N.C. Business Court Opinions, July 17, 2024 – July 30, 2024

Langley v. Autocraft, 2024 NCBC 45 (N.C. Super. Ct. July 23, 2024) (Earp, J.)

Key Terms: breach of contract; summary judgment; illusory consideration

Prior to beginning his employment with Autocraft, Plaintiff and Autocraft’s principal executed an agreement regarding the terms of Plaintiff’s employment. The agreement provided, among other terms, that after five years of employment, Plaintiff would receive 10% ownership in Autocraft. After Plaintiff’s employment was terminated over five years later, he brought suit for breach of contract seeking the value of the 10% interest. Defendants moved for summary judgment.

The Court granted the motion, concluding that the agreement was not an enforceable contract because it provided that Plaintiff had complete discretion to alter the terms of the agreement, thereby rendering his consideration illusory. The Court distinguished the N.C. Supreme Court’s recent opinion in Canteen v. Charlotte Metro Credit Union, in which the Supreme Court held that a change-of-terms provision permitting unilateral amendments to the credit union’s membership agreement was enforceable so long as the changes reasonably related back to the universe of terms discussed and anticipated in the original agreement. In contrast to the standardized consumer contract at issue in Canteen, the agreement here was individually negotiated and contained no restrictions on Plaintiff’s ability to change the agreement’s terms.

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Rel. Ins., Inc. v. Pilot Risk Mgmt. Consulting, LLC, 2024 NCBC 46 (N.C. Super. Ct. July 12, 2024) (Davis, J.)

Key Terms: adverse interest; summary judgment; misappropriation of trade secrets; non-solicitation clause; blue-pencil rule; confidentiality agreement; computer trespass; UDTPA; Wage and Hour Act; unjust enrichment

Plaintiff Relation Insurance sued a group of its Former Employees and their new employer, Pilot Risk, contending that they unlawfully used Relation’s confidential information and trade secrets to solicit employees and clients for Pilot Risk’s benefit. The Former Employees counterclaimed for Relation’s alleged failure to pay them correct wages. Both sides moved for partial summary judgment. Plaintiffs also moved for an adverse inference based on spoliation of evidence.

Motion for Adverse Inference. Plaintiffs argued that the individual Defendants spoliated evidence and therefore, an adverse inference should be drawn against Defendant on summary judgment and at trial. Upon review of the evidence, the Court agreed. Various of the Former Employees had, after notice of the lawsuit, reset or switched out the SIM cards in their cell phones and/or wiped or deleted files from their computers. The Court found that the Defendants had, at a minimum, failed to preserve potentially relevant evidence to which the Plaintiffs did not have equal access; thus, Plaintiffs were entitled to an adverse inference against Defendants at the summary judgment stage and an adverse inference jury instruction at trial.

Defendant’s Motion for Partial Summary Judgment on Plaintiff’s Claims

Misappropriation of Trade Secrets. Relation contended that each Defendant misappropriated its trade secrets in violation of both federal and state law. Of the eight documents identified as trade secrets by Relation, the Court concluded that three of them—the FS-1 List (containing FS-1 codes for insurance companies) and the Customer List and Client Renewal List (containing basic compilations of client information)—were not protectable as trade secrets. The trade secret status of the remaining five documents required determination by a jury. The reasonableness of Relation’s safety measures, which included things like a confidentiality provision in the employee handbook, employee-specific credentials, multifactor authentication, and role-based permissions, also required jury determination. Lastly, there was sufficient evidence of misappropriation by three of the Former Employees to allow the claim against them to go to the jury.

Breach of Non-Solicitation Clauses of Employment Agreements. The Court had already thoroughly analyzed the non-solicitation clauses at issue at the preliminary injunction stage and determined that they were likely unenforceable because they were too broad to protect the legitimate business interests of Relation. No new information obtained during discovery changed that analysis. Accordingly, the Court concluded that the non-solicitation clauses were unenforceable as a matter of law. The Court also rejected Relation’s request to apply the blue pencil doctrine because Relation did not specify how the doctrine should be applied here.

