Am. Circuits, Inc. v. Bayatronics, LLC, 2023 NCBC 84 (N.C. Super. Ct. Dec. 8, 2023) (Robinson, J.)
Key Terms: summary judgment; misappropriation of trade secrets; UDTPA; unjust enrichment; punitive damages; civil conspiracy
This dispute arose from Defendant Patel’s resignation from ACI, and his alleged misappropriation of ACI’s trade secrets for use at Bayatronics, a competing business which he co-founded while still an ACI employee. ACI brought suit against Bayatronics and its members. Following completion of discovery, Defendants moved for summary judgment on all claims.
Misappropriation of Trade Secrets. The Court first addressed the three groups of alleged trade secrets provided by ACI to determine whether a trade secret had been sufficiently identified. From the first group, the Court concluded that one file identified—a customer list—could be a trade secret because it included qualitative information regarding the products manufactured for each customer and their potential revenue, which was not readily available through other sources. Regarding the second group, ACI had failed to identify any specific files for the Court to consider. Thus, the Court granted the motion as to these broadly defined categories of files. The third group, however, passed muster as the complaint specifically provided the name of each file, its content, how it was developed and used by ACI, and its value to competitors. The Court next considered the protective measures taken by ACI—requiring all employees to sign employment agreements with a confidentiality provision and maintaining the alleged trade secrets on a password-protected server—and could not conclude that those efforts were unreasonable as a matter of law. Lastly, the Court concluded that the forensic evidence was sufficient to create an inference of misappropriation, but only as to Bayatronics and one of its co-founders, Mr. Warriner. Accordingly, the claim against them survived summary judgment but was dismissed as to the other defendants.
UDTPA. The Court denied the motion to the extent it was based on ACI’s surviving misappropriation of trade secrets claim against Mr. Warriner and Bayatronics but granted it as to the other parties.
Civil Conspiracy. Although the surviving misappropriation of trade secrets claim could serve as the underlying tort for civil conspiracy, ACI’s circumstantial evidence of an unlawful agreement did not rise above mere suspicion or conjecture and therefore the claim was dismissed.
Unjust Enrichment. ACI argued that it had conferred the benefit of access to its confidential information on Patel and that the Bayatronic Defendants had been unjustly enriched by obtaining the benefit of that confidential information through their conspiracy. The Court, however, rejected this argument and dismissed the claim. The evidence showed, at most, that Patel had taken or retained confidential information which the Bayatronic Defendants ultimately received. It did not show that ACI had voluntarily conferred a benefit on the Bayatronic Defendants.
Punitive Damages. Noting that punitive damages are not a standalone claim, the Court granted the motion as to the claim for punitive damages without prejudice to ACI’s ability to seek punitive damages for conduct which may later be found to meet the statutory requirements of N.C.G.S. § 1D-15.
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Conservation Station, Inc. v. Bolesky, 2023 NCBC 85 (N.C. Super. Ct. Dec. 12, 2023) (Robinson, J.)
Key Terms: entry of default; bench trial; breach of fiduciary duty; constructive fraud; lost profits; punitive damages; fraud; conversion; intangible assets; tracing; tortious interference with prospective economic advantage; UDTPA; in or affecting commerce
Plaintiff CSI brought suit against its former employee/officer Bolesky and his new competing business CTS, asserting a number of claims arising from Bolesky’s alleged misconduct in running CSI. Following entry of default against Defendants, the Court proceeded to a bench trial at which Bolesky represented himself and CTS did not appear. This opinion constitutes the Court’s final judgment. Although entry of default renders the factual allegations admitted, it does not necessarily establish liability as the Court must still determine whether the allegations are sufficient to state a claim for relief.
Breach of Fiduciary Duty and Constructive Fraud. The Court concluded that CSI had sufficiently alleged that 1) Bolesky owed CSI a fiduciary duty as an officer; 2) Bolesky had breached that duty by, among other things, converting CSI’s business assets, failing to file CSI’s tax returns, and neglecting CSI’s supplier relationships; 3) Bolesky sought to benefit himself through these actions; and 4) CSI had been significantly damaged by Bolesky’s misconduct. CSI requested over $8 million in actual damages based on lost profits. However, because CSI’s lost profits calculations were too speculative, the Court determined that CSI was only entitled to recover $200,000 from the Defendants, jointly and severally, for these claims. The Court also awarded $600,000 in punitive damages based on evidence that Bolesky’s breaches of his fiduciary duty were carefully calculated and intended to destroy CSI’s ability to compete in the market.
Fraud. CSI’s first fraud claim was based on its allegation that Bolesky had made a material misrepresentation of fact when he stated under oath in a previous proceeding that he did not know whether he would use his new business, CTS, to engage in the same type of business as CSI. The Court concluded that CSI was not entitled to recovery on this claim because the complaint did not include allegations of how such statement was reasonably calculated to deceive. CSI’s second fraud claim was based on its allegation that Bolesky had made material misrepresentations to CSI’s customers regarding the relationship between CSI and CTS. The Court found this claim insufficient as well because the complaint did not allege the time, place, and content of the fraudulent representations.
Conversion. CSI alleged that Defendants had converted CSI’s funds, accounts receivable, distributorship rights, business relationships with customers, and good will. The Court concluded that this claim failed. Intangible interests, such as distributorship rights, business relationships, and good will, cannot form the basis of a conversion claim. In addition, a claim for conversion of money requires the funds in question to be specifically traced and identified, which CSI failed to do.
Tortious Interference. CSI’s claim for tortious interference with prospective economic advantage failed because CSI did not identify any specific contract which would have resulted but for Defendants’ alleged tortious interference.
