By: Jack Reynolds and Ashley Oldfield
Johnson Bros. Corp. v. City of Charlotte, 2024 NCBC 37 (N.C. Super. Ct. June 7, 2024) (Bledsoe, C.J.)
Key Terms: motion for reconsideration; Rule 54(b); motion to amend; Rule 15(a); CityLYNX Streetcar; public transportation; breach of contract; statute of limitations; futility; undue delay
As previously summarized here, Plaintiff Johnson Bros. Corp. brought ten claims against the City of Charlotte relating to the parties’ contract to extend the City’s CityLYNX Gold Line, a streetcar system. JBC’s contract claims were dismissed with prejudice to the extent they arose from conduct occurring outside the statute of limitations. JBC then moved for reconsideration, or in the alternative, to amend the complaint, pursuant to Rules 54(b) and 15(a), respectively.
JBC asked the Court to reconsider its ruling that JBC’s contract claims are partially time-barred and deny the motion to dismiss in its entirety. The Court, in its discretion, agreed to modify the dismissal order to reflect that the claims were dismissed without prejudice, which would allow JBC to replead its contract claims as to all relevant time periods on a non-payment theory of breach of contract.
In support of its motion to amend, JBC provided a proposed Second Amended Complaint which alleged new facts supporting its theory of breach of contract. JBC’s theory posited that the City required work beyond the scope of the contract, that JBC was due additional compensation and time extensions based on that work, that the City had breached the contract by denying the requests for additional compensation and time extensions, that the City’s conduct waived all conditions precedent to claims under the contract, and that the City should be estopped from asserting the statute of limitations to limit JBC’s claims. The Court found the new allegations sufficient to survive Rule 12(b)(6) dismissal and therefore rejected the City’s opposition on futility grounds. The Court also determined that JBC had not unduly delayed in seeking leave to amend since the Court had only issued its dismissal order a few months ago. Therefore, the Court granted JBC’s motion to amend.
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China Constr. Am. of S.C., Inc. v. Sycamore at Christenbury, LLC, 2024 NCBC 38 (N.C. Super. Ct. June 10, 2024) (Conrad, J.)
Key Terms: breach of contract; quantum meruit; negligent misrepresentation; mechanic’s lien; apartment construction; N.C.G.S. § 44A-16(6); uncontested motion
Plaintiff China Construction brought claims against Defendant Sycamore and U.S. Specialty relating to its construction of an apartment complex. Plaintiff’s only claim against U.S. Specialty was to compel payment of a bond U.S. Specialty provided to discharge a mechanic’s lien against Sycamore’s property. U.S. Specialty moved to dismiss this claim and Plaintiff did not file an opposition brief. Under N.C.G.S. § 44A-16(6), a lien discharge bond simply takes the place of the land. Since the lien is only enforceable upon final judgment, the Court determined that the claim against U.S. Specialty was not ripe. Therefore, the Court dismissed without prejudice the claim against U.S. Specialty for payment on the lien discharge bond.
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McFee v. Presley, 2024 NCBC 39 (N.C. Super. Ct. June 10, 2024) (Conrad, J.)
Key Terms: default judgment; inconsistent judgment
As summarized here and here, Plaintiff McFee brought claims pertaining to her employment with and membership interest in Defendant CPP. McFee’s claims against the Presley Defendants were dismissed on a motion for summary judgment, some on the merits and some based on timeliness. McFee moved here for default judgment on the same claims against Defendants Stacks and CPP, who did not appear. McFee argued that the dismissal of her claims against the Presley Defendants did not preclude a default judgment against Stacks and CPP.
The Court noted that it would be inconsistent to allow a default judgment against a defendant whose similarly situated codefendant prevailed on the merits. Since the Presley Defendants had already prevailed on the merits on the same claims and McFee did not plead any additional facts differentiating her claims against Stacks and CPP from those against Presley, the Court denied McFee’s motion for default judgment and dismissed her claims against Stacks and CPP with prejudice.
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Worley v. Ormond, 2024 NCBC 40 (N.C. Super. Ct. June 11, 2024) (Robinson, J.)
Key Terms: writ of mandamus; partial summary judgment; declared dividends; N.C.G.S. §55-6-40
Ormond Oil and Gas is wholly owned by three siblings, Worley, Massengill, and Ormond. Ormond is the majority owner, and all three are directors of the company. In September 2023, Plaintiffs Worley and Massengill noticed a meeting of OOG’s Board of Directors, which was held on September 27, 2023; Ormond did not attend. At the meeting, Worley and Massengill resolved that OOG pay a dividend to its shareholders in the amount of $850,000, to be paid on September 29, 2023. After the dividend was not paid, Plaintiffs filed suit. In November 2023, Ormond noticed meetings of the Shareholders and Board of Directors of OOG. At the shareholders meeting, he voted alone to replace Massengill with Ronald Walters as a director, and at the subsequent board meeting, he and Walters voted to rescind the dividend declared at the September meeting. Plaintiffs moved for issuance of a writ of mandamus, or alternatively for partial summary judgment, to compel OOG to pay the dividend.
