By: Rachel Brinson
Yoder v. Verm, 2024 NCBC 60 (N.C. Super. Ct. Sept. 10, 2024) (Bledsoe, C.J.)
Key Terms: judgment on the pleadings; Rule 12(c); breach of settlement agreement; reasonable time to perform; contract interpretation
The parties here were previously involved in three lawsuits which resulted in a Settlement Agreement and the dismissal of those suits in late 2022. About a year later, Plaintiff filed the current lawsuit asserting five claims arising from Defendants’ purported breaches of the Settlement Agreement. Defendants moved for judgment on the pleadings seeking dismissal of Plaintiff’s fourth claim and judgment in their favor on a counterclaim, both of which centered on the parties’ competing interpretations of a section of the settlement agreement relating to the procedure for buying out the Plaintiff’s interests in an LLC.
Defendants argued that the relevant contract provision was subject to North Carolina’s reasonable time to perform doctrine. However, the Court found that although the provision contemplated the sale of real estate, neither it nor the Settlement Agreement more broadly created a contract for the purchase and sale of real property and therefore the “reasonable time to perform rule” was inapplicable. Interpreting the Settlement Agreement as written, the Court concluded that the sale procedure outlined in the first paragraph of the relevant section, as argued by Plaintiff, controlled. Under that interpretation, judgment on the pleadings was not warranted and therefore, the motion was denied.
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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2024 NCBC 61 (N.C. Super. Ct. Sept. 11, 2024) (Davis, J.)
Key Terms: motion to amend; derivative demand; Rule 15; counterclaims; inspection rights; minority member; breach of contract
Following initial pleadings, Defendant Minority Member simultaneously amended its answer, asserted counterclaims, and sent a derivative demand letter to Plaintiff Warren Oil. After Warren Oil declined to take the action requested in the derivative demand letter, the Minority Member moved to amend its answer and counterclaims to add factual allegations and a derivative counterclaim for Warren Oil’s causing a breach of the Management Fee Agreement. Plaintiffs opposed the addition of the derivative counterclaim on the grounds of undue delay, prejudice, and futility.
The Court rejected Plaintiffs’ arguments related to undue delay. The Defendant’s board representative’s receipt of certain financial documents years earlier did not conclusively alert him to the alleged violations of the Management Fee Agreement. Furthermore, the Minority Member sought to amend to add the derivative claim shortly after the expiration of the ninety-day waiting period required by N.C.G.S. § 57D-8-01(a)(2). Thus, there was no undue delay.
The Court further found that the Minority Member’s existing counterclaims contain the same basic allegation that forms the basis of the proposed derivative claim and that therefore Plaintiffs would not be prejudiced by its inclusion.
With regard to futility, the Court concluded that it would benefit from a more factually developed record in assessing the parties’ competing contentions as opposed to attempting to resolve their disputes at the Rule 15 stage. The Court further found that the Special Committee’s Report determining that derivative action was not in the best interest of the company and submitted by Plaintiffs prior to the hearing on the Motion to Amend did not preclude the Defendants’ derivative counterclaim because Section 57D-8-03(a) contemplates the filing of a motion by the LLC to dismiss a pending derivative claim and no motion to dismiss has yet been filed.
The Court granted the Motion to Amend.
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Vista Horticultural, Inc. v. Johnson Price Sprinkle, PA, 2024 NCBC 62 (N.C. Super. Ct. Sept. 17, 2024) (Bledsoe, C.J.)
Key Terms: motion for summary judgment; out-of-state sales tax liability; Wayfair decision; breach of contract; tax advice; malpractice; professional negligence; contributory negligence; breach of fiduciary duty; gross negligence; punitive damages
Plaintiff’s claims arose out of its engagement of Defendants to, according to Plaintiff, provide accounting, bookkeeping, and business consulting services. Consistent with Defendant JPS’s advice to Plaintiff in 2017, Plaintiff paid sales taxes from 2017 until 2021 only to North Carolina, the state of its physical operations, in accordance with the applicable law in 2017. On 21 June 2018, however, the United States Supreme Court ruled in South Dakota v. Wayfair, Inc., that states could assess taxes to out-of-state online retailers for sales to in-state residents. Plaintiff contends that Defendants failed to advise it of the Wayfair decision until 2021, preventing Plaintiff from passing its sales tax liability on to its online customers for three years and thereby causing the company to incur an unexpected $2 million tax liability. Defendants argue that they had no legal duty to advise Plaintiff of the Wayfair decision and that Plaintiff is responsible for its losses. Defendants moved for summary judgment on all claims.
