and Woodcock moved for summary judgment on his breach of contract claim.
Woodcock contended that the April Transactions violated Sections 15.9 and 14.5 of the LPA. Section 15.9 prohibited any transaction which would result in any Limited Partner or any successor of a Limited Partner owning more than 20% of the stock of the General Partner or its affiliates. Woodcock argued that Section 15.9 prevented Cumberland County Hospital System, as a Limited Partner or as a successor to a Limited Partner, from acquiring more than 20% of the equity interest of Cape Fear Valley ASC. The Court rejected this argument. First, Cumberland County Hospital System was not a Limited Partner at the time it acquired the equity of Cape Fear Valley ASC since it had divested itself of its LP Units prior to the transaction. Second, it was not a successor to a Limited Partner because, even if it could exercise authority over the LP Units owned by Cape Fear Valley ASC, it was not the direct owner of the LP Units and thus it could not be said to have “stepped into the shoes” of Cape Fear Valley ASC. Accordingly, the Court determined that the April Transactions did not violate Section 15.9 of the LPA.
Section 14.5 of the LPA prohibited Cape Fear Valley ASC or its affiliates from engaging or investing in the business of a surgical center or related medical facility (a “Competitive Facility”) in areas from which Fayetteville ASC derived its business. Woodcock argued that Cumberland County Hospital System became an affiliate of Cape Fear Valley ASC through the April Transactions and thus could not compete against Fayetteville ASC by engaging in the business of a Competitive Facility. In response, Defendants argued that their hospitals do not compete with ambulatory surgical centers and thus there was no violation and, even if a violation did occur, the General Partner and the necessary two-thirds in interest of the Limited Partners had retroactively ratified the April Transactions. The Court was skeptical that the hospitals could not qualify as Competitive Facilities since they performed outpatient surgeries; however, it agreed with Defendants that the April Transactions had been properly ratified through a subsequent amendment and consent agreement. Accordingly, the Court granted summary judgment to Defendants on Woodcock’s breach of contract claim.
The Court also dismissed Woodcock’s claim for breach of the implied covenant of good faith and fair dealing since it was based on the same acts as his claim for breach of contract. Similarly, in light of the Court’s entry of summary judgment on Woodcock’s breach of contract claim, the Court granted Defendants summary judgment on Woodcock’s breach of fiduciary duty and declaratory judgment claims since they were based on the alleged invalidity of the April Transactions.
*******
Davis v. Davis Funeral Serv., Inc., 2023 NCBC 73 (N.C. Super. Ct. Oct. 25, 2023) (Conrad, J.)
Key Terms: breach of contract; unpaid wages; statute of limitations; unjust enrichment; quantum meruit; summary judgment
Plaintiff sued his former employer, Davis Funeral Service, and its officers, the Morgans and Tillman, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit, and unjust enrichment, all based on the company’s alleged failure to pay him his full wages beginning in 2018. Plaintiff also asserted a claim for defamation based on statements Tillman allegedly made after Plaintiff’s departure. Defendants moved for summary judgment on these claims.
The Court granted summary judgment in favor of the Morgans because the Morgans did not have any personal involvement in any alleged misconduct and officers are not liable for a corporation’s acts merely by virtue of their office.
The Court also granted summary judgment in Davis Funeral Service’s favor on the breach of contract claim to the extent it was based on failure to pay wages that became due beyond the three-year statute of limitations since each unpaid installment is its own breach subject to the statute of limitations.
The Court denied summary judgment on the unjust enrichment and quantum meruit claims as an express contract, or its terms, had yet to be established. The Court also denied summary judgment on the defamation claim as Davis Funeral Service had abandoned its arguments on this claim at the hearing.
*******
Cumberland Cnty. Hosp. Sys., Inc. v. Woodcock, 2023 NCBC Order 51 (N.C. Super. Ct. Oct. 24, 2023) (Davis, J.)
Key Terms: motion to amend complaint; Rule 15; uncontested
As summarized here, this case involves a dispute between the owners of Woodcock Custom Vision regarding the company’s management. Here, Plaintiff moved to file an amended complaint that adds a new defendant and asserts new claims, including various derivative claims. Defendants did not file any response to the motion and thus did not meet their burden of showing any basis for denial. Accordingly, the Court granted the motion to amend.