Breach of Confidentiality Provisions of Employment Agreements. In contrast, the Court was satisfied that the confidentiality provisions in the employment agreements were intended to protect Relation’s confidential business information as opposed to being restrictive covenants in disguise. Further, Relation had put forth evidence that the Former Employees violated the confidentiality provisions. The Court, therefore, denied Defendants summary judgment on this claim.

Unjust Enrichment. Relation’s unjust enrichment claim was based on Defendants’ alleged use of Relation’s confidential information for the benefit of Pilot Risk. The Court granted summary judgment in favor of Defendants on this claim because 1) Relation did not voluntarily confer a benefit on Pilot Risk since the Former Employees were alleged to have wrongfully taken the information; and 2) the Former Employees’ alleged misuse was encompassed by Relation’s claims for breach of the confidentiality provisions.

Computer Trespass. The Former Employees sought summary judgment on Relation’s federal and state law computer trespass claims against them. Regarding the federal claim, the Court determined that there was no violation of the Computer Fraud and Abuse Act because the Former Employees were authorized to access the computers and had permission to obtain the information at issue; thus, there was no unauthorized access or access in excess of authorization as required for a claim under the CFFA. However, the claim survived under North Carolina law because a genuine issue of material fact existed as to whether the Former Employees used Relation’s computers in a manner exceeding their permission by, inter alia, making unauthorized copies, deleting files, and taking screenshots of information.

Tortious Interference with Existing or Prospective Contract. The Court granted summary judgment in Defendants’ favor on the tortious interference claims to the extent that the claims were based on contractual relationships with vendors because there was no evidence in the record that Defendants had tortiously interfered with such relationships. However, summary judgment was denied as to tortious interference with client relationships because a jury question existed regarding whether Defendants tortiously used Relation’s confidential information, misappropriated its trade secrets, and engaged in computer trespass and thereby acted “without justification.”

UDTPA Violation. Since the Court determined that Relation’s claims for tortious interference and misappropriation of trade secrets survived summary judgment, the UDTPA claim based on those claims survived as well.

Plaintiff’s Motion for Summary Judgment on Defendants’ Counterclaims

N.C. Wage and Hour Act. Each of the Former Employees asserted NCWHA claims based on Relation’s failure to pay them commissions or bonuses they claim they were owed. Two of the Former Employees contended that they were entitled to receive a 27% commission rate for certain years if their book of business met a $500,000 threshold but were only paid a 25% commission rate. Relation argued that it was entitled to summary judgment on those claims because it changed its commission rates prior to the years when the employees met the threshold; however, because Relation had not provided notice of the change to the Former Employees, regardless of whether they met the threshold, the Court denied summary judgment. Summary judgment was granted in part and denied in part on the remaining Former Employees’ NCWHA claims.

Breach of Contract. The Former Employees also asserted breach of contract claims for unpaid compensation based on the same arguments as their NCWHA claims. The Court’s rulings on these claims mirrored those on the NCWHA claims, except that one claim that had been barred by the NCWHA’s two-year statute of limitations survived under the three-year statute of limitations for breach of contract claims.

Breach of the Implied Covenant of Good Faith and Fair Dealing. As these claims went hand in hand with the breach of contract claims, the Court’s rulings on them were the same as for the breach of contract claims.

UDTPA Violation. Pilot Risk contended that Relation engaged in unfair and deceptive trade practices by telling third-parties that the Former Employees were bound by non-competition agreements and telling insurance carriers that it preferred they not use Pilot Risk as an insurance agency. The Court concluded that these statements were insufficient to support a UDTPA claim, and, therefore, granted summary judgment in Relation’s favor.

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rFactr, Inc. v. McDowell, 2024 NCBC Order 47 (N.C. Super. Ct. July 18, 2024) (Bledsoe, C.J.)

Key Terms: motion to supplement and/or amend counterclaims; Rule 15(a), (d); Rule 13(h); Rule 20(a)

After six years of discovery delays, motions practice, trial continuations, and a year-long stay, this case was set for trial for November 2024. However, on May 9, 2024, the Defendants moved to supplement or amend their counterclaims to add Megan Brasser, wife of rFactr CEO Richard Brasser, as a party plaintiff and to add a counterclaim for defamation based on the Brassers’ alleged creation of a website containing defamatory statements about the Defendants.

