Archive for October, 2024

N.C. Business Court Opinions, October 9, 2024 – October 22, 2024

By: Lauren Schantz

Egan v. Buena Vista, Inc., 2024 NCBC 69 (N.C. Super. Ct. Oct. 9, 2024) (Earp, J.)

Key Terms: motion to enforce settlement agreement; criminal prosecution; representations of counsel; contract formation; attorney communications with client; authority to settle; sanctions; BCR 7.2

Plaintiff Michael Egan and Defendant Timothy Anderson are shareholders in Defendant Buena Vista, Inc. Two years ago, Egan was arrested and charged with embezzlement from Buena Vista. Egan subsequently sued Anderson and Buena Vista alleging that he had been excluded from the business and not received distributions. While the criminal and civil cases were pending, Egan’s counsel communicated to Defendants’ counsel that Egan would dismiss the case upon receipt of $25,000 and a dismissal of the criminal charges. Defendants’ counsel accepted the offer and contacted Egan’s criminal attorney regarding the disposition of the criminal charges.

The DA would not agree to dismiss the charges but offered Egan a deferred prosecution. Defendants confirmed that this outcome was acceptable and that they would not seek restitution in the criminal matter. Egan’s counsel agreed to Defendants’ counteroffer and then represented to the Court that the matter had been settled.

The parties exchanged a draft settlement agreement, which Egan’s counsel forwarded to Egan’s criminal attorney for review. When Egan’s criminal attorney expressed concern about conditioning the settlement of the civil case on the outcome of the criminal case, Egan’s counsel forwarded an opinion he received from ethics counsel at the State Bar to Egan’s criminal attorney and Defendants’ counsel.

Defendants executed the settlement agreement and Defendants’ counsel sent the agreement and $25,000 to Egan’s counsel. After sending several communications to his client, Egan’s counsel learned that Egan refused to sign the settlement agreement because the criminal charges had not been dismissed. Egan’s counsel then filed a notice of dismissal without prejudice, explaining his misunderstanding of his client’s position. A year later, Egan initiated this action, alleging the same facts as those in the prior action.

Defendants moved to enforce the settlement agreement, strike the complaint, and impose sanctions. Egan opposed the motions, arguing no agreement had been reached. The Court concluded that the correspondence between Egan’s counsel and Defendants’ counsel constituted a valid settlement agreement and, because Egan had given his attorney authority to settle the case, Egan was bound by his attorney’s representations to Defendants’ counsel and the Court that the case was settled.

The Court concluded that Egan’s claims were barred based on the terms of the settlement agreement and dismissed the case but declined to impose sanctions. The Court also reminded counsel to set out each motion in a separate document in compliance with BCR 7.2.

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Bui v. Phan, 2024 NCBC 70 (N.C. Super. Ct. Oct. 22, 2024) (Conrad, J.)

Key Terms: motion to dismiss; LLC; member; manager; breach of operating agreement; declaratory judgment; individual claim; derivative claim; standing; injury; actual controversy; BCR 7.2

This case involves a dispute between the two 50/50 member-managers of Golden Rooster, LLC: Plaintiff Bui and Defendant Phan. Phan moved to dismiss Bui’s claims for breach of Golden Rooster’s operating agreement and declaratory judgment, arguing that Bui lacked standing to assert the claims because they were derivative, rather than individual claims.

Breach of Operating Agreement. The Court denied dismissal of this claim, holding that Bui, as a member of Golden Rooster, had standing to sue individually to enforce rights granted to her under the LLC’s operating agreement: namely, Bui’s right as a manager to participate in the management of Golden Rooster. The Court also disagreed with Phan’s argument that Bui suffered no injury, concluding that, in addition to potential financial harm, Bui’s loss of managerial rights is itself a recognized injury entitling her to nominal damages.

Declaratory Judgment. The Court also denied dismissal of this claim, concluding that Bui had standing to seek declaratory relief because the parties had an actual, genuine controversy regarding the interpretation of Golden Rooster’s operating agreement and its application to Phan’s actions.