Breach of Contract. Plaintiff alleged that JPS breached its contracts with Vista by failing to update its tax advice. Viewing the evidence of record in the light most favorable to Plaintiff, the Court determined that a factfinder could reasonably conclude that Defendant agreed to provide services beyond the scope of the written agreements between it and Plaintiff and that providing and updating sales tax advice concerning out-of-state sales was included within the wide-ranging financial, tax, accounting, and bookkeeping services that Defendant had agreed to provide. The Court denied summary judgment on the breach of contract claim.
Professional Negligence/Malpractice and Common Law Negligence. Defendants sought to dismiss Plaintiff’s claims for professional negligence/malpractice and common law negligence on grounds that Plaintiff’s contributory negligence bars these claims as a matter of law. Defendants argued that Plaintiff did not tend to its ordinary business affairs in a diligent manner and failed to send requested out-of-state sales data to Defendants. Plaintiff however refuted this evidence by demonstrating that the request for out-of-state sales data was one of numerous requests for various information that Defendants failed to follow up on. Plaintiff also demonstrated that Defendants failed to respond to their inquiry regarding a sales tax notice from the Arizona Department of Revenue. Based on the record, the Court could not conclude that Plaintiff was contributorily negligent as a matter of law in not learning about and acting upon the Wayfair decision before the spring of 2021. The Court denied summary judgment as to Plaintiff’s claims for professional negligence/malpractice and common law negligence.
Breach of Fiduciary Duty. Because North Carolina does not recognize a de jure fiduciary relationship between accountants and their clients, any fiduciary relationship here must be a de facto one. However, the Court found that Plaintiff failed to offer evidence showing the existence of a de facto fiduciary relationship between Plaintiff and Defendants. The parties’ relationship was governed by their contracts and Defendants did not figuratively hold all the cards. Accordingly, the Court dismissed Plaintiff’s claim for breach of fiduciary duty with prejudice.
Gross Negligence/Punitive Damages. Lastly, Defendants sought dismissal of Plaintiff’s claims for gross negligence and punitive damages, arguing that Plaintiff failed to offer evidence that Defendants engaged in reckless, intentional, willful, or wanton conduct. Defendants argued that Plaintiff’s evidence—consisting of Defendants “doing nothing, failing to advise, and failing to follow up”—is not evidence of willfulness or wantonness and instead only gives rise to a claim in simple negligence. The Court agreed and while noting that Plaintiff offered sufficient evidence to support its claims sounding in negligence, the NC Supreme Court has held that the difference between ordinary negligence and gross negligence is “substantial.” Thus, the Court dismissed these claims with prejudice.
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Dapper Dev., L.L.C. v. Cordell, 2024 NCBC Order 58 (N.C. Super. Ct. Sept. 13, 2024) (Bledsoe, C.J.)
Key Terms: ESI protocol; metadata; reasonableness; discovery dispute; Rule 26(b)(1)
The parties filed separate proposed ESI protocols reflecting their disagreement over how the production of metadata should or should not be limited. The Court found that the dispute over whether the ESI Protocol specifically limits a metadata request to one that is “reasonable” was immaterial because under Rules 26 and 34, any request for metadata must be reasonable as a matter of law. To avoid further confusion however, the Court specifically required that any request for metadata be “reasonable.” The Court also reminded the parties that where the case management order requires collaboration, they should not wait until the last day to begin discussions.
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Swim Club Mgmt. Grp. of Raleigh, LLC v. Calvin, 2024 NCBC Order 59 (N.C. Super. Ct. Sept. 17, 2024) (Davis, J.)
Key Terms: preliminary injunction; irreparable harm; restrictive covenants; non-compete; non-solicit; employment agreement
Plaintiff, a provider of professional aquatic services, sought a preliminary injunction against two former employees seeking an order enjoining them from directly competing with Plaintiff or soliciting any of Plaintiff’s customers or prospective customers in violation of the non-competition and non-solicitation covenants in their respective employment agreements.