*******
Caliber Packaging & Equip., LLC v. Swaringen, 2023 NCBC Order 52 (N.C. Super. Ct. Oct. 25, 2023) (Earp, J.)
Key Terms: motion to amend; Rule 15; futility; summary judgment standard; Rule 12(b)(6) standard; North Carolina’s Electronic Surveillance Act, N.C.G.S. § 15A-287 et seq.
As summarized here, this case involves a dispute between Plaintiffs and their former employee who allegedly misappropriated trade secrets and other confidential information. During discovery, Plaintiffs produced two audio recordings of conversations between Defendant and third-parties which were recorded while Defendant was an employee. Defendant then moved to amend her answer to add a counterclaim for violation of North Carolina’s Electronic Surveillance Act, N.C.G.S. § 15A-287 et seq, which prohibits the willful interception of communications without the consent of at least one party to the conversation. Plaintiffs opposed the amendment on the grounds of futility and filed a supporting affidavit which contradicted Defendant’s proposed allegations. Although the Court acknowledged that a motion to amend could be denied on futility grounds due to the proposed claim being subject to summary judgment, the Court found that Plaintiffs had failed to demonstrate that were no genuine issues of material fact regarding the claim. In addition, the Court determined that Defendant had successfully pleaded a claim under the more commonly used Rule 12(b)(6) analysis. First, Defendant had alleged sufficient facts to show a reasonable expectation of privacy in her office where the conversations were recorded. Second, the Court disagreed with Plaintiffs’ contention that the recordings were justified and therefore not willful. Case law in which otherwise illegal interceptions were found to be justified turned on whether public safety was implicated, which was not at issue here. Accordingly, the Court granted the motion to amend.
*******
Davis v. Davis Funeral Serv., Inc., 2023 NCBC Order 53 (N.C. Super. Ct. Oct. 25, 2023) (Conrad, J.)
Key Terms: motion to amend complaint; motion for reconsideration; undue delay; prejudice
Plaintiff sought partial reconsideration of the Court’s previous order denying his motion to amend his complaint due to undue delay and futility. The Court denied the motion for reconsideration. Even though Plaintiff had “slimmed down” its proposed amendments and eliminated the futile claim, the amendments were still untimely (being submitted sixteen months after the original complaint had been filed, over two months after the close of discovery, and over one month since Defendant moved for summary judgment) and would cause Defendant substantial prejudice since they would double the size of the complaint, introduce a new theory of liability, and change the measure of damages.
*******
Howard v. IOMAXIS, LLC, 2023 NCBC Order 54 (N.C. Super. Ct. Oct. 30, 2023) (Earp, J.)
Key Terms: motion to seal; BCR 5; competitive advantage; confidential; public interest; relevance
This order addresses two motions to seal. Regarding the first, Defendant IOMAXIS filed (provisionally under seal) a transcript of a July 2020 telephone conference and a motion to seal the transcript in its entirety, arguing that information in the transcript would harm its competitive advantage, was confidential commercial information, and was irrelevant to the case. The Court denied the motion because 1) IOMAXIS did not specifically explain how disclosure would harm its competitive advantage or identify which portions, if disclosed, would result in harm, and 2) the public’s interest in disclosure was strong because the transcript contained discussion of various operating agreements and financial matters which were at issue in the case.
In the second, Plaintiffs sought leave to file under seal portions of their amended motion to appoint receiver and supporting materials, based on IOMAXIS’s designation of certain of the materials as confidential. IOMAXIS argued that the materials should remain sealed because they were not relevant to the motion or underlying claims. The Court disagreed, concluding that the materials were directly relevant to Plaintiffs’ fraud-based claims. Accordingly, the Court denied the motion, with the exception of one document which contained the financial terms of a sale.