The Court declined to consider an additional ground for dismissal that Phan raised in her motion but failed to address in her brief as required by BCR 7.2.

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Culverhouse-Steadman v. Gömböc Ventures, LLC, 2024 NCBC Order 63 (N.C. Super. Ct. Oct. 11, 2024) (Bledsoe, C.J.)

Key Terms: designation; LLC; operating agreement; declaratory judgment; contract

Gömböc Ventures, LLC is comprised of six members, five of whom are parties to this action. Plaintiff Culverhouse-Steadman sought injunctive relief as well as a declaratory judgment that first interpreted the amendment provisions of Gömböc’s prior operating agreement and then determined the enforceability of the amended operating agreement based on Defendants’ alleged noncompliance with the amendment provisions in the prior operating agreement. Plaintiff sought to designate the action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1); however,  the Court declined to designate the matter because resolution of the claims required only the application of contract law principles and did not implicate the law governing LLCs.

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Elhulu v. Alshalabi, 2024 NCBC Order 64 (N.C. Super. Ct. Oct. 14, 2024) (Conrad, J.)

Key Terms: BCR 10.9; Rule 45; quash; subpoena; non-party; discovery dispute

Plaintiffs served a non-party with a subpoena pursuant to Rule 45 of the North Carolina Rules of Civil Procedure. The non-party moved to quash, but the Court held the motion in abeyance and directed the non-party to comply with the pre-filing requirements for discovery disputes in BCR 10.9. After consultation, the parties reached a compromise on all but three requests: bank account statements, any emails having anything to do with Defendants, and documentation of any ownership interest the non-party held in an entity in which Defendant Alshalabi also held an interest. The Court concluded that the requests were overly broad, quashed the subpoena as to the three requests, and otherwise denied the motion to quash as moot.

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Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 65 (N.C. Super. Ct. Oct. 16, 2024) (Davis, J.)

Key Terms: reptile theory; golden rule; motion to exclude; expert opinions; Rules of Evidence; Daubert; motion in limine; admissibility; weight; relevance; prior insurance claims; agency; probative value; discovery disputes; prior lawsuits; disclosure of witnesses; lay opinion testimony; expert reports

As summarized here, this case arose out of an insurance coverage dispute following a fire at a chicken processing plant. The Court previously denied Brakebush’s motion for summary judgment. In anticipation of trial, the Court resolved the parties’ eighteen pre-trial motions.

Defendants moved to exclude Plaintiffs’ expert, arguing that (1) the expert was unqualified as an expert on the subject matter; (2) his opinions were unreliable due to his failure to conduct an independent investigation; and (3) his opinions “parroted” those of Brakebush representatives. The Court denied the motion, concluding that (1) the expert was qualified based on his work experience; (2) the expert could rely on information provided by others in forming his opinions; and (3) Defendants failed to show the expert’s opinions simply “vouched” for those of Brakebush representatives.

Plaintiffs moved to prohibit Defendants’ experts from (1) testifying about Brakebush’s motivations for filing its insurance claim; (2) testifying as to their experiences with prior, unrelated fire insurance claims at Plaintiff House of Raeford Farms’ other facilities; and (3) offering duplicative testimony. The Court granted the motion, determining that (1) expert testimony regarding a party’s state of mind, intent, or motive was improper; (2) any probative value associated with evidence of Raeford’s prior insurance claims for the purpose of contrasting them with the instant insurance claim was substantially outweighed by the danger of undue prejudice; and (3) an expert may not offer opinions that simply repeat the opinions of another expert.

The Court then disposed of the various motions in limine in summary fashion as follows:

Plaintiffs’ First Motion: Granted; evidence of prior insurance claims lacked probative value and/or was outweighed by the likelihood of undue prejudice.

Plaintiffs’ Second Motion: Denied; Court declined to determine as a matter of law whether certain consultants were acting as Defendants’ agents.

Plaintiffs’ Third Motion: Granted in part and denied in part; evidence of prior discovery disputes was irrelevant to resolution of factual issues but may be used for impeachment.

