Archive for the ‘Business Court Blast’ Category
By: Ashley Oldfield, Rachel Brinson, and Natalie Kutcher
Rockingham Cnty. v. NTE Energy, LLC, 2024 NCBC 23 (N.C. Super. Ct. April 15, 2024) (Davis, J.)
Key Terms: motion to dismiss; 12(b)(6); 12(b)(2); deferred ruling; piercing the corporate veil; civil conspiracy; facilitation of fraud; fraudulent inducement; account stated; promissory estoppel; attachment; joint enterprise; Rule 9(b)
Plaintiff Rockingham County’s amended complaint asserted thirteen claims relating to certain contracts between it and Defendant NTE Carolinas II, LLC (“Carolinas”), including claims for declaratory judgment and breach of contract solely against Carolinas, and for piercing the corporate veil, civil conspiracy/facilitation of fraud, and fraudulent inducement against all Defendants pursuant to a joint enterprise theory. Defendants moved to dismiss some or all of the County’s claims pursuant to Rules 12(b)(2) and 12(b)(6). In its discretion, the Court deferred ruling on Defendants’ 12(b)(2) motions and instead analyzed their 12(b)(6) motions.
Piercing the Corporate Veil. The Court found that the County failed to sufficiently allege the elements of piercing the corporate veil or joint enterprise liability because it did not allege that any Defendant exercised complete control over any other or which corporate forms the Court should disregard. Moreover, the amended complaint contained no specific allegations of a right on the part of each Defendant to govern and direct the actions of all the other Defendants in furtherance of the aims of the alleged joint enterprise. In dismissing the claim, the Court emphasized that the County largely lumped the Defendants together in its allegations without meaningfully differentiating between them or alleging specific and tangible acts of wrongdoing by them.
Fraudulent Inducement. The Court dismissed the fraudulent inducement claim without prejudice as to all Defendants because the County’s broad and conclusory allegations that Defendants acted fraudulently failed to satisfy Rule 9(b)’s heightened pleading requirements.
Civil Conspiracy/Facilitation of Fraud. The Court dismissed these claims because the amended complaint’s vague allegations did not provide sufficient specificity to satisfy the claims’ pleading requirements, such as the acts committed by each of the members of the alleged conspiracy that were committed in furtherance of said conspiracy.
Account Stated. The Court found that Carolinas’ liability for the sums sought by Rockingham County remained a disputed issue, and therefore dismissed the County’s claim for account stated.
Promissory Estoppel. Reinforcing that North Carolina law does not recognize an affirmative promissory estoppel claim for relief, the Court dismissed the County’s promissory estoppel claim against Carolinas with prejudice.
Attachment. The Court dismissed the attachment claim because the County failed to file the requisite affidavit showing entitlement to the remedy of prejudgment attachment, identifying the specific property to be attached, or explaining the requested amount of property to be attached. Moreover, the County failed to make sufficient allegations as to the alleged depletion of Carolinas’ assets justifying the requested remedy.
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Yoder v. Verm, 2024 NCBC 24 (N.C. Super. Ct. April 19, 2024) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); Rule 12(b)(1); settlement agreement; declaratory judgment; lack of a justiciable controversy; subject matter jurisdiction
Plaintiff was previously involved in litigation which was resolved by a written settlement agreement. The parties to the current action, with the exception of Defendant Healthcare VII, were all signatories to the settlement agreement. Plaintiff filed the current action alleging that the settlement agreement had not been complied with, seeking a declaratory judgment regarding the parties rights and obligations under the agreement, and asserting four causes of action for breach of the agreement. Plaintiff did not assert any claims for relief against Healthcare VII, alleging instead that it was joined as a party “to ensure a complete resolution of the issues in controversy.” Healthcare VII moved to dismiss pursuant to Rule 12(b)(6).
The Court concluded that Healthcare VII should be dismissed from the action under Rule 12(b)(1) because Plaintiff had failed to allege a justiciable controversy with Healthcare VII and the Court, therefore, lacked subject matter jurisdiction. Although the settlement agreement made reference to Healthcare VII and certain actions it might need to take, Healthcare VII was not a party to the agreement and therefore was not bound by its provisions.
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BIOMILQ, Inc. v. Guiliano, 2024 NCBC 25 (N.C. Super. Ct. April 19, 2024) (Robinson, J.)
Key Terms: fiduciary duty; tortious interference; alienation of affection; loss of consortium; conversion; slander of title; defamation; trade secrets; property interference; UDTPA; false advertising; false passing off claim; fraud; fraudulent conveyance
This lawsuit arises out of a dispute between BIOMILQ and Defendants regarding certain human cell-cultured technologies and products. Defendant Guiliano and his wife, Strickland, previously formed 108Labs to explore biosynthesis of human milk and human milk immunoglobins. They subsequently began working with Counterclaim Defendant Egger and developed various intellectual property. BIOMILQ was later formed and began seeking funding. Relationships eventually deteriorated resulting in Strickland resigning from 108Labs. After BIOMILQ brought suit against Guiliano and 108Labs, they filed numerous counterclaims against BIOMILQ, as well as against new Counterclaim Defendants Egger and BEV, alleging, inter alia, that 108Labs had been divested of its intellectual property rights. BIOMILQ, Egger, and BEV (“Movants”) moved to dismiss most of the claims.
Claims against BIOMILQ only
Injunctive Relief. Since there is no standalone claim for injunctive relief in North Carolina, the Court dismissed this counterclaim without prejudice to Defendants’ ability to seek injunctive relief by motion, if appropriate.
Claims against Egger only
Breach of Fiduciary Duty. The Court dismissed this counterclaim because Defendants did not allege facts that supported a contention that Egger owed Defendants a fiduciary duty. Although Defendants argued that Egger owed a fiduciary duty as a “partner” with 108Labs, a careful review of the allegations showed that Defendants described Egger as an interloper into 108Labs’ affairs, not a partner.
Tortious Interference with Contract . This counterclaim was dismissed because the allegations failed to satisfy the pleading requirements for the fourth element of the claim–acting without justification. Defendants alleged only generally that Egger had no motive other than malice. Moreover, the counterclaim expressly provided a basis for Egger’s actions: competition.
Breach of Contract. Although Defendants adequately alleged a claim for breach of contract against Egger, the allegations demonstrated that the claim was time barred. The statute of limitations ran in March 2023, which was one month before Egger and BEV were added as third-party defendants.
Alienation of Affection. The Court dismissed this counterclaim due to Defendants’ failure to allege malicious conduct by Egger designed to alienate the affections of Guiliano’s wife. Defendants’ allegations focused only on Strickland and Egger’s business dealings and did not suggest that Egger was the cause of the dissolution of Strickland and Guiliano’s marriage.
Claims against BIOMILQ and Egger
Declaratory Relief. The Court dismissed this counterclaim as to Egger because it made no mention of her and, therefore, presented no actual controversy between her and 108Labs. The Court allowed the counterclaim to proceed as to BIOMILQ, because, although the allegations were not entirely clear, the Court was able to identify an existing controversy between Defendants and BIOMILQ regarding the ownership of certain intellectual property.
Constructive Fraud. The Court dismissed this counterclaim because Defendants made no allegations regarding BIOMILQ owing anyone a fiduciary duty and, as already determined above, Defendants alleged no cognizable basis on which Egger owed a fiduciary duty to them.
Conversion. This counterclaim failed to the extent it was based on intangible interests, such as trademarks and other intellectual property, because North Carolina does not recognize a claim for conversion of intangible interests. Regarding the tangible materials, the Court allowed the counterclaim to proceed as to BIOMILQ, but dismissed it as to Egger because the only allegation regarding her was alleged in a conclusory fashion and was contradicted by other allegations.
Slander of Title. The Court dismissed this counterclaim because a slander of title claim only applies to statements made regarding real property and thus was inapplicable to the patents and trademark rights at issue here.
Defamation. Defendants asserted a defamation counterclaim based on statements from February 2020 and 21 March 2021. Because the action was not initiated against Egger until April 2023, the counterclaim against her was time-barred by the one year statute of limitations for a defamation claim. However, because the counterclaims against BIOMILQ were deemed filed as of 4 March 2022, the counterclaim survived with regard to the statements made on 21 March 2021 but failed as to the February 2020 statements.
Claims against Movants
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ right to pursue the remedy on any surviving claims, if applicable.
Fraudulent Conveyance. This counterclaim concerned Strickland’s assignment of her interest in certain intellectual property to BIOMILQ. The Court dismissed this counterclaim because 1) Defendants did not allege the existence of a creditor-debtor relationship as required by N.C.G.S. § 39-23.4(a)(1); and 2) the allegations did not satisfy the pleading requirements of Rule 9(b).
Misappropriation of Trade Secrets. Defendants asserted that Movants had shared trade secret information with third-parties on or before March 20, 2020. Accordingly, the claim was time barred by the three-year statute of limitations as to Egger and BEV since the action was not initiated against them until April 2023. However, the counterclaim was otherwise minimally sufficient to meet the requirements of alleging the existence of a trade secret and efforts to maintain secrecy and therefore survived as to BIOMILQ.
Federal Misappropriation of Trade Secrets. This counterclaim was dismissed as to Egger and BEV because it was time-barred. It was also dismissed as to BIOMILQ because it did not sufficiently allege that the trade secrets implicated interstate or foreign commerce as required by the Defend Trade Secrets Act.
False Designation of Origin. This counterclaim, which equated to a reverse passing off claim under the Lanham Act, failed because Defendants did not allege that the ideas in question had been reduced to the actual production and sale of a product or good.
False Advertising. The Court dismissed this counterclaim because Defendants failed to identify a commercial, physical product or a statement made by any Movant that amounted to a commercial advertisement.
Fraud. This counterclaim was dismissed because it failed to allege one or more of the elements with the requisite particularity as to each Movant.
Civil Conspiracy. This counterclaim failed because Defendants’ allegations that Movants undertook unlawful acts in a “combined effort” was insufficient to satisfy the required allegation that Movants had an agreement.
Unjust Enrichment. The Court dismissed this counterclaim because, although Defendants alleged that Movants had received benefits, they did not allege that Defendants had conferred any benefit on Movants, a required element of the claim.
Loss of Consortium. A loss of consortium claim can only be maintained if it is joined with a suit the other spouse may have instituted to recover for personal injuries. Since Guiliano had not alleged an underlying personal injury claim that Strickland could have made, the Court dismissed the counterclaim.
Punitive Damages. Because a claim for punitive damages is not a standalone claim, the Court dismissed this counterclaim, but did so without prejudice to Defendants’ ability to seek punitive damages as a remedy.
