N.C. Business Court Opinions, March 1, 2023 – March 14, 2023

North Carolina ex rel. Stein v. EIDP, Inc., 2023 NCBC 18 (N.C. Super. Ct. Mar. 2, 2023) (Robinson, J.)

Key Terms: motion to dismiss; Rule 12(b)(6); contamination; chemical manufacturing; DuPont; PFAS; pollution; negligence; trespass; public nuisance; fraud; res judicata; consent order; statutes of limitations; nullum tempus

In this action, the State of North Carolina brought claims for negligence, trespass, public nuisance, and fraud against various DuPont-related entities arising from the alleged contamination of North Carolina’s air, land, and water through Defendants’ chemical manufacturing operations at Fayetteville Works. Defendants moved to dismiss pursuant to Rule 12(b)(6), asserting that Plaintiff’s claims are barred by the doctrine of res judicata, the relevant statutes of limitations, and failure to state a claim.

Defendants first argued that Plaintiff’s claims are barred by res judicata due to a consent order entered in a previous lawsuit between the N.C. Division of Environmental Quality and two of the present defendants, which contained many of the same core factual allegations. The Court rejected this argument due to the express language of the consent order which stated that it was not to be a determination on the merits of any factual allegations or legal claims in the action. Since there was no final judgment on the merits, res judicata could not apply.

Next, Defendants argued that all of Plaintiff’s claims were barred by the three-year statute of limitations. In response, Plaintiff contended that the doctrine of nullum tempus prevented the relevant statutes of limitations from running against it. Absent express statutory language to the contrary, the doctrine of nullum tempus effectively tolls an otherwise applicable statute of limitations if the State is acting in its governmental, rather than proprietary, capacity. Noting that the North Carolina Supreme Court has held that the State acts in its governmental capacity when “promoting or protecting the health, safety, security, or general welfare of its citizens,” the Court agreed with Plaintiff that it was acting in its governmental capacity by bringing suit to recover costs associated with abatement of the alleged contamination. Accordingly, the applicable statutes of limitations were tolled by the doctrine of nullum tempus.

Regarding the common law negligence claim, the Court rejected Defendants’ argument that they owed no common law duties to Plaintiff but instead only owed duties arising under North Carolina’s environment control statutes. The Court concluded that the relevant statutes did not specifically abrogate common law actions, and, therefore, Plaintiff could bring a properly-pleaded claim for common law negligence. Since the complaint adequately alleged that certain Defendants did not exercise ordinary care in manufacturing and discharging PFAS, the Court denied the motion to dismiss the negligence claim.

The Court also rejected a similar argument regarding the public nuisance claim and found that Plaintiff’s allegation that the contamination is subversive of public order and affects the citizens of North Carolina at large was sufficient to survive dismissal at the 12(b)(6) stage.

Regarding the trespass claim, the Court concluded that, contrary to Defendants’ arguments, Plaintiff did not have to have an exclusive possessory interest in the resources at issue in order to state a claim. Since Plaintiff had alleged that it possesses and holds in trust certain land, water, and air for the benefit of the public, it had sufficiently alleged trespass even though said resources were also used by North Carolina citizens.

As to fraudulent concealment, Defendants first contended that they had no duty to disclose the information allegedly concealed. The Court determined that allegations of false statements made by one or more of the Defendants regarding the health effects of certain chemicals constituted affirmative actions to conceal material facts from the State and thus gave rise to a duty to disclose.

Defendants also argued that Plaintiff did not sufficiently allege reasonable reliance. However, since the Complaint alleged that the studies that put Defendants on notice that PFAS threatened human health were internal studies to which Plaintiff did not have access until at least 2016, Plaintiff had sufficiently alleged reasonable reliance. Finally, Defendants argued that the complaint failed to allege fraudulent concealment with particularity because it grouped certain Defendants together despite them having responsibility for Fayetteville Works at different times. The Court disagreed based on the complaint’s detailed allegations regarding the ownership of the facility and the chemicals produced there. Thus, the fraudulent concealment claim survived.

Lastly, Defendants argued that the fraudulent transfer claim should be dismissed because it was wholly dependent on the viability of Plaintiff’s claims for negligence, trespass, nuisance, and fraud. Since those claims survived, the fraudulent transfer claim survived as well.

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States Mortg. Co. Inc. v. Bond, 2023 NCBC 19 (N.C. Super. Ct. Mar. 6, 2023) (Earp, J.)

Key Terms: motion to dismiss; Rule 12(b)(6); motion to amend; Rule 15; mortgage brokerage; proprietary customer information; misappropriation of trade secrets; breach of fiduciary duties; unfair and deceptive trade practices; permanent injunction

Plaintiff States Mortgage Company Inc. filed suit against two former employees and each of their new business entities alleging, inter alia, that the former employees took Plaintiff’s propriety customer information, specifically a master customer spreadsheet, and used it in their new businesses. Defendants Mark Bond and LKN Capital Mortgage, Inc. (“Bond Defendants”) moved to dismiss all claims, and Plaintiff moved to amend its complaint. Because the test for futility for a motion to amend mirrors the test for a motion to dismiss, the Court addressed the claims as stated in the proposed amended complaint.

Misappropriation of Trade Secrets. Plaintiff’s trade secret misappropriation claim arose from Defendants’ alleged taking and use of Plaintiff’s master customer spreadsheet. The Bond Defendants argued that Plaintiff failed 1) to identify the trade secret with particularity, 2) to allege facts showing that it protected the secrecy of any information, and 3) to adequately specify how the alleged misappropriation occurred. The Court rejected each of these arguments. First, the Court found that Plaintiff’s allegations describing the spreadsheet as a compilation of customer information acquired over years of doing business was sufficient to identify the alleged trade secret at issue. Second, the Court found that Plaintiff had minimally met the pleading requirements to show reasonable efforts to maintain the spreadsheet’s secrecy. Although nondisclosure agreements and employment policies are often used to safeguard alleged proprietary business information, North Carolina law does not require their use to satisfy the “reasonable efforts” requirement of the North Carolina Trade Secret Protection Act. Third, Plaintiff had sufficiently pleaded misappropriation by alleging, inter alia, that defendants had used a co-worker’s computer or coerced the co-worker herself to provide the spreadsheet and transfer it to defendant’s personal computer. Accordingly, the motion to dismiss the claim for misappropriation of trade secrets was denied.

Breach of Fiduciary Duty. Plaintiff based its breach of fiduciary duty claim on allegations that the former employee defendants owed fiduciary duties to Plaintiff as employees. Since a fiduciary relationship does not arise between an employee and employer by operation of law, the Court considered whether a de facto fiduciary relationship existed. Based on the facts alleged, the Court found that neither man was in a position of such power that Plaintiff would have been subjugated to his improper influence or dominion. Accordingly, no fiduciary relationship existed and the Court dismissed the claim.

Unfair and Deceptive Trade Practices. The Bond Defendants sought dismissal of the UDTPA claim based on their argument that the underlying trade secret misappropriation claim failed. However, since that claim survived and could support liability under the UDTPA, the Court denied dismissal of the UDTPA claim.

Permanent Injunction. Noting that injunctions are remedies, not independent causes of action, the Court dismissed the “claim” for a permanent injunction, but without prejudice to Plaintiff’s ability to pursue injunctive relief if warranted.

Motion to Amend. Having already determined that the proposed amendments to the trade secrets misappropriation claim were not futile, the Court was also unpersuaded by arguments that the Plaintiff’s proposed amendments were irreconcilable with its prior pleadings. Thus, the Court granted the Plaintiff’s motion to amend, consistent with its rulings on the motion to dismiss.

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Vitaform, Inc. v. Aeroflow, Inc., 2023 NCBC 20A (N.C. Super. Ct. Mar. 13, 2023) (Bledsoe, CJ.)

Key Terms: motion to exclude experts; expert report; expert witness; motion in limine; discovery; relevance; Daubert; Rule 702

Vitaform, Inc., a designer and manufacturer of post-partum compression garments, filed suit against Aeroflow, Inc. and its subsidiary, based on its contention that Aeroflow wrongfully revealed Plaintiff’s confidential information and trade secrets to Aeroflow’s subsidiary, which unfairly allowed the subsidiary to compete with Plaintiff. In a previous opinion, the Court dismissed most of Plaintiff’s claims, including claims for misappropriation of trade secrets and breach of the covenant of good faith and fair dealing, such that four claims, largely relating to a specific phone call in which Aeroflow allegedly promised to maintain the confidentiality of Plaintiff’s business plan, remained to proceed to trial. Following various discovery disputes, motions, and sanctions, Plaintiff withdrew its previous expert witness designations and designated a single expert witness for damages. Thereafter, Defendants designated a rebuttal expert and each party moved to exclude the other’s expert witness.

Analyzing the Defendants’ motion to exclude under Rule 702 of the North Carolina Rules of Evidence and the Daubert standard, the Court agreed with Defendants that Plaintiff’s expert’s opinions were both irrelevant and unreliable. Since Plaintiff’s expert premised his damages analysis either upon claims already dismissed or, as to the surviving claims, using methodologies properly applied to the dismissed claims, such opinions were inherently irrelevant under the Daubert standard. The expert’s opinions were also inherently unreliable under Rule 702 because of the improper methodology used. Thus, the expert’s opinions were excluded.

Additionally, the Court concluded that Plaintiff should not be permitted to offer an alternative theory of damages at such a late stage in the litigation (trial scheduled in five weeks). Since Plaintiff had represented to Defendants for over a year that all of its damages evidence would come from its expert alone, it could not now introduce new theories or evidence of damages not previously disclosed. The Court noted, however, that its decision was without prejudice to Plaintiff’s right to seek nominal and punitive damages at trial.