The Court denied the motion because Plaintiff failed to show irreparable harm would exist but for the entry of a preliminary injunction. Noting that Plaintiff’s failure to address the irreparable harm prong in its principal brief would normally result in the Court’s refusal to consider it, the Court nonetheless considered Plaintiff’s arguments from its reply brief and the hearing but found that Plaintiff’s conclusory assertions and testimony based on hearsay were insufficient to support the extraordinary relief of a preliminary injunction. Plaintiff did not establish that defendants’ alleged breaches of their employment agreements caused Plaintiff to lose customers. Further, because Plaintiff’s slate of customers was already set for 2025 and the restrictive covenants were set to expire shortly, the Court found that Plaintiff would suffer no irreparable harm by the denial of a preliminary injunction. The Court also noted that the Plaintiff’s lack of urgency in seeking the preliminary injunction weighed against a finding of irreparable harm.
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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 09/24/24
By: Natalie Kutcher
Intersal, Inc. v. Wilson, 2024 NCBC 56 (N.C. Super. Ct. Aug. 30, 2024) (Earp, J.)
Key Terms: pirate ship; summary judgment; Emoluments Clause; North Carolina State Constitution; Monopolies Clause; Umstead Act; N.C. Gen. Stat. § 143-162.2
As summarized here, this case arises from a series of agreements between Plaintiff and Defendants relating to ownership rights over two sunken pirate ships located off the North Carolina coast. Following additional discovery, Defendants made a renewed motion for summary judgment related to certain issues affecting damages. Specifically, Defendants moved for a judgment holding that: (i) the 2013 Settlement Agreement’s language did not intend the term “commercial narrative” to include commercial tours; and (ii) Defendants were not required to pay Plaintiff for access to the pirate ship the Queen Anne’s Revenge, as requiring such would be a violation of the North Carolina Constitution and other state law. The Court granted in part and denied in part Defendants’ motion.
The Court had previously denied summary judgment on the interpretation of the term “commercial narrative,” reserving the matter as an issue of fact for the jury. Following Plaintiff’s production of a series of images, transcripts, and audio recordings of meetings held between the parties in 2014, the Court revisited the issue and concluded that a material issue of fact still existed as to the parties’ intended meaning of the term “commercial narrative.”
The Court rejected Plaintiff’s argument that Defendants were precluded from raising their constitutional arguments as untimely and barred by judicial estoppel and the law of the case doctrine. The arguments related to a specific interpretation of the 2013 Agreement, rather than the general enforceability of the 2013 Agreement. As the constitutional issues had yet to be raised, the Court held that Defendants were not estopped from doing so at this time.
Nevertheless, the Court rejected Defendants’ arguments that the Emoluments Clause or N.C. Gen. Stat. § 143-162.2 (which restricts the State’s ability to charge any fee when it makes real property available to a production company) were implicated by Section 16 of the 2013 Agreement. The Court also concluded that Defendants failed to establish that the rights afforded to Intersal by the 2013 Agreement violated the Monopolies Clause or the Umstead Act. Accordingly, Defendants’ motion was denied to the extent it was based on these arguments. The Court did, however, hold that the 2013 Agreement did not obligate Defendants to enforce Plaintiff’s terms of service and that since N.C. Gen. Stat. § 121-7.3 prohibits Defendants from sharing with Intersal a portion of the admission fees charged by the state-run museums that hosted a Queen Anne’s Revenge exhibit, the State was entitled to summary judgment on Plaintiff’s claim that it had suffered damages in the form of lost admission fees.
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Fairleigh v. Wegner, 2024 NCBC 57 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: amended complaint; motion for leave to amend; unfair prejudice; Rule 15
This matter came before the Court on Plaintiff’s motion for leave to file a second amended complaint. Plaintiff’s proposed second amended complaint asserted a new claim for constructive fraud and for punitive damages and contained several new factual additions in support of Plaintiff’s existing claims. Defendants argued that Plaintiff’s motion should be denied, as it was filed in bad faith and would result in unfair prejudice to Defendants.
