N.C. Business Court Opinions, April 10, 2024 – April 23, 2024
By: Ashley Oldfield, Rachel Brinson, and Natalie Kutcher
Rockingham Cnty. v. NTE Energy, LLC, 2024 NCBC 23 (N.C. Super. Ct. April 15, 2024) (Davis, J.)
Key Terms: motion to dismiss; 12(b)(6); 12(b)(2); deferred ruling; piercing the corporate veil; civil conspiracy; facilitation of fraud; fraudulent inducement; account stated; promissory estoppel; attachment; joint enterprise; Rule 9(b)
Plaintiff Rockingham County’s amended complaint asserted thirteen claims relating to certain contracts between it and Defendant NTE Carolinas II, LLC (“Carolinas”), including claims for declaratory judgment and breach of contract solely against Carolinas, and for piercing the corporate veil, civil conspiracy/facilitation of fraud, and fraudulent inducement against all Defendants pursuant to a joint enterprise theory. Defendants moved to dismiss some or all of the County’s claims pursuant to Rules 12(b)(2) and 12(b)(6). In its discretion, the Court deferred ruling on Defendants’ 12(b)(2) motions and instead analyzed their 12(b)(6) motions.
Piercing the Corporate Veil. The Court found that the County failed to sufficiently allege the elements of piercing the corporate veil or joint enterprise liability because it did not allege that any Defendant exercised complete control over any other or which corporate forms the Court should disregard. Moreover, the amended complaint contained no specific allegations of a right on the part of each Defendant to govern and direct the actions of all the other Defendants in furtherance of the aims of the alleged joint enterprise. In dismissing the claim, the Court emphasized that the County largely lumped the Defendants together in its allegations without meaningfully differentiating between them or alleging specific and tangible acts of wrongdoing by them.
Fraudulent Inducement. The Court dismissed the fraudulent inducement claim without prejudice as to all Defendants because the County’s broad and conclusory allegations that Defendants acted fraudulently failed to satisfy Rule 9(b)’s heightened pleading requirements.
Civil Conspiracy/Facilitation of Fraud. The Court dismissed these claims because the amended complaint’s vague allegations did not provide sufficient specificity to satisfy the claims’ pleading requirements, such as the acts committed by each of the members of the alleged conspiracy that were committed in furtherance of said conspiracy.
Account Stated. The Court found that Carolinas’ liability for the sums sought by Rockingham County remained a disputed issue, and therefore dismissed the County’s claim for account stated.
Promissory Estoppel. Reinforcing that North Carolina law does not recognize an affirmative promissory estoppel claim for relief, the Court dismissed the County’s promissory estoppel claim against Carolinas with prejudice.
Attachment. The Court dismissed the attachment claim because the County failed to file the requisite affidavit showing entitlement to the remedy of prejudgment attachment, identifying the specific property to be attached, or explaining the requested amount of property to be attached. Moreover, the County failed to make sufficient allegations as to the alleged depletion of Carolinas’ assets justifying the requested remedy.
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Yoder v. Verm, 2024 NCBC 24 (N.C. Super. Ct. April 19, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); Rule 12(b)(1); settlement agreement; declaratory judgment; lack of a justiciable controversy; subject matter jurisdiction
Plaintiff was previously involved in litigation which was resolved by a written settlement agreement. The parties to the current action, with the exception of Defendant Healthcare VII, were all signatories to the settlement agreement. Plaintiff filed the current action alleging that the settlement agreement had not been complied with, seeking a declaratory judgment regarding the parties rights and obligations under the agreement, and asserting four causes of action for breach of the agreement. Plaintiff did not assert any claims for relief against Healthcare VII, alleging instead that it was joined as a party “to ensure a complete resolution of the issues in controversy.” Healthcare VII moved to dismiss pursuant to Rule 12(b)(6).
The Court concluded that Healthcare VII should be dismissed from the action under Rule 12(b)(1) because Plaintiff had failed to allege a justiciable controversy with Healthcare VII and the Court, therefore, lacked subject matter jurisdiction. Although the settlement agreement made reference to Healthcare VII and certain actions it might need to take, Healthcare VII was not a party to the agreement and therefore was not bound by its provisions.
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BIOMILQ, Inc. v. Guiliano, 2024 NCBC 25 (N.C. Super. Ct. April 19, 2024) (Robinson, J.)