UDTPA. CSI’s UDTPA claim failed because Bolesky’s formation of CTS and usurpation of CSI’s corporate opportunities was not in or affecting commerce; rather, CTS was formed and used as an instrument to facilitate harm within CSI.
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Emrich Enters. LLC v. Hornwood Inc., 2023 NCBC 86 (N.C. Super. Ct. Dec. 14, 2023) (Robinson, J.)
Key Terms: judgment notwithstanding the verdict; motion for a new trial; operating agreement; waiver of fiduciary duties; direct claim; standing; punitive damages; breach of contract
In this action, Emrich Enterprises, the minority member of Triangle, brought claims individually, and derivatively on behalf of Triangle, against Hornwood, Inc., the majority member of Triangle, arising from Hornwood’s alleged breach of Triangle’s governing documents and of fiduciary duties owed to Emrich and Triangle. After a seven-day trial, the jury found that Hornwood had breached its fiduciary duties on various bases and awarded damages. Following entry of final judgment, Hornwood moved for judgment notwithstanding the verdict and for a new trial.
Triangle’s Fiduciary Duty Claims Against Hornwood. Hornwood moved for JNOV regarding Triangle’s fiduciary duty claims on the basis that Triangle’s operating agreement eliminated Hornwood’s liability for such duties. The Court agreed and further concluded that duties owed under other sections of the agreement were contractual, not fiduciary, in nature. Thus, since the jury’s determination that Hornwood owed Triangle fiduciary duties was legally unsubstantiated, the Court granted the JNOV motion on these claims and amended the judgment accordingly.
Hornwood’s Self-Interested Transactions. Based on its conclusion that there was no evidence that Hornwood owed, and breached, fiduciary duties to Triangle, the Court granted the JNOV motion and amended the judgment with regards to the jury’s finding that Hornwood had engaged in self-interested transactions and the jury’s resulting award of compensatory damages. Due to this amendment, the Court also amended the judgment to reinstate Issue 11, which it had previously stricken as duplicative. The Court determined that JNOV was not appropriate on Issue 11 but allowed Hornwood leave to move for a new trial on that issue.
Emrich’s Direct Claims Against Hornwood. At trial, the jury found that Hornwood, as majority member of Triangle, breached fiduciary duties owed to Emrich by working with another entity and threatening to cease manufacturing for Triangle. In support of its JNOV motion, Hornwood argued that Emrich did not have standing to bring direct claims. The Court disagreed, concluding that Emrich, as a minority member of Triangle, had standing to bring direct claims against Hornwood, the majority member. In addition, the jury’s award of damages in differing amounts to Emrich and Triangle for the same conduct showed that Emrich suffered injuries distinct from those suffered by Triangle. Nevertheless, the Court granted the JNOV motion with regard to the claim arising from Hornwood’s threat to cease manufacturing because no fiduciary duty was owed to Emrich under the joint venture agreement.
Hornwood’s Breach of Contract. The Court determined that there was ample evidence at trial to support the jury’s finding that Hornwood had breached Section 4.4 of the Triangle operating agreement. Thus, the Court denied the JNOV motion as to this claim.
Triangle’s Punitive Damages. The Court granted JNOV with regards to the jury’s award of punitive damages. Since Triangle’s only surviving claims were breach of contract claims and the Court had determined that the jury’s findings regarding underlying torts which would have warranted punitive damages were unsupported by the evidence, there was no legal basis for punitive damages.
Motion for a New Trial or to Amend Judgment. Hornwood moved to amend the final judgment award for its breach of Section 4.4 of the Operating Agreement, arguing that the award was inconsistent with the jury’s award of nominal damages to Triangle for similar conduct, was unsupported by the greater weight of the evidence, and excessive. The Court disagreed and denied the motion. The verdict was not inconsistent as the jury could have relied on different evidence when awarding damages for separate claims. Moreover, based on the evidence presented the jury’s award was reasonable and not against the greater weight of the evidence.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Acad. St. QOZB I, LLC, 2023 NCBC 87 (N.C. Super. Ct. Dec. 15, 2023) (Bledsoe, C.J.)
Key Terms: receivership; subject matter jurisdiction; in rem; in personam; sale of real property; free and clear; lease; N.C.G.S. § 1-507.41; N.C.G.S. § 1-507.46(c); N.C.G.S. § 1-507.45(g)(2); balancing of equities
As summarized here, the Court previously appointed a receiver over Defendant QOZB. Thereafter, the Receiver filed a motion seeking authority to sell, free and clear of all liens and encumbrances, a piece of property in South Carolina currently encumbered by several parking leases. A number of parties opposed the motion.
The Opposing Parties first argued that the Court did not have subject matter jurisdiction to authorize the Receiver to sell property located in South Carolina. The Court rejected this argument. Although the Court did not have in rem jurisdiction to transfer title itself, it could exercise its in personam jurisdiction to authorize the Receiver to take appropriate steps to effectuate the sale.
The Opposing Parties then argued that, pursuant to N.C.G.S. § 1-507.41, the Receiver needed to obtain an ancillary receivership in South Carolina before exercising control over the property. This argument failed as well because the statute’s language regarding foreign receiverships was permissive rather than mandatory.