The Court granted Plaintiff’s motion, noting the “liberal canon in the rules that leave to amend shall be freely given when justice so requires.” The motion was timely under the case management order and no written discovery or depositions had yet been conducted. Because Defendants failed to demonstrate how they would be prejudiced by the amendment, the Court granted Plaintiff’s motion.
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LFF IV Timber Holding LLC, v. Heartwood Forestland Fund IV, LLC, 2024 NCBC 58 (N.C. Super. Ct. Sept. 6, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); motion to dismiss; indemnification claim; breach of contract; contract interpretation; unjust enrichment
This case arises from an indemnification dispute between the purchasers and sellers of several large timberlands. The purchasers of the timberlands initiated this suit against the sellers, alleging that the sellers overstated carbon stocking data regarding the timberlands to a state agency in connection with a government program, exposing the purchasers to millions of dollars of potential liability. The purchasers sought declaratory and monetary relief in connection with the sellers’ alleged duty to indemnify the purchasers, in addition to a claim for unjust enrichment. Sellers moved to dismiss the action.
The Court began its analysis by addressing: (i) which documents the Court could consider in ruling upon the motion to dismiss; (ii) whether the complaint was impermissibly vague; and (iii) whether purchasers’ use of estimates of carbon deposits could form the basis for an indemnification claim by the purchasers. First, the Court held that it could consider only the three documents explicitly incorporated or referenced in the complaint. A fourth document, which was executed at the same time as one of the three referenced in the complaint, was excluded as it was neither attached to nor expressly referenced in the complaint. Second, the Court determined that the complaint was not impermissibly vague, noting the “low bar” for stating a claim for breach of contract. Third, the Court held that the purchasers’ reliance on estimates did not warrant dismissal at the current pleadings stage of the case, as these estimates were alleged to have been made under oath and were sufficiently formalized.
In regard to the indemnity claims, the Court denied sellers’ motion to dismiss, finding that the ambiguity in the purchase agreement’s language prevented a dispositive ruling at the pleadings stage. Since both sides’ interpretation of the indemnification provision was plausible, the Court declined to adopt one party’s interpretation over another at the Rule 12(b)(6) stage.
The Court, however, granted sellers’ motion as it related to the unjust enrichment claim, as no party disputed that the purchase agreement was an enforceable contract. Since a contract governed the dispute, it would make little sense to hold that a party unsuccessful at seeking indemnification under explicit contractual provisions could nevertheless obtain the same relief under an equitable theory of recovery.
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Chi v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC 59 (N.C. Super. Ct. Sept. 10, 2024) (Earp, J.)
Key Terms: summary judgment; confidentiality provision; breach of contract; conversion
As summarized here, this case arises from a limited partnership agreement entered into between Plaintiffs and Defendant Wilmington Riverfront Development, LLC (“WRD”). Following a series of dismissals, only two claims remained: (i) breach of contract against Defendant WRD and (ii) conversion against WRD and its principal. Defendants moved for summary judgment on these remaining claims and also moved for affirmative summary judgment on their counterclaim for breach of the confidentiality provision contained in a subscription agreement between the parties.
The Court granted Defendants’ motion as it related to Plaintiff’s claim for breach of contract because the subscription agreement at issue contained explicit disclosures pertaining to the inherent risk of the investment and disclaimed all guarantees of a return. Further, Plaintiff had admitted in his deposition that he was unable to identify any term of the agreement that had been breached and was aware of the risks of investing in the project. Under the plain language of the agreement, the Court determined that no genuine issue of material fact existed in regard to the contract claim.
The Court also granted summary judgment in favor of Defendants on the conversion claim. A conversion claim under North Carolina law requires the plaintiff to show both ownership in himself and the wrongful possession or conversion of the property by the defendant. As Plaintiff admitted to voluntarily investing the money with WRD and having knowledge of the risks of doing so, the Court determined that Plaintiff’s conversion claim failed.
Lastly, the Court granted Defendants’ motion for affirmative summary judgment on their counterclaim for breach of contract. Plaintiff published the contents of the subscription agreement, which were subject to a confidentiality agreement, by attaching the subscription agreement to Plaintiff’s publicly filed complaint. The Court determined that Plaintiff’s decision to file the agreements not under seal and without redaction constituted a breach of the subscription agreement’s confidentiality provisions and ruled in Defendants’ favor. The Court reserved the issue of damages for this counterclaim for jury trial.