Finally, the Court also excluded Defendant’s rebuttal witness since testimony from a rebuttal expert that attacks another, already-excluded expert is inherently irrelevant.

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Loyd v. Griffin, 2023 NCBC Order 12 (N.C. Super. Ct. Mar. 6, 2023) (Robinson, J.)

Key Terms: motion to exclude expert witness; Rule 56(e); motion to supplement; joint appendix; BCR 7.11; Rule 702; Daubert; reliability; admissibility

Defendants retained an expert witness to opine on the damages Defendants suffered due to Plaintiff’s alleged misconduct. Plaintiff moved to exclude Defendants’ expert’s opinions and testimony from consideration on summary judgment. In response, Defendants moved to supplement the record with damages evidence in the event their expert was excluded.

Since Plaintiff only challenged the reliability of the expert’s testimony, the Court focused solely on the three prongs of the reliability test. First, the Court concluded that the information upon which the expert based his opinion—which was the same as the information before the Court on summary judgment—was sufficient for the applicable damages analysis. Second, the Court determined that the expert’s opinions were based on reliable methods given the expert’s independent testing to ensure accuracy of the information he relied on, the probative value of the letters of intent, his stated methodology, and the widespread usage of such calculations in the industry. Any question relating to the factual basis of his opinions, such as whether the facts he received were qualitatively reliable, goes to the weight to be given the opinion by the factfinder, not the admissibility of the opinion. Third, as to application of the methodology to the facts, the Court concluded that any dispute goes to the testimony’s weight and was better left to the trier of fact.

Thus, the Court denied the Motion to Exclude and consequently denied the Defendants’ Motion to Supplement as moot.

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In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2023 NCBC Order 13 (N.C. Super. Ct. Mar. 9, 2023) (Bledsoe, C.J.)

Key Terms: receiver; accounting; objection; trust; legal interest; standing

This order addresses the objection of McDaniel, a non-party who was previously permitted to intervene in the action, to the receiver’s accounting for JDPW Trust. McDaniel’s objection claimed that the receiver engaged in various forms of misconduct in a conspiracy with the receiver’s attorneys. The Court overruled the objection and denied McDaniel’s request for a hearing to examine the receiver, concluding that most of the objection was divorced from any matter in which McDaniel had a legal interest, and that the remainder either misread the receiver’s report or constituted an improper attempt to re-litigate issues already decided.

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In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2023 NCBC Order 14 (N.C. Super. Ct. Mar. 9, 2023) (Bledsoe, C.J.)

Key Terms: receiver; interim report; objection; trust; standing; beneficiary

This order addresses the objections of Defendant Harris and intervenor McDaniel to the receiver’s interim report for JDPW Trust. Regarding Harris’s objection, the Court determined that Harris lacked standing to object because he was not a beneficiary of the Trust, but merely a former trustee of the Trust with no other legal relationship with the Trust. The Court determined that McDaniel lacked standing to object as well, because he was neither a beneficiary of the Trust nor in a legal relationship with the Trust. Moreover, McDaniel improperly attempted to use the objection to raise collateral issues unrelated to the report in question and to re-litigate matters already decided. Accordingly, the Court overruled both objections and denied the objectors’ concurrent requests for a hearing to examine the receiver.

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In re Se. Eye Ctr. (Pending Matters); In re Se. Eye Ctr. (Judgments), 2023 NCBC Order 15 (N.C. Super. Ct. Mar. 9, 2023) (Bledsoe, C.J.)

Key Terms: sua sponte order; Rule 11; Rule 12; sanctions; abusive language; invective; ad hominem; contempt; professional conduct; BCR 7.5

Following orders overruling certain objections to a receiver’s report, the Court sua sponte entered this order to address the inflammatory rhetoric contained in the objections and to put the objector on notice that any further similar conduct may result in the imposition of sanctions and/or the initiation of contempt or other proceedings. The Court found that the objections were replete with personal vitriol against the receiver and other parties in this case, ad hominem attacks against the receiver and others, and egregious accusations of misconduct against others with virtually no citations to evidence, the developed record, or to applicable law, all of which impugned the other parties and detracted from the dignity of the courts and the judicial process.

Noting that the objector’s pro se status did not protect him from the rules of conduct that bind attorneys, including Rule 11 of the Rules of Civil Procedure and Rule 12 of the General Rules of Practice, the Court ordered the objector to cease and desist further abusive filings or oral advocacy before the Court and to adhere to BCR 7.5 (which requires pinpoint citations in motions and briefs) but did not at this time order the objector to show cause as to why he should not be sanctioned.

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Oxendine v. Lumbee Tribe Holdings, Inc., 2023 NCBC Order 16 (N.C. Super. Ct. Mar. 14, 2023) (Bledsoe, C.J.)

Key Terms: determination order; injunctive relief pending arbitration; mandatory complex business case; notice of designation; N.C.G.S. § 7A-45.4(a)(1); contract law

Plaintiff moved for injunctive relief pending arbitration, seeking to enjoin Defendant from exercising a buyout option prior to arbitration. Defendant filed a notice of designation under N.C.G.S. § 7A-45.4(a)(1), which allows for designation if the action involves a material issue related to disputes involving the law governing limited liability companies. Assuming without deciding that a motion seeking injunctive relief under North Carolina’s arbitration act constituted a pleading for purposes of Business Court designation, the Court concluded that although the relief requested may involve a determination of the parties’ rights under Defendant’s operating agreement, it would nonetheless require only a straightforward application of contract law principles and thus did not implicate the law governing limited liability companies as required by N.C.G.S. § 7A45.4(a)(1). Therefore, the Court determined that the action should not proceed as a mandatory complex business case.

By Rachel E. Brinson

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at 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 03/15/23

N.C. Business Court Opinions, February 15, 2023 – February 28, 2023

Conservation Station, Inc. v. Bolesky, 2023 NCBC 14 (N.C. Super. Ct. Feb. 17, 2023) (Robinson, J.)

Key Terms: entry of default; good cause; motion to dismiss; 12(b)(6); pro se litigant

After Plaintiff filed suit in Wake County Superior Court, Defendant Bolesky, appearing pro se, filed a motion to dismiss, which was denied. The matter was subsequently designated to the Business Court. When Bolesky still had not filed an answer nearly two months after designation,

Plaintiff filed a motion for entry of default, a copy of which was delivered to Bolesky by mail. When Bolesky did not respond by the deadline, the Court ordered Plaintiff to provide the Court with information regarding Bolesky’s involvement in the case. Following a review of this information, the Court entered default against Bolesky.

Bolesky then moved to set aside the entry of default and to dismiss under Rule 12(b)(6). In his motion, Bolesky stated his failure to timely respond was due to his “excusable ignorance of the law and deadlines for filings as a Pro Se litigant.” The Court denied Bolesky’s motion to set aside, concluding that Bolesky had failed to show the necessary good cause. The Court highlighted that Bolesky was put on notice of Plaintiff’s motion for entry of default when he received a copy in the mail and was specifically advised of this during a case management conference a few days later. The Court noted that Bolesky “was bound, as a pro se litigant, to be aware of and abide by the Rules of Civil Procedure and to comply with filing deadlines.”

The Court also denied Bolesky’s motion to dismiss, as Bolesky had previously filed a motion to dismiss which had been heard and decided by the Wake County Superior Court.

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Intersal, Inc. v. Wilson, 2023 NCBC 15 (N.C. Super. Ct. Feb. 23, 2023) (Earp, J.)

Key Terms: pirate ship; breach of contract; summary judgment; media rights; affirmative defense; law of the case doctrine; judicial estoppel; collateral estoppel

This dispute arises from a series of agreements between Plaintiff and the North Carolina Department of Natural and Cultural Resources (“DNCR”) covering the discovery, promotion, and preservation of two ships that sunk off the North Carolina coast in the eighteenth-century. In the mid-1990s, DNCR issued Plaintiff permits to search for the Queen Anne’s Revenge (“QAR”), the flagship of the infamous pirate Blackbeard, and the El Salvador, a Spanish merchant vessel. The wreckage sites of the QAR and El Salvador were located in 1996 and 1998, respectively.

In 1998, Plaintiff and DNCR entered into an agreement regarding the research and preservation of the QAR’s artifacts (the “1998 Agreement”). After fifteen years, the working relationship between Plaintiff and the DNCR hit stormy seas. Plaintiff filed a petition with the Office of Administrative Hearings (“OAH”) related to the numerous disputes between the parties, resulting in a new agreement in 2013 (the “2013 Agreement”). In the 2013 Agreement, which expressly superseded the 1998 Agreement, Plaintiff relinquished its rights to any coins or precious metals recovered from the QAR in exchange for a “more streamlined” renewal process for its El Salvador Permit and the right to certain promotion/media opportunities with respect to the QAR project. Less than a week after the execution of the 2013 Agreement, the DNCR participated with the U.S. Coast Guard in raising five of the QAR’s cannons. The DNCR failed to inform Plaintiff of this event, denying Plaintiff the opportunity to film the event or place restrictions upon third-party media companies in attendance. DNCR subsequently published media without Plaintiff’s watermark and allowed access to the QAR site without seeking Plaintiff’s consent. In 2015, the DNCR terminated Plaintiff’s El Salvador permit.