The Court denied without prejudice Plaintiffs’ motion for a writ of mandamus because summary judgment on this issue was available to them, and a writ is only appropriate when no alternative remedy is available. However, the Court granted Plaintiffs’ motion for summary judgment, entitling Plaintiffs to their proportional share of the dividend as well as reasonable expenses related to the motion. There was no dispute of material fact that OOG was solvent and would remain solvent upon payment of the dividend, that Plaintiffs were directors of OOG at the time they declared the dividend and had properly noticed the meeting and approved the dividend, and that any purported rescission thereof came too late and was therefore legally ineffective. Moreover, the Court determined that Massengill’s removal as director was invalid because Ormond’s notice of the shareholders meeting did not specify which director was to be removed. Accordingly, payment of the dividend was proper under N.C.G.S. § 55-6-40.
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Extra Care, LLC v. Carolina All. for Residential Excellence, LLC, 2024 NCBC 41 (N.C. Super. Ct. June 18, 2024) (Earp, J.)
Key Terms: N.C.G.S. § 57D-3-04; record inspection rights; Rule 12(b)(1); lack of subject matter jurisdiction
Plaintiff, a member of each of the Defendant LLCs, filed suit to enforce its record inspection rights under N.C.G.S. § 57D-3-04 after the Defendants did not comply with Plaintiff’s November 2023 inspection demand. Defendants moved to dismiss under Rules 12(b)(1) and 12(b)(6).
The Court dismissed the complaint with prejudice under Rule 12(b)(1) because Plaintiff had not complied with the requirements of N.C.G.S. § 57D-3-04 in making the November 2023 demand. First, the request was signed by Plaintiff’s counsel rather than by Plaintiff itself, as required by the statute. That Defendants had responded to previous demands despite this same deficiency did not waive the requirement as to the November 2023 demand. Second, Plaintiff’s email of the November 2023 demand to Defendants’ counsel was improper because Plaintiff did not ensure that the email address it used was one that the Defendants had identified for that purpose.
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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC Order 38 (N.C. Super. Ct. June 7, 2024) (Davis, J.)
Key Terms: deposition; on-the-record time; BCR 10.7(a); BCR 10.9
As summarized here, this suit was initiated after Plaintiff Trail Creek purchased Warren Oil and discovered serious environmental compliance issues which had not been disclosed prior to the sale. At issue before the Court here was Plaintiffs’ BCR 10.9 submission regarding how long Plaintiffs could depose Defendant Larry Sanderson. Under BCR 10.7(a), the default time limit is seven hours, but Plaintiffs requested to be permitted to depose Sanderson for up to fourteen hours due to his numerous roles, duties, and extensive involvement with the primary parties and events at issue. The Court agreed that Sanderson’s involvement warranted additional time and ordered that Plaintiffs were permitted to depose Sanderson for up to twelve hours of on-the-record time.
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Mauck v. Cherry Oil Co., 2024 NCBC Order 39 (N.C. Super. Ct. June 14, 2024) (Davis, J.)
Key Terms: corporate records; request for inspection; N.C.G.S. § 55-16-02; motion to dismiss; Rule 12(b)(1); Rule 12(b)(6); propane supplier
As summarized here and here, this suit arose from a dispute over the ownership and management of a family business, Cherry Oil. Here, Plaintiffs requested inspection of certain of Cherry Oil’s records and Cherry Oil moved to dismiss Plaintiffs’ supplemental complaint.
As an initial matter, the Court denied Cherry Oil’s motion to dismiss finding unpersuasive its arguments that Plaintiffs had no need to inspect documents since they were being bought out and that Plaintiffs had already had ample opportunity to obtain documents during discovery.
Turning to Plaintiffs’ right to inspect documents, the Court first addressed whether Plaintiffs had shown a proper purpose for their requests. Plaintiffs provided three purposes: to value their shares; to determine whether any improper transactions had occurred; and to ascertain whether any property or assets were improperly used. Although Cherry Oil argued that a records inspection to determine share value was superfluous given the ongoing appraisal process, the Court held that valuation of shares is a proper purpose regardless of other efforts to value the shares. The Court also determined that confirming the accuracy of Plaintiffs’ tax liability was a proper purpose. However, due to the extensive discovery that had already occurred and the resultant lack of evidence of wrongdoing, the Court held that Plaintiffs’ intent to identify any improper transactions or mismanagement of assets did not constitute a proper purpose.