Plaintiffs’ Fourth Motion: Denied; terms of an Asset Purchase Agreement admissible, relevant, and not outweighed by danger of unfair prejudice.

Defendants’ First Motion: Granted; evidence of prior claims, lawsuits, or complaints alleging improper handling of claims by Defendants was inadmissible because it lacked relevance and its probative value was outweighed by danger of unfair prejudice.

Defendants’ Second Motion: Granted; evidence of parties’ financial condition was inadmissible.

Defendants’ Third Motion: Granted; witnesses not previously identified and disclosed during discovery may not testify.

Defendants’ Fourth Motion: Granted; expert witnesses not previously identified and disclosed during discovery may not testify.

Defendants’ Fifth Motion: Granted; expert witnesses may not offer opinions not previously disclosed in discovery.

Defendants’ Sixth Motion: Granted; parties may not use documentary evidence of damages not previously identified and disclosed in discovery.

Defendants’ Seventh Motion: Granted in part and denied in part; parties may not make “reptile theory” or “golden rule” arguments, but the Court will rule on the admissibility of evidence of “general safety rules” at trial.

Defendants’ Eighth Motion: Granted; parties may not introduce deposition testimony not identified pursuant to the Pre-Trial Scheduling Order.

Defendants’ Ninth Motion: Denied; the Court will rule on the admissibility of lay witnesses offering opinion testimony at trial.

Defendants’ Tenth Motion: Granted in part and denied in part; parties may not admit evidence that inaccurately represents information, but motion was phrased too broadly to grant in its entirety.

Defendants’ Eleventh Motion: Denied; the Court will rule on the admissibility of evidence relating to USDA regulations at trial.

Defendants’ Twelfth Motion: Granted; expert report may not be admitted into evidence in its entirety, but statements and exhibits may be used for impeachment or to show how the expert formed his opinions.

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Health Logix, LLC v. US Radiology Specialists, Inc., 2004 NCBC Order 66 (N.C. Super. Ct. Oct. 18, 2024) (Bledsoe, C.J.)

Key Terms: designation; opposition; intellectual property; software; contract

Health Logix provided radiology software services to US Radiology pursuant to a contract. Prior to its expiration, the parties engaged in negotiations to extend the term of the contract. Health Logix executed an amendment extending the term of the contract and, relying on US Radiology’s representation that it would likewise execute the amendment, expended additional time and resources. But US Radiology did not sign the amendment, instead informing Health Logix that the contract would expire at the end of the current term.

Health Logix initiated this lawsuit, asserting claims against US Radiology for declaratory judgment and anticipatory repudiation/breach of contract. US Radiology filed a Notice of Designation, contending that designation as a mandatory complex business case was proper pursuant to N.C.G.S. §§ 7A-45.4(a)(5), (a)(9), and (b)(2). After the case was designated to the Business Court, Health Logix opposed designation.

The Court concluded that designation under Section 7A-45.4(a)(5) was improper because Health Logix’s claims neither required an examination of nor were closely tied to the intellectual property aspects of the software at issue; instead, resolution of the lawsuit required only the application of contract principles. As a result, designation under N.C.G.S. § 7A-45.4(b)(2) was also improper and US Radiology refused to consent to designation pursuant to N.C.G.S. § 7A-45.4(a)(9). The Court therefore allowed the opposition.

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 10/22/24

N.C. Business Court Opinions, September 25, 2024 – October 8, 2024

By: Ashley Oldfield

Dapper Dev., L.L.C., Cordell, 2024 NCBC 63 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)

Key Terms: Rule 12(b)(6); breach of contract, breach of consent order; duty of good faith and fair dealing; declaratory judgment

The Individual Plaintiffs and Defendant were the sole members and managers of two companies. After the Individual Plaintiffs’ attempt to negotiate a buyout of Defendant’s interest failed, the Individual Plaintiffs voted to terminate Defendant from the companies and remove him as a member and manager pursuant to the companies’ operating agreements. Defendant disputed the effect of the vote and this litigation followed. Defendant moved to dismiss pursuant to Rule 12(b)(6).