Property Interference. The Court dismissed this counterclaim because Defendants failed to allege that Movants received stolen property, a required element of a claim under the applicable statute, N.C.G.S. § 99A-1.
Violation of the UDTPA. Defendants’ UDTPA claim appeared to be based on its claims for misappropriation of trade secrets, conversion, tortious interference with contract, and fraud. Because all of those claims had been dismissed as to Egger and BEV, the Court also dismissed the UDTPA claim against them, except to the extent it was based on the conduct underlying the misappropriation of trade secrets claim because such conduct could potentially support a claim for violation of the UDTPA against Egger since a UDTPA claim has a four-year statute of limitations. The claim also survived against BIOMILQ to the extent that the underlying claims survived against BIOMILQ.
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Griffin v. Advisors Fin. Ctr., L.L.P., 2024 NCBC 26 (N.C. Super. Ct. April 22, 2024) (Bledsoe, C.J.)
Key Terms: partnership; goodwill; estate; intangible interest; conversion
Defendant Neal Griffin and his brother Chris Griffin formed and operated Defendant Advisors Financial Center pursuant to a limited liability Partnership Agreement. After Chris Griffin passed away, his Estate brought suit against Defendants, alleging claims for breach of fiduciary duty against Neal and for breach of contract and conversion against both Defendants, based on Neal’s purported failure to comply with the Partnership Agreement by failing to purchase Chris’s interest or liquidate the Partnership “as a whole,” including goodwill. Defendants moved for partial judgment on the pleadings.
Defendants argued that the Estate could not recover for their failure to account for goodwill in determining the value of the Partnership’s assets upon liquidation or sale because, as a professional partnership, the Partnership did not have goodwill that survived Chris’s death. In response, the Estate argued that it was not a professional partnership because 1) it was organized as a limited liability partnership; and 2) financial services are not listed as a licensed professional service in the Professional Corporation Act. The Court found both of these arguments unpersuasive. Nevertheless, the Court was unable to determine as a matter of law at this stage that the Partnership was a professional partnership whose reputation rested solely on the individual skill of the two partners. The Estate alleged that the Partnership had an internal team; thus, a factfinder could conclude that the Partnership’s reputation was based, at least in part, on the skill of the internal team members and not just that of the two partners. Accordingly, the Court denied the motion to the extent it sought judgment on the Estate’s claims for goodwill.
The Court dismissed with prejudice the Estate’s conversion claim, which was based on Defendants’ allegedly converting the Estate’s interest in the partnership. Both a partnership interest and contract rights under the Partnership Agreement are intangible interests which cannot form the basis for a conversion claim.
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Elior, Inc. v. Thomas, 2024 NCBC 27 (N.C. Super. Ct. Apr. 22, 2024) (Earp, J.)
Key Terms: breach of contract; restrictive covenants; noncompete; nonsolicit; blue pencil rule; implied covenant of good faith and fair dealing; conversion; choice of law; lex loci; Trade Secret Protection Act; UDTPA
Defendant worked in business development for Plaintiff, a corporation operating in the food service management industry for schools. After Defendant resigned and became employed by one of Plaintiff’s competitors, Plaintiff sued Defendant asserting a number of claims arising from Defendant’s purported breach of certain covenants in his employment agreement. Defendant moved to dismiss Plaintiff’s claims pursuant to Rules 12(b)(1) and 12(b)(6).
Breach of Contract. As the last party to sign Defendant’s employment agreement was located in North Carolina, the Court determined that North Carolina law applied. The Court rejected Defendant’s argument that the employment agreement was not supported by consideration because even though the agreement was signed after Defendant’s employment began, Plaintiff alleged that Defendant received additional consideration at the time the employment agreement was signed.
Defendant moved to dismiss Plaintiff’s claim for breach of the employment agreement’s confidentiality provisions under Rule 12(b)(6). The Court denied Defendant’s motion, based on Plaintiff’s allegations that Defendant had emailed himself documents containing confidential information and had used the confidential information to “undercut Plaintiff’s contract terms” with its current customers.
Defendant likewise moved to dismiss Plaintiff’s claim for breach of the employment agreement’s noncompetition provision, contending that the provision was overbroad and unenforceable. The Court rejected this argument and denied the motion, noting that the restriction was for a 12-month period and only applied to territories linked to Defendant’s former duties.
The Court also denied Defendant’s motion to dismiss Plaintiff’s claim for breach of the employment agreement’s nonsolicitation provision. However, the Court determined that the provision, as written, was impermissibly broad, as it prohibited solicitation of any of Plaintiff’s current or prospective customers. The Court applied the blue pencil doctrine to narrow the provision, resulting in a restriction against soliciting customers Defendant performed work for in the 24 months preceding his resignation.
Breach of the Covenant of Good Faith and Fair Dealing. Plaintiff alleged that Defendant’s purported violations of the employment agreement constituted a breach of the covenant of good faith and fair dealing. The Court noted that, when based upon the same actions as a breach of contract claim, the fate of an implied covenant claim is inextricably linked to the success of the underlying breach of contract claim. As the breach of contract claim survived dismissal, the Court denied Defendant’s motion to dismiss Plaintiff’s breach of implied covenant claim as well.
Conversion. The Court dismissed Plaintiff’s conversion claim without prejudice, as Plaintiff did not allege that the emails forwarded by Defendant to himself were deleted or that Plaintiff was otherwise deprived of the emails and documents.
Violation of the NCTSPA. Defendant moved to dismiss Plaintiff’s NCTSPA claim, arguing that under the lex loci test, Illinois law governed the claim, rather than North Carolina law. The Court agreed and dismissed the claim without prejudice, noting that Plaintiff failed to allege any fact which would support the inference that the last act giving rise to the injury occurred anywhere other than Illinois.
Violation of the UDTPA. This claim failed to the extent it was based on the dismissed misappropriation of trade secrets claim. It also failed to the extent it was based on any breach of the confidentiality provisions in the employment agreement because any resulting injury was sustained in Illinois (where the last act had occurred) and, therefore, the North Carolina UDTPA did not apply.
Tortious Interference with Prospective Economic Advantage. Applying Illinois law under the lex loci rule, the Court determined that Plaintiff had not adequately pleaded the “reasonable expectancy” element of the claim and therefore dismissed it.
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Pathos Ethos, Inc. v. BrainTap Inc., 2024 NCBC Order 29 (N.C. Super. Ct. April 16, 2024) (Davis, J.)
Key Terms: Rule 22(b); interplead escrowed funds; clerk of court
The parties filed a joint motion requesting that the Court allow Defendant Ward & Smith to interplead escrowed funds pursuant to Rule 22(b) of the North Carolina Rules of Civil Procedure. Ward & Smith was holding the funds in escrow pursuant to an escrow agreement which tasked Ward & Smith with releasing the funds to Plaintiff once certain conditions were met, but also authorized Ward & Smith to deposit the funds with the clerk of superior court if in doubt regarding the proper course of action with respect to the funds. Because the proper disposition of the funds was at issue in the current lawsuit, the Court granted the motion, directed the clerk of superior court to accept the funds, and, upon payment to the clerk, dismissed Ward & Smith from the suit.
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Radiance Cap. Receivables Eighteen, LLC v. Roberts, 2024 NCBC Order 30 (N.C. Super. Ct. April 17, 2024)
Key Terms: order on designation; determination order; piercing the corporate veil; N.C.G.S. § 7A-45.4(a)(1)
Plaintiff brought suit asserting claims for civil conspiracy by fraudulent conveyance and piercing the corporate veil arising from Defendant Thomas’s alleged attempts to shield certain real estate from a South Carolina judgment. Defendant BPIM, LLC filed a notice of designation asserting that designation was proper under N.C.G.S. § 7A-45.4(a)(1), based on the veil piercing claim. The Court, however, concluded that the action was not properly designated as a mandatory complex business case because a veil piercing claim, standing alone, is insufficient to support designation and Plaintiff’s claims did not otherwise implicate the law governing LLCs.
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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 04/24/24
By: Rachel E. Brinson
Atl. Coast Conf. v. Bd. of Trs. of Fla. State Univ., 2024 NCBC 21 (N.C. Super. Ct. April 4, 2024) (Bledsoe, C.J.)
Key Terms: Atlantic Coast Conference; Florida State University; ESPN; motion to dismiss; motion to stay; media rights agreements; 12(b)(1); 12(b)(2); 12(b)(6); 12(b)(7); declaratory judgment; breach of contract; standing; condition precedent; sovereign immunity; confidential information; breach of fiduciary duty; breach of implied duty of good faith; first to file
Following months of rumblings that Florida State University was considering leaving the Atlantic Coast Conference because it believed it was entitled to an unequal distribution of revenue from the ACC, and upon learning that FSU’s Board of Trustees (“FSU”) intended to file a lawsuit the next day to challenge the enforceability of two media rights agreements (the “Agreements”) between the ACC and its members, the ACC filed this action in Mecklenburg County seeking a judicial determination that the Agreements were valid and enforceable and a declaration that FSU is estopped from challenging or has waived any right to challenge the Agreements by accepting the benefits thereunder. FSU filed suit against the ACC in Florida the following day, allegedly breaching the Agreements. Thereafter, the ACC amended its complaint to assert additional claims for monetary relief. FSU moved to dismiss the amended complaint under Rules 12(b)(1), 12(b)(2), 12(b)(6), and 12(b)(7), or, alternatively, to stay the case in favor of the pending Florida action.
12(b)(1) and 12(b)(2)
FSU challenged the ACC’s standing to bring suit based on (1) lack of a justiciable controversy, (2) failure to satisfy a condition precedent, and (3) sovereign immunity. The Court found that a justiciable controversy existed because at the time of filing, FSU’s initiation of litigation over the Agreements was unavoidable and a practical certainty and FSU presented no evidence to the contrary. The Court also rejected FSU’s contention that the ACC failed to plead that it had taken all necessary steps prior to bringing suit because the ACC was required only to “make an affirmative averment showing its legal existence and capacity to sue,” which it did. The Court also found that the ACC Board of Directors’ ratification of the initiation of the lawsuit cured any alleged defect in the ACC’s authorization to bring suit. Lastly, the Court concluded that although FSU was entitled to sovereign immunity as part of the executive branch of the state government, it had explicitly waived its sovereign immunity to suit in North Carolina by choosing to be a member of a North Carolina unincorporated nonprofit association subject to the Uniform Unincorporated Nonprofit Association Act and its sue and be sued clause and by engaging in extensive commercial activity in North Carolina. For each of these reasons, the Court denied the motion to dismiss under Rules 12(b)(1) and 12(b)(2).