The Court granted the motion. The Defendants had not unduly delayed in filing the motion because the supplemental counterclaim was premised on conduct which occurred within the past year, well after the genesis of the action in 2018 and during the period the case was stayed. Further, Plaintiffs had not shown that the additional claim would result in substantial injustice as it did not appear that the new claim would require extensive additional discovery or excessively delay the trial, especially in comparison to the two trial continuations already caused by Plaintiffs themselves. Further, as Plaintiffs conceded, their existing defamation claim and the supplemental counterclaim overlapped in certain respects, thereby establishing that the claims arose out of the same transaction or occurrence.

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Trail Creek Invs. LLC v. Warren Oil Co. LLC, 2024 NCBC Order 48 (N.C. Super. Ct. July 11, 2024) (Davis, J.)

Key Terms: petition for writ of mandamus, N.C. LLC Act, N.C.G.S. § 57D-3-04, document inspection request, operating agreement rights, discovery procedures

As summarized here, this suit concerns allegations by Plaintiffs that Defendants fraudulently failed to disclose substantial existing environmental liabilities in connection with the sale of Warren Oil Co. to Trail Creek Investments. Larry Sanderson is a defendant in the action, but also occupies a seat on the board of directors of Warren Oil as a minority member board representative. On January 5 and February 7, 2024, Sanderson made two document inspection requests to Warren Oil, which were refused. Petitioners subsequently filed two Petitions for Writs of Mandamus compelling Warren Oil to produce the requested documents. Warren Oil opposed the petitions.

The Court began by noting that North Carolina courts have not previously addressed the intersection of an LLC member’s document inspection rights and North Carolina’s rules of discovery. Relying on decisions from Delaware’s courts that determined that document inspection rights, whether statutory or contractual, are rights independent of litigation, the Court determined that Sanderson’s statutory and contractual inspection rights were not diminished by the availability of the discovery process.

The Court next turned to the interplay between the default provisions of the LLC Act and the provisions of Warren Oil’s operating agreement. The Court agreed with Sanderson that the operating agreement authorized inspection rights far broader than those conferred by the LLC Act; however, since the operating agreement did not provide any safeguards to protect the company from a member’s inspection of confidential information that could adversely affect the company, the Court found that the LLC Act’s safeguards in that regard were incorporated into the operating agreement. Nevertheless, Sanderson’s requests were not precluded by these safeguards because the fact that the requested documents may be used to assert counterclaims against the company was not the type of adverse effect contemplated by the LLC Act.

Lastly, the Court considered Warren Oil’s argument that Sanderson’s requests would require the exercise of too much discretion in determining which documents to produce, and therefore they were not sufficiently ministerial for a writ of mandamus to be proper. However, since Warren Oil did not separately address each of Sanderson’s requests for production, the Court deferred ruling and directed the parties to meet and confer on the issue in order to preserve judicial efficiency. If the parties could not come to an agreement, the Court authorized supplemental briefing by the parties.

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Eco Fiber, Inc. v. Yukon Packaging, LLC, 2024 NCBC Order 49 (N.C. Super. Ct. July 23, 2024) (Conrad, J.)

Key Terms: motion for preliminary injunction; breach of fiduciary duty; preparing to compete; tortious interference with prospective economic advantage; UDTPA; N.C.G.S. § 75-1.1; cold-chain packaging; patent infringement

Defendants Heeralall, Poore, and Vance are former Eco Fiber employees, who formed Defendant Yukon Packaging, and, according to Eco Fiber, poached its most substantial customer, Veritiv. Eco Fiber brought suit asserting claims for breach of fiduciary duty against Heeralall, its former president, and for tortious interference and unfair or deceptive trade practices against all Defendants. After the Court initially denied Eco Fiber’s motion for a temporary restraining order, Defendants removed the case to federal court. The case was remanded and presently before the Court is Eco Fiber’s motion for a preliminary injunction enjoining Defendants from selling certain products to Veritiv.