The Opposing Parties next argued that N.C.G.S. § 1-507.46(c) restricts a receiver’s power to effect sales to those that are free and clear of liens but not of other types of encumbrances, and that this provision preempts all other statutes and common law principles regarding the sale of receivership property. The Court again disagreed. It determined that the statute’s plain language only addressed a receiver’s authority to engage in sales made “free and clear of all liens and rights of redemption and claims of exemption,” but did not address or create a restriction on a receiver’s authority to sell free and clear of other encumbrances. Moreover, the Commercial Receivership Act expressly provides that other statutory and common law supplement its provisions unless explicitly displaced. Since North Carolina law has long held that a receiver has the power to sell property free and clear of all encumbrances, it followed that if the legislature intended to change the common law, it would have expressly said so.
The Court next concluded that the Receiver did not have the authority to reject the current parking lease as an executory contract pursuant to N.C.G.S. § 1-507.45(g)(2) because the statute expressly prohibited a receiver from rejecting an unexpired lease of real property under which the debtor is the landlord and the receiver was appointed at the request of a person other than the mortgagee—which were the facts at hand here. Nevertheless, the Court concluded that the parking leases were void under South Carolina law. First, the current parking lease was void because it was supported by grossly inadequate consideration and accompanied by various “inequitable incidents.” Second, the remaining parking leases were void due to fatal defects, including that the lessor did not have rights to the leased property, the parent lease was invalid, and the same party was on both sides of the transaction.
Based on the above, and the balancing of the equities, the Court granted the motion, approved the proposed sale contract, and authorized the Receiver to effectuate the sale and transfer the property free and clear of all liens and other encumbrances, including the parking leases.
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Bank of Am. N.A. v. Klaussner Furniture Indus., Inc., 2023 NCBC Order 66 (N.C. Super. Ct. 15, 2023) (Robinson, J.)
Key Terms: receivership; attorneys’ fees; application for compensation; reasonableness; hourly rate; N.C.G.S. § 1-507.31(b)
This order addressed K&L Gates’ first monthly application for payment of attorneys’ fees and expenses as counsel to the Receiver for Klaussner Furniture. In determining the reasonableness of the compensation requested, the Court considered the factors set forth in N.C.G.S. § 1-507.31(b), including the value of the debtors’ assets, the number and amount of the debtors’ creditors, the time and labor expended, the billing rates charged, the novelty and complexity of the receivership, and rates previously found reasonable in similar circumstances. Although acknowledging that K&L Gates had provided high-level performance, the Court ultimately determined that the rates needed to be adjusted. Accordingly, the Court granted the application in part and permitted the Receiver to remit to K&L Gates compensation at the rates set forth by the Court. However, the Court denied the motion as to payment of expenses because the application did not include any specific information or itemization for the costs incurred.
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Clearview Ltd., LLC v. Fife, 2023 NCBC Order 67 (N.C. Super. Ct. Dec. 18, 2023) (Bledsoe, C.J.)
Key Terms: order on designation; mandatory complex business case; N.C.G.S. § 7A-45.4(a)(8); amended complaint; trade secrets; confidential or proprietary information
This action arose out of a dispute between Plaintiff and two of its former employees. Plaintiff asserted claims for breach of contract, unfair and deceptive trade practices, unfair competition, civil conspiracy, and tortious interference with contract. Shortly after filing suit, Plaintiff filed an amended complaint asserting the same claims but modifying the factual allegations, including removal of references to trade secrets. Thereafter, Defendants filed a notice of designation under N.C.G.S. § 7A-45.4(a)(8), which permits designation in disputes involving trade secrets. Defendants argued that designation was proper despite the removal of references to trade secrets because the nature of the action had not changed. The Court disagreed, noting that it had never construed section 7A-45.4(a)(8) so broadly as to permit designation based on claims involving generalized confidential or proprietary information. Accordingly, since the allegations of the amended complaint only involved misuse of generalized proprietary information, designation was improper.
By: Ashley 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 12/20/23
James H. Q. Davis Tr. v. JHD Props., LLC, 2023 NCBC 78A (N.C. Super. Ct. Nov. 16, 2023) (Bledsoe, C.J.)
Key Terms: summary judgment; judicial dissolution; N.C.G.S. § 57D-6-02(2)(i); deadlock
As summarized here, this action arose from disagreements over estate planning vehicles established by Dr. Davis for the benefit of his four sons, namely a trust for each son, as well as two LLCs, which each of the trusts hold an equal interest in and which two of the sons—Charles and Jim—are managers of. The LLCs own four undeveloped tracts of land. After Charles and Jim were unable to reach an agreement on use of the property, two of the trusts filed this action seeking judicial dissolution of the LLCs under N.C.G.S. § 57D-6-02(2)(i). Charles, through his trust, intervened to oppose the dissolution. Both sides moved for summary judgment.
The evidence showed that, although Charles and Jim have been cordial and cooperative in their communications, they have been unable to reach agreement for at least three years, resulting in the failure of the LLCs to conduct any economically useful activity as contemplated by their operating agreements. Moreover, the operating agreements did not provide any mechanism to break the deadlock. As such, the Court concluded that it was not practicable to conduct the LLCs’ business and therefore, judicial dissolution was warranted.
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Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 79 (N.C. Super. Ct. Nov. 28, 2023) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; de facto duty; partnership duty; constructive fraud; misappropriation of trade secrets; tortious interference with prospective economic advantage; economic loss rule; UDTPA; breach of contract; breach of implied covenant of good faith and fair dealing
As previously summarized here, this dispute arose from a series of agreements entered into by parties associated with Husqvarna and parties associated with Robin Autopilot. In this opinion, the Court addressed Plaintiff Husqvarna’s motion to dismiss Robin’s amended counterclaims pursuant to Rule 12(b)(6).