12(b)(7)
FSU also argued that the action should be dismissed for failure to join Florida State University as a necessary party. However, since “Florida State University” has no independent corporate existence and since Florida courts have held that the FSU Board is the proper party to answer claims against “Florida State University,” the Court denied the motion to dismiss pursuant to Rule 12(b)(7).
12(b)(6)
Breach of Agreements. The ACC alleged that, by initiating the Florida Action, FSU breached its obligation under the Agreements. In response, FSU did not challenge that it breached the Agreements but instead contended that it never entered into the Agreements in the first place. The Court, however, concluded that the ACC had sufficiently pleaded that FSU approved the execution of both Agreements and should be estopped from challenging the Agreements by its conduct in accepting the benefits of the Agreements for years without protest. Thus, the Court denied the motion to dismiss the claim for breach of the Agreements.
Declaratory Judgment Claims. The ACC sought a judicial declaration that (i) the Agreements were valid and enforceable contracts; and (ii) FSU was estopped from making or has waived by its conduct any challenge to the Agreements. FSU sought dismissal of these claims on the same basis that it sought dismissal of the ACC’s breach of contract claim. Because the Court concluded that the ACC’s claim for breach of the Agreements should survive, the Court also allowed the ACC’s declaratory judgment claims to proceed.
Breach of Obligation to Protect Confidential Information. FSU next sought to dismiss the ACC’s claim that FSU breached its obligation to keep confidential the terms of certain ESPN Agreements by disclosing some of those terms at its December 22, 2023 meeting and by publicly filing the complaint containing some of those terms in the Florida Action. FSU argued that it was never a party to the ESPN Agreements and had not entered into any confidentiality agreement with the ACC, and, furthermore, that FSU does not owe any duties to the ACC beyond those reflected in the ACC’s Constitution and Bylaws. The Court found that the ACC had alleged that it made a legally binding, conditional offer to FSU, which FSU accepted by its counsel’s reviewing the agreements, and thus, although FSU was not a party to the ESPN Agreements or the confidentiality provisions contained therein, the ACC sufficiently pleaded at least an implied-in-fact contract between the ACC and FSU to maintain the confidentiality of the terms of the ESPN Agreements as well as FSU’s breach thereof. Accordingly, the Court denied the motion to dismiss this claim.
Breach of Fiduciary Duties Owed by FSU to the ACC. FSU next sought dismissal of the ACC’s claim that FSU has breached, and continued to breach, its fiduciary obligations to the Conference under the ACC’s Constitution and Bylaws as well as under North Carolina law. The Court determined that the UUNAA does not contain provisions imposing fiduciary duties on members of an unincorporated nonprofit association, and an unincorporated nonprofit association does not qualify as a joint venture preventing the ACC from establishing the existence of a de jure fiduciary relationship with FSU under a joint venture theory. The Court also found that the ACC had not alleged sufficient facts to establish either the existence of a de facto fiduciary relationship or a contractual imposition of fiduciary duties under the ACC’s Constitution and Bylaws. The Court therefore dismissed with prejudice the ACC’s claim for breach of fiduciary duty.
Breach of Implied Duty of Good Faith and Fair Dealing. Finally, FSU sought dismissal of the ACC’s claim for breach of the implied duty of good faith and fair dealing under the ACC’s Constitution and Bylaws. The Court found that the ACC sufficiently alleged the existence of a valid contract (the ACC’s Constitution and Bylaws), breach of the same by FSU, and that FSU’s actions violated its duty to deal in good faith with the ACC. Thus, the Court denied the motion to dismiss the ACC’s claim against FSU for breach of its obligation of good faith and fair dealing.
Motion to Stay
FSU moved in the alternative to stay this first-filed action under N.C.G.S. § 1-75.12 in favor of its second-filed Florida Action because the Florida Action was more comprehensive, and in the true proper forum for this case, and also because the ACC deserved no first-filing deference as a result of its improper forum shopping. The ACC responded that a North Carolina court, not a Florida court, should determine the claims of a North Carolina organization concerning the validity and breach of contracts governed by North Carolina law and further that FSU had failed to offer any evidence that FSU would suffer “substantial injustice” should this litigation proceed in North Carolina. The Court found that the nature of the case, the convenience of the witnesses, the relative ease of access to sources of proof, the applicable law, the burden of litigating matters not of local concern, the desirability of litigating matters of local concern in local courts, and the ACC’s choice of the North Carolina forum decisively outweighed FSU’s choice of Florida for the determination of the enforceability of the Agreements and the resolution of the ACC’s damages claims against FSU. Accordingly, the Court, in the exercise of its discretion, denied FSU’s motion to stay under section 1-75.12(a).
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Atl. Coast Conf. v. Bd. of Trs. of Fla. State Univ., 2024 NCBC 22 (N.C. Super. Ct. April 5, 2024) (Bledsoe, C.J.)
Key Terms: Atlantic Coast Conference; Florida State University; ESPN; motion to seal; confidential information; trade secrets; third-party harm; public record
The ACC sought to seal excerpts from or relating to certain agreements to which the ACC and ESPN were parties, which contained historical and prospective financial data and other material terms. The FSU Board opposed sealing arguing that (1) the agreements were public records because the terms had been shared with the ACC’s members, including nine public universities, (2) the agreements did not qualify for the trade secret exemption under North Carolina’s or Florida’s public record laws, (3) the information was already public, and (4) the ACC’s proposed redactions were overbroad and inconsistent. The ACC and ESPN opposed the FSU Board’s arguments. The ACC argued that disclosure would harm the ACC’s ability to compete with other conferences by allowing them to use the information as leverage in negotiations, thus gaining an unfair advantage.
The Court concluded that partial sealing as requested by the ACC and ESPN was appropriate for several reasons. First, financial information, pricing terms, and internal business strategies are included within the categories that North Carolina courts have treated as confidential and proprietary trade secrets that may warrant protection. Second, the ACC and ESPN contended that the terms of the Agreements were trade secrets, which N.C.G.S. § 66-156 requires the court to protect. Third, numerous other courts, when considering requests to seal these and similar agreements, have concluded that they constitute trade secrets that warrant sealing. Fourth, the privacy interests of non-party ESPN deserved special consideration and weighed in favor of sealing. The Court concluded that sealing the excerpts of the agreements and those portions of the pleadings in the North Carolina action and the Florida Action that quote from or refer to the agreements was appropriate but found that certain of the ACC’s redactions were arbitrary, inconsistent, and overbroad. Accordingly, the Court predominately granted the motions to seal but ordered the ACC to revise certain inconsistent redactions.
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 04/09/24
By: Natalie E. Kutcher and Ashley B. Oldfield
Sears Farm, LLC v. Samaritan Hous. Found., Inc., 2024 NCBC 19 (N.C. Super. Ct. Mar. 19, 2024) (Davis, J.)
Key Terms: motion to dismiss; Rule 12(b)(1); Rule 12(b)(6); motion to strike; Rule 12(f); breach of contract; covenant of good faith and fair dealing
This case arises from a series of transactions between the parties relating to the financing and construction of a retirement community. Beginning in 1998, Plaintiffs began their efforts to develop a luxury retirement community. In the early 2000’s, Plaintiffs involved Defendant Samaritan Housing Foundation, to assist with securing the requisite financing for the project and ultimately own and operate the retirement community. At some point thereafter, Plaintiffs and Defendant entered into a Site Transfer Agreement whereby Plaintiffs agreed to sell the site to Defendant once Defendant secured the financing required to complete the first phase of the project. The parties later entered into a Pre-Construction Funding and Development Agreement, which was restated and amended multiple times over the following decade (the “PCFD Agreements”). As construction of the project progressed, Defendant entered into a Master Trust Indenture with Wells Fargo (the “2012 MTI”), which purported to memorialize Defendant’s obligations to repay various parties, but which Plaintiffs did not sign. The retirement community eventually filed for bankruptcy in 2018. A settlement agreement between the parties resulted from the bankruptcy proceedings.
Plaintiffs filed suit alleging eight claims against Defendant and its president, which were eventually reduced to two claims solely against Defendant: (i) breach of contract and (ii) breach of implied covenant of good faith and fair dealing. Defendant moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6), or alternatively, to strike certain allegations relating to Defendant’s president on the grounds that the allegations were irrelevant, immaterial, and scandalous.
In support of its motion, Defendant argued that (i) any contractual obligations arising from the PCFD Agreements were nullified by the execution of the 2012 MTI; (ii) Plaintiffs failed to satisfy the requisite conditions precedent to obtain standing to assert claims under the 2012 MTI; and (iii) Plaintiffs released Defendant from any remaining obligations in the bankruptcy-related settlement agreement. In response, Plaintiffs argued that they never signed the 2012 MIT, and the release of claims in the settlement agreement did not affect their rights to pursue the claims at issue. The Court denied the motion to dismiss on the basis that the numerous agreements created “too many moving parts” and too many gaps in information to warrant a dismissal at this early stage of litigation.
The Court granted Defendant’s motion to strike to the extent it related to allegations pertaining to the six claims voluntarily dismissed by Plaintiffs, but otherwise denied it.
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Golden Triangle #3, LLC v. RMP-Mallard Pointe, LLC, 2024 NCBC Order 26 (N.C. Super. Ct. Mar. 15, 2024) (Earp, J.)
Key Terms: motion in limine; expert testimony; Rule 702(a); lost profits; Daubert standard
Plaintiff, seeking damages arising out of Defendants’ alleged breaches of contract, designated two experts to testify on the issue of damages. Plaintiff’s first expert witness, David Knoble, was expected to testify about Plaintiff’s past and future damages. Plaintiff’s second expert witness, Damon Bidencope, was expected to testify on the value of the intended completed project. Defendants moved to (i) exclude all evidence of lost profits on the basis that they are inherently speculative; and (ii) exclude the opinions of Knoble and Bidencope under Rule of Evidence 702.
The Court denied Defendant’s motion. The Court rejected Defendants’ argument that evidence of lost profits was inherently speculative, highlighting that both parties have significant experience in the commercial real estate industry in the Charlotte area and the intended mixed-use development was not novel. Thus, in light of the relevant information available, Plaintiff’s damages in the form of lost profits were not impermissibly speculative. The Court also rejected Defendants’ argument to exclude the expert witnesses, finding that the proposed expert witness’ methodology passed the Daubert standard and that any issues with their methodology could be explored on cross-examination and would go to the testimony’s weight rather than its reliability.