The Court next assessed whether each category of documents requested pertained directly to the proper purposes and was otherwise subject to inspection under § 55-16-02(b). Plaintiffs’ document requests fell into four categories: (1) balance sheets, ledgers, P & L statements, and cash flow statements since 2019; (2) records of the use of grant funds from the government since 2021; (3) tax returns and filings since 2019; and (4) lease records between Cherry Oil and tenants. Since financial records are clearly subject to inspection and connected to the purposes stated, the Court granted the motion as to the first category, but limited the request to the past three years since corporations are only required to maintain financial statements for the previous three years. The Court denied the Plaintiffs’ request to inspect the remaining categories because the documents did not fall within the strictures of N.C. Gen. Stat. § 55-16-02(b).
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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 06/18/24
By: Jack Reynolds and Ashley Oldfield
Merz Pharm., LLC v. Thomas, 2024 NCBC 35 (N.C. Super. Ct. May 22, 2024) (Davis, J.)
Key Terms: motion for partial summary judgment; restrictive covenants; nonsolicitation agreement; asset transfer agreement; change of employer; breach of contract; botulinum toxin
As summarized here, this suit arose from Defendant Andrew Thomas’s alleged breaches of certain restrictive covenants between him and his former employer, Plaintiff Merz Pharmaceuticals. Thomas moved for partial summary judgment on Merz Pharmaceuticals’ breach of contract claim based on his alleged violation of a nonsolicitation provision. Thomas argued that the provision’s one-year period began to run when his employment was transferred from Merz NA (a Merz Pharmaceuticals’ affiliate) when Merz Pharmaceuticals acquired all of Merz NA’s assets through an asset transfer agreement.
The Court has previously held that when an employee’s restrictive covenant is assigned from his original employer to a new employer in conjunction with an asset purchase agreement between the two entities, the clock begins to run immediately upon the termination of his employment with the original employer. However, the Court held that the asset transfer here did not trigger the restrictive covenant because the switch in employers was more akin to an administrative transfer of an employee between two affiliated entities and Thomas’s job had remained substantially the same. Moreover, continuing to apply Thomas’s nonsolicitation provision after the asset transfer would not result in any unfairness to Thomas, nor would it violate the public policy considerations of the Court’s previous decisions. Therefore, the Court denied Thomas’s motion and held that the one-year period of the nonsolicitation covenant began to run as of the date of Thomas’s termination, not the date of the asset transfer.
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Innovare, LTD. v. Sciteck Diagnostics, Inc., 2024 NCBC 36 (N.C. Super. Ct. May, 29, 2024) (Davis, J.)
Key Terms: motion for summary judgment; motion for judgment on the pleadings; Rule 12(c); breach of contract; unjust enrichment; Lanham Act; 15 U.S.C. § 1125(a); unfair and deceptive trade practices; FDA; emergency use authorization; research use only; COVID-19 test strips
As summarized here, this case revolves around disputes regarding a distributor agreement between Innovare and Sciteck involving COVID-19 test strips. Both Innovare and Sciteck moved for partial summary judgment while Innovare also moved for judgment on the pleadings. The Court denied as moot Sciteck’s motion for judgment on the pleadings because its summary judgment motion encompassed the same arguments.
Innovare’s and Sciteck’s Claims for Breach of Contract. The Court held that the distributor agreement, though ambiguous, could not be construed against either party given their mutual contributions to the final agreement. Next, the Court held that, contrary to Innovare’s assertions, Sciteck had not repudiated the distributor agreement because both parties continued to rely on the agreement even after the purported repudiation occurred. Finally, the Court concluded that significant questions of fact remained regarding both parties’ claims for breach of contract which needed to be resolved by a jury. Therefore, the Court denied both parties’ motions for summary judgment as to the breach of contract claims. The Court also denied summary judgment as to both parties’ claims for breach of the covenant of good faith and fair dealing on the same bases.
Innovare’s Unjust Enrichment Claim. Innovare asserted that it had provided services not contemplated by the distributor agreement for Sciteck’s benefit and that Sciteck promised to pay Innovare for those services, but never did so. The Court noted that the existence of a contract did not bar the unjust enrichment claim since the services at issue were extra-contractual. However, since factual disputes remained over whether Sciteck benefitted from the additional services, the Court denied summary judgment.
Sciteck’s Lanham Act Claim. Sciteck’s Lanham Act claim was based on its allegations that Innovare had continued to represent that it was authorized to distribute the product even after its license to do so ended; that Innovare misled consumers into believing that the product was distributed by Sciteck without full FDA approval; that Innovare continued to maintain a website referencing the product; and that Innovare engaged in a “relabeling” or “repackaging scheme.” The Court held that these contentions, if proven, were sufficient to show a violation of the Lanham Act but that genuine issues of fact remained requiring determination by a jury. Accordingly, the Court denied summary judgment.