*******
McKnight v. Wakefield Missionary Baptist Church, Inc., 2023 N.C. LEXIS 783, 2023 WL 6933326 (N.C. 2023) (per curiam)
Key Terms: appeal; affirmed; trade name infringement; permanent injunction; costs; N.C.G.S. §§ 6-1, 6-20; N.C.G.S. § 7A-305(d)
This suit involved, in part, a dispute between Wakefield Missionary Baptist Church, Inc. (“WMBC, Inc.”) and a number of estranged church members over the use of the name “Wakefield Missionary Baptist Church.” In February 2022, the Business Court entered an order granting summary judgment to WMBC, Inc. on its counterclaim for trade name infringement. It subsequently entered a permanent injunction and final order enjoining the estranged members from using the name Wake Missionary Baptist Church and an order awarding costs to WMBC, Inc., pursuant to N.C.G.S. §§ 6-1, 6-20, and 7A-305(d). The estranged members appealed from all three orders; however, the N.C. Supreme Court previously dismissed all issues arising from the summary judgment order. Here, the Court affirmed, per curiam, the permanent injunction and final order and the order awarding costs.
By: Ashley B. Oldfield
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
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.
Posted 10/31/23
Karriker v. Harpoon Holdings, L.P., 2023 NCBC 67 (N.C. Super. Ct. Oct. 6, 2023) (Conrad, J.)
Key Terms: motion to strike; motion to seal; Rule 12(f)
Defendant moved to dismiss the complaint and then subsequently moved to either strike or seal a draft version of its Amended and Restated Limited Partnership Agreement which Plaintiff had attached as an exhibit in opposition to the dismissal motion. Before the Court ruled on the motion to dismiss, Plaintiff filed an amended complaint thereby mooting the motion to dismiss.
The Court denied the Rule 12(f) motion to strike because Rule 12(f) was inapplicable to the Draft LPA since the Draft LPA was not contained in any pleading, but rather was submitted as an exhibit in opposition to the motion to dismiss, and regardless, the Court never considered the document since the motion to dismiss was denied as moot.
The Court did, however, grant the motion to seal the Draft LPA based on Defendant’s argument that it contained sensitive information about employment and ownership incentives, investor rights, and internal corporate governance. Moreover, it was unlikely to be considered by the Court in the future as it had no bearing on disputed issues following the filing of the amended complaint, and, therefore, the public’s interest was negligible.
*******
Harris Teeter Supermarkets, Inc. v. Ace Am. Ins. Co., 2023 NCBC 68 (N.C. Super. Ct. Oct. 10, 2023) (Robinson, J.)
Key Terms: insurance coverage; opioid epidemic; Rule 12(b)(2); personal jurisdiction; Mallory v. Norfolk Southern Railway Co.; registration requirements; N.C.G.S. § 58-21-100; N.C.G.S. § 58-16-30; service of process; Commissioner of Insurance; Rule 12(b)(6); declaratory judgment action; forum shopping; N.C.G.S. § 1-75.12; discretionary stay
This lawsuit is primarily an insurance coverage dispute concerning whether Defendants, insurance companies that issued policies to Plaintiffs, owe coverage to Plaintiffs with respect to nearly 800 underlying lawsuits seeking damages related to injuries allegedly caused by Plaintiffs’ distribution and dispensing of opioid drugs. Plaintiffs are two Ohio entities (the “Kroger Plaintiffs”) and two North Carolina entities (the “Harris Teeter Plaintiffs”). Following the Ohio Supreme Court’s decision in September 2022 holding that governmental entities suing for alleged economic loss sustained by their citizens caused by the opioid epidemic were not seeking damages because of “bodily injury,” several of the insurers filed the Ohio Insurance Action seeking declarations that they were not required to provide coverage to the Kroger Plaintiffs for underlying opioid litigation. Shortly after, Plaintiffs filed the present action. Defendants moved to dismiss for lack of personal jurisdiction and under the North Carolina Declaratory Judgment Act and moved to stay the case.