Breach of Fiduciary Duty. Although it was undisputed that Heeralall owed a fiduciary duty to Eco Fiber and had made plans to compete against Eco Fiber before his employment terminated, Plaintiffs failed to present any evidence that Heeralall’s conduct had crossed the line into a breach of fiduciary duty. Further, Eco Fiber did not present any convincing evidence that Heeralall had used Eco Fiber’s resources for Yukon Packaging’s benefit. Finally, Eco Fiber appeared to have released Heeralall from any claims related to Heeralall’s employment, whether known or unknown, which encompassed the breach of fiduciary duty claim. Accordingly, Eco Fiber failed to show a likelihood of success on the merits of its breach of fiduciary duty claim.

Tortious Interference with Prospective Economic Advantage. Eco Fiber also failed to show that it was likely to succeed on its tortious interference claim. Its brief failed to mention, let alone present evidence on, the essential element of the claim–that its business with Veritiv would have continued but for Defendants’ interference. Moreover, Defendants provided plausible evidence that Eco Fiber’s own conduct caused the loss of its business with Veritiv.

UDTP. The Court found some support for Eco Fiber’s UDTP claim based on its allegations that Vance allegedly threatened to sue Veritiv for patent infringement related to its purchases from Eco Fiber and by Poore hiding his involvement with Yukon Packaging and allegedly inducing Eco Fiber to raise its prices to push Veritiv away. However, even if Eco Fiber’s allegations were true, they did not warrant the requested injunctive relief. The alleged misconduct was all in the past and was unlikely to recur; thus, prospective injunctive relief was unnecessary.

For the foregoing reasons, the Court denied the motion for preliminary injunction.

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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 07/30/24

N.C. Business Court Opinions, July 3, 2024 – July 16, 2024

By: Ashley Oldfield and Jack Reynolds

Atl. Coast Conf. v. Clemson Univ., 2024 NCBC 44 (N.C. Super. Ct. July 10, 2024) (Bledsoe, C.J.)

Key Terms: motion to stay; first-filed; sovereign immunity; waiver; personal jurisdiction; declaratory judgment; justiciable controversy; implied covenant of good faith and fair dealing; fiduciary duty

Following the initiation of litigation between the Atlantic Coast Conference (a North Carolina nonprofit association) and Florida State University in both North Carolina (the “FSU Action”) and Florida regarding the validity of certain Grant of Rights Agreements between the ACC and its members, Clemson University filed suit against the ACC in South Carolina seeking a declaration regarding, inter alia, the scope of the Grant of Rights Agreements (the “South Carolina Action”). The ACC filed the present suit against Clemson the following day. Two weeks later, the Court entered an order in the FSU Action (the “FSU Order,” summarized here) dismissing the ACC’s breach of fiduciary duty claim, but otherwise denying FSU’s motion to dismiss, including FSU’s argument that the Court lacked personal jurisdiction over FSU on sovereign immunity grounds, and denying FSU’s motion to stay. Clemson then moved to dismiss the present action under Rules 12(b)(1), 12(b)(2), and 12(b)(6), contending that it was situated differently from FSU and thus the claims and arguments in the FSU Action had “little bearing on this case.” Clemson also moved to stay the case in favor of the South Carolina Action.

Lack of Personal Jurisdiction. Clemson argued that the Court lacked personal jurisdiction because Clemson was entitled to, and had not waived, sovereign immunity in North Carolina. As in the FSU Order, the Court concluded that although Clemson was entitled to sovereign immunity, it had explicitly waived such immunity in North Carolina by choosing to remain a member of the ACC after the ACC became subject to the Uniform Unincorporated Nonprofit Association Act and its sue and be sued clause in 2006 and by engaging in extensive commercial activity in North Carolina. Accordingly, the Court denied the motion to dismiss for lack of personal jurisdiction.

Lack of Subject Matter Jurisdiction. Clemson next argued that the ACC’s two declaratory judgment claims should be dismissed because they did not present an actual and justiciable controversy. The Court agreed in part. Because the South Carolina Action did not challenge the enforceability or validity of the Grant of Rights Agreement, but instead only sought a declaratory judgment regarding the scope of the rights granted, no current controversy existed as to the validity and enforceability of the Grant of Rights Agreement. Thus, the declaratory judgment claims were dismissed to the extent they sought a declaration regarding the enforceability of the Grant of Rights Agreement.