Breach of Contract. Plaintiffs alleged that Defendant breached the companies’ operating agreements by 1) refusing to accept a buyout offer in breach of Section 10; and 2) causing the bank to freeze the companies’ funds in breach of Article 5. Defendant argued that 1) Section 10’s buyout provision was only triggered if he had been terminated as an employee and Plaintiffs did not (and could not) allege that he was an employee; and 2) Plaintiffs had not pleaded the claim for breach of Article 5 with enough detail. The Court rejected both arguments. Plaintiffs had alleged termination of Defendant’s employment which allowed for a reasonable inference that he was an employee. With regards to breach of Article 5, Plaintiffs had alleged the existence of valid agreements, the provision breached, the facts constituting the breach, and the resulting damages. Nothing further was required.

Declaratory Judgment. Plaintiffs sought a determination of the rights, duties, and liabilities as between them and Defendant under the operating agreements. The Court concluded that Plaintiffs’ allegations that Defendant was terminated as both a member and manager of the companies were sufficient to establish the existence of an actual controversy and survive the pleadings stage.

Breach of Consent Order. In response to Plaintiffs’ claim that he had breached the terms of a consent order entered in previous litigation between the parties, Defendant argued that the consent order was not a legal contract and had no legal effect following the voluntary dismissal of the prior lawsuit. The Court rejected this argument because, under North Carolina law, a consent order which recites the parties’ agreement but does not adjudicate any rights is enforceable through a breach of contract action.

Breach of Duty of Good Faith and Fair Dealing. Of the twelve separate allegations underlying Plaintiffs’ breach of duty claim, the Court held that six of them were sufficient to state a claim because they showed that Defendant had taken actions which injured Plaintiffs’ right to receive the benefit of the agreement. The remaining allegations, however, merely involved Defendant’s assertion of his rights under the operating agreements, and, therefore, did not support the claim. Accordingly, the motion was granted as to those allegations but otherwise denied.

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Auto Provisions, LLC v. G1.34 Holdings, 2024 NCBC 64 (N.C. Super. Ct. Sept. 25, 2024) (Robinson, J.)

Key Terms: Rule 12(b)(6); breach of contract; duty of good faith and fair dealing; unjust enrichment; conversion

Plaintiff Auto Provisions and Defendant G1.34 formed Plaintiff Recon Partners for the purpose of developing and marketing proprietary software for auto dealerships. After the business relationship between Auto and Defendant deteriorated, Plaintiffs filed this lawsuit. Defendant answered and asserted nine counterclaims arising largely from Plaintiffs’ alleged breaches of Recon’s operating agreement and their failure to pay back a loan and other funds extended to Recon by Defendant. Plaintiffs moved to dismiss most of the counterclaims.

Breach of Contract and Duty of Good Faith and Fair Dealing. Noting the low bar for pleading a breach of contract claim, the Court held that Defendant had adequately pleaded Recon’s breach of a loan agreement, as Defendant had pleaded the existence of a valid contract and the breach thereof. Likewise, the Court held that Defendant had adequately pleaded Auto’s breach of Recon’s operating agreement, by pleading the existence of a valid contract, the satisfaction of all conditions precedent to performance, and the breach of Auto’s obligations. Because the claims for breach of the duty of good faith and fair dealing were based on the same facts as the adequately pleaded breach of contract claims, they survived as well. Accordingly, the motion to dismiss was denied as to each of these claims.

Unjust Enrichment. Plaintiffs contended that Defendant’s unjust enrichment claim, which was based on allegations that Recon would be unjustly enriched by retaining certain wrongfully held monies, should be dismissed because all parties agreed that the operating agreement was a valid and enforceable contract which barred an unjust enrichment claim. The Court disagreed. In support of their assertion that all parties agreed as to the validity of the operating agreement, Plaintiffs cited to their complaint and their answer to the counterclaims; however, at the 12(b)(6) stage, the Court could not consider those documents. Further, it appeared that Plaintiffs disputed the validity of the loan agreement at issue. Thus, the unjust enrichment claim, which was pleaded in the alternative, could proceed.