The Court first addressed the motion to dismiss for lack of personal jurisdiction brought by the PJ Moving Defendants. Taking into consideration 1) the U.S. Supreme Court’s recent decision in Mallory v. Norfolk Southern Railway Co., which held that the Pennsylvania law at issue permitted Pennsylvania’s state courts to exercise general personal jurisdiction over a registered foreign corporation because the foreign corporation had submitted to suit there by completing the mandatory statutory registration procedures, and 2) North Carolina’s insurance statutes which set forth requirements for foreign insurance companies to be admitted and authorized to do business in North Carolina, the Court concluded that the exercise of personal jurisdiction over Defendants was proper. Regarding all of the PJ Moving Defendants except AXIS, the Court found that they had submitted to suit in North Carolina by completing the statutorily required registration procedures, including filing an instrument appointing the Commissioner of Insurance as their agent to accept service of process. Regarding AXIS, which the Court separately considered because it is a surplus lines insurance company subject to different licensing requirements than the other PJ Moving Defendants, the Court concluded that under N.C.G.S. § 58-21-100, surplus line insurers are subject to suit in North Carolina for causes of action arising in the state under any surplus lines insurance contract made by that insurer, so long as service of process is made upon the Commissioner pursuant to N.C.G.S. § 58-16-30. Because AXIS had designated the Commissioner as its agent for service of process in its policy and had, in fact, accepted service of process for the lawsuit through the Commissioner, it had consented to the exercise of general personal jurisdiction over it by North Carolina courts. Accordingly, the motion to dismiss for lack of personal jurisdiction was denied.
Defendants also argued that the action should be dismissed under Rule 12(b)(6) and pursuant to the Court’s discretionary authority to dismiss declaratory judgment claims under N.C.G.S. § 1-257 because the Kroger Plaintiffs’ filing of this action constituted forum shopping. As to the Kroger Plaintiffs, the Court agreed. The filing of the action appeared to be an attempt by them to avoid their home state of Ohio and adverse precedent there even though the Ohio Insurance Action addressed the same issues, was first filed, and remained pending. Thus, the Court granted the motion to dismiss as it related to the Kroger Plaintiffs. However, the Court disagreed as to the Harris Teeter Plaintiffs. The Harris Teeter Plaintiffs are at home in North Carolina and the determination of their rights under their insurance policies is not at issue in the Ohio Insurance Action, to which they are not a party. Thus, the motion to dismiss was denied as to the Harris Teeter Plaintiffs.
Lastly, Defendants sought a discretionary stay of the action pursuant to N.C.G.S. § 1-75.12 in favor of the Ohio Insurance Action. This motion was denied as moot with regards to the Kroger Plaintiffs since their claims were dismissed. As to the Harris Teeter Plaintiffs, the Court determined, after weighing the applicable Lawyers Mutual factors, that a stay was not warranted or reasonable. The Harris Teeter Plaintiffs’ election of home forum was entitled to great deference, North Carolina and its residents have a strong interest in having the suit decided here, and it was reasonably possible that the Court would have to apply North Carolina law. Based on these factors and the Defendants’ failure to show that continuing the case in North Carolina would work a substantial injustice on them, the Court denied the motion to stay.
*******
Mary Annette, LLC v. Crider, 2023 NCBC 69 (N.C. Super. Ct. Oct. 11, 2023) (Conrad, J.)
Key Terms: motion for summary judgment; quite title; real property; offensive summary judgment; conclusions of law; superior court judge; overrule; deeds; ambiguity; extrinsic evidence
This case arises out of disputes concerning the creation, ownership, and management of Plaintiff Mary Annette, LLC. Defendants moved for summary judgment on their quiet title claim, in which they contended that the Crider siblings’ transfer of certain real property parcels to Mary Annette transferred only the common area surrounding cabins and RV spots within the perimeter of tract C-4, not the cabins and RV spots themselves.
Prior to this case’s designation to the business court, Mary Annette was granted a preliminary injunction barring the Crider siblings from handling rentals on tract C-4. In ruling on the preliminary injunction, the superior court judge found that Mary Annette had purchased all cabins and RV spots within tract C-4 from the Crider siblings. Mary Annette therefore argued here that the Court was bound by the superior court judge’s order. The Court disagreed, concluding that the determination by the superior court judge regarding the ownership of the property was a finding of fact, which the Court was not bound by. Nevertheless, because the deed was ambiguous and there was conflicting extrinsic evidence regarding the Crider siblings’ intent, the Court denied the motion for summary judgment.