Failure to State a Claim.

Breach of the Grant of Rights Agreements. The ACC alleged that Clemson’s filing of the South Carolina Action violated the Grant of Rights Agreement on three bases, each of which the Court rejected. First, the Court determined that the South Carolina Action did not violate the warranty provision of the Grant of Rights Agreements because the warranty provision only prohibited ACC Members from taking any action that would affect the validity and enforcement of the granted rights, but the South Carolina Action only sought to determine the meaning of a disputed term. Second, the South Carolina Action did not challenge the “irrevocability” or “exclusivity” of the Grant of Rights Agreements but instead sought a determination of the scope of the rights. Third, since no breach of contract claim arose from Clemson’s filing of the South Carolina Action, any claim for breach of the implied covenant of good faith and fair dealing based on the same acts failed as well.

Breach of Implied Covenant of Good Faith and Fair Dealing. The ACC alleged that Clemson’s filing of the South Carolina Action also violated its implied duties under the ACC’s Constitution and Bylaws. The Court dismissed the claim concluding that the South Carolina Action simply sought to clarify the scope of the ACC’s rights but did not seek to interfere with those rights.

Fiduciary Duties. The ACC sought a declaration that Clemson owes fiduciary duties to the ACC under the ACC’s Constitution and Bylaws and under North Carolina law. However, because the allegations pleaded in support of this claim were substantively identical to those pleaded in the FSU Action, the Court dismissed the claim for the same reasons as stated in the FSU Order—namely, that no de jure fiduciary duty existed as a matter of law and that the ACC had failed to plead the existence of a de facto fiduciary duty.

Motion to Stay. The Court denied Clemson’s motion to stay the case, concluding that the continuation of the action would not work a substantial injustice upon Clemson. The Court gave substantial weight to the “practical considerations” presented by this action, along with the other pending actions—namely, that only a North Carolina court had jurisdiction over all three parties to the pending actions (FSU, Clemson, and the ACC), and thus only a North Carolina court could assure a uniform interpretation of the Grant of Rights Agreements at issue in each pending action.

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Ur-Rehman v. KT Fin. LLC, 2024 NCBC Order 41 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)

Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); collection action; promissory note; piercing the corporate veil

Plaintiffs Ur-Rehman and Zaara Investments LLC sued Defendants on June 21, 2024, asserting claims for payment on a promissory note, money had and received, and piercing the corporate veil. Plaintiffs filed a Notice of Designation on the same day contending that designation was proper under N.C.G.S. § 7A-45.4(a)(1), which allows for designation if the action involves a material issued relating to the law governing corporations, partnerships, and LLCs. Plaintiffs alleged that a promissory note held by Ur-Rehman has matured, and that Defendants have used a complex corporate structure to shield assets which would otherwise be available to repay the promissory note.

The Court determined that the case did not qualify for designation under N.C.G.S. § 7A-45.4(a)(1), because a claim for piercing the corporate veil is insufficient on its own to support mandatory designation.

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BITCO Gen. Ins. Corp. v. SAS Retail Servs. LLC, 2024 NCBC Order 42 (N.C. Super. Ct. July 3, 2024) (Bledsoe, C.J.)

Key Terms: notice of designation; untimely designation; N.C.G.S. § 7A-45.4(a)(1)

Plaintiffs filed a complaint against Defendant on July 1, 2024, but did not file a Notice of Designation until the following day. N.C.G.S. § 7A-45.4(d) requires that a Notice of Designation be filed contemporaneously with the complaint. Thus, the complaint was not properly designated as a complex business case. Furthermore, even if the Notice of Designation was timely filed, Plaintiffs made claims only for indemnification and contribution, which do not pertain to the law governing corporations, partnerships, or limited liability companies.

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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC Order 43 (N.C. Super. Ct. July 5, 2024) (Davis, J.)