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Gallinaro v. Eager to Motivate Fitness, LLC, 2024 NCBC Order 55 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a); intellectual property; proposed class action
Plaintiff, on behalf of herself and all others similarly situated, filed suit against Eager to Motivate Fitness, LLC, alleging that Defendant sold her and thousands of others a lifetime membership to an online diet and fitness Facebook community for a one-time enrollment fee, but later implemented an additional $19.99 monthly subscription fee to access its content. Plaintiff timely filed a notice of designation, contending that designation to the Business Court was proper under N.C.G.S. § 7A-45.4(a)(5) because Defendant had sold perpetual access to its online intellectual property content.
The Court held that the case was improperly designated under N.C.G.S. § 7A-45.4(a)(5), which permits designation of disputes involving the ownership, use, licensing, lease, installation, or performance of intellectual property. Finding that the complaint’s allegations focused on the breach of contract, rather than the intellectual property aspects of the dispute, the Court ruled that the case was not properly designated to the Business Court, subject to the parties’ rights to seek designation on a different basis.
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CLC (US) Invs., Inc. v. Gramcor Corp., 2024 NCBC Order 56 (N.C. Super. Ct. Aug. 30, 2024) (Bledsoe, C.J.)
Key Terms: Rule 6(b); extension of time; ESI protocol
The parties filed a joint stipulation extending their time to file an ESI protocol, purportedly pursuant to Rule 6(b) of the North Carolina Rules of Civil Procedure, which allows parties to stipulate to certain extensions of time without court approval. However, because the deadline to file the ESI protocol was originally set by the Court’s case management order, Rule 6(b) did not grant the parties authority to unilaterally extend the deadline. Accordingly, the Court struck the joint stipulation, but without prejudice to the parties’ right to file a consent motion seeking the same relief.
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Tree Sprout, LLC v. Brilliance LED, LLC, 2024 NCBC Order 57 (N.C. Super. Ct. Sept. 5, 2024) (Bledsoe, C.J.)
Key Terms: modification of case management order; discovery; BCR 10.9 dispute summary; requests for production of documents; punitive damages
Before the Court was Defendants’ motion to modify the case management order and their BCR 10.9 dispute. Defendants sought a 90-day extension of certain discovery deadlines due to: (i) scheduling conflicts of Defendants’ counsel; (ii) the pending discovery dispute; and (iii) a desire to consolidate a recently-filed related case with this action. Plaintiffs opposed the motion, arguing that Defendants had failed to exercise reasonable diligence to conduct discovery since the case management order was entered in January 2024. In its discretion, the Court granted Defendants’ motion to modify the case management order, but cautioned the parties that it did not intend to extend the deadlines further absent exceptional good cause.
In regard to Defendants’ BCR 10.9 dispute, Defendants argued that Plaintiffs had willfully failed to fulfill their discovery obligations by refusing to produce certain documents. The Court analyzed each of the disputed requests for production and provided clarification on Plaintiffs’ duties to produce. Among other things, the Court noted that information sought to assist in the execution and satisfaction of a judgment later obtained was not appropriate at this stage of the litigation and that a party may not withhold documents on the grounds that the opposing party already has those documents in its possession, custody, or control. The Court also ordered the parties to file supplemental briefs on whether information relating to the computation of punitive damages was discoverable at the present stage of litigation.
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North Carolina ex rel. Stein v. MV Realty PBC, LLC, No. 38A24, 2024 N.C. LEXIS 665, 2024 WL 3913656 (Aug. 21, 2024) (Riggs, J.)
Key Terms: preliminary injunction; interlocutory appeal
As summarized here, the Business Court previously granted the State’s request for a preliminary injunction against MV Realty relating to Homeowner Benefit Agreements entered into between MV Realty and North Carolina homeowners. MV Realty subsequently appealed, asserting that the preliminary injunction orders affected a substantial right and were therefore immediately appealable. On August 21, 2024, the Supreme Court dismissed the appeal ex mero motu as interlocutory.
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 09/11/24
By: Rachel Brinson