*******
Cone v. Blue Gem, Inc., 2023 NCBC 70 (N.C. Super. Ct. Oct. 13, 2023) (Earp, J.)
Key Terms: motion to dismiss; judicial dissolution; majority control; shareholders; corporate waste; C corporation; redemption; deadlock; taxes; breach of fiduciary duty; derivative claim; voluntary dismissal; bad faith; Rule 41; business judgment rule; prejudice
Plaintiffs, shareholders in a family-owned corporation, filed this action seeking a judicial dissolution of the business and asserting a derivative claim for breach of fiduciary duty. After Defendants moved to dismiss, Plaintiffs also filed a motion to dismiss without prejudice.
Pursuant to Rule 41(a) and absent any showing of bad faith by Plaintiffs in filing the dismissal, the Court granted the dismissal of the judicial dissolution claim without prejudice. However, the Court rejected Plaintiffs’ request that each side bear its own costs since Rule 41(d) mandates that a plaintiff dismissing under Rule 41(a) be taxed with the costs of the action.
The Court separately addressed the breach of fiduciary duty claim because N.C.G.S. § 55-7-45(a) requires court approval for dismissal of derivative claims. All parties agreed to dismissal; however, Defendants argued that any dismissal should be with prejudice because 1) Plaintiffs did not allege sufficient facts to show that they had complied with the pre-suit demand requirement and 2) the complaint lacked factual support for Plaintiffs’ conclusion that the individual defendants had acted in bad faith or in self-interest and therefore the business judgment rule controlled. The Court concluded that Plaintiffs had sufficiently alleged compliance with the demand requirement by attaching the derivative demand itself to the complaint. Nevertheless, the Court determined that Plaintiffs’ complaint failed to adequately allege facts to support their conclusory statements regarding the individual defendants. Thus, the Court granted Defendants’ motion and dismissed the claim with prejudice.
*******
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2023 NCBC 71 (N.C. Super. Ct. Oct. 13, 2023) (Davis, J.)
Key Terms: motion to amend; second amended complaint; disclosure; fraud; environmental liabilities; civil conspiracy; indemnification; Rule 15; latent ambiguity; timeliness; futility; prejudice; relation back; statute of limitations
Having previously dismissed certain of Plaintiff’s claims without prejudice, the Court considered Plaintiff’s Renewed Motion for Leave to File Second Amended Complaint. Plaintiff sought first to replead its fraud and civil conspiracy claims with beefed-up allegations, including a more detailed list of the environmental regulations allegedly violated by Defendants, and second, to add allegations regarding a purported latent ambiguity in the purchase agreement at issue. Defendants opposed the amendments on the grounds of undue delay, prejudice, and futility.
Regarding the first group of proposed amendments, the Court found that there was no undue delay since the motion to amend was filed only forty-three days after the claims were dismissed. Further, the Court found that there was no prejudice resulting from the amendments because the claims were not new theories but had been pleaded in the original complaint. Lastly, the Court determined that the claims were not futile as they had been alleged with sufficient particularity and the Court could not make a definitive ruling at this time on whether the claims “related back” to the filing of the original complaint. Accordingly, the Court granted Plaintiff’s motion to amend as to its new claims for fraud and civil conspiracy and their accompanying allegations.
Regarding the second group of proposed amendments, Plaintiff sought to allege that the indemnification provisions at issue contained a latent ambiguity and therefore, parol evidence concerning the parties’ negotiations and contemporaneous understanding of the meaning of the provisions should be considered. However, because Plaintiff had not sought leave to allege an ambiguity in the purchase agreement until 356 days after the initial filing of the lawsuit and had previously taken a contrary position, the Court concluded that Plaintiff’s delay was excessive. The Court also concluded that Plaintiff had failed to show the existence of a latent ambiguity under North Carolina law. Thus, the motion was denied as to these amendments.
*******
Lafayette Vill. Pub, LLC v. Burnham, 2023 NCBC Order 48 (N.C. Super. Ct. Oct. 3, 2023) (Davis, J.)