Conversion. Defendant asserted that Plaintiffs converted the loan and other funds provided to Recon by Defendant, as well as the value of certain software. The Court dismissed the claim to the extent it was based on the nonpayment of the loan and other funds, because the failure to pay a debt does not constitute conversion. The Court also dismissed the claim as to the value of the software, because it was undisputed that Defendant had no ownership interest in the software, and, therefore, a claim for conversion could not lie.

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Vitaform, Inc. v. Aeroflow, Inc., 2024 NCBC 65 (N.C. Super. Ct. Sept. 25, 2024) (Bledsoe, C.J.)

Key Terms: Rule 12(c); collateral estoppel; trade secrets; fraud

In a previous action between the parties, Plaintiff asserted various claims, including claims for misappropriation of trade secrets, Lanham Act violations, fraud, and unfair and deceptive trade practices, against Defendants. In that action, the Court entered a summary judgment order which dismissed many of the claims and made a number of determinations regarding Defendants’ knowledge of Plaintiff’s alleged trade secret. The remaining fraud-related claims were set for trial; however, the parties voluntarily dismissed the suit shortly before the trial was set to begin. Eleven months later, Plaintiff filed the present action, asserting the same claims that were pending for trial in the prior action. Defendants moved for judgment on the pleadings, contending that Plaintiff could not establish proximate cause on any of its claims due to the collateral estoppel effect of the Court’s findings in the summary judgment order in the previous action.

The Court denied the motion. Although it agreed that collateral estoppel barred Plaintiff from relitigating factual issues previously determined, the Court concluded that its previous findings did not necessarily preclude Plaintiff from establishing proximate cause and actual damages arising from Defendants’ alleged conduct.

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A Distrib. Co. v. Mood Product Grp. LLC, 2024 NCBC 66 (N.C. Super. Ct. Sept. 26, 2024) (Robinson, J.)

Key Terms: Rule 12(b)(6); hemp; Lanham Act; passing off; reverse passing off; unfair and deceptive trade practices; common law unfair competition; conversion; unjust enrichment;

This action arose out of a business arrangement whereby Plaintiff GFF grew and delivered hemp product to Plaintiff ADC, which ADC then supplied to Defendant Mood for sale on Mood’s website. In connection with the transactions, GFF provided to ADC, who then provided to Mood, Certificates of Analysis regarding the composition of the GFF-grown hemp products. Plaintiffs filed suit alleging seven claims relating to Mood’s alleged alteration and use of the Certificates. The claims between ADC and Mood were ordered to arbitration. Mood then moved to dismiss all of GFF’s claims.

Standing. Mood challenged GFF’s standing, arguing that GFF’s principal, not GFF itself, held the required USDA license to grow hemp, and, therefore, GFF did not have standing to bring claims relating to the license or the Certificates. The Court disagreed, determining that GFF’s allegations that the license was GFF’s through its principal were sufficient to demonstrate standing.

Common Law Unfair Competition. GFF asserted that Mood violated unfair competition principles by fraudulently altering GFF’s Certificates and leveraging GFF’s license and the Certificates to sell product, thereby deceiving and endangering the consuming public. The Court dismissed this claim with prejudice because common law unfair competition claims are limited to claims between business competitors and the complaint showed that GFF and Mood were grower and seller, respectively, not business competitors.

Violation of the Lanham Act. GFF alleged that Mood violated the Lanham Act by committing both reverse passing off and passing off relating to GFF’s license and Certificates. The Court dismissed the claim as to reverse passing off because the complaint did not allege that Mood represented that any of the goods it sold were Mood’s own goods. However, it denied dismissal of the claim as to passing off, finding that GFF had sufficiently alleged that Mood had represented its own goods or services as GFF’s.

Unfair and Deceptive Trade Practices. The UDTPA claim survived to the same extent as the Lanham Act claim survived.

Conversion. GFF alleged that Mood converted GFF’s Certificates by altering them to show Mood as the owner of the testing results for GFF’s hemp. The Court dismissed the claim with prejudice because 1) Mood came into possession of the Certificates lawfully when ADC emailed copies of them to Mood, and GFF did not allege that it had demanded, and been denied, their return; and 2) GFF did not allege that it no longer had access to the original Certificates and thus had not shown that it was wrongfully deprived of access to them.