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Davis v. Davis Funeral Serv., Inc., 2024 NCBC Order 27 (N.C. Super. Ct. Mar. 15, 2024) (Conrad, J.)
Key Terms: show cause; court deadlines; sanctions; dismissal
The factual and procedural background of this case is summarized here and here. Upon the parties’ joint motion, the Court scheduled a jury trial for March 11 on the claims and counterclaims between Davis and Davis Funeral Service to be followed by a bench trial on the damages that Tedder is entitled to recover from Davis Funeral Service. The Court subsequently issued a pretrial scheduling order which required the parties, excluding Tedder, to submit their proposed pretrial order by February 5 and their proposed verdict forms and jury instructions by February 19. The parties did not submit their pretrial order on time, and despite the Court’s warning, also missed the deadline to submit proposed verdict forms and jury instructions. The Court canceled the pre-trial hearing and the trial and directed the parties to appear and show cause why they should not be sanctioned for disregarding the Court’s orders. Finding that the parties failed to provide a satisfactory explanation for their failure to comply with the deadlines and that their conduct wasted the Court’s resources and prejudiced Third-Party Defendant Tedder, the Court dismissed Plaintiff’s complaint and Defendants’ counterclaims without prejudice.
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Intersal, Inc. v. Wilson, 2024 NCBC Order 28 (N.C. Super. Ct. Mar. 15, 2024) (Earp, J.)
Key Terms: pirate ship; attorney-client privilege; protective order; Public Records Act; Electronics Surveillance Act
As summarized here, this case arises from a series of agreements entered into between Plaintiff and Defendants relating to the rights over two sunken ships located off the North Carolina coast. Originally calendared for trial on February 19, 2024, the trial was postponed following the discovery of previously undisclosed images and recordings from a meeting in 2014.
On February 3, 2014, representatives and counsel for Plaintiff, Defendants, and Nautilus Productions, LLC met to discuss issues arising from a 2013 settlement agreement between the parties. Unbeknownst to the other parties, Nautilus’s CEO created two sound recordings of the meeting on his laptop. The recordings continued during breaks in the meeting when, at times, Defendants were left alone in the meeting room with their counsel. The recording was not disclosed to Plaintiff’s counsel until February 1, 2024, and was subsequently forwarded to Defendants’ counsel on February 7, 2024.
Defendants moved for a protective order on the basis that the recordings contained communications subject to the attorney-client privilege. Plaintiff argued that the North Carolina Public Records Act required the production of attorney-client communications from a governmental agency such as the North Carolina Department of Natural and Cultural Resources. Prior to 2023, the Public Records Act required a communication to be “by an attorney at law” and to have been made within the last three years to qualify for exemption from disclosure. The Act was amended in October 2023 to remove these two conditions. As a result, the current Act exempts from public disclosure all written communications made within the scope of the attorney-client relationship, regardless of its age. Plaintiff argued that since the recording was made in 2004, the prior version of the Act applied to the recordings, and the three-year limitation had expired.
The Court concluded that the Act did not require disclosure of the recordings because the definition of “public records” did not encompass the recordings since they were not made pursuant to law. The Court also held that since Defendants did not have possession of the recordings until February 7, 2024, the current Act applied, which eliminated the three-year limitation on attorney-client privileged communications. After an in camera review of the recording transcripts, the Court determined that certain portions of the transcript were privileged and ordered such portions to be redacted by March 22, 2024. The Court declined to rule on other grounds for the exclusion of the recordings until the parties had sufficient opportunity to conduct discovery and engage in further motions practice.
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Bradshaw v. Maiden, No. 52A23, 2024 N.C. LEXIS 155, 2024 WL 1222541 (Mar. 22, 2024) (per curiam)
Key Terms: appeal; N.C.G.S. § 7A-30(2); dissent; 12(b)(6); summary judgment; hedge fund
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. The Court of Appeals affirmed in an unpublished decision; however, Plaintiffs then appealed to the Supreme Court based on a dissent.
The members of the Court were evenly split, with three voting to affirm, three voting to reverse, and one not participating. Accordingly, the decision of the Court of Appeals was left undisturbed and stands without precedential value.
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Slattery v. Appy City, LLC, No. 218A22, 2024 N.C. LEXIS 161, 2024 WL 1222648 (Mar. 22, 2024) (Newby, C.J.)
Key Terms: entry of default; summary judgment; personal jurisdiction; service of process; general appearance; motion to claim exempt property; affirmed
This appeal arose from the entries of default and summary judgment against Defendant Barber after she failed to appear in the case. To enforce the judgment, Plaintiff served a notice of right to claim exemption on Barber; she then appeared for the first time and moved to claim exempt property. Three months later, she moved, under Rules 55 and 60, to set aside the entries of default and summary judgment, arguing that the judgment was void for lack of personal jurisdiction because she had not been served with process or appeared prior to entry of summary judgment. The Business Court denied the motion, concluding that while Plaintiff had failed to show that Barber was served, Barber had made a general appearance by moving to claim exempt property and therefore, had waived any objection to personal jurisdiction and sufficiency of service of process. Barber appealed.
The Supreme Court affirmed and held that Barber made a general appearance in the action when she moved to claim exempt property without simultaneously objecting to the Court’s personal jurisdiction. The Supreme Court’s decision was informed by the Court of Appeal’s 1991 decision in Faucette v. Dickerson, which presented similar facts. To the extent other decisions of the Court of Appeals suggest that a general appearance must be made before entry of judgment to waive objections to personal jurisdiction and sufficiency of service of process, such decisions are overruled.
Justice Riggs, joined by Justice Earls, dissented, on the basis that since the judgment was entered without personal jurisdiction over Barber, it was null and void on entry and could not be resurrected by a subsequent general appearance.
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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 03/27/24
JT Russell and Sons, Inc. v. Russell, 2024 NCBC 13 (N.C. Super. Ct. Feb 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); UDTPA; misuse of corporate resources; in or affecting commerce; breach of contract; statute of frauds; N.C.G.S. § 22-1; account stated; statute of limitations; constructive trust
In this action, Plaintiff JT Rusell and Sons, an asphalt and road construction business, alleged that Defendant Jim Russell, its former officer, abused his position by channeling company resources toward his other personal and business interests, including Defendants Tillery Tradition and Mid-Eastern Asphalt. Defendants moved to dismiss some of the claims pursuant to Rule 12(b)(6).
UDTPA Claim. Defendants argued that the UDTPA claim should be dismissed because it was based on Jim’s alleged misuse of corporate resources, which were matters internal to JT Russell and therefore not “in or affecting commerce.” The Court agreed and dismissed the claim since, as alleged, the unfairness of Jim’s conduct was wholly internal to JT Russell and did not occur in the broader marketplace.
Breach of Contract. The Court denied dismissal of the claim for breach of contract against Jim, determining that JT Russell had met the low bar necessary to allege breach of contract based on its allegations that Jim had offered to pay back certain sums, that JT Russell had accepted that offer, and that Jim failed to make the promised payments. The Court rejected Jim’s argument that any promise by him to repay Tillery Tradition’s debt was barred by the statute of frauds pursuant to N.C.G.S. § 22-1. Construed liberally, the complaint alleged Jim’s promise to repay his own debts and therefore, the statute’s requirement regarding contracts to repay the debts of another was inapplicable.
Account Stated. The Court denied dismissal of the claim for account stated against Tillery Tradition, finding that JT Russell had adequately alleged the necessary elements: that it had calculated the balance due, that it submitted a statement of account to Tillery Tradition, that Tillery Tradition had acknowledged the statement’s correctness, and that Tillery Tradition had made a promise to pay the balance due. Tillery Tradition’s arguments that 1) JT Russell had sent a demand for repayment and an invitation to negotiate, rather than a true statement of account, and 2) the claim was barred by the statute of limitations were both questions for discovery.
Constructive Trust. Because a constructive trust is not a standalone claim, the Court dismissed this claim, but without prejudice to JT Russell’s right to seek a constructive trust as a remedy at a later stage.
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JT Russell and Sons, Inc. v. Russell, 2024 NCBC 14 (N.C. Super. Ct. Feb. 28, 2024) (Conrad, J.)
Key Terms: Rule 12(b)(6); derivative claims; presuit demand; N.C.G.S. § 55-7-42; dissolution; N.C.G.S. § 55-14-30(2); equitable accounting
This action involves a dispute between the shareholders of JT Russell and Sons, a family-owned business. After JT Russell brought suit against Jim Russell, one of its shareholders and a former officer, Jim sought dissolution of JT Russell and asserted derivative claims against some of the other current or former officers. The counterclaim-defendants moved to dismiss these claims.
Derivative Claims. The Court dismissed all of Jim’s derivative claims without prejudice for lack of subject matter jurisdiction based on Jim’s failure to comply with the presuit demand requirement of N.C.G.S. § 55-7-42. Although Jim contended that the list of potential claims he had provided to JT Russell prior to filing suit satisfied this requirement, the Court determined that the document was insufficient because it did not demand that JT Russell take any action.
Dissolution. Jim sought the dissolution of JT Russell on the grounds that his reasonable expectation to participate in the management of the family business had been frustrated and that the individual counterclaim defendants had mismanaged the company and misused its assets for personal gain. JT Russell conceded at the hearing that Jim had adequately stated a claim for dissolution but nonetheless sought partial dismissal to the extent the claim was based on alleged misconduct which Jim failed to object to while an officer and director. However, since Rule 12(b)(6) operates to dismiss claims, not allegations, the Court rejected this argument and denied dismissal of the dissolution claim.
Accounting. Because an equitable accounting is not an independent cause of action, the Court dismissed the claim, but did so without prejudice to Jim’s right to seek an accounting as a remedy.
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Kumar v. Patel, 2024 NCBC 15 (N.C. Super. Ct. Feb. 28, 2024) (Robinson, J.)
Key Terms: conversion; eBay account; breach of contract; condition precedent; unjust enrichment; equitable accounting; fraud; negligent misrepresentation; Rule 9(b); reasonable reliance; breach of fiduciary duty; judicial dissolution; standing
This action arose out of Plaintiff Kumar and Defendant Patel’s formation of Defendant Empower Tomorrow, a nonprofit, and the events that followed. Plaintiffs contended that they provided the nonprofit startup funds with the understanding that the funds would eventually be repaid and that Kumar would be paid back-pay for his work at the nonprofit between 2019 and 2023. When the funds failed to materialize, Plaintiffs filed suit alleging eleven claims for relief. Defendants moved to dismiss most of the claims under Rules 12(b)(1) and 12(b)(6).