Key Terms: voluntary dismissal; derivative claims; court approval; N.C.G.S. § 57D-8-04(a)
Pursuant to the North Carolina LLC Act, a plaintiff cannot dismiss or settle a derivative claim without the approval of the Court. Plaintiff here filed a notice of voluntary dismissal of its individual and derivative claims. The Court, on its own motion, ordered Plaintiff to file a motion to approve the dismissal of the derivative claims and supporting brief explaining why dismissal is in the best interest of the company.
*******
Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2023 NCBC Order 49 (N.C. Super. Ct. Oct. 4, 2023) (Earp, J.)
Key Terms: motion to dismiss; unperfected appeal; interlocutory appeal; Appellate Rule 3; Appellate Rule 25; Rule 58; BCR 3.8; timely notice of appeal
After the Court entered an order partially granted Defendants’ motion to dismiss on July 27, 2023, certain of the Plaintiffs electronically filed notices of appeal on August 25, 2023, on the Business Court’s docket. However, none of the Plaintiffs ever filed a notice of appeal with the Clerk of Superior Court of New Hanover County, the county of venue. Defendants moved to dismiss the appeals, arguing that the notices of appeal were not timely filed with the clerk of court within thirty days after entry of the dismissal order in violation of Appellate Rule 3. The Court agreed and dismissed the appeals, finding that Appellate Rule 3 is jurisdictional and non-waivable and thus, failure to file a notice of appeal with the clerk of court of the county of venue within the time prescribed in Appellate Rule 3 is fatal to the appeal.
*******
Airtron, Inc. v. Bentley, 2023 NCBC Order 50 (N.C. Super. Ct. Oct. 5, 2023) (Conrad, J.)
Key Terms: motion to compel; discovery dispute; BCR 10.9; motion for sanctions; Rule 37(b); pro se litigant; judicial estoppel
Following several discovery conferences with the Court, a failed settlement agreement, and incomplete discovery responses from Defendant Heinrich, Plaintiff Airtron sought not only complete discovery responses but also an order shifting some of its attorney’s fees to Heinrich, striking his answer, and entering a default judgment against him. Airtron also requested that the Court enforce the parties’ settlement agreement based on principles of judicial estoppel.
The Court found that Heinrich’s responses to Plaintiff’s discovery requests were incomplete, his objections untimely and nonresponsive, and violative of the Court’s order to provide full and complete responses to Airtron’s interrogatories and document requests. Despite Heinrich’s deficient responses, the Court found his noncompliance was more likely due to his “unfamiliarity with civil litigation as a nonlawyer rather than truly willful disobedience” and declined to impose the severe sanctions of striking his answer and entering default judgment against him. The Court, however, did enter an order (1) requiring Heinrich to supplement his discovery responses; (2) permitting Airtron to depose Heinrich again following receipt of his supplemental responses; and (3) requiring Heinrich to reimburse Airtron for certain reasonable expenses that it incurred in preparing for and attending the discovery hearing on October 2, 2023.
Regarding the settlement agreement, the Court determined that pursuant to the terms of the agreement, it was rendered null and void by Heinrich’s failure to execute a confession of judgment. Thus, there was no settlement agreement for the Court to enforce.
By Rachel E. Brinson
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
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.
Posted 10/17/23
Visionary Ed. Tech. Holdings Grp., Inc. v. Issuer Direct Corp., 2023 NCBC 65 (N.C. Super. Ct. Sept. 22, 2023) (Conrad, J.)
Key Terms: N.C. Gen. Stat. § 25-8-403; security transfer; appropriate person; standing; transfer agent; security registration
This action is a sister case to a case pending in Canada in which Fan Zhou, the majority shareholder of Visionary Education Technology Holdings Group, Inc., sued two former directors, You Bun Chan and Thomas Traves, for breach of contract and sought the return of Visionary’s shares which had previously been transferred to Chan and Traves. Zhou and Visionary filed the present case in North Carolina against Visionary’s transfer agent, Issuer Direct Corporation, seeking, first, an order barring Issuer Direct from removing restrictions on the shares and registering a transfer if and when Chan and Traves make such a request, and, second, a declaration that Issuer Direct cannot be liable to Chan and Traves for refusing to register a transfer.