Breach of Fiduciary Duty. Robin contended that the Husqvarna Parties owed it fiduciary duties on a number of bases, each of which the Court rejected. First, under Ohio law, which governed the standard of care owed by Robin’s members and managers, the Husqvarna Parties did not owe a fiduciary duty to Robin by virtue of their membership in Robin. Second, the fact that Husqvarna was permitted under the Robin Operating Agreement to designate two members of Robin’s seven-member board did not make the Husqvarna Parties themselves managers or members of the Board, and thus they did not owe any fiduciary duties on that basis. Further, Husqvarna’s ability to appoint two members of Robin’s board did not amount to the level of control or power required to impose de facto fiduciary duties. Third, Robin did not allege that it had any agreement with the Husqvarna Parties to share profits, so no fiduciary duty could arise on the basis of a partnership. Finally, no fiduciary duty arose from the parties’ confidentiality agreements because Robin did not allege any special duties or damages arising apart from those created by the agreements. Accordingly, Robin’s breach of fiduciary counterclaim was dismissed with prejudice.
Constructive Fraud. The Court also dismissed Robin’s counterclaim for constructive fraud, since Robin failed to establish the existence of a fiduciary duty.
Misappropriation of Trade Secrets. The Court denied Husqvarna’s motion as to Robin’s counterclaim for misappropriation of trade secrets. Robin’s allegations regarding customer lists, business strategies, and technical information were sufficient to identify a trade secret at the 12(b)(6) stage. Robin also sufficiently pleaded facts regarding misappropriation, including that Husqvarna acquired trade secret information under a confidentiality agreement and used those trade secrets to enhance their own products and interfere with Robin’s customer and prospective customer relationships.
Tortious Interference with Prospective Economic Advantage. The Husqvarna Parties sought dismissal of Robin’s claim that Plaintiffs tortiously interfered with Robin’s prospective contracts with AutoCut and the Mariani Group. The Court granted dismissal with regards to AutoCut because Robin’s allegations showed that it hoped for a contract with AutoCut, but failed to show that a contract would have been entered into absent Plaintiffs’ interference. However, the Court denied the motion as to the Mariani Group because Robin had sufficiently pleaded but-for causation by alleging that the deal between Robin and Mariani was “set to close” until the Husqvarna parties contacted Mariani. The Court also rejected the Husqvarna Parties’ legal justification argument since Robin had sufficiently alleged that the Husqvarna Parties interfered unlawfully by misappropriating trade secrets. Lastly, the Court concluded that the claim was not barred by the economic loss rule because Robin had sufficiently alleged a duty (the duty not to interfere) which was distinct from any contractual obligations between the parties.
Unfair and Deceptive Trade Practices. The Court denied Husqvarna’s motion to dismiss Robin’s UDTPA claim since Robin’s surviving claims for trade secret misappropriation and tortious interference claims formed the basis of the UDTPA claim.
Breach of the Admission Agreement and Amended Admission Agreement and Breach of Implied Covenant of Good Faith and Fair Dealing. Husqvarna sought to dismiss Robin’s claims for breach of the admission agreement on the basis that: (i) Robin’s pleadings failed to allege that Husqvarna’s time to provide the products to Robin has expired; and (ii) Robin repudiated the agreement by sending a memo before Husqvarna’s duty of payment was triggered. The Court held that Robin’s pleadings adequately addressed the timing issue and did not establish that the agreements were repudiated by Robin’s memo. As such, the Court denied Husqvarna’s motion as to these claims. Since Robin’s implied covenant claim was based on the same acts as its breach of contract claim, the Court also denied Husqvarna’s motion as to Robin’s implied covenant claim.
Breach of the Confidentiality Agreement. Husqvarna argued that Robin’s claim for breach of the confidentiality agreement should be dismissed, as Robin did not allege the specific provisions breached or attach the agreement to its counterclaims. Noting that North Carolina permits notice pleading, the Court held that Robin’s pleadings sufficiently alleged the elements for breach of contract and therefore denied Husqvarna’s motion.
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Howard v. IOMAXIS, LLC, 2023 NCBC 80 (N.C. Super. Ct. Nov. 29, 2023) (Earp, J.)
Key Terms: motion to amend complaint; supplemental complaint; standing; derivative claim; economic interest holder; breach of contract; alternative pleading; repudiation; fraudulent concealment; duty to disclose; reasonable reliance; survival of claim upon death; UVTA; conversion; economic loss rule; conspiracy; personal jurisdiction
Plaintiffs are the trustees of the Ronald E. Howard Revocable Trust. Prior to his 2017 death, Ronald Howard was the majority member of IOMAXIS. Plaintiffs alleged that upon Howard’s death, and pursuant to IOMAXIS’s North Carolina operating agreement, his membership interest became an economic interest and eventually passed to the Trust. This action arose from disputes with the remaining IOMAXIS members over the OA’s buy-sell provisions and the Trust’s right to the economic benefits from Howard’s interest. After a lengthy discovery period, which included a trip to the Supreme Court as summarized here, Plaintiffs moved to file a supplemental and second amended complaint, which Defendants opposed.
Standing. Defendants asserted that the Trust lacked standing because the movement of Howard’s economic interest from his Estate to the Trust without member approval violated the OA and because the Trust cannot bring claims for the alleged devaluing of its interest because the claims are derivative and an economic interest holder, such as the Trust, lacks standing to bring derivative claims. The Court rejected both arguments. The Court had previously determined that the Trust’s allegations were sufficient to establish standing and nothing in the proposed amendments affected that determination. Moreover, Plaintiffs’ fraudulent concealment claim was not derivative because, as alleged, the claim belongs to the Trust alone since only the Trust was kept in the dark.