Key Terms: fiduciary duty; tortious interference; alienation of affection; loss of consortium; conversion; slander of title; defamation; trade secrets; property interference; UDTPA; false advertising; false passing off claim; fraud; fraudulent conveyance
This lawsuit arises out of a dispute between BIOMILQ and Defendants regarding certain human cell-cultured technologies and products. Defendant Guiliano and his wife, Strickland, previously formed 108Labs to explore biosynthesis of human milk and human milk immunoglobins. They subsequently began working with Counterclaim Defendant Egger and developed various intellectual property. BIOMILQ was later formed and began seeking funding. Relationships eventually deteriorated resulting in Strickland resigning from 108Labs. After BIOMILQ brought suit against Guiliano and 108Labs, they filed numerous counterclaims against BIOMILQ, as well as against new Counterclaim Defendants Egger and BEV, alleging, inter alia, that 108Labs had been divested of its intellectual property rights. BIOMILQ, Egger, and BEV (“Movants”) moved to dismiss most of the claims.
Claims against BIOMILQ only
Injunctive Relief. Since there is no standalone claim for injunctive relief in North Carolina, the Court dismissed this counterclaim without prejudice to Defendants’ ability to seek injunctive relief by motion, if appropriate.
Claims against Egger only
Breach of Fiduciary Duty. The Court dismissed this counterclaim because Defendants did not allege facts that supported a contention that Egger owed Defendants a fiduciary duty. Although Defendants argued that Egger owed a fiduciary duty as a “partner” with 108Labs, a careful review of the allegations showed that Defendants described Egger as an interloper into 108Labs’ affairs, not a partner.
Tortious Interference with Contract . This counterclaim was dismissed because the allegations failed to satisfy the pleading requirements for the fourth element of the claim–acting without justification. Defendants alleged only generally that Egger had no motive other than malice. Moreover, the counterclaim expressly provided a basis for Egger’s actions: competition.
Breach of Contract. Although Defendants adequately alleged a claim for breach of contract against Egger, the allegations demonstrated that the claim was time barred. The statute of limitations ran in March 2023, which was one month before Egger and BEV were added as third-party defendants.
Alienation of Affection. The Court dismissed this counterclaim due to Defendants’ failure to allege malicious conduct by Egger designed to alienate the affections of Guiliano’s wife. Defendants’ allegations focused only on Strickland and Egger’s business dealings and did not suggest that Egger was the cause of the dissolution of Strickland and Guiliano’s marriage.
Claims against BIOMILQ and Egger
Declaratory Relief. The Court dismissed this counterclaim as to Egger because it made no mention of her and, therefore, presented no actual controversy between her and 108Labs. The Court allowed the counterclaim to proceed as to BIOMILQ, because, although the allegations were not entirely clear, the Court was able to identify an existing controversy between Defendants and BIOMILQ regarding the ownership of certain intellectual property.
Constructive Fraud. The Court dismissed this counterclaim because Defendants made no allegations regarding BIOMILQ owing anyone a fiduciary duty and, as already determined above, Defendants alleged no cognizable basis on which Egger owed a fiduciary duty to them.
Conversion. This counterclaim failed to the extent it was based on intangible interests, such as trademarks and other intellectual property, because North Carolina does not recognize a claim for conversion of intangible interests. Regarding the tangible materials, the Court allowed the counterclaim to proceed as to BIOMILQ, but dismissed it as to Egger because the only allegation regarding her was alleged in a conclusory fashion and was contradicted by other allegations.
Slander of Title. The Court dismissed this counterclaim because a slander of title claim only applies to statements made regarding real property and thus was inapplicable to the patents and trademark rights at issue here.
Defamation. Defendants asserted a defamation counterclaim based on statements from February 2020 and 21 March 2021. Because the action was not initiated against Egger until April 2023, the counterclaim against her was time-barred by the one year statute of limitations for a defamation claim. However, because the counterclaims against BIOMILQ were deemed filed as of 4 March 2022, the counterclaim survived with regard to the statements made on 21 March 2021 but failed as to the February 2020 statements.
Claims against Movants
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ right to pursue the remedy on any surviving claims, if applicable.
Fraudulent Conveyance. This counterclaim concerned Strickland’s assignment of her interest in certain intellectual property to BIOMILQ. The Court dismissed this counterclaim because 1) Defendants did not allege the existence of a creditor-debtor relationship as required by N.C.G.S. § 39-23.4(a)(1); and 2) the allegations did not satisfy the pleading requirements of Rule 9(b).
Misappropriation of Trade Secrets. Defendants asserted that Movants had shared trade secret information with third-parties on or before March 20, 2020. Accordingly, the claim was time barred by the three-year statute of limitations as to Egger and BEV since the action was not initiated against them until April 2023. However, the counterclaim was otherwise minimally sufficient to meet the requirements of alleging the existence of a trade secret and efforts to maintain secrecy and therefore survived as to BIOMILQ.
