By: Ashley Oldfield
Miller v. RedGoose, LLC, 2024 NCBC 74 (N.C. Super. Ct. Nov. 26, 2024) (Davis, J.)
Key Terms: motion to dismiss; fraud; computer trespass; N.C.G.S. § 14-458; tortious interference with contract, UDTP
Plaintiff Miller initiated this suit against his former employer, Defendant RedGoose, alleging claims under the N.C. Wage and Hour Act and for breach of contract. RedGoose counterclaimed, alleging that following Miller’s resignation from Defendant RedGoose, he agreed to assist during a transition period to ensure that other employees were aware of the location of key client information stored on the company’s computer system. However, Miller instead used his continued access to the computer system to sabotage RedGoose’s business and to access proprietary information which he then used to compete. Miller moved to dismiss several of the counterclaims.
Fraud. Miller argued that the fraud claim should be dismissed because RedGoose’s allegations failed to show a causal connection between Miller’s misrepresentation (that he would assist RedGoose in order to ensure continuous service to its client, when in reality he had no intention of doing so and instead sought to use his computer access for his own purposes) and the harm RedGoose allegedly suffered. The Court concluded that Miller read the claim too narrowly—RedGoose alleged that Miller’s representation was for the purpose of inducing its clients to leave and follow him to his new business. This was sufficient to allege a causal connection between the injury and Miller’s misrepresentation.
Computer Trespass. Miller argued that RedGoose’s computer trespass claim under N.C.G.S. § 14-458 failed because RedGoose voluntarily gave him access to its computer systems. The Court rejected this argument, concluding that RedGoose’s allegations that Miller had exceeded his authorized use was sufficient to plead a claim under the statute.
Tortious Interference with Contract. Miller argued that the tortious interference claim failed because 1) RedGoose failed to sufficiently identify the contracts allegedly interfered with; and 2) RedGoose didn’t allege that he was subject to a restrictive covenant and therefore failed to allege that he acted without justification. The Court found neither argument persuasive. First, RedGoose’s allegations regarding the contracts was sufficient to satisfy the notice pleading standard. Second, the Court noted that a competitor cannot escape liability by arguing that he acted with justification where the competitor competed through unlawful means. Here, RedGoose’s allegations that Miller fraudulently obtained continued access to its computer systems was sufficient to allege unlawful methods of competition.
UDTP. Miller argued that the UDTP claim should be dismissed because 1) RedGoose merely alleged that Miller breached a contract which is insufficient to give rise to a UDTP claim; and 2) RedGoose failed to adequately plead that Miller’s acts were in or affecting commerce because they took place within an employment relationship. The Court rejected these arguments as well. First, RedGoose’s allegations regarding fraud, embezzlement, tortious interference, etc. went far beyond a mere breach of contract claim and, in any event, some of the claims automatically served as a predicate for a UDTP claim to proceed. Second, the Court was satisfied that the allegations that Miller had induced RedGoose’s clients to leave RedGoose and follow him were sufficient to satisfy the “in or affecting commerce” element.
Accordingly, the Court denied Miller’s motion to dismiss.
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BioGas Corp. v. NC BioGas Dev., LLC, 2024 NCBC 75 (N.C. Super. Ct. Nov. 26, 2024) (Robinson, J.)
Key Terms: declaratory judgment; breach of contract; breach of fiduciary duty; negligence; economic loss rule; implied covenant of good faith and fair dealing; duty to mitigate
This case arose from a lending relationship where Defendants provided funding through various promissory notes to Plaintiffs related to multiple biogas projects. This funding and related conduct lead to other agreements, many of which Plaintiffs contend Defendants breached by failing to satisfy various duties. Defendants, in turn, contended that Plaintiffs are the ones who breached the agreements, including by failing to pay the promissory notes. Both sides moved for summary judgment, in whole or in part, as to Plaintiffs’ claims and Defendants’ counterclaims.