Breach of Contract. Plaintiffs sought to add a claim for a declaration that IOMAXIS repudiated the OA and to divide their contract-related allegations into separate claims for breach of the OA’s provisions regarding distributions, the buy-sell process, and the implied duty of good faith and fair dealing. The Court allowed these amendments. These amendments were not unduly prejudicial or untimely given the unusual procedural history of the case. In addition, at this stage, Plaintiffs could plead their breach of contract claim under alternative theories of breach by non-performance or breach by repudiation; thus, the repudiation theory was not futile.
Fraudulent Concealment. Defendants asserted that the proposed amendments to Plaintiffs’ fraudulent concealment claim were futile because a duty to disclose and reasonable reliance were not adequately alleged. The Court determined that Plaintiffs’ allegations of affirmative steps that the IOMAXIS Defendants and Five Insights had taken to conceal material facts was sufficient to give rise to a duty to disclose and its allegations that it had been unable to ascertain the truth despite reasonable diligence satisfied the reliance element. Accordingly, the Court allowed the amendments; however, the amendment was denied to the extent it sought to reassert a claim for fraud occurring prior to Howard’s death. Although, the right to prosecute an action existing at the time of death survives, a claim for fraud only accrues upon discovery by the plaintiff of facts constituting the fraud. Thus, no fraud claim survived Howard’s death that could have become part of his residuary estate.
Uniform Voidable Transactions Act. Plaintiffs sought to expand their UVTA claim to include transfers that had recently incurred. The Court allowed these amendments as Plaintiffs had sufficiently alleged that transfers were made with an intent to hinder, delay, or defraud.
Conversion. Plaintiffs’ proposed conversion claim was based on the alleged conversion by IOMAXIS of the Trust’s right to capital, income, losses, credits, and other economic rights. However, because this right existed by virtue of the Trust’s status as an economic interest holder pursuant to the OA, the claim arose from contractual duties owed to the Trust and was therefore barred by the economic loss rule. Thus, the conversion claim was futile and this amendment was denied.
Conspiracy. The Court allowed the addition of a conspiracy claim based on Plaintiffs’ factual allegations showing that the IOMAXIS Defendants, along with proposed Defendant Five Insights, agreed to and engaged in a coordinated scheme to unlawfully deprive the Trust of distributions and reduce the value of its economic interest.
Addition of Five Insights as a Defendant. The IOMAXIS Defendants objected to the addition of Five Insights because it was a Delaware company with no connection to North Carolina such that the Court lacked personal jurisdiction over it. However, Plaintiffs’ allegations that Five Insights is a successor-in-interest and the sole member of IOMAXIS were sufficient at this stage to allow the inference of jurisdiction. Thus, the motion was granted to allow the addition of Five Insights.
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PreGel Am., Inc. v. Casol, 2023 NCBC 81 (N.C. Super. Ct. Dec 1, 2023) (Bledsoe, C.J.)
Key Terms: summary judgment; Rule 56; indemnification; N.C.G.S. § 55-8-52; N.C.G.S. § 55-8-56; bylaws
After Plaintiff’s initial federal lawsuit against Casol, its former CEO, was dismissed for lack of subject matter jurisdiction, Casol made a demand for indemnification which Plaintiff rejected. Thereafter, Plaintiff filed this state court action asserting substantially similar claims as in the federal action and seeking a declaration that it was not required to indemnify Casol under its bylaws or N.C.G.S. §§ 55-8-52 and 55-8-56. Casol counterclaimed seeking a declaration that Plaintiff was required to indemnify him for his expenses from the federal action. The parties submitted cross-motions for summary judgment on the declaratory judgment claims.
The Court held that determining Plaintiff’s obligation to indemnify Casol under the bylaws was premature, as the bylaws required a finding that Casol did not know or believe that his actions were in conflict with the company’s best interest and no evidence had been submitted on this issue.
However, the Court granted Casol’s motion and denied Plaintiff’s motion regarding indemnification under N.C.G.S. §§ 55-8-52 and 55-8-56, which mandate indemnification for a corporate officer “who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he [] was an [officer] of the corporation.” The federal action was a completed action in which Casol produced a victorious procedural defense; thus the statutory requirements were satisfied and Casol was entitled to mandatory indemnification from Plaintiff for his reasonable expenses incurred in connection with the federal action.
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Weddle v. WakeMed Health & Hosps., 2023 NCBC 82 (N.C. Super. Ct. Dec 4, 2023) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); patients; class action; Meta; Facebook; personal and medical data; negligence; negligence per se; invasion of privacy; breach of implied contract; unjust enrichment; UDTPA; breach of fiduciary duty; Meta Pixel; learned profession exception
Plaintiffs—patients or former patients of Defendant Wake Med—filed suit asserting various claims arising from WakeMed’s alleged unauthorized disclosure of Plaintiffs’ sensitive personal and health information to Meta through use of a data collection software code, Meta Pixel, embedded in its website and patient portal. WakeMed moved to dimiss all claims.
Negligence and Negligence Per Se. Plaintiffs alleged that WakeMed’s unauthorized disclosure of private patient information to Meta violated section 5 of the Federal Trade Commission Act and certain HIPAA regulations and that such violations constitute negligence per se. However, the Court determined that because neither the FTC Act nor the HIPAA regulations are public safety laws, i.e., laws for the protection of life or limb, the negligence per se claim failed. However, the Court found that Plaintiffs did adequately state a claim for common-law negligence based on its allegations that WakeMed breached its duty to exercise reasonable care when handling its patients’ confidential information by using Pixel and giving Meta unauthorized access to the information. That unauthorized disclosure led to foreseeable, avoidable harm, compounded by WakeMed’s delay in notifying its patients of the breach of confidence.