Unjust Enrichment. GFF alleged that a benefit had been conferred on Mood by its fraudulent use of GFF’s Certificates. The Court, however, dismissed the claim with prejudice because the complaint alleged that any benefit obtained by Mood was taken by Mood, not conferred upon Mood by GFF.

Punitive Damages/Attorneys’ Fees. Because attorneys’ fees and punitive damages are remedies rather than standalone claims, the Court dismissed these claims without prejudice to GFF’s ability to seek them as remedies if warranted.

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Greentouch USA, Inc. v. Lowe’s Cos., 2024 NCBC 67 (N.C. Super. Ct. Oct. 2, 2024) (Davis, J.)

Key Terms: Rule 12(b)(6); conversion; economic loss rule; defamation; tortious interference with existing contract; tortious interference with prospective economic advantage; unfair and deceptive trade practices; punitive damages

Plaintiff designed and supplied various fixtures and furniture to Defendant Lowe’s pursuant to a three-year supplier contract. However, after the relationship took a “cattywampus turn” during the COVID-19 pandemic, Plaintiff filed suit alleging various claims arising from Lowe’s purported efforts to undermine and destroy Plaintiff to enable it to take over product manufacturing itself or find cheaper vendors. Defendants moved to dismiss a number of the claims under Rule 12(b)(6).

Conversion. Plaintiff alleged that Lowe’s converted two categories of property: 1) property that Lowe’s wrongfully declared defective and then re-sold to third parties; and 2) over a dozen freight containers of products that Lowe’s received but refused to pay for. Defendants argued that the conversion claim was based on matters within the scope of the parties’ contract, and, therefore, it should be dismissed under the economic loss rule. The Court concluded that dismissal under the economic loss rule would be premature at this stage. The contract was not attached to the complaint, and without it, the Court was unable to determine whether Plaintiff’s allegations were fully capable of being redressed through its pending breach of contract claim.

Defamation. Plaintiff alleged that Defendants made defamatory statements regarding Plaintiff’s financial condition. The Court, however, dismissed the claim because in each instance, Plaintiff either failed to specifically identify the speaker or failed to describe the statements themselves with sufficient particularity.

Tortious Interference with Existing Contract. This claim was based on Plaintiff’s allegations that Defendants intentionally induced a third-party to repudiate its existing services contract with Plaintiff. Defendants argued that the claim failed because it lacked specificity and failed to allege a lack of justification. The Court rejected both arguments. Plaintiff’s allegations satisfied the notice pleading standard and were rife with statements that Defendants intentionally and maliciously interfered with Plaintiff’s contractual relationships for the purpose of destroying its business.

Tortious Interference with Prospective Economic Advantage. The Court concluded that Plaintiff’s allegations that 1) Defendants were aware of Plaintiff’s efforts to enter into a supplier relationship with a specific third-party; 2) Defendants maliciously induced that third-party not to enter into such a relationship; and 3) the third-party would have entered into a supplier relationship with Plaintiff absent Defendants’ interference, were sufficient to survive the 12(b)(6) motion.

Violation of the UDTPA. Because Plaintiff’s tortious interference claims survived dismissal, the UDTPA claim survived as well.

Punitive Damages. Because punitive damages are a remedy rather than a standalone claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to seek punitive damages as a remedy if warranted.

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Knowles v. Conerly, 2024 NCBC 68 (N.C. Super. Ct. Oct. 3, 2024) (Earp, J.)

Key Terms: Rule 12(c); breach of contract; statute of frauds; unjust enrichment; constructive trust; declaratory judgment; reformation of will; quiet title; easement; latent ambiguity; estate administration; non-claim statute

Plaintiffs are renters of lots in a mobile home park previously owned by Defendant Sea Manor Enterprises, LLC. Plaintiff contend that during his life, William Powell, the sole member and manager of the LLC, agreed that he would arrange for the mobile home park and certain access rights to be conveyed to Plaintiffs and that he later executed a codicil to effect that agreement. However, following Mr. Powell’s death, Plaintiffs were informed that Mr. Powell’s church had inherited his membership interest in the LLC and now owned the mobile home park. This lawsuit followed. Defendants moved for judgment on the pleadings.