The Court determined that Plaintiffs did not have standing to seek their requested relief under N.C. Gen. Stat. § 25-8-403. Section 25-8-403 allows an “appropriate person” to demand that an issuer’s transfer agent not register transfer of a security. “Appropriate person” is defined as the security’s registered owner. Because Visionary Education and Zhou were not the registered owners of the shares at issue, they did not have standing to seek relief under N.C. Gen. Stat. § 25-8-403, and, therefore, the Court did not have jurisdiction to grant such relief. The Court dismissed the complaint without prejudice. The Court did not rule on whether an issuer could enforce restrictions on share transfers through other contractual or statutory means.
*****
Husqvarna Pro Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 66 (N.C. Super. Ct. Sept. 22, 2023) (Bledsoe, C.J.)
Key Terms: motion to dismiss; Rule 12(b)(6); Rule 12(h)(3); declaratory judgment; actual case or controversy; non-competition agreement; operating agreement; anticipatory breach
Husqvarna Products (collectively with Husqvarna Business, the “Husqvarna Parties”) specializes in outdoor power equipment, including robotic lawnmowers. Robin Autopilot (collectively with Robin Technologies, the “Robin Parties”) sells or rents robots to subscribers. Seeking to form a business relationship, Husqvarna Products and Robin Technologies entered into a non-disclosure agreement, followed by Robin Autopilot and Husqvarna Business entering into the Original Admission Agreement, whereby the Husqvarna Parties would contribute capital and robotics, parts, and accessories to Robin Autopilot through a separate Supply Agreement, and, in return, Husqvarna Business would be admitted as a member of Robin Autopilot and permitted to fill one seat on Robin Autopilot’s board of managers. The Original Admission Agreement included a non-solicitation provision, which prohibited Husqvarna from soliciting two businesses for a certain period. Robin Autopilot subsequently entered into an Amended Operating Agreement which allowed its members to engage in competitive business ventures. Following certain disputes, the Husqvarna Parties and the Robin Parties entered into a Settlement Agreement, and Husqvarna Business and Robin Autopilot entered into an Amended Admission Agreement and a Note Purchase Agreement.
The dispute underlying this litigation arose when Husqvarna Products began pursuing sales of its robotic products to professional users directly. After Robin Autopilot’s CEO sent a memo to the Husqvarna Parties objecting to this practice, the Husqvarna Parties filed suit against the Robin Parties and certain of Robin Autopilot’s members (the “Member Defendants”), asserting claims for a declaratory judgment regarding the parties’ rights under the various agreements; anticipatory breach of the Settlement Agreement and Note Purchase Agreement; and breach of the Supply Agreement. Robin Technologies and the Member Defendants moved to dismiss pursuant to Rules 12(b)(6) and 12(h)(3).
The Court first addressed Plaintiffs’ claims for a declaration that the Admission and Operating Agreements did not restrict their right to sell their products directly to third-parties. The Member Defendants and Robin Technologies contended that because they were not signatories to either agreement and their interests were unaffected by the declarations sought, the “actual case or controversy” requirement for a declaratory judgment action was not met and the claims should be dismissed. The Court agreed as to the Admission Agreements as a declaration of rights under those agreements would not impact any interests of the Member Defendants or Robin Technologies. That the Member Defendants disagreed with the Husqvarna Parties’ position was irrelevant because a mere difference of opinion does not constitute a controversy under the Declaratory Judgment Act. The Court also agreed that with respect to the Operating Agreement, the claim should be dismissed against Robin Technologies because it was not a member of Robin Autopilot and thus had no rights under the Operating Agreement. However, the Court disagreed with regard to the Member Defendants, since as members of Robin Autopilot, a determination of Husqvarna Business’s rights to compete under the Operating Agreement would necessarily determine the Member Defendants’ rights to compete as well.
Turning to the other agreements, the Court dismissed the declaratory judgment claims against Robin Technologies relating to the Supply Agreement and the Note Purchase Agreement as Robin Technologies was not a party to either and had no interests thereunder. The motion was denied, however, with respect to the Settlement Agreement, as Robin Technologies was a signatory to, and had continuing obligations under, the agreement.