Conversion. Plaintiffs asserted a claim for conversion contending that 1) Defendants wrongfully converted loans and purchased inventory; and 2) Patel converted Kumar’s eBay account. The Court dismissed the claim on both grounds with prejudice. The Court determined first, that a failure to pay a debt does not amount to a civil claim for conversion, and second, that preventing access to an online electronics store platform such as eBay did not give rise to a claim for conversion either, particularly where the account still existed and Defendants had not caused a complete deprivation.
Accounting. The Court dismissed the accounting claim without prejudice because Plaintiffs did not allege or argue any reason why discovery procedures would be insufficient to obtain the desired account information.
Breach of Contract. Kumar’s breach of contract claim was based on breach of an alleged agreement that Empower Tomorrow would pay him a back-owed salary as soon as Empower Tomorrow became profitable and surpassed monthly net revenue of $10,000. However, because Kumar did not allege that either of the conditions precedent–profitability and $10,000 in revenue–had been met, the Court dismissed the claim without prejudice.
Unjust Enrichment. Kumar asserted an unjust enrichment claim based on his expectation to receive a salary once Empower Tomorrow became profitable. The Court determined, however, that the claim was insufficient because Kumar’s work appeared to be conferred gratuitously based on his allegation that he and Patel had not decided to receive salaries until years after the work had been completed.
Member Judicial Dissolution. The Court granted dismissal under Rule 12(b)(1) of Kumar’s claim for judicial dissolution of Empower Tomorrow because Empower Tomorrow’s articles of incorporation, which were attached to the complaint, contradicted and negated any allegation that Kumar was a member of the company.
Breach of Fiduciary Duty and Constructive Fraud. The Court dismissed Plaintiffs’ fiduciary duty claims against Patel with prejudice. No de jure fiduciary duty existed between Patel and Plaintiffs because any fiduciary duty she owed ran to Empower Tomorrow, not Plaintiffs. Moreover, Plaintiffs had not alleged any facts sufficient to establish the existence of a de facto fiduciary relationship.
Fraud and Negligent Misrepresentation. The Court dismissed these claims without prejudice based on Plaintiffs’ failure to plead the time, place, or specific content of any of the alleged misstatements of Patel or to allege facts constituting reasonable reliance.
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BIOMILQ, INC. v. Guiliano, 2024 NCBC 16 (N.C. Super. Ct. Feb. 29, 2024) (Robinson, J.)
Key Terms: pro se; Rule 60; interlocutory order; Rule 12(b)(6); Rule 12(g); Rule (12(h)
Following entry of an Order denying Defendants’ motion to dismiss, Defendant Guiliano, proceeding pro se, filed a “Motion for Rule 60 Relief from Judgment” requesting that the Court reconsider its Order, reconsider the Rule 12(b) motions already filed, and consider a new 12(b)(6) motion to dismiss based on Rules 12(g) and (h)(2). The Court denied the motion without a hearing. Because the Order was an interlocutory order, the Court did not have authority to grant relief pursuant to Rule 60(b), which applies only to relief from a final judgment. Furthermore, consideration of Guiliano’s new motion under Rule 12(b)(6) pursuant to Rules 12(g) and (h)(2) was not appropriate because the Rules do not permit a party to make a pre-trial motion under Rule 12(b)(6) after the party has answered.
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Found. Bldg. Materials, LLC v. Conking & Calabrese, Co., 2024 NCBC 17 (N.C. Super. Ct. Mar. 4, 2024) (Earp., J.)
Key Terms: tortious interference with business relations; without justification; unfair and deceptive trade practices; market power; monopoly; Noerr-Pennington doctrine
As summarized here, this lawsuit involves a dispute between Plaintiff FBM and Defendant Conking, who are competitors in the building material distribution industry. FBM moved to dismiss Conking’s counterclaims for tortious interference with business relations and unfair and deceptive trade practices.
The Court dismissed without prejudice Conkings’ claim for tortious interference with business relations because Conking failed to allege any facts showing that FBM/Henshaw acted without justification.
The Court also dismissed without prejudice Conking’s claim for unfair and deceptive trade practices under both N.C.G.S. § 75-1.1 and the common law. These claims were premised on 1) FBM’s alleged tortious interference; 2) FBM’s “exploitation” of its market power to convince others to place “holds” on doing business with Conking; and 3) the commencement and prosecution of the present lawsuit. Since the Court had already dismissed the tortious interference claim, the UDTP claim based on it failed as well. Further, FBM’s alleged misuse of its market power did not amount to an unfair trade practice since Conking did not allege a conspiracy or a monopoly. Lastly, Conking’s contention that the lawsuit itself constituted an unfair trade practice failed under the Noerr-Pennington doctrine because Conking had not shown that the lawsuit was objectively meritless.
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Airtron, Inc. v. Heinrich, 2024 NCBC 18 (N.C. Super. Ct. Mar. 12, 2024) (Conrad, J.)
Key Terms: motion for sanctions; discovery violations; pro se; BCR 10.9; default judgment
This order and opinion addresses Plaintiff’s motion to sanction Defendant for disobeying the Court’s discovery orders. Defendant, proceeding pro se, was previously ordered by the Court to serve full and complete discovery responses. Thereafter, Defendant still failed to fully respond to Plaintiff’s discovery requests, but, upon Plaintiff’s motion to compel, the Court gave Defendant a second chance to fully respond and required him to pay some of Plaintiff’s attorney’s fees. After Defendant again failed to comply, Plaintiff moved for sanctions, including striking Defendant’s answer and entering a default judgment. Determining that lesser sanctions were insufficient, the Court granted the motion. Defendant’s conduct had stalled the progress of the case, prejudiced Plaintiff, and wasted judicial resources. Moreover, Plaintiff’s allegations against Defendant for misappropriation of trade secrets and unfair or deceptive trade practices were adequate to state a claim and therefore default judgment as to liability on those claims was appropriate.
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Davis v. Davis Funeral Serv., Inc., 2024 NCBC Order 21 (N.C. Super. Ct. Mar. 4, 2024) (Conrad, J.)
Key Terms: attorneys’ fees; Rule 11; Rule 37(c); requests for admission
As summarized here, the Court previously granted summary judgment in favor of third-party defendant Tedder on Davis Funeral Service’s claims against her. Tedder then moved for an award of attorney’s fees under Rules 11 and 37(c) and N.C.G.S. § 1D-45. The Court granted the motion pursuant to Rule 11. The evidence showed that Davis Funeral Service knew or should have known at the time it filed its third-party complaint against Tedder that the allegations against her were false. Further, even if they hadn’t known at that time, they were previously put on notice of the dispositive evidence but continued to pursue the claims through summary judgment. The Court directed the parties to confer in an effort to agree to the amount due, but if the conference was unsuccessful Tedder could supplement her materials. The Court did not decide the motion under N.C.G.S. § 1D-45 since it provided a second basis to award the same fees. As for the request under Rule 37(c), Tedder sought attorneys’ fees incurred in conducting discovery related to her own counterclaims based on Davis Funeral Service’s denial of several requests for admission. The Court denied this request because it concluded that the admissions sought were of no substantial importance.
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Gvest Real Est., LLC v. JS Real Est. Invs., LLC, 2024 NCBC Order 22 (N.C. Super. Ct. Mar. 7, 2024) (Conrad, J.)
Key Terms: motion for reconsideration; Rule 54(b)
In a previous order, summarized here, the Court entered summary judgment against Plaintiff on each of its claims. Plaintiff moved, under Rule 54(b), for partial reconsideration, seeking to revive its declaratory judgment claim. The Court denied the motion. Plaintiff’s arguments were based on the same evidence previously considered and found wanting by the Court. Moreover, Plaintiff attempted to raise new arguments which it had waived by not raising earlier. Finally, Plaintiff’s interpretation of the operating agreement at issue did not comport with the agreement’s plain language.
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Bui v. Phan, 2024 NCBC Order 23 (N.C. Super. Ct. Mar. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; N.C.G.S. § 7A-45.4(a)(1); opposition to designation
Plaintiff filed suit asserting claims for declaratory judgment and breach of Defendant Golden Rooster, LLC’s operating agreement, and timely filed a notice of designation. However, as summarized here, the Court determined that designation was improper. Thereafter, Defendants filed their answer and counterclaims asserting claims against Plaintiff for breach of fiduciary duty and involuntary withdrawal. Plaintiff timely filed a second notice of designation under N.C.G.S. § 7A-45.4(a)(1), but this time based on the counterclaims. Defendants opposed designation. The Court determined that designation was proper because Defendants’ counterclaims alleged that Plaintiff, as a managing member of Golden Rooster, breached fiduciary duties owed to the company, which duties are governed by Chapter 57D. Defendants’ argument that designation was improper under Rule 2.1(b) was irrelevant since Plaintiff sought designation under N.C.G.S. § 7A-45.4(a)(1). Furthermore, Defendants’ argument that designation was improper because the case was not complex or exceptional was without merit since designation does not require any particular complexity. Accordingly, the opposition was overruled.
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Caraballo-Lopez v. Retail Bus. Servs., LLC, 2024 NCBC Order 24 (N.C. Super. Ct. Mar. 11, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; untimely; personal injury; N.C.G.S. § 7A-45.4(h)
Defendants sought designation of this case as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1). However, the Court determined that designation was improper for two reasons. First, Defendants failed to file their notice of designation within thirty days of accepting service of the first amended complaint. Second, the case is a wrongful death action which is excluded from designation by N.C.G.S. § 7A-45.4(h).
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 25 (N.C. Super. Ct. Mar. 12, 2024) (Earp, J.)
Key Terms: receiver; compensation; stay pending appeal; substantial right; N.C.G.S. § 1-294
The Court entered this order sua sponte to address the procedural posture of the case following IOMAXIS’s appeal of the Court’s Order on Receiver’s Application for Interim Compensation to Receiver and Counsel (the “Fee Order”), along with eight other interlocutory orders. IOMAXIS contended that a substantial right has been impacted because the Fee Order requires the immediate payment of a significant sum ($6,025.00) and that absent a stay of the Fee Order pending appeal, it is unclear whether IOMAXIS would be able to recoup the funds if the Supreme Court determines that the appointment of a receiver was improper.
The Court concluded that a stay of the Fee Order during the appeal was not appropriate. The attempted appeal was a nullity because IOMAXIS had failed to show a substantial right would be lost if the Fee Order was not reviewed before final judgment. The Court also acknowledged the Receiver’s policy arguments and agreed that permitting a party subject to a receivership to use an interlocutory appeal to delay the receiver’s compensation would jeopardize the receiver’s neutrality and discourage qualified individuals from accepting the assignments.