Invasion of Privacy/Intrusion into Seclusion. The Court dismissed this claim, concluding that WakeMed’s alleged unauthorized disclosure of voluntarily-shared confidential information to a third party did not amount to an intrusion into Plaintiffs’ private affairs since there was no unauthorized examination by WakeMed.
Breach of Implied Contract. Given the low bar to plead existence of a valid contract, Plaintiffs’ allegations of the elements of a contract were sufficient to give notice of their claim and the basis for it. The Court denied the motion to dismiss Plaintiffs’ claim for breach of implied contract.
Unjust Enrichment. Plaintiffs’ allegations of unjust enrichment were insufficient to state a claim because Plaintiffs failed to allege that they expected to receive any other compensation or benefit, apart from medical services, in return for providing their personal information to WakeMed. The Court was also unpersuaded by Plaintiffs’ argument that they conferred the marketing value of their data, which WakeMed used to enrich itself, because Plaintiffs could not point to any allegations that they intentionally conferred the marketing value of their data on WakeMed or that they expected compensation for it.
Section 75-1.1. Plaintiffs asserted that WakeMed’s disclosure of its patients’ information to Meta violated section 75-1.1. The Court, however, dismissed this claim under the learned profession exception. As a hospital system, WakeMed is a member of a learned profession and its alleged conduct was a rendering of professional services because its collection and use of patients’ information is entwined with its provision of professional services.
Breach of Fiduciary Duty. Plaintiffs alleged that they shared confidential information with WakeMed in the context of a physician–patient relationship for the purpose of receiving medical care. The Court found that such allegations were enough to plead the existence of a fiduciary relationship and that the allegation that WakeMed unauthorizedly disclosed such confidential information was enough to plead a breach of that duty. The Court denied the motion to dismiss the breach of fiduciary duty claim.
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N.C. Dep’t of Revenue v. Hayden Olivia Bridal, LLC, 2023 NCBC 83 (N.C. Super. Ct. Dec. 5, 2023) (Bledsoe, C.J.)
Key Terms: Department of Revenue; Notice of Final Determination; Office of Administrative Hearings; petition for a contested tax case; untimely; appeal; substantial right; sovereign immunity; N.C.G.S. § 150B-43; N.C.G.S. § 150B-23(f)
On August 30, 2022, the Department of Revenue sent Respondent a Notice of Final Determination assessing additional taxes. The NOFD also notified Respondent of the appeal process, which required Respondent to file a petition for a contested tax case hearing within 60 days of mailing of the NOFD. This deadline fell on a Saturday. Respondent emailed its contested case petition to the OAH’s Clerk’s Office after 5 PM the following Monday. It was accepted by the Clerk the next morning. The Department moved to dismiss the petition, contending that by failing to timely file the petition, Respondent failed to satisfy a necessary condition precedent to the Department’s waiver of sovereign immunity. The OAH denied the motion, reasoning that the NOFD was inadequate because it did not inform the Respondent that the filing deadline was 5 PM. The Department appealed.
The Court first determined that it had subject matter jurisdiction based on N.C.G.S. § 150B-43 which creates a path to judicial review of an OAH order that is not a final decision but that affects a substantial right—such as the denial of a 12(b)(2) motion premised on sovereign immunity.
The Court next determined that the Department’s NOFD was sufficient because the relevant statute (N.C.G.S. § 150B-23(f)) clearly and unambiguously required only that the Department provide notice that the time limit to file a contested case petition was 60 days, which the Department did.
Lastly, the Court concluded that Respondent’s filing after the OAH Clerk’s Office was closed was untimely as it did not comply with the N.C. Administrative Code’s filing rules. The Court rejected Respondent’s argument that it had an additional three days for mailing pursuant to Rule 6(e)as North Carolina Courts have consistently held that a petition to challenge an agency action must be filed within the statutory limitations period.
Accordingly, the Court reversed the OAH’s order and remanded back to the OAH with instructions to dismiss the petition as untimely and thus barred by sovereign immunity.
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Loyd v. Griffin, 2023 NCBC Order 60 (N.C. Super. Ct. Nov. 16, 2023) (Robinson, J.)
Key Terms: motion in limine; evidence; trial; interlocutory; crime; fraud; certificates of insurance; unduly prejudicial; opinion testimony; speculation; Rule 403; Rule 602; hearsay; motion to exclude; expert testimony; Rule 702; Daubert standard
The factual background of this action is summarized here. At issue in this order are the parties’ motions in limine and Defendants’ motion to exclude Plaintiff’s expert witness.
Plaintiff’s Motions
Plaintiff’s Motions sought to prohibit Defendants from (1) admitting any material or testimony into evidence that refers to Plaintiff as having committed or being convicted of a crime, having committed fraud, or having been found by any court or adjudicative body of committing fraud or a crime, and (2) calling any witness to testify that was not disclosed during discovery. As to the first request, the Court concluded, in its discretion, that Rule 403 barred the admission of this evidence because any probative value was substantially outweighed by the danger of unfair prejudice since accusing Plaintiff of a crime in the jury’s presence would be highly prejudicial and potentially misleading. Further, labeling Plaintiff’s conduct as illegal was a legal conclusion to which no witness could testify. Therefore, this motion was granted. As to the second request, the Court granted the motion to the extent it sought to prohibit testimony from two individuals who were not disclosed in Defendants’ initial or supplemental discovery responses.