Plaintiff filed suit against DNCR and other state agencies (“Defendants”) in 2015 for breach of both the 1998 Agreement and the 2013 Agreement. After a dismissal of Plaintiff’s claims and subsequent partial reversal and remand by the North Carolina Supreme Court, both parties moved for summary judgment. Plaintiff moved for partial summary judgment seeking: (1) to establish as a matter of law that two of Defendants’ affirmative defenses were barred; and (2) a declaratory judgment that Defendants breached specific paragraphs of the 2013 Agreement relating to media access and rights. Defendants moved for summary judgment on Plaintiffs’ two breach of contract claims.

The Court granted Plaintiff’s motion in part, determining that Defendants’ second affirmative defense (that the 2013 Agreement was illegal and void as against public policy) and ninth affirmative defense (to the extent Defendants contend the terms of the 2013 Agreement are unenforceable) were barred by the law of the case doctrine and judicial estoppel, as the Supreme Court had already affirmed the trial court’s determination that the 2013 Agreement was a novation of the 1998 Agreement, and neither party had challenged the validity of the 2013 Agreement before the Supreme Court. The Court also granted Plaintiff’s request for a declaratory judgment in part, but only in relation to DNCR’s posting on the internet of non-commercial media of the QAR after the effective date of the 2013 Agreement.

The Court partially granted Defendants’ motion for summary judgement on Plaintiff’s first breach of contract claim insofar as Plaintiff’s claims asserted breaches of the 2013 Agreement for DNCR’s production of media in response to public records requests predating the 2013 Agreement’s effective date. Defendant’s motion for summary judgment on Plaintiff’s second breach of contract claim, which related to the termination of the El Salvador permit, was granted based on collateral estoppel, as an OAH administrative judge had previously determined that renewing the permit was not in the State’s best interest.

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Mary Annette, LLC v. Crider, 2023 NCBC 16 (N.C. Super. Ct. Feb. 23, 2023) (Conrad, J.)

 Key Terms: motion to dismiss; breach of contract; operating agreement; breach of fiduciary duty; controlling member; UDTPA; in or affecting commerce; fraud; reformation

This lawsuit arises out of disputes relating to the creation, ownership, and management of Mary Annette, LLC (“MA”). MA’s operating agreement named three one-third members: Twilight Developments, Inc., Ozzie 1, LLC, and Mountain Girl Ventures, LLC. The lawsuit originated when MA filed a complaint against Terri Lynn Crider, the sole owner of Mountain Girl, alleging that Crider improperly held herself out to be an officer and agent of MA, then refused to hand over company records and accounts. The lawsuit was later expanded to incorporate all MA members MA, as well as those members’ owners in their individual capacity. Crider and Mountain Girl asserted seven counterclaims, which Plaintiffs moved to dismiss in full.

The Court summarily denied Plaintiffs’ motion to dismiss the quiet title and conversion counterclaims, as Plaintiffs had failed to advance any arguments directed to those counterclaims.

The Court also denied Plaintiffs’ motion to dismiss the breach of contract counterclaim, as Plaintiffs’ arguments focused solely on the operating agreement and failed to properly address the existence of an oral agreement alleged by Defendants. The Court declined to consider Plaintiffs’ argument that the operating agreement’s merger clause extinguished any pre-existing oral argument, as the argument had not been previously presented to the Court and was therefore untimely.

The Court granted Plaintiffs’ motion as to the fiduciary duty counterclaim, as Defendants failed to allege that Plaintiffs owed them a fiduciary duty. Although Defendants argued that a controlling member may owe fiduciary duties to minority members, the counterclaim’s allegations showed that Defendant Mountain Girl was the controlling member of MA, not the other way around.

The Court denied Plaintiffs’ motion to dismiss the fraud counterclaim, due to the scattershot, conclusory, and undeveloped nature of Plaintiffs’ arguments. Plaintiffs had failed to cite specific statements in their arguments claiming lack of specificity or failure to allege misrepresentation. Moreover, Plaintiffs’ arguments regarding the economic loss rule and lack of standing suggested a misunderstanding of the allegations and were inapplicable.

As to Defendants’ counterclaim to reform the operating agreement, the Court dismissed the counterclaim as to Crider, since she was not a party to the operating agreement but denied it as to Mountain Girl as Plaintiffs “raise[d] no arguments as to why Mountain Girl’s claim should be dismissed.”

Lastly, the Court dismissed the section 75-1.1 counterclaim, because the alleged misconduct concerned either the capitalization of MA or matters of internal governance and was therefore not in or affecting commerce.

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MarketPlace 4 Ins., LLC v. Vaughn, 2023 NCBC 17 (N.C. Super. Ct. Feb. 24, 2023) (Davis, J.)

 Key Terms: judgment on the pleadings; restrictive covenants; misappropriation of trade secrets; UDTPA; tortious interference with contract; tortious interference with prospective economic advantage; computer trespass; vicarious liability

Plaintiff, which owns and operates independent insurance agencies, acquired all assets of the Gilliam Agency (including restrictive covenants between it and its employees), another insurance company, through an asset purchase agreement (the “APA”). Certain Gilliam Agency employees became employees of Plaintiff after the acquisition, including Defendant Jeffrey Vaughn. Less than a year later, Vaughn resigned and began working for Defendant Guidelight Insurance Solutions, Inc. Upon discovering that Vaughn was accessing Plaintiff’s computer database and using Plaintiff’s confidential information to solicit its customers, Plaintiff filed suit against Vaughn and Guidelight, basing its claims against Guidelight largely on a theory of vicarious liability. Defendants each filed separate motions for judgment on the pleadings, seeking dismissal of all claims against them.

Breach of Contract (Vaughn). Plaintiff’s breach of contract claims were based on restrictive covenants in an agreement entered into between Vaughn and his former employer, the Gilliam Agency. Because restrictive covenants transferred pursuant to an asset purchase agreement begin to run from the date of execution of the asset purchase agreement, the Court dismissed Plaintiff’s breach of contract claims to the extent they were based on breaches of non-solicitation covenants  that occurred after the one-year restricted period of the covenants expired. The Court also determined that the two non-solicitation provisions were overbroad because they encompassed customers of Nationwide that had never done business with the Gilliam Agency. The Court dismissed the claim as to the first provision, but deferred a final decision on the second because it was potentially subject to blue-pencilling. Lastly, as to Vaughn’s alleged breaches for disclosure of confidential information, the Court dismissed the claim to the extent it was based on Vaughn’s alleged disclosure of Plaintiff’s confidential information, because the APA only permitted Plaintiff to enforce the confidentiality provisions relating to information that belonged to the Gilliam Agency.

Misappropriation of Trade Secrets (Vaughn). Vaughn argued that Plaintiff had failed to sufficiently allege the existence of trade secrets, reasonable protective measures, or actual misappropriation. After comparing Plaintiff’s allegations to existing caselaw, the Court rejected Vaughn’s arguments and denied dismissal.

Computer Trespass (Vaughn). The Court denied the motion as to this statutory claim, determining that Plaintiff had adequately alleged that Vaughn had accessed its computer database without authority and had done so with the requisite intent.

Tortious Interference with Contract (Vaughn). Vaughn argued that this claim should be dismissed because 1) Plaintiff did not allege that any of its customers actually breached their contracts; and 2) any interference was justified because Vaughn was acting as a business competitor. As to the first argument, the Court explained that actual breach is not a required element of the claim; the plaintiff must merely allege wrongful interference. As to the second, the Court emphasized that the “without justification” is satisfied where, as here, the complaint alleges defendant’s interference involved unlawful means, such as misappropriation of trade secrets. Accordingly, dismissal of this claim was denied.

Tortious Interference with Prospective Economic Advantage (Vaughn). The Court dismissed this claim as Plaintiff did not allege the loss of any specific contractual opportunity.

UDTPA (Vaughn). The Court denied the motion as to this claim, based on the survival of Plaintiff’s claims for misappropriation of trade secrets and tortious interference with contract.

Tortious Interference with Contract (Guidelight). As for the direct claim, the Court granted dismissal because the complaint did not allege any inducement by Guidelight itself, rather than by Vaughn. The Court, however, denied dismissal of the vicarious liability claim, determining that Plaintiff had sufficiently alleged that Guidelight ratified Vaughn’s actions by not taking any action against him when it learned of his conduct.

Tortious Interference with Prospective Economic Advantage (Guidelight). The Court dismissed the direct claim because Plaintiff did not allege that Guidelight caused the loss of any specific contractual opportunity. The Court also dismissed the vicarious liability claim since the underlying tort claim against Vaughn had failed.

UDTPA (Guidelight). Because the Court determined that the UDTPA claim against Vaughn survived and the law allows for vicarious liability for unfair and deceptive trade practices, the Court denied dismissal of this claim.

Misappropriation of Trade Secrets (Guidelight). Pointing to persuasive caselaw from other jurisdictions, the Court rejected Guidelight’s argument that North Carolina does not permit vicarious liability principles to be applied to statutory claims unless authorized by the legislature. Thus, this claim premised on vicarious liability survived.

Computer Trespass (Guidelight). Lastly, the Court declined to recognize a vicarious liability claim for computer trespass because the text of N.C.G.S. § 14-458, a criminal statute, suggested a legislative intent to limit civil liability to the specific persons who intentionally violated the statutory provisions. As the statute only applies to the trespass itself, and not the improper use of information accessed through the trespassing, the Court dismissed Plaintiff’s claim against Guidelight.

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Futures Grp, Inc., v. Brosnan, 2023 NCBC ORDER 11 (N.C. Super. Ct. Feb. 24, 2023) (Earp, J.)