As for the other eight orders appealed, IOMAXIS had argued that the issues in those orders were “inextricably intertwined” with the issue regarding the Fee Order. However, since the Court determined that the appeal of the Fee Order was ineffective, so too was IOMAXIS’s attempt to appeal the other orders.
For these reasons, the Court held that N.C.G.S. § 1-294 did not stay the action pending the appeal. The Court also declined to exercise its discretion to issue a stay; however, to address IOMAXIS’s concern that the funds paid to the Receiver would be lost, the Court amended the previous Receiver Order to require Plaintiffs to post a bond with the clerk in the initial amount of $200,000.
By: Ashley B. Oldfield
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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 03/13/24
Cutter v. Vojnovic, 2024 NCBC 7 (N.C. Super. Ct. Feb. 16, 2024) (Bledsoe, C.J.)
Key Terms: cross motions for summary judgment; motion to strike; personal knowledge; legal terms of art; common law partnership; indicia of an enforceable partnership; tortious interference with prospective economic advantage
As previously summarized here, Plaintiff filed suit alleging that he and Defendant had entered into a common law partnership agreement in relation to the purchase of a restaurant business and that Defendant’s closing of the purchase of the business without Plaintiff’s participation gave rise to numerous claims. Following dismissal of certain claims, both sides moved for summary judgment on Plaintiff’s remaining claims.
Motion to Strike. Defendants moved to strike certain portions of Plaintiff’s affidavit challenging Plaintiff’s personal knowledge of the facts alleged therein and his use of legal terms of art. The Court struck the portions of the affidavit describing Plaintiff’s opinions on available financing and investor interest in the purchased business because they without any factual support. The Court also struck Plaintiff’s use of the terms “partnership” and “misappropriation” because they were inadmissible legal conclusions. However, the Court rejected Defendants’ challenge to Plaintiff’s assertion of personal knowledge in the affidavit because such challenge went to the veracity of Plaintiff’s assertion, not its admissibility. Defendants also challenged (at the summary judgment hearing) Plaintiff’s submission of an expert report from a lawyer which opined on partnership law and its application to the case. Because the report impermissibly opined on the legal effect of the facts at hand, the Court elected to disregard it in considering the motions for summary judgment.
Cross Motions for Summary Judgment. The parties sought summary judgment on Plaintiff’s remaining claims which the Court divided into two categories: those dependent on the existence of a common law partnership and those that were not.
The Court found that a common law partnership between Plaintiff and Defendant Vojnovic did not exist because there was no mutual agreement between the parties as to how to share losses, Plaintiff never assumed any risk of loss for the partnership, and the parties never reached an agreement as to the financing for the proposed purchase of the business. Moreover, the parties never registered a partnership name, made capital contributions to a partnership entity, set up bank accounts for the purported partnership, filed partnership tax returns, or agreed on other material terms of a partnership agreement. Because the Court concluded that a partnership did not exist, it denied Plaintiff’s motion for summary judgment and granted Defendants’ motion for summary judgment as to Plaintiff’s claims for breach of the alleged partnership agreement, breach of Defendant Vojnovic’s fiduciary duty as a member of the alleged partnership, and judicial dissolution of and an accounting of the alleged partnership. The Court dismissed the claims with prejudice.
Lastly, the Court dismissed Plaintiff’s claim for tortious interference with prospective economic advantage finding that Plaintiff’s contention that he could have purchased the restaurant but for Defendant Vojnovic’s interference was supported only by speculation and conjecture, not admissible evidence. The Court concluded that Plaintiff failed to offer any competent evidence that a contract would have resulted but for the defendant’s malicious intervention and dismissed the claim with prejudice.
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Stamatakos v. Carolina Urology Partners, PLLC, 2024 NCBC 8 (N.C. Super. Ct. Feb. 20, 2024) (Davis, J.)
Key Terms: motion to dismiss; motion to amend; futility; fraud; UDTP; commerce; learned profession exception
This lawsuit concerns the termination of Plaintiff Stamatakos from his employment with Defendant Carolina Urology Partners, PLLC (“CUP”). Before the Court were Plaintiff’s motion for leave to file a second amended complaint and Defendants’ partial motion to dismiss Plaintiff’s claims for fraud and unfair and deceptive trade practices.
Motion to Amend. Defendants opposed Plaintiff’s motion to amend on the grounds of futility arguing that the proposed amendments related solely to Plaintiff’s fraud claim and such additional allegations were still insufficient to state a claim for fraud. Plaintiff’s fraud claim is based on the theory that (1) Defendants desired to terminate his membership in CUP, take over his patients, and destroy his practice; and (2) they accomplished this goal via a scheme of deceptive acts intended to mask their true intentions and keep Plaintiff from exercising his rights under CUP’s operating agreement to voluntarily withdraw from CUP. Plaintiff alleges that as a result of Defendants’ fraudulent misrepresentations he was lulled into a state of complacency and thus did not exercise his rights to voluntarily withdraw. Despite Defendants’ arguments that Plaintiff’s amendment would be futile, the Court found that Plaintiff satisfied Rule 9(b) by alleging specific details with regard to the misrepresentations forming the basis for his fraud claim, including by identifying the individuals who made the alleged misrepresentations; the time, place, and manner in which the misrepresentations were made; and the benefit sought to be obtained by Defendants via the fraudulent representations. Accordingly, the Court granted Plaintiff’s motion to amend.
Motion to Dismiss. Noting that allowance of an amended complaint typically moots a pending motion to dismiss, the Court nonetheless considered the partial motion to dismiss because the proposed second amended complaint only added additional allegations of fraud and did not affect Plaintiff’s UDTPA claim. Because the Court already determined that Defendants’ futility arguments lacked merit with regard to the allegations in the proposed second amended complaint, it denied Defendants’ motion to dismiss the fraud claim. However, the Court granted the motion to dismiss the UDTP claim based on the learned profession exception. Plaintiff argued that the learned profession exception should not apply here because the action involves a business dispute rather than the provision of medical care, but citing numerous appellate decisions broadly interpreting the exception, the Court held that Plaintiff’s UDTP claim fell squarely within the learned profession exception. In reaching this determination, the Court highlighted the fact that the provision of medical care permeates every aspect of the lawsuit. The Court dismissed Plaintiff’s UDTP claim with prejudice.
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Lineage Logistics, LLC v. Primus Builders, Inc., 2024 NCBC 9 (N.C. Super. Ct. Feb. 23, 2024) (Bledsoe, C.J.)
Key Terms: motion to strike; Rule 12(f); affirmative defenses; statute of limitations; motion to dismiss; BCR 7.2; third-party complaint; indemnification
As summarized here, Plaintiff Lineage filed suit against certain insurers after they refused to provide defense and indemnification coverage for a tragic incident that occurred at Lineage’s storage facility. Following motions practice and various amendments to the pleadings, Lineage moved to strike certain of Defendants’ affirmative defenses and Third-Party Defendant P3 moved to dismiss the third-party complaint.
Motion to Strike Republic’s Affirmative Defenses. In response to the motion to strike, Republic withdrew several of its asserted affirmative defenses leaving only its 12(b)(6) “motion,” statute of limitations, and N.C.G.S. § 22B-1 defenses at issue. As to the 12(b)(6) “motion,” which was included in Republic’s answer, it did not comply with the Business Court rules requiring a separate motion and supporting brief. Therefore, the Court, in consultation with counsel, elected not to strike the motion to dismiss but to take no action on it unless and until Republic filed a motion and supporting brief in compliance with BCR 7.2.
The Court granted Lineage’s motion to strike as to Republic’ statute of limitations affirmative defense finding that Lineage’s claims in its second amended complaint related back to its first amended complaint which was filed within the statutory timeline and gave Republic notice of the transactions giving rise to the subsequent claims.
Regarding Republic’s argument that N.C.G.S. § 22B-1 rendered its subcontract indemnity provision void, since the Court had previously determined this defense failed as a matter of law and Republic represented that it was included only in order to preserve the issue for appeal, the Court struck this affirmative defense as well.
Motion to Strike Primus’s Affirmative Defenses. Here again, in response to the motion to strike, Primus withdrew several of its asserted affirmative defenses, leaving only waiver and equitable estoppel to be addressed. Although Lineage argued that Primus failed to allege facts showing each of the required elements for waiver or equitable estoppel, the Court found that Primus satisfied its pleading burden under Rule 8 to put Lineage on notice of the facts supporting the affirmative defenses and therefore denied the motion to strike Primus’s waiver and equitable estoppel affirmative defenses.
Motion to Dismiss Third-Party Complaint. P3 sought dismissal of Republic’s Third-Party Complaint on several grounds. First, P3 argued that because Republic failed to timely submit a summons for issuance by the Court, the action abated and service was improper, thereby requiring dismissal of the third-party action for insufficient process and lack of personal jurisdiction. However, despite the delay in having the summons issued, the Court found that the action revived upon the issuance and service of the summons on P3. Therefore, the Court denied P3’s motion to dismiss under Rules 12(b)(2), (4), and (5).
P3 next sought dismissal of Republic’s negligence claim under Rule 12(b)(6), contending that the claim was barred by the applicable three-year statute of limitations under N.C.G.S. § 1-52 because the claim was based on P3’s alleged conduct in causing the injuries suffered on 10 January 2020 but the Third-Party Complaint was not filed until 1 November 2023. In response, Republic argued that its negligence claim was timely because it related back to Lineage’s negligence and indemnity claims in a separate lawsuit Lineage filed against P3 in January 2023 and that therefore P3 had long been on notice of the events or occurrences giving rise to Republic’s negligence claim. However, the Court found that Rule 15(c) contemplates relation back to the “original pleading” in the same action, not to a pleading in a separate action. The Court additionally noted that Republic cannot get the benefit of Rule 15(c)’s relation back provision since Republic is a newly added defendant in the present action. Accordingly, the negligence claim was barred by the applicable statute of limitations, and the Court dismissed it.
Lastly, P3 separately argued that because Lineage’s claims are grounded in contract, not tort, Republic’s third-party claims for negligence, indemnity, and contribution must be dismissed. The Court agreed. Republic’s failure to allege any underlying tortious injury or damages provided a separate ground for dismissal of its negligence claim. In addition, because there was no tort claim against Republic for which it seeks indemnity from P3, Republic’s indemnification claim did not fit the “active-passive tort-feasor framework” required to state a claim for a right to indemnity implied-in-law. The Court therefore dismissed Republic’s indemnification claim as well and dismissed the Third-Party Complaint with prejudice.