Breach of Contract (against LLC). Plaintiffs alleged that 1) they entered into an oral agreement with the LLC whereby it would arrange for the Plaintiffs to receive title to the mobile home park and access rights to certain docks; 2) that this agreement was memorialized in a codicil by Mr. Powell acting in his capacity as manager of the LLC; 3) that the LLC breached the agreement by failing to ensure that the mobile home park and certain access rights were conveyed to Plaintiffs; and 4) they were damaged as a result. The Court found that these allegations sufficiently stated a claim for breach of contract. Defendants argued that the statute of frauds nonetheless barred the claim because the codicil did not sufficiently identify the property to be conveyed. The Court disagreed, concluding that the description of the property was not patently ambiguous and could potentially be clarified by reference to external evidence.

Breach of Contract and Unjust Enrichment (against Estate). Plaintiffs alleged that 1) they had an agreement with Mr. Powell whereby he would ensure that they received a right of access to certain docks in exchange for their improvements to the docks, and 2) if the codicil failed to accomplish this agreement, then Mr. Powell was in breach. The Court concluded, however, that the claim was barred by the non-claim statute for estate administration, N.C.G.S. 28A-19-3(b)(1)(2), because it was not timely filed. Plaintiffs’ unjust enrichment claim, which was based on Mr. Powell being unjustly enriched by Plaintiffs’ improvement of the docks, was barred on the same basis.

Breach of LLC’s Operating Agreement (against Church). Plaintiffs alleged that the codicil served as the LLC’s operating agreement and that the Church, as the LLC’s manager, breached it by not conveying the mobile home park and the access rights to Plaintiffs. The Court disagreed and concluded that, while the codicil may direct the disposition of some of the LLC’s property, it could not be considered a document that governs the affairs of the LLC, i.e., its operating agreement. Thus, this claim was dismissed with prejudice.

Declaratory Judgment. Plaintiffs requested a declaratory judgment that the codicil conveys ownership of the LLC and easement rights to Plaintiffs, or alternatively, that the codicil is ambiguous and was executed my Mr. Powell under a mistaken belief of its effect. The Court determined that Plaintiffs had sufficiently stated a declaratory judgment claim and that issues of fact regarding Mr. Powell’s intent and the legal effect of the codicil remained and required discovery.

Reformation of Will. Plaintiffs contended that the codicil was ambiguous and should be reformed to conform to Mr. Powell’s intent. Because reformation is a remedy rather than a claim, the Court dismissed this claim without prejudice to Plaintiff’s ability to pursue reformation as a remedy if warranted.

Unjust Enrichment/Constructive Trust. Plaintiffs alleged the Church had been unjustly enriched by receiving the mobile home park and therefore, a constructive trust should be imposed over the property. But because a constructive trust is a remedy, not a claim, the Court dismissed the claim but without prejudice to Plaintiffs’ right to pursue a constructive trust as a remedy, if warranted.

Quiet Title. Plaintiffs sought to quiet title to a purported easement they contend is identified in the codicil. The description in the codicil, although ambiguous on its face, suggested that extrinsic evidence may be able to provide the missing detail regarding the location of the easement. Accordingly, dismissal was not appropriate at this stage.

Alter Ego. Plaintiffs alleged that the LLC was an alter ego of Mr. Powell and that the veil between them should be pierced to make the LLC liable for his actions. However, because Plaintiffs did not allege that Mr. Powell engaged in fraud or used the LLC to perpetrate dishonest or unjust acts, the Court dismissed the claim with prejudice.

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Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC Order 60 (N.C. Super. Ct. Aug. 13, 2024) (Bledsoe, C.J.)