Federal Misappropriation of Trade Secrets. This counterclaim was dismissed as to Egger and BEV because it was time-barred. It was also dismissed as to BIOMILQ because it did not sufficiently allege that the trade secrets implicated interstate or foreign commerce as required by the Defend Trade Secrets Act.
False Designation of Origin. This counterclaim, which equated to a reverse passing off claim under the Lanham Act, failed because Defendants did not allege that the ideas in question had been reduced to the actual production and sale of a product or good.
False Advertising. The Court dismissed this counterclaim because Defendants failed to identify a commercial, physical product or a statement made by any Movant that amounted to a commercial advertisement.
Fraud. This counterclaim was dismissed because it failed to allege one or more of the elements with the requisite particularity as to each Movant.
Civil Conspiracy. This counterclaim failed because Defendants’ allegations that Movants undertook unlawful acts in a “combined effort” was insufficient to satisfy the required allegation that Movants had an agreement.
Unjust Enrichment. The Court dismissed this counterclaim because, although Defendants alleged that Movants had received benefits, they did not allege that Defendants had conferred any benefit on Movants, a required element of the claim.
Loss of Consortium. A loss of consortium claim can only be maintained if it is joined with a suit the other spouse may have instituted to recover for personal injuries. Since Guiliano had not alleged an underlying personal injury claim that Strickland could have made, the Court dismissed the counterclaim.
Punitive Damages. Because a claim for punitive damages is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ ability to seek punitive damages as a remedy.
Property Interference. The Court dismissed this counterclaim because Defendants failed to allege that Movants received stolen property, a required element of a claim under the applicable statute, N.C.G.S. § 99A-1.
Violation of the UDTPA. Defendants’ UDTPA claim appeared to be based on its claims for misappropriation of trade secrets, conversion, tortious interference with contract, and fraud. Because all of those claims had been dismissed as to Egger and BEV, the Court also dismissed the UDTPA claim against them, except to the extent it was based on the conduct underlying the misappropriation of trade secrets claim because such conduct could potentially support a claim for violation of the UDTPA against Egger since a UDTPA claim has a four-year statute of limitations. The claim also survived against BIOMILQ to the extent that the underlying claims survived against BIOMILQ.
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Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC 26 (N.C. Super. Ct. April 22, 2024) (Bledsoe, C.J.)
Key Terms: partnership; goodwill; estate; intangible interest; conversion
Defendant Neal Griffin and his brother Chris Griffin formed and operated Defendant Advisors Financial Center pursuant to a limited liability Partnership Agreement. After Chris Griffin passed away, his Estate brought suit against Defendants, alleging claims for breach of fiduciary duty against Neal and for breach of contract and conversion against both Defendants, based on Neal’s purported failure to comply with the Partnership Agreement by failing to purchase Chris’s interest or liquidate the Partnership “as a whole,” including goodwill. Defendants moved for partial judgment on the pleadings.
Defendants argued that the Estate could not recover for their failure to account for goodwill in determining the value of the Partnership’s assets upon liquidation or sale because, as a professional partnership, the Partnership did not have goodwill that survived Chris’s death. In response, the Estate argued that it was not a professional partnership because 1) it was organized as a limited liability partnership; and 2) financial services are not listed as a licensed professional service in the Professional Corporation Act. The Court found both of these arguments unpersuasive. Nevertheless, the Court was unable to determine as a matter of law at this stage that the Partnership was a professional partnership whose reputation rested solely on the individual skill of the two partners. The Estate alleged that the Partnership had an internal team; thus, a factfinder could conclude that the Partnership’s reputation was based, at least in part, on the skill of the internal team members and not just that of the two partners. Accordingly, the Court denied the motion to the extent it sought judgment on the Estate’s claims for goodwill.
The Court dismissed with prejudice the Estate’s conversion claim, which was based on Defendants’ allegedly converting the Estate’s interest in the partnership. Both a partnership interest and contract rights under the Partnership Agreement are intangible interests which cannot form the basis for a conversion claim.
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Elior, Inc. v. Thomas, 2024 NCBC 27 (N.C. Super. Ct. Apr. 22, 2024) (Earp, J.)
Key Terms: breach of contract; restrictive covenants; noncompete; nonsolicit; blue pencil rule; implied covenant of good faith and fair dealing; conversion; choice of law; lex loci; Trade Secret Protection Act; UDTPA
Defendant worked in business development for Plaintiff, a corporation operating in the food service management industry for schools. After Defendant resigned and became employed by one of Plaintiff’s competitors, Plaintiff sued Defendant asserting a number of claims arising from Defendant’s purported breach of certain covenants in his employment agreement. Defendant moved to dismiss Plaintiff’s claims pursuant to Rules 12(b)(1) and 12(b)(6).