The Court first addressed those claims which hinged on the question of who had a legal ownership interest in the Monroe Project. Because no evidence was presented which definitively stated who held legal title to the Monroe Project, the Court denied summary judgment on the claims dependent on such a determination.
The Court next addressed Plaintiffs’ requests for declarations regarding the duties and obligations owed by Defendants in relation to the various agreements entered into between them. Plaintiffs first sought a declaration that Defendants owed them an implied duty of good faith and fair dealing under certain agreements. The Court granted the declaration in part, declaring that several of the agreements at issue contained an implied covenant of good faith and fair dealing as a matter of law. However, the Court refused to grant such a declaration regarding the remaining agreements because Plaintiffs had not asserted a breach of contract claim based on those agreements and therefore summary judgment would be inappropriate as it would not be determinative of any legal issue in the case. Plaintiffs also sought a declaration that Defendants had a duty to mitigate their damages relating to their counterclaim for breach of contract as to certain promissory notes. Because North Carolina law generally recognizes a duty to mitigate damages, the Court granted the requested declaration. Lastly, Plaintiffs sought a declaration that, if Defendants prevailed on certain of their counterclaims, they should be limited to nominal damages. The Court denied the request for such a declaration, as many facts remained in dispute as to the damages allegedly sustained by Defendants.
Finally, the Court addressed Defendants’ motion for summary judgment on Plaintiffs’ claims for breach of contract, breach of fiduciary duty, and negligence, and on Defendants’ claim for breach of contract related to the promissory notes. Regarding Plaintiffs’ breach of contract claim, Plaintiffs alleged that Defendants breached five separate agreements. However, because Plaintiffs did not present any evidence of Defendants’ breach of four of the agreements, the Court summarily dismissed the claim to the extent it was based on those agreements. As to the fifth agreement, the Court concluded that a genuine issue of material fact existed as to whether Defendant Leyline had breached the implied covenant of good faith and fair dealing by failing to pursue Plaintiffs’ offer to purchase the Tillamook Project. Accordingly, the Court denied summary judgment on this basis. Regarding the breach of fiduciary duty and negligence claims, Defendants sought summary judgment on the basis that the claims were barred by the economic loss rule because the injury and damages alleged arose solely under an agreement between the parties. The Court agreed and granted summary judgment to Defendant on these claims. Lastly, the Court granted summary judgment in Defendants’ favor as to Plaintiffs’ liability on Defendants’ claim for breach of the promissory notes as there was no dispute that the promissory notes were in default. However, the Court denied summary judgment as to damages because an issue of fact remained as to whether Defendants mitigated their damages and whether set-off was available.
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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 11/26/24
By: Natalie E. Kutcher
Honeywell Safety Prods. USA, Inc. v. SVS LLC, 2024 NCBC 71 (N.C. Super. Ct. Nov. 14, 2024) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); repudiation; UCC; N.C.G.S. § 25-2-609; adequate assurance
This case arises from Honeywell’s agreement to supply nitrile gloves to S2S Global. Following Honeywell’s decision to change suppliers, a dispute arose between the parties relating to the quality of the nitrile gloves. In April 2024, S2S Global ceased accepting the gloves and requested a termination of the supply contract. Honeywell refused and sent S2S Global a demand for assurance that S2S Global would honor its contractual obligation. S2S Global subsequently cancelled all purchase orders for the gloves, recalled all gloves sold to its end users, and communicated its intent to notify regulatory authorities of the recall. However, S2S Global communicated to Honeywell that it “remains ready to purchase” gloves which conform to their supply contract. Honeywell sent a second demand for assurance, in addition to a request to S2S Global’s parent company, Premier, to honor its payment guarantee.