Lastly, Robin Technologies sought dismissal of the claim for anticipatory breach of the Settlement Agreement, contending that since the claim was based on the memo from Robin Autopilot’s CEO, it did not show a refusal to perform by Robin Technologies. The Court disagreed. The complaint alleged that the memo’s author was the CEO of both companies, that Robin Technologies’ watermark appeared throughout the memo, and that the memo’s signature line identified the author as “CEO | Robin Technologies.” These allegations were sufficient at the 12(b)(6) stage to show that the memo was sent on behalf of both companies.
*****
Cutter v. Vojnovic, 2023 NCBC Order 45 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: BCR 10.9; discovery dispute; discovery period; deposition; BCR 10.4
This order addresses a Business Court Rule 10.9 dispute. Plaintiff noticed a 30(b)(6) deposition of Defendant for February 2023. All parties appeared, but rather than taking the deposition, Plaintiff opted to engage in settlement negotiations. The discovery period expired in March with neither side seeking an extension. After settlement negotiations failed, Plaintiff served an amended notice for a 30(b)(6) deposition of Defendant. Defendant objected, contending that the notice was untimely and improper. Plaintiff responded that the parties had agreed to reconvene the deposition if settlement negotiations were unsuccessful.
The Court denied Plaintiff’s request to take the deposition and struck the notice. Although parties may agree to conduct discovery after the discovery deadline, BCR 10.4(d) prohibits the Court from entertaining a motion to compel or a motion for sanctions in connection with that discovery unless the parties have sought an order allowing the discovery.
*******
Truist Fin. Corp. v. Rocco, 2023 NCBC Order 46 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15(a); amendment as of right; responsive pleading; motion to dismiss
This order addresses whether Rule 15(a) precludes a plaintiff’s amendment as of right after any defendant files a responsive pleading. Plaintiffs had filed suit against Colliers Mortgage Holdings, LLC and certain Executives previously employed by Plaintiffs. Both Colliers and the Executives moved to dismiss; however, the Executives also filed an answer. Plaintiffs then filed an amended complaint as of right against Colliers, while simultaneously seeking leave to amend against the Executives (and asking for leave to amend against Colliers if the Court determined that they could not amend as of right). Colliers challenged Plaintiffs’ right to amend as of right.
While noting that federal courts have often reached a contrary conclusion, the Court determined that under North Carolina precedent, a plaintiff’s right to amend is cut off after any defendant files a responsive pleading. Accordingly, Plaintiffs’ amended complaint was void and without legal effect because Plaintiffs’ right to amend as of right was cut off by the Executives’ filing of an answer. Nevertheless, the Court ruled that in the interests of judicial efficiency and economy, the motion to amend was granted as to all Defendants, without prejudice to Defendants’ right to seek dismissal under Rule 12. The motions to dismiss the original complaint were denied as moot.
*****
Anderson v. Beresni, 2023 NCBC Order 47 (N.C. Super. Ct. Sept. 22, 2023) (Davis, J.)
Key Terms: Nonprofit Corporation Act; N.C. Gen. Stat. § 55A-7-40(d); derivative action; settlement; consent motion to approve settlement and dismissal; property owners association
Plaintiffs, members of a property owners association operating under North Carolina’s Nonprofit Corporation Act, had brought a derivative action against current and former members of the association’s board of directors and the declarant asserting that the board had failed to invoice the declarant for lot assessments allegedly owed. After reaching a settlement agreement, the parties, pursuant to N.C. Gen. Stat. § 55A-7-40(d), sought approval from the Court of the settlement and dismissal of the derivative claims.
The Court noted that the balancing factors typically applied to approval of the settlement of derivative claims in the context a for-profit corporation—balancing 1) any legitimate corporate claims against 2) the corporation’s best interests—were equally applicable to a non-profit corporation. Applying these factors and noting the risk, uncertainty, and significant expense of continued litigation, the Court granted the motion, determining that the proposed settlement was in the best interest of the association and its members, and was fair, reasonable, and adequate in all respects.
By: Natalie E. Kutcher
To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at aoldfield@rcdlaw.net.
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.
Posted 10/03/23