Key Terms: discovery referee; BCR 10.9; Rule 53

As previously summarized here, Plaintiff Trail Creek brought suit against Defendant after discovering serious environmental compliance issues which were not disclosed prior to Plaintiff’s purchase of Warren Oil. Upon the parties’ joint consent motion for appointment of a discovery referee and due to the large number of discovery disputes between the parties, the Court appointed Alan W. Duncan of Turning Point Litigation as the Discovery Referee under N.C. R. Civ. P. 53. The Discovery Referee was granted the authority to oversee and resolve discovery disputes, direct and supervise compliance with discovery orders, interpret discovery agreements, and otherwise facilitate the discovery process. Finally, the Court directed the Discovery Referee to schedule the first meeting of the parties within 20 days, and to produce a report to be filed on the Electronic Case Filing docket within seven days of the briefing or hearing of any disputes.

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Stein v. HCA Mgmt. Servs., LP, 2024 NCBC Order 44 (N.C. Super. Ct. July 9, 2024) (Earp, J.)

Key Terms: motion to intervene; emergency medical services; asset purchase agreement; hospital system; Rule 24; attorney general

In January 2019, Defendant HCA acquired Mission Health, a hospital system in western North Carolina, pursuant to an Asset Purchase Agreement which set forth HCA’s obligations regarding the continuation of certain medical services until 2029. In December 2023, the N.C. Attorney General filed suit alleging that HCA failed to provide adequate emergency, trauma, and oncology services as required by the APA. Buncombe County subsequently moved to intervene and submitted a proposed complaint seeking damages and equitable relief arising from the allegedly excessive wait times its EMS crews have experienced. Defendants opposed intervention.

Intervention as of Right. The Court concluded that intervention as of right was not warranted because the County had failed to show a direct interest in the suit. The County’s claims for past wages due to increased wait times would exist regardless of the existence of the APA and the County’s general interest in safe healthcare was insufficient to require intervention in the AG’s enforcement action. The Court also saw no merit in the County’s argument that the AG did not adequately represent its interest based on speculation that the AG’s office might not continue the action after the current AG left office.

Permissive Intervention. The Court also declined to allow permissive intervention because 1) although there was some overlap of facts regarding wait times, the AG’s action was much broader; 2) intervention would require additional discovery and motion practice, delay the case, and increase HCA’s litigation burden; and 3) the County’s jury demand conflicted with the APA’s provision for a bench trial.

Accordingly, the County’s motion to intervene was denied.

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Worley v. Ormond, 2024 NCBC Order 45 (N.C. Super. Ct. July 11, 2024) (Robinson, J.)

Key Terms: motion for appointment of receiver; injunctive relief; N.C.G.S. §§ 1-507.20; N.C.G.S. § 55-14-32

As summarized here, Plaintiffs, the minority shareholders of the Ormond Companies, brought suit against Ormond, the majority shareholder, challenging certain of Ormond’s actions and asserting claims for breach of fiduciary duty and judicial dissolution. Here, Plaintiffs moved for appointment of a general receiver and for injunctive relief enjoining Ormond from creating new entities in the fuel distribution business until the litigation is resolved.

Injunctive Relief. The Court denied the motion for an injunction because Plaintiffs failed to cite any controlling authority or present any record evidence in support of their motion and therefore failed to meet their burden of showing that threatened or impending harm would occur absent an injunction.

Receivership. The Court concluded that a limited receiver for an initial four-week term was appropriate based upon the parties’ disputes regarding 1) Ormond’s willingness to produce the Ormond Companies’ financial records; 2) Ormond’s alleged use of company funds for personal use; and 3) the Ormond Companies’ ability to continue doing business. The receiver was directed to investigate and report weekly to the Court regarding the financial records and status of the Ormond Companies, specified transactions, and Ormond’s alleged self-dealing, among other things. The management of the Ormond Companies remained vested with the Plaintiffs and Ormond; however, they were directed to assist and cooperate in the receiver’s duties.

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Guiliano v. Strickland, 2024 NCBC Order 46 (N.C. Super. Ct. July 16, 2024) (Bledsoe, C.J.)

Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2); motion to transfer; equitable distribution

Plaintiff Guiliano has been involved in related litigation with several of the Defendants in this action for the past two years, including a case currently pending before the Business Court and an equitable distribution action related to his divorce from Defendant Strickland pending in Orange County District Court. On April 5, 2024, Guiliano filed this action in Orange County District Court asserting a claim for equitable distribution against Strickland and claims for declaratory relief, fraudulent conveyance, unjust enrichment, and injunctive relief against Strickland and one or more other Defendants. Shortly after, Guiliano initiated a related suit in Orange County Superior Court, asserting a number of claims against mostly the same defendants as here. That action has since been designated to the Business Court. In the present action, Defendant Goodwin Proctor moved to transfer all but the equitable distribution claim to the Superior Court division and filed a Notice of Designation. Goodwin Proctor asserted that designation was proper under N.C.G.S. § 7A-45.4(a)(5), (a)(8), and (b)(2). However, because the District Court division has exclusive jurisdiction over equitable distribution claims, the Court concluded that it was unable to transfer the action to the Superior Court division to resolve the motion to transfer. The Court noted that its ruling was without prejudice to the right of any other party to seek designation should the District Court sever the equitable distribution claim from the remaining claims.

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 07/16/24

N.C. Business Court Opinions, June 19, 2024 – July 2, 2024

By: Rachel Brinson and Jack Reynolds

BCORE Timber EC Owner LP v. Qorvo US, Inc., 2024 NCBC 42 (N.C. Super. Ct. June 21, 2024) (Earp, J.)

Key Terms: summary judgment; statute of limitations; breach of lease; repudiation; sealed instruments; declaratory judgment; waste

Plaintiff BCORE leased Defendant Qorvo an industrial building in Greensboro, North Carolina for manufacturing semiconductors. After Tenant failed and refused to restore the building to its shell condition when it moved out at the end of the lease term on 30 September 2022, Landlord brought suit in June 2023 alleging claims for breach of contract, waste, and a declaratory judgment. Tenant moved for summary judgment on statute of limitations grounds.

Breach of Contract. The Court rejected Landlord’s argument that the 10-year statute of limitations for sealed instruments applied here, finding that the evidence of the corporate seal and the testimony of Landlord’s former employee stating that the Landlord intended the Lease to be afforded the additional protections of documents filed under seal was insufficient. Nevertheless, the claim survived even under the three-year statute of limitations. Although Tenant argued that the breach of contract claim accrued no later than January 2020 when it purported to repudiate the lease term at issue, the Court concluded that Tenant’s January 2020 statements did not constitute a repudiation of the entire lease but rather an expression of its interpretation of one term of the lease.

Declaratory Judgment. Since the declaratory judgment claim was most closely related to the breach of contract claim, the Court found that it was also subject to a three-year statute of limitations and survived as well.

Waste. Since a tenant does not commit waste if the property can be returned to its original position before the lease is terminated, the Court concluded that the claim for waste did not accrue until the lease ended in September 2022 and therefore the claim was filed within the three-year limitations period.

Accordingly, Tenant’s motion for summary judgment was denied.

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Carolina Med. Partners, PLLC v. Shah, 2024 NCBC 43 (N.C. Super. Ct. June 27, 2024) (Conrad, J.)

Key Terms: motion to dismiss; Rule 12(b)(6); breach of contract; notice pleading; fraud; punitive damages; tortious interference; unjust enrichment; civil conspiracy

As summarized here, Plaintiffs Nimish and Shephali Patel previously practiced with Defendant Shah as physicians in Palmetto Medical Group. When their professional relationship soured, the parties attempted to mediate their dispute and entered into a Practice Separation Agreement. Unfortunately, their disputes continued and culminated in this suit where both sides asserted various claims against the other. This order addresses the Patels’ 12(b)(6) motion to dismiss the counterclaims against them.

Breach of Contract Counterclaims. Arguing that the allegations of breach were too vague, the Patels moved to dismiss the breach of contract counterclaims, which were based on fourteen alleged breaches of an employment agreement and the Practice Separation Agreement. The Court largely rejected this argument, determining that the Defendants had satisfied the notice pleading standard for breach of contract claims for all but two of the alleged breaches. The Court dismissed the claim which failed to allege any breaching conduct occurring after the relevant agreement was formed, as well as another barred by a subsequent agreement containing a waiver for the breach, but otherwise denied the motion as to the breach of contract counterclaims.