Defendants’ Motions
Defendants’ Motions requested that the Court limit or exclude the following evidence: (1) testimony that Mr. Griffin “must have known” of the issuance of false or inaccurate COIs at GIA; (2) testimony and argument regarding COIs issued to Concrete Forming Associates, Inc. and Mr. Griffin’s knowledge of them; (3) testimony and argument that Plaintiff was “coerced” or entered into the GIA Shareholder Agreement by “duress” or force; (4) testimony and argument that Plaintiff and Mr. Griffin established a partnership; and (5) testimony that Nationwide allegedly “blessed” Plaintiff’s practice of issuing false or misleading certificates of insurance.”
As to the first and second requests, the Court found, based on Plaintiff’s deposition testimony, that Plaintiff improperly sought to provide opinion testimony based purely on speculation and had not come forth with evidence to support his contention that Mr. Griffin “must have known” about Plaintiff’s issuance of false or misleading COIs. Therefore, the Court granted Defendants’ Motions as to these requests, reserving, however, the opportunity to reconsider at trial if Plaintiff could lay a foundation that such testimony was based on first-hand observations.
On the third request, the Court agreed with Defendants that any testimony regarding duress or coercion was no longer relevant to the matter because Plaintiff’s claim related to this testimony had been previously dismissed. Further, any probative value of the testimony would be outweighed by the danger of unfair prejudice. The Court granted Defendants’ Motions as to their third request.
Regarding partnership testimony, Plaintiff wanted to elicit such testimony to show that the parties’ course of conduct revealed a fiduciary relationship. However, since Plaintiff’s breach of fiduciary duty and constructive fraud claims had previously been dismissed to the extent they were based on an alleged partnership, the Court granted Defendants’ motion to exclude this testimony.
Regarding Defendants’ fifth request, Plaintiff argued that although his testimony on what someone from Nationwide told him may be impermissible hearsay, he could nonetheless testify regarding it for the purpose of explaining subsequent conduct. However, because it was not clear to the Court that Plaintiff could identify the individual at Nationwide who “blessed” his issuance of false or misleading COIs, the Court granted Defendants’ Motions to the extent Plaintiff sought to testify regarding permission from Nationwide about its policies on issuing false or misleading COIs.
Defendants’ Motion to Exclude
Defendants sought to exclude Plaintiff’s expert witness on the basis that the witness’s testimony did not meet the standard for admission imposed by Rule 702(a) of the North Carolina Rules of Evidence, which is the same as the federal Daubert standard. Defendants challenged the expert’s methods and the application of that methodology to the facts at issue, but the Court found that the expert’s methodology was sufficiently reliable. The Court also noted that “courts following the Daubert standard typically conclude that challenges as to the application of methodology to the facts at issue go to the weight of an expert’s opinion, not to the admissibility of that testimony.” The Court found that, to the extent Defendants dispute the expert’s damages conclusions, that dispute is better left to the trier of fact and vigorous cross-examination by Defendants’ counsel at trial. However, the expert was not designated as an expert with respect to the validity or enforceability of the Shareholder Agreement at issue and is not an attorney qualified to opine on such an issue. Therefore, the Court granted Defendants’ Motion to Exclude to this limited extent Otherwise, the Court denied Defendants’ Motion to Exclude.
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC Order 61 (N.C. Super. Ct. Nov. 21, 2023) (Conrad, J.)
Key Terms: motion in limine; employment agreement; breach of contract; incentive compensation; expert testimony; Daubert standard; source deals; Rule 408; compromise offers; hearsay; other lawsuits; Rule 608(b); impeachment
The factual background of this action is summarized here. At issue in this order are one motion in limine by Plaintiff and six motions in limine by Defendant.
Plaintiff sought to exclude a witness from testifying at trial on the ground that the Defendant had not identified him during discovery as a person with knowledge of the events alleged in the complaint. The Court denied Plaintiff’s motion because even if the witness should have been previously identified, his testimony would only be to authenticate documents and therefore was not prejudicial to Plaintiff.
Two of Defendant’s motions sought to exclude certain documents evidencing Defendant’s (or its principals’) wealth and regarding damages because, Defendant argued, the documents were irrelevant or prejudicial. The Court disagreed. The evidence related directly to the deal at the center of the case and any self-interest by the Defendant’s principals was highly relevant to their credibility. Moreover, the disputed documents were relevant to issues other than damages, including the nature and substance of the transaction, how it was structured, and who was involved. Accordingly, these motions were denied.
Defendant also sought to exclude Plaintiff’s expert witness because his anticipated testimony conflicted with the Court’s summary-judgment opinion and was otherwise unreliable and irrelevant. The Court agreed, finding that the expected testimony failed the Daubert test Specifically, since the Court had already construed the term “source” as a matter of law at the summary judgment stage, the expert witness’s conflicting construction of the term was irrelevant. The Court also found that Plaintiff had not provided enough information related to the witness’s testimony about industry norms to allow the Court to determine its relevancy. Thus, this motion was granted.
Defendant next moved to exclude all evidence of its severance offers to Plaintiff and the related discussions, arguing that the statements were made in negotiations to compromise a disputed claim and were therefore inadmissible under Rule 408. Plaintiff responded that statements made prior to November 2020 were admissible because they occurred before a dispute regarding his claim had arisen. The Court disagreed with Plaintiff. The circumstances showed that even though litigation had not been threatened, a dispute had arisen between the parties in September 2020 and thus statements made after that date were properly excluded unless Plaintiff could show that he intended to offer the evidence for a purpose other than to establish the validity or amount of his claim. The Plaintiff failed to make this showing and therefore the Court granted the motion.