Innovare’s and Sciteck’s Unfair and Deceptive Trade Practices Claims. The Court granted Sciteck’s motion for summary judgment as to Innovare’s unfair and deceptive trade practices claim because there was insufficient evidence of aggravating circumstances to raise Innovare’s breach of contract claim to a UDTP claim. The Court denied Innovare’s motion for summary judgment as to Sciteck’s unfair and deceptive trade practices claim because it was based on Sciteck’s surviving Lanham Act claim.
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CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 36 (N.C. Super. Ct. May 31, 2024) (Earp, J.)
Key Terms: show cause order; preliminary injunction; civil contempt; N.C.G.S. § 5A-21(a); restrictive covenant agreement; noncompetition provision; property restoration services
As summarized here, the Business Court previously issued a preliminary injunction enjoining Defendants Berastain and Moreau from violating their restrictive covenants by engaging in “the commercial property restoration business.” Thereafter, Plaintiff filed a motion for order to show cause based on its belief that Berastain and Moreau were violating the injunction by continuing to perform restoration work for Defendant Inkwell.
At the show cause hearing, Defendants testified that they understood the preliminary injunction to prohibit their involvement in the restoration of commercial property and, therefore, they had complied with the injunction by only engaging in restoration projects that involved residential properties. Berastain and Moreau also asserted that they were mere laborers in their new roles and did not act in a substantially similar capacity to their previous roles at Metrolina.
Based on the circumstances surrounding the issuance of the preliminary injunction, the Court was extremely skeptical of Defendants’ assertions; however, it was unable to conclude as a matter of law that Berastain’ and Moreau’s noncompliance with the order was willful. Thus, it declined to hold them in civil contempt and instead amended the prior order to make clear that Berastain and Moreau were prohibited from involvement in any property restoration services.
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Daedong-USA, Inc. v. KI Fin., Inc., 2024 NCBC Order 37 (N.C. Super. Ct. June 4, 2024) (Davis, J.)
Key Terms: temporary restraining order; likelihood of success on the merits; voidable transaction; conflict of interest transaction; N.C.G.S. § 55-8-31
Plaintiff, a manufacturer of groundskeeping equipment, filed suit against KI Finance and several of Plaintiff’s former executives, contending that the executives had wrongfully siphoned millions of dollars from Plaintiff through the creation of KI Finance and its eventual takeover of the functions of Plaintiff’s financing department. At issue here is Plaintiff’s motion for a temporary restraining order requiring KI Finance to restore Plaintiff’s access to its payment portal.
The Court denied the motion, concluding that Plaintiff had failed to show a reasonable likelihood of success on the merits of its declaratory judgment claim, which sought a determination pursuant to N.C.G.S. § 55-8-31 that certain agreements between Plaintiff and KI Finance were voidable because the transactions were effectuated by the executives despite their conflict of interest. However, since many of the key allegations of the complaint were alleged upon information and belief and were rebutted by affidavits submitted by Defendants, the Court determined that Plaintiff had not met its burden to show entitlement to a TRO.
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In re Southeastern Eye Center, No. 192A23, 2024 N.C. LEXIS 345, 2024 WL 2338335 (May 23, 2024) (per curiam)
Key Terms: interlocutory appeal; substantial right; lack of appellate jurisdiction; sanctions
Appellant appealed from an interlocutory order of the Business Court but failed to provide the Supreme Court with any basis by which the order affected a substantial right. Accordingly, the Supreme Court dismissed the appeal for lack of jurisdiction. The Supreme Court also noted that this was the fifth time that it had dismissed an appeal filed by appellant for failing to demonstrate grounds for appellate review and that sanctions would be appropriate if appellant continued flouting appellate rules.
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North Carolina Department of Revenue v. FSC II, LLC, No. 150A23, 2024 N.C. LEXIS 340, 2024 WL 2338190 (May 23, 2024) (per curiam)
Key Terms: N.C. Sales and Use Tax Act; Mill Machinery Exemption; hot mix asphalt; manufacturing
As summarized here, the Business Court previously affirmed the final decision of the Office of Administrative Hearings which granted summary judgment in favor of FSC II, LLC and concluded that FSC’s use of raw materials it purchased to produce hot mix asphalt constituted manufacturing under the N.C. Sales and Use Tax Act, thereby qualifying FSC for the Mill Machinery Exemption. On appeal by the NCDOR, the Supreme Court affirmed for the reasons stated in the Business Court’s order.
To subscribe, email 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 06/04/24