Key Terms: BCR 10.9 dispute; expert disclosures; deposition

After Plaintiff objected to Defendants’ efforts to depose Plaintiff’s experts prior to Defendants’ expert disclosure deadline, the parties submitted a BCR 10.9 dispute summary to the Court. Plaintiff argued that requiring her experts to be deposed now may result in her experts having to be re-deposed and, further, that this was litigation by ambush. The Court found that neither the case management order, the Rules of Civil Procedure, nor the Business Court Rules required that expert depositions occur after all parties had disclosed their experts and produced expert reports. Further, it was common practice for a party opposing the party with the burden of proof to take the opening expert’s deposition prior to disclosing its own expert. Lastly, Plaintiff’s concern that her expert may have to be re-deposed was unfounded because the CMO provided that each expert is subject to a single deposition and therefore any attempt to conduct a second deposition would have to be approved by the Court. Accordingly, the Court ordered Plaintiff to make her expert witnesses available for deposition prior to the Defendants’ expert disclosure deadline.

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Murphy-Brown, LLC v. Ace Am. Ins. Co., 2024 NCBC Order 61 (N.C. Super. Ct. Sept. 25, 2024) (Davis, J.)

Key Terms: hog farm; insurance coverage; indemnification; defense costs; reasonableness of attorneys’ fees; burden of proof

As summarized here, Plaintiffs sued various insurers who provided them with primary and excess insurance coverage contending that the insurers were obligated to indemnify Plaintiffs for amounts paid to settle certain nuisance actions relating to Plaintiffs’ hog farms and to reimburse Plaintiffs for their defense costs for such underlying lawsuits. Presently before the Court was the parties’ request that the Court resolve three legal issues prior to trial: 1) which party bears the burden of proving the reasonableness of Plaintiffs’ defense costs in the underlying lawsuits; 2) whether Defendant may conduct a “line-by-line” challenge to the billing entries of Plaintiffs’ attorneys in the underlying lawsuits; and 3) whether the jury may be informed of the Court’s prior determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits.

Regarding the first issue, the Court found no controlling precedent but adopted the majority view in other jurisdictions that once a party has shown that it incurred and paid the defense costs at issue, the costs are presumed reasonable and the burden shifts to the opposing party to rebut that presumption.

As to the second issue, the Court declined to restrict Defendant’s ability to challenge the reasonableness of Plaintiff’s defense costs as it sees fit, provided it does so consistent with Rule 1.5 of the Rules of Professional Conduct which govern the reasonableness of attorneys’ fees.

Lastly, the Court held that the jury could be informed of the Court’s previous determination that Defendant breached its duty to defend Plaintiffs in the underlying lawsuits because that information was relevant to the jury’s understanding of what they were being asked to decide.

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CRH E., LLC, Berastain, 2024 NCBC Order 62 (N.C. Super. Ct. Oct. 7, 2024) (Earp, J.)

Key Terms: preliminary injunction; extraordinary relief; third-party; likelihood of success on the merits; irreparable harm

As summarized here, this action involves a dispute arising from the sale of a business and the previous owners’ alleged involvement in a competing business. The former owners, Counterclaim-Plaintiffs Berastain and Moreau, moved for a preliminary injunction enjoining 1) a third-party, Robertson Real Estate, from selling certain real property, and 2) the Counterclaim-Defendants from transferring funds associated with such a sale or otherwise transferring tangible assets outside the regular course of business. Berastain and Moreau asserted that Robertson Real Estate was co-owned by individuals connected with the Counterclaim-Defendants and that the real property at issue may be necessary to satisfy any judgment they obtained in the present litigation

The Court denied the motion. First, Berastain and Moreau had not shown a likelihood of success on the merits. Since the third-party LLC was not a party to the action, there were no claims pending against it to evaluate for purposes of determining whether Berastain and Moreau were likely to prevail on the merits. As to the Counterclaim-Defendants, Berastain and Moreau failed to present any evidence, as opposed to mere speculation, that the Counterclaim-Defendants had threatened or were about to dispose of any property with the intent to defraud them. Second, Berastain and Moreau also failed to provide sufficient evidentiary support that they were about to suffer irreparable harm.

 

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 10/09/24