 Key Terms: advancement

This order follows the Court’s prior order granting partial summary judgment and ordering advancement. Following the parties’ inability to agree on the amount of the advanceable expenses already incurred or a procedure for ongoing advancements, the Court issued this order outlining the advancement procedure, and limiting the scope of advanceable expenses.

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By Natalie E. Kutcher

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at 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 03/01/23

N.C. Business Court Opinions, February 1, 2023 – February 14, 2023

Downing v. Cycle Holdings, Inc., 2023 NCBC 10 (N.C. Super. Ct. Feb. 1, 2023) (Davis, J.)

Key Terms: N.C.G.S. § 55-16-02(h); inspection rights; voting agreement; Delaware law

Plaintiff, a shareholder of Defendant Cycle Holdings, filed this action seeking an order allowing him to inspect the corporate records of Defendant Cycle Labs, in which Cycle Holdings held shares. At issue on the parties’ cross-motions for partial summary judgment was whether Cycle Holdings had the power to determine a majority of Cycle Labs’ directors for purposes of N.C.G.S. § 55-16-02(h). Under that provision, a qualified shareholder of a corporation that has the power to determine a majority of directors of another corporation has inspection rights as to the other corporation. The parties disputed whether Cycle Holdings had this power due to a voting agreement between Cycle Labs and its shareholders, which purported to require that Cycle Holdings vote its shares in such a way that it did not, in fact, have the power to determine a majority of Cycle Labs’ directors. Plaintiff asserted that the voting agreement was invalid because any change to Cycle Holdings’ voting rights could only be effectuated through an amendment to Cycle Labs’ certificate of incorporation. Defendants contended that the voting agreement did not conflict with the certificate of incorporation and only contained permissible restrictions on how Cycle Holdings would exercise its voting rights.

Applying Delaware law (since Cycle Labs was a Delaware corporation), the Court determined that the voting agreement did not impermissibly take away Cycle Holdings’ voting power, but instead simply constrained the manner in which it could exercise that power. Thus, under Delaware law, the voting agreement was valid and therefore Cycle Holdings did not have the power to determine a majority of Cycle Labs’ directors for purposes of N.C.G.S. § 55-16-02.

Maxwell Foods, LLC v. Smithfield Foods, Inc., 2023 NCBC 11 (N.C. Super. Ct. Feb. 3, 2023) (Conrad, J.)

Key Terms: output contract; most-favored-nation clause; breach of price term; notice pleading; fraudulent concealment; duty to disclose; estoppel; statute of limitations

Since 1994, Plaintiff Maxwell supplied swine to Defendant Smithfield under an output contract and related documents which included a most-favored-nation clause. Maxwell filed suit alleging various breaches of the parties’ agreements, including violating the most-favored-nation clause. After discovery, Maxwell amended its complaint, adding claims for breach of price term and fraudulent concealment of breaches of the most-favored-nation clause. Smithfield moved to dismiss these claims.

Regarding fraudulent concealment, the Court dismissed this claim after determining that Maxwell did not allege that Smithfield had any duty to disclose. The parties’ contractual relationship did not give rise to such a duty. Moreover, Maxwell failed to adequately allege facts showing affirmative acts of concealment which would have given rise to the duty. Although Maxwell alleged several false statements by Smithfield, each lacked the necessary particularity or were otherwise insufficient.

In its complaint, Maxwell alleged that Smithfield was estopped, due to its fraud, from asserting the statute of limitations defense to Maxwell’s claim for breach of the most-favored-nation clause. In response, Smithfield argued that estoppel failed due to the dismissal of the fraud claim and, therefore, the statute of limitations barred Maxwell’s claim for breach of the most-favored-nation clause to the extent it was based on conduct occurring before 2016. The Court declined to undertake an allegation-by-allegation application of the statute of limitations and suggested that such a dispute would be better suited for summary judgment.

Regarding breach of price term, Smithfield asserted that the claim should be dismissed because it did not allege the specific provisions of the agreement that were breached. The Court rejected this argument, concluding that Maxwell had satisfied North Carolina’s notice pleading requirements by alleging the existence of a contract, which was attached to the complaint as an exhibit, and that Smithfield had breached that contract by underpaying.

Loray Mills Devs., LLC v. Camden Loray Mill Phase 1, LLC, 2023 NCBC 12 (N.C. Super. Ct. Feb. 7, 2023) (Bledsoe, C.J.)

Key Terms: summary judgment; statute of limitations; breach of contract; declaratory judgment; continuing wrong doctrine; equitable estoppel; discovery rule; breach of fiduciary duty; constructive fraud; derivative claim; economic loss rule; conversion; intangible interest; unjust enrichment; civil conspiracy

This case involves a dispute between the two principal owners of the Loray Mill project, an urban revitalization and historic preservation project in Gastonia. Plaintiff JBS and Defendant Camden entered into substantially identical operating agreements for various entities formed as part of the project. Each operating agreement permitted JBS to make a capital call for an additional contribution under certain circumstances, and to the extent any member failed to make an additional distribution, permitted any other member to make the additional contribution and treat it either as a loan or, if certain requirements were met, a capital contribution. After JBS made a number of capital calls which Camden did not participate in, a dispute arose regarding the effect the capital calls had on Camden’s ownership interest in the various entities. Plaintiffs brought suit for a declaratory judgment and for breach of contract and Defendants counterclaimed asserting twelve claims. Both sides moved for summary judgment.

Declaratory Judgment Claims. After determining that Georgia law applied to two of the operating agreements and both Georgia and North Carolina law applied to a third, the Court turned to Defendants’ arguments that the capital calls did not dilute their interests because they were inconsistent with the terms of the operating agreements and, as to one entity, were not made specifically for that entity. The Court rejected these arguments because of conflicting evidence and arguments regarding the meaning and interpretation of certain terms and provisions in the operating agreements and whether the parties’ course of conduct modified the operating agreements. Accordingly, summary judgment was denied.

Plaintiffs’ Breach of Contract Claim. Because this claim appeared to depend upon the parties’ competing claims for declaratory judgments, which the Court had already concluded must be resolved at trial, the Court denied Defendants’ motion for summary judgment.

Defendants’ Breach of Contract and Breach of Fiduciary Duty Counterclaims (pre-April 2018). Plaintiffs argued that these claims were barred by a three-year statute of limitations based on undisputed evidence that Defendants were on notice of the alleged breaches more than three years before the counterclaims were filed. In response, Defendants relied upon the continuing wrong doctrine, the discovery rule, and equitable estoppel principles to argue that their counterclaims should survive. The Court rejected each defense in turn. The continuing wrong doctrine did not apply because each of the alleged breach involved separate discrete acts. The discovery rule also did not save the claims because the evidence showed that Defendants were sufficiently aware of the alleged misconduct well before they claimed they were. Finally, equitable estoppel did not apply because the evidence showed that Defendants were put on inquiry as to the truth but did not seek additional information. Accordingly, the Court found that the statute of limitations barred these counterclaims and granted Plaintiffs’ motion for summary judgment.

Defendants’ Breach of Contract and Declaratory Judgment Counterclaims (post-April 2018). The Court determined that issues of fact remained on these claims and denied summary judgment.

Defendants’ Breach of Fiduciary Duty and Constructive Fraud Counterclaims against JBS. As for Defendants’ derivative counterclaims based on the capital calls, the Court determined that because the counterclaims only sought to remedy Defendants’ own injuries, they were direct rather than derivative claims, and therefore, Defendants did not have standing to bring them. As for Defendants’ derivative and direct counterclaims based on JBS’s payment of unbudgeted expenses, the Court concluded that JBS’s fiduciary duties arose from the operating agreements; thus the counterclaims were barred by the economic loss doctrine.

Defendants’ Conversion Counterclaim. The Court dismissed this claim because it was based on conversion of tax credits, which are an intangible interest not subject to a claim for conversion.

Defendants’ Unjust Enrichment Counterclaim. The Court dismissed this claim based on the parties’ agreement that the operating agreements governed their contract claims.

Defendants’ Civil Conspiracy Counterclaim. Lastly, the Court dismissed this claim because it was based on the same conduct as the counterclaims for breach of fiduciary duty and constructive fraud, which were also dismissed.

BIOMILQ, Inc. v. Guiliano, 2023 NCBC 13 (N.C. Super. Ct. Feb. 10, 2023) (Robinson, J.)

Key Terms: motion to dismiss; equitable distribution; misappropriation of trade secrets; trademark infringement; UDTPA; trespass to chattels; patent ownership; subject matter jurisdiction; stay

This action arose from a dispute between the parties regarding certain human cell-cultured technologies and products. The dispute focuses on Defendant Guiliano’s conduct in February 2022, when he photographed pages of a BIOMILQ-issued notebook containing trade secret and confidential information, which was in the custody of Dr. Strickland, a BIOMILQ employee. Defendants moved to dismiss all claims under Rule 12(b)(6).

Misappropriation of Trade Secrets. BIOMILQ alleged that Guiliano misappropriated its trade secrets when he entered Strickland’s home, to which he had access, and took pictures of information in her notebook. The Court, however, dismissed the claim, concluding that BIOMILQ had not sufficiently alleged reasonable steps to maintain the secrecy of the trade secrets, since the complaint only made general statements about how the notebooks were treated.

Common Law Trademark Infringement. Analyzing this claim under federal law standards regarding infringement claims of unregistered trademarks, the Court denied dismissal, finding that BIOMILQ had adequately pleaded that it had valid rights in the BIOMILQ mark and that Defendants’ use of it was likely to cause confusion among consumers.