Fraud Counterclaim. The Court also denied the motion to dismiss the fraud counterclaim, finding that the allegations that Defendants had relied upon specific misrepresentations made by the Patels during the mediation leading to the Practice Separation Agreement were sufficient to satisfy the Rule 9(b) pleading standard. Because the Patels’ only argument to dismiss the punitive damages demand relied on the dismissal of the fraud claim, the Court denied the motion to dismiss the punitive damages demand as well.

Tortious Interference Counterclaim. The counterclaim for tortious interference was based on allegations that the Patels contacted a client of Palmetto before their separation and induced the client to terminate its contract in violation of the notice period required, allowing the Patels to take them as a new client upon their separation from Palmetto. The Patels argued that they had become competitors of Palmetto by the time they interfered and therefore the interference was justified. The Court, however, held that the counterclaim adequately alleged that the Patels’ actions were not lawful because they involved fraudulent misrepresentations, and therefore denied the motion to dismiss the tortious interference counterclaim.

Unjust Enrichment Counterclaims. Palmetto brought two counterclaims for unjust enrichment: one for unauthorized use of a company credit card and one regarding distributions Palmetto paid to the Patels. The Court dismissed the first claim because Palmetto alleged that Patel had taken money through the unauthorized credit card charge, not that Palmetto had conferred a benefit upon him. The second claim survived dismissal because Defendants could plead unjust enrichment in the alternative to their related breach of contract claim.

Civil Conspiracy. Finally, Shah and PMG adequately pleaded the elements of civil conspiracy by naming the conspirators, the time and purpose of the conspiracy, the actions taken to carry it out, and the resulting injury. Therefore, the Court denied dismissal of the conspiracy claim.

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M.D. Claims Grp., LLC v. Bagley, 2024 NCBC Order 40 (N.C. Super. Ct. July 1, 2024) (Earp, J.)

Key Terms: motion for preliminary injunction; employment contract; non-disclosure agreement; breach of restrictive covenants; trade secrets; choice of law; Louisiana law

Defendant Bagley, a North Carolina resident, worked for Plaintiff MDCG, a Louisiana-based independent adjuster firm, as its claims manager and director of operations beginning in May 2021. Bagley and MDCG entered into an employment contract and a non-disclosure agreement, each of which contained certain restrictive covenants and specified that Louisiana law controls. Following Bagley resignation effective February 23, 2024, MDCG filed suit asserting, inter alia, claims arising from Bagley’s alleged breaches of restrictive covenants and misappropriation of trade secrets. In the present motion, MDCG moved for a preliminary injunction enjoining Bagley from soliciting and doing business with certain of its clients and adjusters and using its forms.

First, the Court assessed whether the law of Louisiana or North Carolina controlled MDCG’s claims. The parties agreed that North Carolina law applied to MDCG’s tort claims, and the Court agreed because the alleged injury occurred in North Carolina, where Bagley resided. Bagley, however, asserted that North Carolina law also applied to MDCG’s contract-based claims because he signed the contracts in North Carolina and this was the last act needed to effectuate the contracts. The Court disagreed, though, because the contracts explicitly stated that both parties’ signatures were required to effectuate the contracts and MDCG signed the contracts after Bagley, and did so in Louisiana. Separately, the Court determined that the choice of law provision controlled. Thus, Louisiana law applied to the contract claims.

The Court concluded that MDCG failed to establish a reasonable likelihood of success on its claims for breach of the restrictive covenants, disclosure of confidential information, or trade secret misappropriation. Accordingly, the motion for a preliminary injunction was denied. The restrictive covenants did not comply with Louisiana’s requirements that restrictive covenants contain a specific geographic limitation and be limited two years; thus, they were unenforceable under Louisiana law. Further, MDCG did not plead the existence of a trade secret or its misappropriation with the required specificity or present evidence (rather than mere speculation) that Bagley had disclosed any confidential information. Even if Bagley remembered the contact information of some clients, that information was publicly available or, if memorized by the employee, not a trade secret under North Carolina law.

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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 07/02/24