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Anderson v. Hobart Fin. Grp., Inc., 2024 NCBC 10 (N.C. Super. Ct. Feb. 26, 2024) (Robinson, J.)
Key Terms: registered investment advisor; registered broker; breach of fiduciary duty; constructive fraud; N.C. Securities Act; fraud; professional negligence; UDTPA; negligent misrepresentation; statute of limitations; Rule 12(b)(6); Rule 9(b)
This action arose out of Defendants’ alleged recommendation of unsuitable investment products to Plaintiffs (including Ms. Byrnes, Mr. Tanger, Dr. Zucker, the Wilshires, the Ostranders, and the Leshocks–all older adults who were retired or near retirement), who purchased some of those investments to their financial detriment. Plaintiffs’ second amended complaint alleged seven claims, primarily relating to alleged misrepresentations and breaches of fiduciary duties, against one or more of the Defendants, which include several related entities (the “Hobart Entities”) offering investment services and three of their employees who are registered investment advisors and/or FINRA registered brokers. Defendants moved to dismiss all claims pursuant to Rules 12(b)(6) and 9(b).
Statute of Limitations. The Court first addressed Defendants’ assertion that a number of the claims were barred by the applicable statute of limitations. Beginning with Ms. Byrnes’s claim for constructive fraud, the Court determined that this claim was time-barred because the act giving rise to the claim–Defendants’ recommendation that Ms. Byrnes purchase unsuitable investments–occurred more than ten years before the action was filed.
The Court also dismissed all of Mr. Tanger’s and Dr. Zucker’s claims, except for constructive fraud, as Plaintiffs’ counsel had previously conceded that the claims were untimely.
Regarding Plaintiffs’ claim for violation of the North Carolina Securities Act, the Court could not conclude that it was time-barred because although the sales of the securities had occurred more than five years before suit was filed, Plaintiffs alleged that Defendants actively concealed their violations.
Regarding Plaintiffs’ claims for breach of fiduciary duty, fraud, and negligent misrepresentation, all of which are subject to a three-year statute of limitations which begins to run when the claimant knew, or should have known, of the facts giving rise to the claim, the Court was also unable to conclude, at this stage, that the claims were time-barred. Whether Plaintiffs could have discovered Defendants’ alleged wrongdoing in the exercise of due diligence required a more fact-intensive inquiry that was inappropriate at the 12(b)(6) stage.
As for the professional negligence claims, the Ostranders’ claim was dismissed because the last act giving rise to their claim occurred outside the three-year statute of limitations. However, the Leshocks’ claim survived under the continuing wrong doctrine based on Defendants’ reinvestment of dividends in 2020.
Rule 9(b). The Court next considered whether Plaintiffs had pleaded their fraud and negligent misrepresentation claims with sufficient particularity as required by Rule 9(b). The fraud claims of the Leshocks and the Wilshires were dismissed with prejudice because they failed to sufficiently allege either the time and place of the representation, what was obtained as a result of it, or the exercise of reasonable diligence to independently investigate the truth of the representations. In contrast, the Ostranders’ allegations adequately stated the circumstances and included their attempts to investigate the veracity of the statements; therefore, their fraud claim survived. The reasonableness of their reliance would be best determined later in the litigation. With regard to the negligent misrepresentation claim, none of the Plaintiffs’ adequately alleged what information was deficiently prepared or reasonable reliance. Thus, these claims were dismissed with prejudice.
Sufficiency of Remaining Claims. Turning to the claims for breach of fiduciary duty and constructive fraud, the Court first determined that Plaintiffs had adequately alleged the existence of a fiduciary duty. The individual defendants were all registered investment advisors who were acting in furtherance of the business of the Hobart Entities, thereby giving rise to a de jure fiduciary relationship. In addition, Plaintiffs’ allegations that they were unsophisticated, vulnerable investors who were operating with less than complete information and relied on Defendants’ repeated assurances they were acting in Plaintiffs’ best interest were sufficient to plead the existence of a de facto fiduciary relationship. Because Plaintiffs alleged breach and that Defendants benefited by receiving undisclosed or misrepresented fees and commissions, the breach of fiduciary duty and constructive fraud claims survived.
Regarding the NCSA claim, which was based on Plaintiffs’ allegations of fraud, the Court dismissed the Leshocks’ and Wilshires’ claims for the same reasons their fraud and negligent misrepresentation claims failed. The Ostranders’ NCSA claim survived, though, since their fraud claim had survived.
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Johnson Bros. v. City of Charlotte, 2024 NCBC 11 (N.C. Super. Ct. Feb. 27, 2024) (Bledsoe, C.J.)
Key Terms: motion to dismiss; 12(b)(1); 12(b)(2); 12(b)(6); sovereign immunity; statute of limitations; N.C.G.S. § 1-53(a); governmental functions; proprietary functions; waiver; breach of contract; mutual mistake; breach of warranty; breach of implied covenant of good faith and fair dealing
This case involves a dispute between Plaintiff JBC, which served as the general contractor on Defendant City of Charlotte’s CityLYNX Gold Line Streetcar extension project, and the City over the City’s alleged breaches of the parties’ contract for construction of the Project. The City sought dismissal of JBC’s claims on the grounds that the claims were barred by sovereign immunity and by the applicable statute of limitations. After JBC’s voluntary dismissal of several claims and the City’s concession that JBC’s claim for violation of the Prompt Payment Act should survive, the claims subject to the motion to dismiss were (i) breach of contract, (ii) breach of expressed & implied warranties, (iii) breach of the implied covenant of good faith and fair dealing, (iv) mutual mistake, and (v) pass-through claims of subcontractors.
Sovereign Immunity. Addressing the City’s sovereign immunity defense on a claim-by-claim basis and under Rule 12(b)(2), the Court found that the City was not immune from these claims under the doctrine of sovereign immunity.
Breach of Contract and Pass-Through Claims. Utilizing the Estate of Williams test, the Court determined that the City’s provision of the streetcar system is a governmental function and therefore, absent waiver, the City would be entitled to governmental immunity against JBC’s claims. However, because JBC had adequately pleaded the existence of a valid contract with the City, such immunity was waived. The Court rejected the City’s argument that JBC’s failure to comply with the contractual procedures for recovery barred the claim under governmental immunity. Determining JBC’s compliance with conditions precedent was an inquiry into the merits of JBC’s claim and therefore not relevant to determining sovereign immunity.
Breach of Warranty. The Court found that the breach of warranty claim survived dismissal on the grounds of immunity because JBC had adequately pleaded breach of an implied warranty of plans and specifications by alleging that the City published the plans, that JBC relied on said plans in completing the project, and that as a result of the “inaccurate and inadequate” plans, JBC suffered injury.
Mutual Mistake. The City next sought dismissal of JBC’s claim for mutual mistake, arguing that since JBC’s claim for mutual mistake posits that a valid contract was never formed, and because the City’s waiver of sovereign immunity extends only to its agreements with JBC pursuant to the contract, JBC’s claim seeking to invalidate the Contract is not a claim on which the City has agreed to be sued. The Court disagreed, finding that JBC’s mutual mistake claim was not for invalidation of the contract as a whole, but for reformation of the contract. Since JBC has pleaded entry into a valid contract, it had adequately pleaded waiver of sovereign immunity for claims on that contract, including its claim for mutual mistake.
Statute of Limitations. The City also sought dismissal of JBC’s claims under Rule 12(b)(6) as barred by the two-year limitations periods set forth in N.C.G.S. § 1-53(a).
JBC responded that its claims were timely because it did not have the right to maintain a lawsuit for breach of contract until the relevant contract’s mediation process was completed, which did not occur until 27 January 2023. However, despite the contract’s mediation process requirement, under North Carolina law, absent a tolling agreement, only the applicable statute determines the limitations period and a claim for breach of contract accrues when the contract is breached. Accordingly, the Court found that JBC’s breach of contract claim accrued when the City allegedly breached the Contract.
The Court determined that the allegations of the complaint and the referenced documents demonstrated much of the conduct giving rise to JBC’s breach of contract claim occurred prior to January 31, 2021, and moreover, that JBC was aware of the conduct more than two years before it instituted this action. Therefore, the Court held that to the extent JBC’s breach of contract claim arises out of alleged breaches of the contract at issue that occurred prior to January 31, 2021, the claim is barred by the statute of limitations. Accordingly, JBC’s breach of contract claim would proceed to discovery only to the extent that it sought to recover for alleged breaches that occurred on or after January 31, 2021.
However, the Court determined that JBC’s claims for mutual mistake and breach of implied and express warranties were wholly barred by the statute of limitations because JBC’s complaint clearly demonstrated that JBC was aware of the alleged mistakes and plan inaccuracies more than two years prior to the initiation of the lawsuit.
Breach of the Implied Covenant. Lastly, the City argued that JBC’s claim for breach of the implied covenant of good faith and fair dealing should be dismissed because it is duplicative of and based on the same alleged facts as the breach of contract claim. The Court agreed and therefore denied and granted the motion to dismiss the implied covenant claim to the same extent as JBC’s breach of contract claim.
In conclusion, JBC’s remaining claims are the limited breach of contract, implied covenant of good faith and fair dealing, and pass-through claims, and the violation of the Prompt Payment Act claim. All others were dismissed with prejudice.
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Johnson Bros. v. City of Charlotte, 2024 NCBC 12 (N.C. Super. Ct. Feb. 27, 2024) (Bledsoe, C.J.)
Key Terms: breach of contract; negligence; professional negligence; economic loss doctrine; Rule 12(b)(6); statute of limitations; indemnification; active-passive tort-feasor framework
This case arises from a dispute between JBC, a general contractor, and the City of Charlotte relating to the parties’ contract to extend the City’s CityLYNX Gold Line, a streetcar system. In response to counterclaims filed by the City for breach of contract and breach of warranty, JBC filed third-party claims for indemnity, negligence, and professional negligence against URS Corporation, which had provided the engineering and design plans for the project. URS moved to dismiss the third-party claims.
URS first argued that the economic loss doctrine prevented JBC’s recovery on all claims. The Court rejected this argument, noting that North Carolina’s case law recognizes a duty of care imposed upon architects for the benefit of construction contractors in the absence of contractual privity. Since JBC had alleged that it was not in privity of contract with URS and that URS owed JBC a common law duty of reasonable care, dismissal on this ground was not appropriate.