Breach of Contract. As the last party to sign Defendant’s employment agreement was located in North Carolina, the Court determined that North Carolina law applied. The Court rejected Defendant’s argument that the employment agreement was not supported by consideration because even though the agreement was signed after Defendant’s employment began, Plaintiff alleged that Defendant received additional consideration at the time the employment agreement was signed.
Defendant moved to dismiss Plaintiff’s claim for breach of the employment agreement’s confidentiality provisions under Rule 12(b)(6). The Court denied Defendant’s motion, based on Plaintiff’s allegations that Defendant had emailed himself documents containing confidential information and had used the confidential information to “undercut Plaintiff’s contract terms” with its current customers.
Defendant likewise moved to dismiss Plaintiff’s claim for breach of the employment agreement’s noncompetition provision, contending that the provision was overbroad and unenforceable. The Court rejected this argument and denied the motion, noting that the restriction was for a 12-month period and only applied to territories linked to Defendant’s former duties.
The Court also denied Defendant’s motion to dismiss Plaintiff’s claim for breach of the employment agreement’s nonsolicitation provision. However, the Court determined that the provision, as written, was impermissibly broad, as it prohibited solicitation of any of Plaintiff’s current or prospective customers. The Court applied the blue pencil doctrine to narrow the provision, resulting in a restriction against soliciting customers Defendant performed work for in the 24 months preceding his resignation.
Breach of the Covenant of Good Faith and Fair Dealing. Plaintiff alleged that Defendant’s purported violations of the employment agreement constituted a breach of the covenant of good faith and fair dealing. The Court noted that, when based upon the same actions as a breach of contract claim, the fate of an implied covenant claim is inextricably linked to the success of the underlying breach of contract claim. As the breach of contract claim survived dismissal, the Court denied Defendant’s motion to dismiss Plaintiff’s breach of implied covenant claim as well.
Conversion. The Court dismissed Plaintiff’s conversion claim without prejudice, as Plaintiff did not allege that the emails forwarded by Defendant to himself were deleted or that Plaintiff was otherwise deprived of the emails and documents.
Violation of the NCTSPA. Defendant moved to dismiss Plaintiff’s NCTSPA claim, arguing that under the lex loci test, Illinois law governed the claim, rather than North Carolina law. The Court agreed and dismissed the claim without prejudice, noting that Plaintiff failed to allege any fact which would support the inference that the last act giving rise to the injury occurred anywhere other than Illinois.
Violation of the UDTPA. This claim failed to the extent it was based on the dismissed misappropriation of trade secrets claim. It also failed to the extent it was based on any breach of the confidentiality provisions in the employment agreement because any resulting injury was sustained in Illinois (where the last act had occurred) and, therefore, the North Carolina UDTPA did not apply.
Tortious Interference with Prospective Economic Advantage. Applying Illinois law under the lex loci rule, the Court determined that Plaintiff had not adequately pleaded the “reasonable expectancy” element of the claim and therefore dismissed it.
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Pathos Ethos, Inc. v. BrainTap Inc., 2024 NCBC Order 29 (N.C. Super. Ct. April 16, 2024) (Davis, J.)
Key Terms: Rule 22(b); interplead escrowed funds; clerk of court
The parties filed a joint motion requesting that the Court allow Defendant Ward & Smith to interplead escrowed funds pursuant to Rule 22(b) of the North Carolina Rules of Civil Procedure. Ward & Smith was holding the funds in escrow pursuant to an escrow agreement which tasked Ward & Smith with releasing the funds to Plaintiff once certain conditions were met, but also authorized Ward & Smith to deposit the funds with the clerk of superior court if in doubt regarding the proper course of action with respect to the funds. Because the proper disposition of the funds was at issue in the current lawsuit, the Court granted the motion, directed the clerk of superior court to accept the funds, and, upon payment to the clerk, dismissed Ward & Smith from the suit.
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Radiance Cap. Receivables Eighteen, LLC v. Roberts, 2024 NCBC Order 30 (N.C. Super. Ct. April 17, 2024)
Key Terms: order on designation; determination order; piercing the corporate veil; N.C.G.S. § 7A-45.4(a)(1)
Plaintiff brought suit asserting claims for civil conspiracy by fraudulent conveyance and piercing the corporate veil arising from Defendant Thomas’s alleged attempts to shield certain real estate from a South Carolina judgment. Defendant BPIM, LLC filed a notice of designation asserting that designation was proper under N.C.G.S. § 7A-45.4(a)(1), based on the veil piercing claim. The Court, however, concluded that the action was not properly designated as a mandatory complex business case because a veil piercing claim, standing alone, is insufficient to support designation and Plaintiff’s claims did not otherwise implicate the law governing LLCs.
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