Unfair and Deceptive Trade Practices. Pursuant to N.C.G.S. § 80-11–13, the Court denied dismissal to the extent this claim relied on BIOMILQ’s common law trademark infringement claim. However, to the extent the claim relied on the dismissed misappropriation of trade secrets claim, it was dismissed as well.

Common Law Unfair Competition. Applying the same analysis as for the UDTPA claim, this claim survived to the extent it was based on the trademark infringement claim.

Trespass to Chattels. The Court found that BIOMILQ had adequately pleaded the first element–actual or constructive possession–based on Strickland’s custody of the notebook while an employee of BIOMILQ. Nonetheless, the claim was dismissed as BIOMILQ had not adequately alleged the second element–unauthorized, unlawful interference with or dispossession of the property. That information within the notebook may have been devalued by Guiliano’s access was not sufficient.

Declaratory Judgments. The Court denied dismissal as to the declaratory judgment claim regarding BIOMILQ’s ownership rights in certain trademarks and other information finding that an actual controversy had been alleged. The Court also denied dismissal as to the declaratory judgment claim regarding the parties’ rights to use the subject matter of certain patents. Although federal courts have exclusive jurisdiction over claims arising under federal patent law, the question of who owns patent rights is a state law issue when the ownership dispute is based on contract, rather than inventorship. Here, BIOMILQ alleged an actual controversy regarding ownership of the patents based on Strickland’s assignment of rights to Plaintiff; thus, the Court had subject matter jurisdiction over the claim and determined that an actual controversy had been sufficiently alleged.

Chi v. N. Riverfront Marina & Hotel, LLLP, 2023 NCBC Order 8 (N.C. Super. Ct. Feb. 7, 2023) (Earp, J.)

Key Terms: stipulation extending deadline; BCR 4.1; BCR 7.6

The parties filed a stipulation purporting to extend the time for Plaintiffs to respond to Defendants’ motions to dismiss. The Court struck the stipulation, explaining that BCR 4.1(e) only allows parties to enter binding stipulations for deadlines set by the North Carolina Rules of Civil Procedure. It does not allow the parties to stipulate to extensions of deadlines established by the Court’s orders or the Business Court Rules, including BCR 7.6 which governs the time frame for filing responsive briefs.

Futures Grp., Inc. v. Brosnan, 2023 NCBC Order 9 (N.C. Super. Ct. Feb. 10, 2023) (Earp, J.)

Key Terms: spousal privilege; N.C.G.S. § 8-56; standing; competent evidence; BCR 7.2

Futures Group and Geoff Cramer, its founder, sued Denis Brosnan, the father of Cramer’s ex-wife Aimee, for disputes arising from their business dealings. In opposition to Brosnan’s motion for partial summary judgment, Futures submitted an affidavit from Cramer, attached to which were audio recordings of four conversations Cramer had with Aimee while they were married. Aimee objected to two of the recordings based on spousal privilege and moved for a protective order.

The Court first determined that Aimee, even as a non-party, has standing to seek protection because she holds a personal privilege in her confidential marital communications which gives her the necessary personal stake in a justiciable controversy.

After conducting an in camera review of the conversations, the Court addressed each in turn. Regarding the first, the Court identified specific portions which were plainly not intended to be confidential because Aimee was largely acting as a messenger relaying information from her father to her husband. Such statements were not protected by the spousal privilege. The remaining portions, however, were private communications made in the confidence of the marital relationship and were therefore protected.

Regarding the second conversation, the Court determined that even though some of the same topics might have also been discussed with Brosnan at other times, Aimee nevertheless considered her statements to be confidential communications with her husband, and therefore, the entire conversation was protected by the spousal privilege.

Accordingly, the Court granted Aimee’s motion in part and ordered that the portions of the conversations protected by the spousal privilege remain under seal and not be considered competent evidence in the case.

Brosnan had also moved for a protective order but had purported to “incorporate by reference” Aimee’s brief rather than submitting his own. The Court summarily denied this motion pursuant to BCR 7.2.

Shah v. Ahmed, 2023 NCBC Order 10 (N.C. Super. Ct. Feb. 13, 2023) (Bledsoe, C.J.)

Key Terms: order on designation; contemporaneous filing

Plaintiffs filed the complaint in this action in November 2022 but did not file a notice of designation until February 2023. Accordingly, designation as a mandatory complex business case under N.C.G.S. § 7A-45.4(a) was improper because Plaintiffs did not comply with the contemporaneous filing requirement of 7A-45.4(d)(1).

By Ashley B. Oldfield

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at 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 02/15/23

N.C. Business Court Opinions, January 18, 2023 – January 31, 2023

Futures Grp., Inc. v. Brosnan, 2023 NCBC 4 (N.C. Super. Ct. Jan. 19, 2023) (Earp, J.)

Key Terms: indemnification; advancement; partial summary judgment; choice of law; internal affairs doctrine; Delaware law; former director

Defendant, a former director of Plaintiff The Futures Group, Inc. (“Futures”), filed a motion for partial summary judgment on his counterclaim for advancement of litigation expenses. Because advancement is an internal governance matter and Futures is a Delaware corporation, the Court applied the substantive law of Delaware to the issue of advancement.

Despite Plaintiffs’ argument that pursuant to a Delaware statute, actions for advancement and indemnification can only be brought in the Delaware Chancery Court, the Court held that Plaintiffs misconstrued the statute in question and that the Court does have jurisdiction to hear and decide this action. The Court further held that 8 Delaware Code § 145(j) creates a default continuation rule, absent express language in a corporation’s bylaws to the contrary, that a director’s right to advancement continues after his or her status as a director ends. The Futures bylaws contain no such express provision and therefore the Court held Defendant’s right to advancement vested at the time of his actions as a director and did not end when he was removed as a director. The Court also held that Plaintiffs’ accusations of wrongdoings against Defendant did not alleviate it of its obligation to advance his expenses.

The Court granted Defendant’s motion for partial summary judgment and ordered Futures to advance Defendant’s expenses in accordance with its bylaws.

Innovare, Ltd. v. SciTeck Diagnostics, Inc., 2023 NCBC 5 (N.C. Super. Ct. Jan. 19, 2023) (Davis, J.)

Key Terms: motion to amend; motion to dismiss; breach of contract; breach of implied covenant of good faith and fair dealing; conversion; unjust enrichment; unfair competition; fraud; Rule 9(b); Lanham Act; UDTPA; motion to strike

This case arose out of a distributorship agreement between Plaintiff Innovare and Defendant Sciteck, who manufactured COVID-19 test strips for which Defendant was seeking Emergency Use Authorization (EUA) from the FDA. Both parties asserted various claims against each other, with Defendant’s counterclaims focusing on Plaintiff allegedly using the test strips outside the bounds of the EUA approval process. After Plaintiff moved to dismiss the counterclaims and strike Defendant’s affirmative defenses, Defendant moved to amend.

Regarding the motion to amend, the Court determined that it should not be denied on the basis of undue delay based on Defendant’s representation that certain new allegations which are relevant to the proposed amendments had only been discovered after the filing of the initial counterclaims. As to futility, the Court elected to consider both the original counterclaims and the proposed amended counterclaims under the motion to dismiss since the parties had fully briefed both.

Turning to the counterclaims, the Court first concluded that the breach of contract counterclaim survived in part and that, therefore, the counterclaim for breach of implied covenant of good faith and fair dealing also survived. However, since the counterclaims plainly alleged the existence of a contract and did not allege damages beyond those recoverable under a breach of contract theory, the unjust enrichment counterclaim failed.

The Court also dismissed the conversion counterclaim because Defendant did not allege that Plaintiff acquired the test strips illegally or that a demand for their return was made; the common law unfair competition counterclaim because Defendant did not allege that the parties were business competitors; and the fraud counterclaim because the allegations were too general to meet Rule 9(b)’s heightened pleading standard.

As to the Lanham Act counterclaim, the Court concluded that Defendant’s allegations that Plaintiff had exceeded the scope of the distributorship agreement by allowing the test strips to be sold to third-parties despite the absence of FDA approval, and that such conduct caused damages—including reputational injury—to Defendant, were sufficient to state a claim. Since trademark infringement can constitute an unfair or deceptive trade practice, the UDTPA counterclaim also survived.

Turning to Plaintiff’s motion to strike Defendant’s 49 affirmative defenses, the Court agreed that the number of affirmative defenses was excessive, but only struck the three which Plaintiff had specifically identified were improper.

Carolina Med. Partners, PLLC v. Shah, 2023 NCBC 6 (N.C. Super. Ct. Jan. 24, 2023) (Conrad, J.)

Key Terms: unfair and deceptive trade practices; Rule 12(b)(6); choice of law; learned profession exemption

Plaintiffs Nimish Patel and Shephali Patel are practicing physicians who previously owned and operated more than half a dozen businesses with Defendant Amit Shah, including Palmetto Medical Group, LLC. After their professional relationship eroded, the parties participated in a mediation resulting in a Practice Separation Agreement, which provided a framework for the division of their business interests and included a North Carolina choice of law clause. After Shah allegedly breached the Agreement, the Patels filed suit for breaches of the Agreement, fraud, and unfair and deceptive trade practices, all largely based on Shah’s alleged actions to deceptively influence patients’ choice of provider. Defendants moved to dismiss Plaintiffs’ unfair and deceptive trade practices claim.