After failing to receive assurance from S2S Global or payment from Premier, Honeywell filed the present lawsuit against Defendants, alleging S2S Global’s wrongful repudiation of the contract and Premier’s breach of the guarantee. S2S Global and Premier moved to dismiss the lawsuit under Rule 12(b)(6) on the basis that S2S Global did not “unequivocally state that it can’t or won’t perform” under the contract. The Court rejected this argument, noting that the agreement was governed by North Carolina’s UCC, which allows one party to demand adequate assurance from another when reasonable grounds for insecurity exist. Based upon the pleadings contained in the complaint, the Court held that Honeywell had adequately pleaded that: (i) reasonable grounds for insecurity existed; (ii) Honeywell made a demand for adequate assurance; and (iii) S2S Global failed to give adequate assurance. An allegation that S2S Global affirmatively and unequivocally renounced the contract wasn’t necessary to state a claim.
The Court additionally rejected Defendants’ arguments, made for the first time in their reply brief, that the claim failed because the complaint didn’t expressly cite section 25-2-609 or sufficiently allege that Honeywell’s demand for assurance was reasonable or that S2S Global’s attempted assurance was inadequate. The Court found these arguments untimely, and in any event, unpersuasive. The Court denied the motion in full.
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Whalen v. Tuttle, 2024 NCBC 72 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to strike; motion to dismiss; Rule 12(b)(6); breach of settlement agreement; breach of operating agreement; breach of oral contract; UDTPA; fraud
This case arises from a dispute between two investors in several restaurant businesses, including CU SOBE, LLC. Defendant Tuttle met Plaintiff Whalen in 2018 when he was a patron at Whalen’s restaurants. Tuttle expressed interest in investing in Whalen’s future restaurant endeavors and eventually made five investments in Whalen’s restaurants. In 2022, the parties entered into an oral agreement for Tuttle to provide a $2 million investment in twenty installment payments towards a new restaurant Whalen was opening, to be owned and operated by Plaintiff CU SOBE. In exchange for these payments, Tuttle would receive 25% of CU SOBE. Tuttle was unable to make the first installment payment when due, so the parties amended the agreement to provide Tuttle a two-month extension on the condition that CU SOBE would have the right to accelerate the unpaid balance at any time. After CU SOBE exercised this acceleration right, tensions grew between the parties, as Whalen accused Tuttle of making disparaging remarks to Whalen’s other investors and engaging in disruptive behavior at several restaurants. A fight for control over CU SOBE ensued, as Tuttle attempted to fire a lawyer retained by Whalen to represent CU SOBE.
The parties mediated their dispute, resulting in a settlement agreement. Whalen and CU SOBE filed the present lawsuit, asserting that Tuttle had breached the settlement agreement and engaged in misconduct relating to CU SOBE’s funding and operations. Tuttle moved to strike certain allegations from the complaint and dismiss all claims.
Motion to Strike: Tuttle sought to strike allegations two groups of allegations in the complaint: 1) those alleging that he engaged in disruptive behavior at the restaurants, on the basis that such allegations were irrelevant to the claims; and 2) those alleging that he disparaged and defamed Whalen, on the grounds that the allegations were conclusory and insufficient to satisfy the heightened pleading standard for defamation. The Court rejected both arguments, noting that while the allegations were not necessarily sufficient to state a claim for relief, Tuttle had failed to show that they have “no possible bearing upon the litigation.” In its discretion, the Court denied the motion.
Breach of Settlement Agreement: The Court dismissed the claim for breach of the settlement agreement, concluding that the allegations were too conclusory to state a claim. While the complaint alleged that Tuttle had materially breached the settlement agreement by repudiation “as evidenced by his words and conduct,” it failed to identify which material term Tuttle allegedly breached or any actions or inaction which constituted the failure to perform or repudiation.
Breach of Oral Contract: Tuttle moved to dismiss the claim for breach of the oral contract on the basis that CU SOBE lacked standing to enforce the agreement, as it did not exist at the time the contract was formed and was not a party thereto. The Court rejected this argument, noting that CU SOBE had been formed long before the oral agreement was amended and was a party to the amended agreement. Tuttle further argued that the claim should be dismissed, as the subsequent settlement agreement contained a general release. As questions relating to the settlement agreement’s enforceability remained, the Court found a dismissal on this basis was premature and denied dismissal.