The Court also granted Defendant’s motion to exclude as inadmissible hearsay several e-mails generated by a customer relationship management system, which included the names of the deal and the “deal owner.” The Court noted that computerized records that require actual human input or discretion in their generation, such as the ones at issue here, are subject to hearsay rules. The Court also found that the e-mails’ limited probative value was substantially outweighed by the danger of unfair prejudice and potential to mislead the jury.
Lastly, Defendant sought to exclude evidence of other lawsuits in which it is a defendant. Plaintiff argued it was using such evidence to impeach Defendant’s principals under Rule 608(b). However, because Plaintiff was unable to identify any alleged conduct by the principals bearing on their character for truthfulness, the Court was unpersuaded and granted the motion.
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Lineage Logistics, LLC v. Primus Builders, Inc., 2023 NCBC Order 62 (N.C. Super. Ct. Nov. 27, 2023) (Bledsoe, C.J.)
Key Terms: motion to strike; affirmative defenses; Rule 12(f); BCR 7; BCR 7.2; motion; separate brief
The Plaintiff here filed a 21-page motion to strike affirmative defenses, which appeared to be a combined motion and brief. Because BCR 7.2 requires a motion to be accompanied by a separately filed brief, the Court, in its discretion, summarily denied the motion without prejudice to the Plaintiff’s right to refile in compliance with the Business Court Rules.
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Roesel v. Roesel, 2023 NCBC Order 63 (N.C. Super. Ct. Nov. 29, 2023) (Earp, J.)
Key Terms: preliminary injunction; irreparable harm; motion to stay; equitable distribution; marital property
The individual parties—Plaintiff Liz Roesel and Defendant Phil Roesel—in this action married in 2013 and separated in 2021. An equitable distribution action regarding their marital property commenced in June 2023 and is currently pending. In October, Liz and her company Fenix Contracting (“Fenix”) brought this action against Phil and his recently-formed competing company Fenix Insurance Contracting (“FIC”), asserting a number of claims relating to Phil’s alleged taking of Fenix’s business records and access to electronic accounts for use by FIC. Shortly after filing the complaint, Plaintiffs moved for a preliminary injunction seeking return of Fenix’s records and other property. Defendants subsequently moved to stay the case pending a determination of the individual parties’ equitable distribution claims.
The Court granted the motion for a preliminary injunction. Plaintiffs were likely to succeed on the merits of their conversion claim based on the evidence presented that 1) Phil had copied Fenix’s electronic records and was using them to operate FIC; 2) Fenix has been deprived of access to its business records; and 3) Fenix’s demands for the return of the records and property had been rejected. In addition, Fenix had shown immediate, ongoing, and irreparable injury based on its inability to operate its business without the records and other property. The Court ordered that Defendants immediately return Fenix’s business records and access to Fenix’s electronic accounts.
The Court also granted the motion to stay, except as to the preliminary injunction. There was a clear interrelationship between the present action and the equitable distribution action as both involved Fenix. Accordingly, the Court stayed the case until the District Court determined ownership of marital property, including Fenix.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC Order 64 (N.C. Super. Ct. Nov. 29, 2023) (Robinson, J.)
Key Terms: motion to withdraw as counsel; Rule 1.16 of the Rules of Professional Conduct
Before the Court was a motion to withdraw as counsel of record for Defendant Guiliano by Carnes Warwick, who served as counsel for both Guiliano and Defendant 108Labs. The Court granted the motion as Guiliano had already terminated Carnes Warwick and indicated that he intended to proceed pro se, and thus the requirements of reasonable notice to the client and justifiable cause were satisfied. The Court directed that the parties confer regarding how to address the provision in the case’s protective order regarding documents marked “Highly Confidential – Attorneys’ Eyes Only” since it clearly did not contemplate self-represented parties. The Court also noted that Guiliano could not make representations on behalf of 108Labs since an LLC may only be spoken for by licensed counsel. Lastly, the Court advised Guiliano to follow basis rules of ethics and civility in his communications with both the Court and opposing counsel and to abide by the Business Court’s rules and procedures.
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Worley v. Ormund, 2023 NCBC Order 65 (N.C. Super. Ct. Nov. 30, 2023) (Earp, J.)
Key Terms: writ of mandamus; inspection request; minority shareholder; director; Business Corporation Act; N.C.G.S. § 55-16-02; N.C.G.S. § 55-16-04; N.C.G.S. § 55-16-05
Plaintiffs, the minority shareholders of both Ormund Oil & Gas and Ormund Sales and Service, filed suit asserting claims arising from the alleged misconduct of their brother, the majority shareholder of both companies. They also sought a writ of mandamus to permit inspection of corporate documents previously demanded by them in their roles as shareholders and members of special committees of the boards of each company. At the hearing on Plaintiffs’ motion for summary relief to permit inspection, Defendants did not raise any objection to Plaintiffs’ authority to inspect the records but contended that they had not been given sufficient time to comply. Following the hearing but prior to the issuance of this order, Defendants produced some, but not all, of the requested documents.
The Court granted the motion based on sections 55-16-02(a)-(b), 55-16-04(a)-(b), and 55-16-05(a) of the Business Corporation Act, which provide qualified shareholders and directors, with certain inspection rights and the right to file an action seeking to enforce such rights. In addition, the Court noted that Plaintiffs, as qualified shareholders of both companies and as directors of Ormund Oil & Gas, could petition for the reasonable fees and costs incurred with respect to their inspection requests, pursuant to sections 55-16-04(c) and 55-16-05(c).
By: Rachel E. Brinson, Natalie Kutcher, and Ashley Oldfield
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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 12/06/23