Plaintiffs argued that both South Carolina and North Carolina law applied to the unfair and deceptive trade practices claim. However, the Court rejected the application of South Carolina law because the Agreement expressly provided that North Carolina law would govern the interpretation and implementation of the Agreement, and the complaint did not allege any extracontractual conduct.

Turning to North Carolina law, the Court determined that Defendants’ alleged conduct fell “comfortably” within the statute’s “learned profession” exemption, as Defendants were members of a learned profession, and the conduct was “directly related to providing patient care.” Thus, the Court dismissed Plaintiffs’ claim for unfair and deceptive trade practices.

Cutter v. Vojnovic, 2023 NCBC 7 (N.C. Super. Ct. Jan. 24, 2023) (Bledsoe, C.J.)

Key Terms: motion for judgment on the pleadings; Rule 12(c); standing; derivative claims; common law general partnership; constructive trust; misappropriation of business opportunity

In this action, Plaintiff Cutter alleged that he and Defendant Vojnovic were general partners in a common law partnership formed to purchase several hot dog businesses, but that Vojnovic thereafter created a separate entity (Defendant Holdings) and misappropriated this opportunity. Plaintiff brought suit, alleging a host of claims both directly and derivatively on behalf of the general partnership. Defendants moved for judgment on the pleadings.

Addressing first the derivative claims, the Court agreed with Defendants that, absent contract or consent, North Carolina law does not permit a general partner to bring a claim derivatively on behalf of the general partnership against another general partner. Therefore, the Court dismissed Cutter’s derivative claims against Vojnovic.

Turning to the direct claims, the Court dismissed the tortious interference with prospective economic advantage claim because Cutter failed to allege specific facts to support his claim. In particular, the Court found that Cutter failed to allege facts showing how Defendants diverted the opportunity or what they did to wrongfully interfere.

The Court also dismissed Cutter’s claim for misappropriation of business opportunity against Vojnovic finding that it was unnecessarily duplicative of Cutter’s breach of fiduciary duty claim because misappropriation of business opportunity is a subspecies of the fiduciary duty of loyalty.

Lastly, because a constructive trust is not a standalone claim, the Court dismissed this claim, but did so without prejudice to Cutter’s right to pursue a constructive trust as a remedy against both Defendants if justified.

rFactr, Inc. v. McDowell, 2023 NCBC 8 (N.C. Super. Ct. Jan. 27, 2023) (Bledsoe, C.J.)

Key Terms: motion to strike; summary judgment; tortious interference; causation; breach of fiduciary duty; UDTPA; in or affecting commerce; defamation per se

This case arose after Jackson National terminated contract negotiations with rFactr, after receiving a call from Caroline McDowell, the wife of rFactr director Chris McDowell, in which Caroline told Jackson National that rFactr was financially unstable (the Call). rFactr and two individual directors/owners filed suit against the McDowells based on the Call, and the McDowells counterclaimed. A number of the parties’ claims were previously disposed of on summary judgment motions and the case was set for trial, but after new information came to light, Defendants moved for summary judgment on Plaintiffs’ remaining claims.

The Court first addressed Defendants’ motion to strike the Gomez Declaration filed in opposition to summary judgment. Defendants argued that Gomez made unauthorized statements on behalf of Jackson National, that he lacked personal knowledge, and that his statements were inadmissible hearsay. The Court disagreed and denied the motion with the exception of Gomez’s statement that Jackson National and rFactr reached a “meeting of the minds” on the terms of a proposed contract. Such a statement was a legal conclusion to which a witness cannot testify.

Turning to the claims, the Court denied summary judgment as to the tortious interference claim against Caroline, concluding that the close proximity of the Call and Jackson National’s decision to discontinue contract negotiations was sufficient circumstantial evidence of causation. However, the Court granted summary judgment in favor of Chris because there was no evidence that Chris knew of or was involved in the Call, and evidence that Chris’s laxity permitted Caroline to gain the information that led to the Call was insufficient to show he acted in concert with her.

The Court also denied summary judgment on the breach of fiduciary duty claim against Chris as an rFactr director for not adequately protecting rFactr’s confidential information from Caroline because there was conflicting evidence on whether and to what extent he knew of her activities.

On the UDTPA claims, the Court denied summary judgment as to Caroline on the same grounds as the tortious interference claim, but granted it in favor of Chris because his actions took place solely within the company and thus were not in or affecting commerce.

Lastly, the Court addressed the individual plaintiffs’ slander per se claims against Caroline and Chris. The Court denied the motion regarding Caroline’s statement that the individuals were under investigation for arson because there was evidence that Caroline failed to exercise reasonable care to ascertain its truth, but otherwise granted summary judgment in Caroline’s favor because the remaining statements were either true or not defamatory on their face. The Court also granted summary judgment in favor of Chris since he was not involved in making the statements.

N.C. Dep’t of Revenue v. FSC II, LLC, 2023 NCBC 9 (N.C. Sup. Ct. Jan. 30, 2023) (Davis, J.)

Key Terms: sales and use tax; mill machinery exemption; Department of Revenue

This matter arises from a dispute between Petitioner, the North Carolina Department of Revenue and Respondent, FSC II, LLC, regarding FSC’s qualification for the Mill Machinery Exemption under the North Carolina Sales and Use Tax Act. FSC, who operated primarily as a contractor, regularly purchased raw materials to create hot mix asphalt (“HMA”) for its projects. Any HMA left over from FSC’s projects was regularly sold by FSC to third parties. Based on this, FSC argued that it qualified for the Mill Machinery Exemption and was entitled to a lower privilege tax on its raw materials rather than the higher sales or use tax. The Department of Revenue sought back-taxes from FSC for sales and use tax. The Office of Administrative Hearings granted summary judgment to FSC in an administrative proceeding, concluding that FSC’s use of the raw materials it purchased to produce HMA constituted “manufacturing” under the Act. The Department of Revenue appealed.

The Court upheld the OAH’s final decision, finding that FSC qualified as a manufacturer under the Mill Machinery Exemption. Using language from Supreme Court cases interpreting the definition of “manufacturing,” the Court determined that FSC’s production of HMA qualified as manufacturing as it involved “the producing of a new article or use or ornament by the application of skill and labor to the raw materials of which it is composed.”

Cent. Carolina Surgical Eye Assocs., P.A. v. Matthews, 2023 NCBC Order 2 (N.C. Super. Ct. Jan. 18, 2023) (Bledsoe, C.J.)

Key Terms: attorneys’ fees; unfair and deceptive trade practices; punitive damages; frivolous or malicious actions; N.C.G.S. § 75-16.1; N.C.G.S. § 1D-45; Rule 41; time-barred

Plaintiff first filed its complaint in 2015 but moved to dismiss the action in 2020 pursuant to Rule 41(a). Plaintiff refiled in 2021 alleging similar causes of action but adding several new claims as well. Upon Defendant’s motion for judgment on the pleadings, the Court found that Plaintiff’s new claim for unfair and deceptive trade practices was barred by the statute of limitations and that the tolling provision of Rule 41 was not applicable thereto. The Court also dismissed Plaintiff’s breach of fiduciary duty claim to the extent it was based on allegations newly made in the 2021 Complaint, and Plaintiff’s “claim” for punitive damages to the extent that it was a standalone claim and based on the dismissed claims. Defendant Matthews then filed a motion for attorneys’ fees pursuant to N.C.G.S. §§ 75-16.1 and 1D-45.

Despite having dismissed the UDTPA and punitive damages claims, the Court held that neither claim was frivolous and/or malicious under Sections 75-16.1 and 1D-45. The Court relied on the extensive briefs and arguments presented by the parties in support of and opposition to the claims during the motion for judgment on the pleadings and found that even though the Court ruled against Plaintiff with respect to these claims, they had not been brought intentionally without just cause or excuse or as a result of ill will. Therefore, the Court denied Defendant’s motion for attorneys’ fees.

Curo Health Servs., LLC v. Havnaer, 2023 NCBC Order 3 (N.C. Super. Ct. Jan. 19, 2023) (Bledsoe, C.J.)

Key Terms: determination order, N.C.G.S. § 7A-45.4(a)(8); order on designation; trade secrets

Pursuant to a determination order from the Supreme Court, the Court addressed whether the action was properly designated as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(8), which permits designation if the action involves a material issue related to disputes involving trade secrets. The Court determined that while the complaint alleged the misuse of plaintiff’s confidential information, it did not allege that such information constituted a trade secret or otherwise assert a claim for trade secret misappropriation. Accordingly, designation was improper.

Chi v. N. Riverfront Marina & Hotel, LLLP, 2023 NCBC ORDER 4 (N.C. Super. Ct. Jan. 20, 2023) (Earp, J.)

Key Terms: motion to seal; trade secret protection; waiver; redaction; confidentiality

Plaintiffs in this matter filed two motions seeking to file under seal in their entirety the verified complaint, first amended verified complaint, second amended verified complaint and supporting exhibits, despite the information having already been on the public record for over a year. Because Defendants were the designating party seeking confidentiality, the Court had previously directed them to provide information sufficient for the Court to determine if sealing was warranted.

In response, Defendants argued that Plaintiffs’ pleadings and certain exhibits should be sealed in their entirety because they contained proprietary trade secret information that could be of value to Defendant’s competitors. However, because Defendants did not seek to place their answer or counterclaims under seal, despite those pleadings containing the same information, the Court held that any trade secret protection over the information at issue had been lost and Defendants had waived the ability to assert confidentiality of those materials going forward. Thus, the Court denied the motions but ordered, sua sponte, that the unredacted exhibits containing personal information be sealed and that the parties promptly re-file them with proper redactions.