Breach of CU SOBE’s Operating Agreement: Tuttle argued that this claim should be dismissed because he never assented to the terms of the operating agreement at issue, thereby invalidating the contract. The Court held that the complaint sufficiently alleged that Tuttle was a party to the operating agreement by showing that Tuttle was a member of the company, received a printed copy of the operating agreement, and agreed to be bound by its terms. The Court also pointed to the statutory default rule, which holds that “[a] person who becomes an interest owner is deemed to assent to, and is bound by . . . and is otherwise deemed to be a party to, the operating agreement.” N.C.G.S. § 57D-2-31(b). As such, dismissal was denied.
Fraudulent Inducement: Tuttle moved to dismiss Whalen’s fraud claim on the basis that the pleadings did not satisfy the heightened pleading standards for fraud. Specifically, Tuttle noted that the complaint did not allege that he made any specific representation. The Court granted Tuttle’s motion, noting that the complaint “does not come close to meeting the heightened standard.”
UDTPA: Because Whalen’s claims for fraud and breach of the settlement agreement had been dismissed and none of the remaining claims could support a UDTPA claim, the Court dismissed this claim. The Court further noted that the alleged misconduct all involved internal company disputes or extraordinary events and thus did not satisfy the “in or affecting commerce” requirement.
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McCarron v. Howell, 2024 NCBC 73 (N.C. Super. Ct. Nov. 19, 2024) (Davis, J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; constructive fraud; fraudulent transfer; civil conspiracy; facilitation of fraud; UDTP; alter ego
After obtaining a monetary judgment in a prior lawsuit against Defendant Risk Solutions, Plaintiff brought the current action asserting that the owner and director of Risk Solutions, Harold Howell, fraudulently transferred the assets of the company to newly formed companies for the purpose of preventing McCarron from being able to collect on the judgment. Defendants (Howell, Risk Solutions, and the two newly formed companies) moved to dismiss all claims.
Breach of Fiduciary Duty. The Court determined that the complaint’s allegations that 1) Howell owed a fiduciary duty to Plaintiff as a judgment creditor of Risk Solutions based on the dissolution and insolvency of the company for which Howell served as a director, 2) Howell breached that duty by transferring the assets of Risk Solutions to other entities, and 3) Plaintiff suffered a resulting injury, were sufficient to state a claim. Further, Plaintiff’s failure to allege that he was treated differently than other creditors in the same class was not a bar to his standing because the claim at issue was based on an injury personal to him as an individual creditor.The Court dismissed the claim against Risk Solutions though, since there was no basis by which a corporation owes a fiduciary duty to its creditors.
Constructive Fraud. This claim survived against Howell because the complaint contained sufficient allegations that Howell’s breach of fiduciary duty was undertaken for his personal benefit. The claim was dismissed as to Risk Solutions for the same reasons as the fiduciary duty claim was dismissed against it.
Fraudulent Transfer. The Court dismissed this claim because it was not pleaded with the requisite Rule 9(b) specificity regarding what assets were transferred, which Defendant received any specific transfer, when the transfers were made, or what consideration, if any, was received for the transfers.
Facilitation of Fraud/Civil Conspiracy. The Court dismissed these claims, which were essentially the same, because 1) the underlying fraudulent transfer claim had been dismissed and thus there was no wrongful act; and 2) Plaintiff had alleged that the three Defendant companies had no separate existence apart from Howell, which equated to a non-existent conspiracy of one.
UDTP. The UDTPA claim against Howell survived based on the surviving breach of fiduciary duty and constructive fraud claims against him. The UDTP claims against the three Defendant companies were dismissed because there were no surviving claims against them and no other acts were alleged which could form the basis of a UDTP claim against them.
Alter Ego. Plaintiff alleged that Howell was the alter ego of the three Defendant companies and thus he should be able to pierce the corporate veil and hold Howell liable for the companies’ wrongful acts. However, because all claims against the companies were dismissed, piercing the corporate veil was not applicable.
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Value Health Sols. Inc. v. Pharm. Rsch. Assocs., Inc., 2024 NCBC Order 67 (N.C. Super. Ct. Nov. 6, 2024) (Davis, J.)