CitiSculpt Fund Servs., LLC v. Blueprint 2020 Opportunity Zone Fund, LLLP, 2023 NCBC Order 5 (N.C. Super. Ct. Jan. 24, 2023) (Bledsoe, C.J.)

Key Terms: sua sponte; redaction; motion to seal; gatekeeper; public interest; BCR 5

Defendant Blueprint filed a motion to dismiss and supporting affidavits. Without filing the documents provisionally under seal accompanied by a motion to seal as contemplated by Business Court Rule 5, Defendant unilaterally redacted portions of the affidavits it filed in an attempt to “avoid additional motions practice regarding sealing.”

The Court, sua sponte, held that this was procedurally improper and if allowed, would prevent the Court from performing its gatekeeper role of protecting the public interest by keeping court records open to inspection of the public. The determination of whether documents should be filed under seal is within the discretion of the trial court. Therefore, the Court order that Defendant file a motion to seal and file unredacted version of the documents provisionally under seal pending the Court’s ruling on Defendant’s motion to seal.

DS & T II, Inc. v. D & E Tax & Accounting, Inc., 2023 NCBC Order 6 (N.C. Super. Ct. Jan. 25, 2023) (Earp, J.)

Key Terms: attorneys’ fees; N.C.G.S. § 1D-45; punitive damages; frivolous; N.C.G.S. § 6-21.5; absence of a justiciable issue; Rule 11

This litigation involved the business relationship between two accountants, Mohamed Elbahrawi and the late Julio Dibbi. Plaintiffs consist of a corporation owned and operated by Dibbi during his lifetime and his executor, Somerville, who is also the trustee of his testamentary trust. Plaintiffs asserted nine causes of action based on Elbahrawi’s allegedly improper use of Dibbi’s client list and other business assets. Defendants’ motion to dismiss the complaint in its entirety was previously granted and Defendants then moved for attorneys’ fees under various statutes.

The Court granted the motion for attorneys’ fees under N.C.G.S. § 6-21.5 based on Plaintiffs’ persistence in litigating their claims despite notice that the claims were untimely or otherwise unsupported by law.

The Court also granted the motion for attorneys’ fees under N.C.G.S. § 1D-45, concluding that Plaintiffs’ claim for punitive damages was frivolous.

Finally, the Court granted the Rule 11 motion to the extent it was based on the failure of Plaintiffs’ counsel to investigate the facts regarding Plaintiff Somerville’s standing as executor and trustee. However, the Court, in its discretion, otherwise denied the Rule 11 motion, concluding that Plaintiffs’ counsel genuinely believed that the pleadings were well-grounded in fact and law and that the fees awarded under § 6-21.5 and § 1D-45 were sufficient to remedy the harm done.

Accordingly, the Court ordered Plaintiffs’ counsel to pay the reasonable attorneys’ fees incurred by Defendants regarding the standing issue and ordered Plaintiffs to pay the remaining reasonable attorneys’ fees incurred regarding the claims asserted in the amended complaint.

Campbell Sales Grp., Inc. v. Niroflex by Jiufeng Furniture, LLC, 2023 NCBC ORDER 7 (N.C. Super. Ct. Jan. 23, 2023) (Davis, J.)

Key Terms: summary judgment; breach of contract; damages; pre-judgment interest

The Court had previously granted summary judgment in Defendants’ favor on Defendants’ counterclaims for breach of contract. Following the Court’s decision, the Court ordered the parties to submit supplemental briefs addressing damages. In their supplemental briefing, the parties’ only material dispute was concerning the applicable date of breach for the purpose of calculating pre-judgment interest.

Defendants argued that the applicable date of breach could be determined by the invoices submitted to the Court, which reflected the estimated date of shipment for unpaid products. Plaintiff argued that Defendants failed to satisfy its burden at the summary judgment stage, based on the fact that the evidence did not reflect that the products were actually shipped on the date of the invoice. Thus, Plaintiff requested that the Court exercise its discretion to use the filing date of Defendants’ counterclaims as the date upon which interest began to accrue.

The Court rejected Plaintiff’s argument, noting that Plaintiffs had not offered any evidence that would tend to show that the estimated shipping dates contained on Defendants’ invoices were inaccurate. Finding that Defendants had satisfied their burden of proof, the Court ordered that pre-judgment interest would be applied from the date of the estimated shipment contained in Defendants’ invoices.

By Rachel E. Brinson, Natalie Kutcher, and Ashley B. Oldfield

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at 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 02/01/23

N.C. Business Court Opinions, January 4, 2023 – January 17, 2023

IQVIA, Inc. v. Cir. Clinical Sols., Inc., 2023 NCBC 1 (N.C. Super. Ct. Jan. 6, 2023) (Conrad, J.)

Key Terms: restrictive covenants; tortious interference with contract; unfair and deceptive trade practices; motion to dismiss; failure of consideration; evidence outside the pleadings; choice of law; public policy

This action arises after a high-level employee of IQVIA, Inc., Dana Edwards, left IQVIA and joined Circuit Clinical Solutions as its Chief Commercial Officer. IQVIA complains that Circuit Clinical induced Edwards to breach her noncompete and nondisclosure obligations to IQVIA. Circuit Clinical moved to dismiss arguing that the terms of the noncompete and nondisclosure agreement were unenforceable due to a failure of consideration.

Circuit Clinical argued that each of the alleged bases for consideration for Edwards’ noncompete agreement—continued employment, continued access to confidential information, and an equity award of restricted stock units—was illusory under North Carolina law. Although, the noncompete and nondisclosure agreement contained a Delaware choice of law provision, Circuit Clinical argued that the Court should instead apply North Carolina law for public policy reasons. To show that the equity award was illusory consideration under North Carolina law, Circuit Clinical offered a document titled “Award Agreement.” The Court declined to consider this outside document, which was neither the subject of nor referred to in the complaint, noting the fundamental rule that evidence outside the pleadings cannot be considered on a Rule 12(b)(6) motion. Nothing within the complaint itself suggested the equity award was illusory under Delaware or North Carolina law.

Regarding the choice of law argument, the Court held that, even assuming that application of Delaware law would be contrary to the public policy of North Carolina, Circuit Clinical had failed to show that North Carolina had a materially greater interest in the issue than Delaware and that North Carolina law would apply absent the choice of law provision, both requisite determinations which were better suited for summary judgment. Accordingly, the Court denied Circuit Clinical’s motion to dismiss.

Merrell v. Smith, 2023 NCBC 2 (N.C. Super. Ct. Jan. 11, 2023) (Robinson, J.)

Key Terms: summary judgment; insider information; breach of fiduciary duty; fraud by omission and concealment; fraud in the inducement; constructive fraud; negligent misrepresentation; North Carolina securities fraud; civil conspiracy

These cases arose out of an alleged fraudulent scheme carried out by Richard Siskey with the assistance of Defendants Mike and Jennifer Smith. Plaintiffs, former members of Carolina Beer & Beverage Group, LLC (“CBB”), brought suit alleging that Mike Smith, co-founder and holder at all times of at least 50% of the membership interests in CBB, and his wife, Jennifer Smith, shared insider information with Siskey, thereby enabling Siskey to purchase Plaintiffs’ interests, and then profit greatly from the merger of CBB nearly three years later in 2010.

After extensive discovery, the Smiths moved for summary judgment seeking dismissal of all remaining claims against them. For the following reasons, the Court granted the motions, dismissing with prejudice all claims against the Smiths.

Breach of Fiduciary Duty: Managers of an LLC owe fiduciary duties to the LLC, not its members. Plaintiffs did not bring a derivative claim on behalf of CBB alleging that Mike Smith breached his fiduciary duties as a manager. Members of an LLC also do not generally owe fiduciary duties to each other. The Court found it unlikely that any exception to this general rule applied to Mike Smith and even if he did owe fiduciary duties to the other members, the evidence did not support a breach of those duties. Jennifer Smith as a 1099 employee of CBB also did not meet the exceptional circumstances that must exist to create a fiduciary relationship between her and CBB’s members.

Fraud by Omission and Concealment: Fraud by omission and concealment can only arise when the plaintiff establishes that the defendant had a duty to disclose material information to plaintiff, or otherwise had a duty to speak. The Court found that Plaintiffs had failed to forecast any evidence demonstrating that Jennifer Smith had a duty to speak. Plaintiffs’ claim for fraud by omission and concealment against Mike Smith also failed because (1) any underlying breach of fiduciary duty claims had been dismissed, and (2) Mike Smith, in an October 1, 2007 letter to all CBB’s members, and prior to the sale to Siskey of any of Plaintiffs’ interests, disclosed and discussed the subject of a potential sale of CBB. Plaintiffs offered no evidence of other material information that Mike Smith may have disclosed to Siskey but not to them.

Fraud in the Inducement: Fraud in the inducement requires a false representation or concealment of material fact reasonably calculated to deceive made with the intent to deceive. The Court found that here Mike Smith disclosed substantially the same information to Siskey and to Plaintiffs prior to the sale of any of Plaintiffs’ interests and, moreover, Mike Smith and CBB demonstrated their transparency by informing all members of the potential sale via the October 1 letter. Plaintiffs also made no effort to discover the truth through reasonable diligence.

Constructive Fraud: A claim for constructive fraud requires plaintiffs to forecast evidence showing a relationship of trust and confidence and that the defendant took advantage of that position of trust in order to benefit himself. As to Jennifer Smith, the Court held that since it already found no fiduciary duty between her and Plaintiffs existed, that no position of trust and confidence existed either. Plaintiffs’ claims against Mike Smith failed, regardless of whether or not they could demonstrate a position of trust and confidence existed, because Plaintiffs offered no evidence that the Mike Smith benefited himself through his alleged misconduct.

Negligent Misrepresentation: Again, Plaintiffs failed to demonstrate that they justifiably relied on any alleged misrepresentations made by the Smiths as evidenced by their failure to investigate or inquire about any such misrepresentations related to CBB or its potential sale.

North Carolina Securities Fraud: Plaintiffs’ claims for securities fraud were barred by the applicable statute of limitations—no later than five years after the sale or contract of sale. The last sale of a Plaintiff’s membership interest in CBB was made in March 2008. The first lawsuit was not commenced until 2019.

Civil Conspiracy: Civil conspiracy is not an independent cause of action. Because all underlying claims of unlawful conduct against the Smiths were dismissed, none remained to support a claim for civil conspiracy. Moreover, Plaintiffs offered no evidence of an agreement between the Smiths and Siskey to engage in unlawful conduct.

McGriff Ins. Servs., Inc. v. Hudson, 2023 NCBC 3 (N.C. Super. Ct. Jan. 17, 2023) (Earp, J.)

Key Terms: motion to amend; motion to dismiss; employment agreement; restrictive covenants; interference with business; justifiable interference; misappropriation of trade secrets; UDTP; non-solicit; blue pencil

In this case, Plaintiff McGriff Insurance Services brought suit against Hudson (a former employee) and One Digital, Hudson’s new business, based on Hudson’s alleged violations of non-solicitation provisions in his employment agreement with McGriff. Hudson counterclaimed, contending that McGriff has interfered with his new business. Before the Court were Defendants’ motions to dismiss the complaint, Plaintiff’s motion to dismiss the counterclaims, and Plaintiff’s motion to amend the complaint to add Stetson, another former McGriff employee.

Hudson argued that the restrictive covenants are unenforceable against him and Stetson due to lack of consideration and because they are not sufficiently tailored to protect McGriff’s legitimate business interests. The Court disagreed and found that Hudson’s original offer of employment was sufficient to support continuing non-solicit obligations because the employment relationship renewed automatically each year and thus the contractual relationship between the parties was never broken. Regarding the breadth of the non-solicit provisions, the Court found that the employee non-solicit was narrowly drawn to protect McGriff’s legitimate interests, but that the customer non-solicit was partially overbroad due to potentially unrestricted time and the breadth of business activities covered. However, because the troublesome clause was distinctly separable, the Court exercised its discretion to blue pencil the provision so that it would be reasonably tailored to protect McGriff’s legitimate interests.

The Court granted McGriff’s Motion for Leave to Amend Complaint with respect to its breach of contract claim as to Hudson and denied Defendants’ corresponding motions to dismiss McGriff’s breach of contract claim with respect to the Hudson Employment Agreement.

As to Plaintiff’s Motion to Amend to add Defendant Stetson, the Court reviewed Stetson’s employment contract. Again, Defendants argued lack of consideration for the non-solicitation provisions of Stetson’s contract because she merely became eligible to receive an alleged discretionary bonus in exchange for agreeing to the restrictive covenants. The Court found that although Stetson’s contract omits a description of the bonus plan, there is no indication that such a plan did not yet exist, or that the bonus was discretionary. Consequently, the Court found that McGriff adequately pled that consideration in the form of eligibility for a bonus exists. The Court blue penciled the same language out of Stetson’s agreement and granted McGriff’s motion to amend its complaint to add a breach of contract claim against Stetson.

The Court found that the allegations of McGriff’s proposed amended complaint were sufficient to state a claim for misappropriation of trade secrets against all three defendants because despite Defendants’ arguments, McGriff does not have to prove that the listed documents and information constitute trade secrets. It must merely allege what it contends constitutes a trade secret sufficiently to allow the Defendants to understand that which they are accused of misappropriating. Additionally, McGriff alleges that Hudson, with the help of Stetson, has disclosed and used the trade secrets to benefit OneDigital, which in turn gave OneDigital an unfair competitive advantage. The Court held that these allegations were sufficient to survive both a Rule 12(b)(6) sufficiency challenge and a futility challenge under Rule 15. The Court granted Plaintiff’s motion to amend the misappropriation of trade secrets claim and denied Defendants’ corresponding motions to dismiss.

As to the tortious interference with contract claims, the Court focused on the fourth element of such a claim, whether Defendants had legal justification for allegedly inducing Hudson and Stetson to violate their contracts. The Court notes that competition in business constitutes justifiable interference in another’s business relations and is not actionable so long as it is carried on in furtherance of one’s own interests and by means that are lawful. However, if the Defendants were found to have misappropriated Plaintiff’s trade secrets, then the interference would be unlawful and unjustifiable. The Court granted Plaintiff’s motion to amend the tortious interference with contract claim and denied Defendants’ corresponding motions to dismiss.

The Court held that the from the face of the proposed amended complaint, it was not possible to discern whether McGriff alleges that it was deprived of contractual relationships that would otherwise have occurred but for Hudson’s alleged interference. Therefore, to the extent McGriff’s motion to amend sought to assert a claim for tortious interference with respect to the pharmacy proposals, it was denied. The motion to amend as to tortious interference with prospective business relations was otherwise granted and the Defendants’ corresponding motions to dismiss were denied.

Because the tortious interference and misappropriate claims survived, McGriff’s unfair and deceptive trade practices claims survived as well.

In his counterclaims for tortious interference with prospective economic advantage and unfair trade practices, Hudson alleged that a McGriff executive represented to a customer that Hudson had a non-compete and therefore the customer stayed with McGriff. The Court held that the issue is whether the executive’s statement was protected by the competitor privilege and thus, the counterclaims’ survival depends on whether the customer non-solicitation provision in Hudson’s Employment Agreement is, in fact, enforceable. Accordingly, the Court denied Plaintiff’s motion to dismiss Defendants’ counterclaims.

Winner’s Mktg., Inc. v. Cavazos, 2023 NCBC Order 1 (N.C. Super. Ct. Jan. 6, 2023) (Bledsoe, C.J.)

Key Terms: motion to exclude expert testimony; Rule 702; grey games; Daubert standard; gaming law; judicial appraisal

Plaintiffs are two entities, identically named, but formed in different states, North Carolina and Delaware. In June 2021, the Plaintiffs merged, with the Delaware corporation being the surviving entity. Defendant dissented to the merger and objected to surviving Delaware-organized Plaintiff’s valuation and payout of his shares in the North Carolina entity. Plaintiffs filed the present action seeking a judicial appraisal of the fair market value of Defendant’s shares.

Plaintiff produces and leases gaming devices that are unregulated and of unsettled legality in some states including North Carolina and Texas, from which the majority of Plaintiff’s revenue derives. In unregulated markets, such gaming devices are known as “grey games.” Plaintiff retained an expert witness, Jenson, to opine on the industry risk to grey games and thus assist in the valuation of the Defendant’s shares as of the merger date. Defendant moved to exclude Jenson as an expert witness and to strike his expert report and testimony.

Defendant challenged Jenson’s testimony and opinions under Rules of Evidence 702, 401, 402, and 403. After conducting a fact-specific analysis and application of the Daubert test, the Court held that Jenson’s testimony and report satisfied the first two prongs of the Daubert test and exercised its discretion to rule on the reliability of Jenson’s testimony following the presentation of evidence at trial. The Court also held that Jenson’s report was not duplicative or contradictory to another of Plaintiffs’ expert witnesses. The Court held that Jenson will be permitted to testify at trial and permitted Defendant to designate one additional rebuttal expert witness at trial. The Court deferred further ruling on the motion until at or after trial.

Bradshaw v. Maiden, 2022-NCCOA-917 (Jackson, J.)

Key Terms: N.C.G.S. 7A-27(a)(2); effective date; 12(b)(6); matters outside the pleadings; summary judgment; gross negligence; negligence misrepresentation; Securities Act secondary liability

This suit commenced in 2014 when Plaintiffs—several investors in a hedge fund run by Defendant Maiden—brought suit against Maiden, Maiden Capital, LLC, and SS&C (the fund’s administrator) for claims arising out of Plaintiffs’ injuries from investing in the fund. In 2015, the Business Court granted a 12(b)(6) dismissal, in part, of Plaintiffs’ claim against SS&C for gross negligence. In 2020, the Business Court granted summary judgment to SS&C on Plaintiffs’ remaining claims. Once the remaining claims involving the other parties were disposed of, Plaintiffs appealed the orders dismissing their claims against SS&C.  Appeal to the Court of Appeals rather than the Supreme Court was appropriate because the action was designated as a mandatory complex business case prior to the effective date of the amendments to N.C.G.S. [section] 7A-27(a)(2), which provide a direct right of appeal to the Supreme Court from a judgment of the Business Court.

On appeal, the Court affirmed for the reasons stated in the orders of the Business Court.

In a lengthy separate opinion, Judge Murphy concurred in affirming dismissal of Plaintiff’s claims for grossly negligent misrepresentation, civil conspiracy, and aiding and abetting constructive fraud, but dissented as to the majority’s affirmance of dismissal of the claims for negligence, gross negligence, negligent misrepresentation, Securities Act secondary liability, and punitive damages.

By Rachel E. Brinson and Ashley B. Oldfield

To subscribe to RCD’s Business Court Blast, email Ashley Oldfield at 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 01/18/23