Key Terms: choice of law; jury waiver; public policy; Rule 38, Rule 39; N.C.G.S. § 22B-10
This case arises from Defendant’s acquisition of Plaintiff and its proprietary software. The asset purchase agreement entered into between the parties provided that: (i) the APA would be construed in accordance with Delaware law; and (ii) each party waived its right to a trial by jury. Despite both sides’ request for a trial by jury in their initial pleadings, Defendants moved to enforce the contractual jury trial waiver under Delaware law, notwithstanding North Carolina law (N.C.G.S. § 22B-10) deeming contractual jury trial waivers unconscionable and unenforceable.
Defendants argued that, since Delaware law did not prohibit contractual waivers of a jury trial, the North Carolina statute should not apply. Plaintiffs, on the other hand, argued that North Carolina’s Constitution, statutes, and case law all protect a party’s right to a jury trial as a fundamental right. The Court determined that, while Delaware law may govern substantive issues here, the right to a jury trial was a procedural issue governed by North Carolina law and therefore the waiver was unenforceable.
The Court also determined that, even if the contractual jury waiver had been enforceable, Defendants had waived their rights to enforce the provision by: (i) filing two responsive pleadings containing jury demands; (ii) failing to expressly withdraw their request for a jury trial; and (iii) failing to move to strike Plaintiffs’ jury demand. Pursuant to Rules 38 and 39 of the North Carolina Rules of Civil Procedure, a demand for trial by jury may not be withdrawn without the consent of the parties, and once a case is designated as a jury matter, it remains on the jury docket absent a withdrawal of the demand.
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State of N.C. v. MV Realty PBC, LLC, 2024 NCBC Order 68 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: discovery dispute; timeliness, BCR 10.9; BCR 10.4
This order arises from Plaintiff’s submission pursuant to Business Court Rule 10.9 of alleged deficiencies in Defendants’ production of documents. In March 2024, the Court issued an Amended Case Management Order, providing that all fact discovery in the case would close on September 30, 2024. On July 1, 2024, Plaintiffs noticed a deposition and issued a document subpoena to a factual witness in the case. The subpoena required the witness to produce documents by July 18, 2024. On that date, Defendants served an objection to certain document requests in the subpoena on the basis that the documents were protected by the work product privilege. The parties conferred multiple times during August and September of 2024, but were unable to resolve their dispute over the documents.
Plaintiffs filed its submission under BCR 10.9 on October 11, 2024, eleven days after the discovery deadline provided under the Amended Case Management Order. The Court interpreted BCR 10.4 as requiring that any discovery disputes be brought to the Court’s attention via the BCR 10.9 process before the applicable discovery deadline. Thus, since Plaintiff had been aware of Defendants’ objections since July 18, 2024, but had failed to submit the discovery issue to the Court until after the discovery deadline had passed, Plaintiff’s submission was untimely.
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Mauck v. Cherry Oil Co., 2024 NCBC Order 69 (N.C. Super. Ct. Nov. 8, 2024) (Davis, J.)
Key Terms: attorneys’ fees; block billing; reasonableness of rates; clerical work; redacted billing entries
As summarized here and here, this suit arose from a dispute over the ownership and management of a family business, Cherry Oil. This order arises from Plaintiffs’ filing of a costs application, seeking reimbursement for $65,761.73 in costs and attorneys’ fees incurred in obtaining a court-ordered inspection of corporate documents. Cherry Oil filed a brief in opposition to Plaintiffs’ costs application. The Court reviewed the invoices submitted on the following grounds:
Reasonableness of Rates: Taking judicial notice of the rates customarily charged by local attorneys, the Court determined that the rate of one of the paralegals, billing at $275 per hour, was unreasonable. The Court, in its discretion, reduced the hourly rate for the paralegal to $225 per hour. One timekeeper, labelled as “AMM,” was not identified by Plaintiffs. As the Court was not provided information on this person’s role in the litigation or information to determine a reasonable rate for that role, the Court held that no fees would be awarded for that timekeeper’s entries.
Window of Time for Billing Entries: Cherry Oil argued that the applicable window of time for calculating fees should begin on the date work on Plaintiffs’ supplemental complaint was initiated, and end on the date of the hearing which resulted in the inspection order. The Court found the first argument unduly restrictive, as the filing of the supplemental complaint “did not occur in a vacuum.” Rather, the Court held that under the unique circumstances of this case, the “start date” for Plaintiffs’ recoverable costs occurred when Cherry Oil formally denied Plaintiffs’ document inspection request. This date was chosen as it marked the point in which Plaintiffs became aggrieved shareholders pursuant to N.C.G.S. § 55-16-04. However, the Court agreed that costs incurred after the hearing on the inspection order should be excluded.
Redacted Entries and Block Billing: The Court rejected Cherry Oil’s objection to Plaintiffs’ redacted entries, on the basis that the Court had been given the opportunity to review unredacted copies of the invoice in camera. The Court further analyzed the submitted invoices for block billing, and after extensive review of which tasks within those blocks were recoverable, reduced Plaintiffs’ recoverable fees accordingly.
Excess and Duplicative Billing and Client Consultations: Cherry Oil objected to Plaintiffs’ fees to the extent that they reflect: (i) time entries from attorneys who have not made a formal appearance in the case; (ii) multiple attorneys working on the same task; and (iii) time spent conducting client communications and internal attorney conferences. The Court noted Cherry Oil cited no caselaw in support of the proposition that attorneys’ fees may only be awarded for those attorneys who have appeared formally in the proceedings. The Court further noted that there is no per se rule against more than one attorney working on the same task, nor against recovery for communications with clients. However, the Court clarified that “merely ministerial” calls to clients are not recoverable. The Court conducted a review of the records submitted and reduced or disallowed any non-recoverable entries accordingly.
Billing for Clerical Work: Noting that “merely clerical” tasks are not recoverable, the Court reviewed the billing entries attributable to paralegals and found some, but not all, of their entries were for clerical tasks. The Court excluded the entries for clerical tasks from Plaintiffs’ recovery.
Lastly, Cherry Oil argued that Plaintiffs’ recovery should be reduced “based on the Plaintiffs’ limited success” of the claims alleged. Of the twenty-two categories of documents Plaintiffs sought to inspect, the Court ultimately determined that Plaintiffs were only entitled to inspect one. After analyzing the relationship between the costs requested to the prevailing claim, the Court exercised its discretion to reduce Plaintiffs’ fees by thirty-five percent (35%). The Court ultimately awarded Plaintiffs $29,198.98.
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Whalen v. Tuttle, 2024 NCBC Order 70 (N.C. Super. Ct. Nov. 19, 2024) (Conrad, J.)
Key Terms: motion to seal; public access; settlement agreement
In connection with his motion to dismiss, summarized above, Defendant moved to seal a copy of the settlement agreement attached to his motion as an exhibit. Plaintiffs also moved to seal portions of their brief in opposition to Defendant’s motion which discussed the agreement. Both parties argued the document and references thereto should be sealed because the agreement contained a confidentiality clause. After noting that the confidentiality provision alone was insufficient to warrant sealing, the Court provided the parties an opportunity to submit supplemental briefings on the issue. Defendant declined to do so, while Plaintiff Whalen submitted a supplemental brief arguing that information in the settlement agreement, namely the settlement amount, the payment schedule, and the percentage of his ownership in certain entities, warranted sealing, or at least redaction.
The Court rejected the parties’ arguments, noting that the presumption in favor of public access was strong, whereas the parties’ countervailing interest was weak. The Court noted that Defendant provided no substantial interest in keeping the agreement’s contents confidential, while Whalen’s “vague assertions” that disclosure could result in competitive harm failed to warrant sealing. Holding that the parties had failed to rebut the public’s presumptive right of access, the Court denied the motion and ordered the documents to be unsealed.
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 11/20/24