URS next argued that the applicable three-year statute of limitations barred JBC’s recovery on the negligence and professional negligence claims to the extent they were based on communications made prior to July 31, 2020. However, because these communications weren’t referenced in the third-party complaint, but were instead found in JBC’s complaint against the City, the Court declined to consider them. Looking only at the allegations in the third-party complaint, the Court was unable to conclude the claims were barred by the statute of limitations and denied the motion on this basis.
Lastly, URS argued that JBC’s indemnification claim against URS should be dismissed, as the City’s claims against JBC were not based on tort. The Court agreed. JBC’s claim did not fit the “active-passive tort-feasor framework” required to state a claim for indemnity implied-in-law. Accordingly, the indemnification claim was dismissed.
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Ferguson Enters., LLC v. Wilkie, 2024 NCBC Order 15 (N.C. Super. Ct. Feb. 14, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(8); trade secrets; confidential information
Plaintiff brought claims for violation of the UDTPA, tortious interference, and breach of various contracts related to an employment dispute with Defendants. Defendants sought designation as a mandatory complex business case under N.C.G.S. § 7A-45.4(a)(8), which covers material disputes related to trade secrets.
The Court found that designation was not proper because although the complaint used the words “trade secrets” it did not assert a claim for misappropriation of trade secrets and only alleged material disputes related to Plaintiff’s confidential information, not its trade secrets.
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Hosie v. 8 Rivers Cap., LLC, 2024 NCBC Order 16 (N.C. Super. Ct. Feb. 7, 2024) (Davis, J.)
Key Terms: BCR 10.9; discovery; privilege dispute; attorney-client privilege; internal affairs doctrine; joint client; entity-is-the-client; holder of privilege; choice of law; fiduciary exception; selective waiver
Plaintiffs filed a summary of a discovery dispute in accordance with BCR 10.9 and alleged that Defendant was improperly withholding documents on the basis of the attorney-client privilege. The Court engaged first in a choice-of-law analysis to determine whether North Carolina or Delaware law should apply since the Defendant is a Delaware LLC and its operating agreement contains a Delaware choice of law provision. The Court concluded that North Carolina law governs the attorney-client privilege issues raised by the parties because privilege is collateral to the underlying substantive issues. The Court also rejected Plaintiffs’ argument that the internal affairs doctrine should apply.
The Court next turned to the issue of who controlled the privilege: Defendant 8 Rivers or its former CEO (Plantiff Hosie), who was involved in many of the withheld communications. Without any North Carolina appellate precedent to follow, the Court reviewed the competing approaches of the “joint client” or the “entity-is-the-client” model. The Court determined that the Supreme Court of North Carolina, if presented with the issue, would join the majority of state and federal courts who utilize the “entity-is-the-client” approach and therefore found that Defendant 8 Rivers was the exclusive holder of the attorney-client privilege.
The Court lastly considered whether any existing attorney-client privilege with regard to the withheld documents had been wholly or partially waived by Defendant 8 Rivers and found that Plaintiffs’ argument that 8 Rivers selectively disclosed certain documents that supported its position in the case, while simultaneously withholding other documents containing similar communications that could support Plaintiffs’ position was persuasive. After conducting an in camera review of a sample of the withheld and produced documents to evaluate Plaintiffs’ “selective waiver” argument, the Court determined that the attorney-client privilege had been waived with respect to certain discrete topics and ordered Defendant to produce such documents.
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Charles Schwab & Co. v. Marilley, 2024 NCBC ORDER 17 (N.C. Super. Ct. Feb. 20, 2024) (Earp, J.)
Key Terms: arbitration provision; motion to stay; interpleader; Uniform Transfer to Minors Act
This case arises from a dispute relating to the ownership and release of funds formerly held in a joint brokerage account with Plaintiff by Defendants Peter and Lauren Marilley. Lauren’s grandfather opened two accounts for Lauren’s benefit during her minority. Prior to Lauren reaching adulthood, her father Peter replaced her grandfather as the custodian of the accounts and transferred the funds in the accounts to a joint account. Following Lauren’s twenty-first birthday, a dispute arose between Lauren and Peter regarding the ownership of the funds.
Pursuant to an arbitration clause contained in the client agreement between Peter, Lauren, and Plaintiff, Peter commenced an arbitration proceeding before FINRA in Florida asserting claims against Plaintiff and Lauren and seeking, among other things, a restriction on Lauren’s individual account. Plaintiff initiated the present suit by filing a Complaint for Interpleader and sought a stay of the FINRA arbitration. Lauren answered the complaint, filed cross-claims against Peter, and requested a stay of the FINRA arbitration. Peter countered by filing a motion to stay proceedings and compel arbitration.
The Court first concluded that under governing Nebraska law, the client agreement contained a valid agreement to arbitrate. Turning to the scope of the arbitration clause, the Court determined that the arbitration clause covered disputes between Plaintiff and Defendants, but not disputes between Defendants themselves. Accordingly, Peter’s claims against Plaintiff could proceed in the FINRA arbitration, and to that extent, Lauren’s motion to stay was denied. However, because the claims between Lauren and Peter were not within the scope of the arbitration agreement, the Court denied Peter’s motion to stay the state court proceedings relating to such claims. The Court granted Peter’s motion to stay Plaintiff’s interpleader suit as it related to the claims brought in the FINRA arbitration, so as to not infringe upon Peter’s arbitration claims against Plaintiff.
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Design Gaps, Inc. v. Hall, 2024 NCBC Order 18 (N.C. Super. Ct. Feb. 21, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; N.C.G.S. §§ 7A-45.4(a)(4), (5), and (8); personal injury exception; misappropriation of trade secrets; common law trademark claims
This case arose out of a dispute between Plaintiff Design Gaps and its former employee, Hall, relating to Hall’s alleged breaches of restrictive covenants in a business development agreement. Defendants designated the case as a mandatory complex business case under N.C.G.S. §§ 7A-45.4(a)(4), (5), and (8). Plaintiffs opposed designation, arguing first that the case did not involve a material issue related to any of the grounds for designation and second that because their claim for tortious interference with contract sounded in tort and sought recovery for personal injury, the action fell within the exception to designation for personal injury actions found in section 7A-45.4(h). The Court rejected both arguments. Regarding the first, the complaint alleged a claim for misappropriation of trade secrets which was sufficient for designation under subsection (a)(8), despite Plaintiffs’ assertion that it was a “side issue.” In addition, the complaint also alleged common law infringement of unregistered trade dress, which was sufficient for designation under subsection (a)(4). Regarding Plaintiffs’ second argument, Plaintiff Design Gaps could not suffer “bodily or mental injuries” as a result of any tortious interference with the agreement since it was a corporate entity. Moreover, Plaintiffs primarily alleged claims for actual damages for misappropriation of proprietary information rather than claims involving “bodily or mental” personal injuries. Accordingly, Plaintiffs’ opposition was overruled.
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Green v. EmergeOrtho, P.A., 2024 NCBC Order 19 (N.C. Super. Ct. Feb. 23, 2024) (Bledsoe, C.J.)
Key Terms: class action; preliminary approval of class action settlement; Rule 23; class certification
Plaintiff brought this class action against Defendant alleging that Defendant had negligently allowed an unauthorized third-party to access the personal information and medical records of numerous individuals. Plaintiff moved, pursuant to Rule 23, for an order preliminarily approving a settlement and certifying a settlement class, among other things. The Court granted the unopposed motion and set the schedule for subsequent deadlines, including a final approval hearing. The Court found the settlement, as embodied in the settlement agreement, to be fair, reasonable and adequate to the settlement class, subject to further consideration at the final approval hearing, and that it was worthwhile to provide notice of the proposed settlement to the settlement class.
By Rachel E. Brinson and Natalie Kutcher.
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 02/28/24
Intersal, Inc. v. Wilson, 2024 NCBC 3 (N.C. Super. Ct. Feb. 2, 2024) (Earp, J.)
Key Terms: pirate ship; expert testimony; motion in limine; calculation of damages; Rule 702(a); Daubert standard; copyright law; hypothetical licensing model
As summarized here, this dispute arises from a series of agreements between Plaintiff and the North Carolina Department of Natural and Cultural Resources covering the discovery, promotion, and preservation of two ships that sunk off the North Carolina coast in the eighteenth century. Plaintiff alleged that Defendants breached an agreement entered between the parties in 2013 (the “2013 Agreement”), which included provisions relating to certain media rights.
To support its assertion of damages, Plaintiff sought to offer the expert testimony of Jeffrey Sedlik, a professor of licensing practices and copyright law in visual arts. Defendants moved to exclude Sedlik’s expert testimony, challenging the reliability of his opinions on the bases that: (i) the hypothetical licensing model Sedlik employed is inapplicable because the present dispute is not a copyright infringement case; and (ii) even if the hypothetical licensing model was applicable, Sedlik failed to properly apply it.
The Court concluded that Plaintiff satisfied its burden with respect to Sedlik’s damages testimony under Rule 702(a). Noting that this case is premised upon a legal right stemming from the same source as copyright law and that similar hypothetical licensing models have been embraced by other courts, the Court held that Sedlik’s hypothetical licensing model was applicable to the dispute and admissible. The Court further held that Sedlik would be permitted to offer expert testimony relating to damages incurred by Plaintiff from Defendants’ alleged breaches of the 2013 Agreement, as well as definitions of technical terms or terms of art in the image production and publication industry. However, the Court prohibited Sedlik from offering definitions of commonly used words or phrases or offering any interpretation of the 2013 Agreement or legal conclusions regarding Defendants’ liability.
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Vista Horticultural, Inc. v. Johnson Price Sprinkle, PA, 2024 NCBC 4 (N.C. Super. Ct. Feb. 5, 2024) (Bledsoe, C.J.)
Key Terms: motion to amend complaint; undue delay; futility; bad faith
Plaintiff filed suit in April 2023, alleging malpractice against an accounting firm, DMJPS, PLLC, and later amended its complaint to add another accounting firm, Johnson Price Sprinkle, PA (“JPS”), as a defendant. The amended complaint asserted claims against both firms for breach of contract, professional malpractice/professional negligence, common law negligence, gross negligence, and breach of fiduciary duty. Following the exchange of discovery in late 2023, Plaintiff determined that JPS’s insurance coverage was insufficient to cover the damages alleged and moved to amend its complaint to add JPS’s lead shareholder and owner, Cheng, as a defendant. JPS opposed the motion, arguing undue delay, bad faith, and futility.
The Court first determined that there was no undue delay, as Plaintiff had acted promptly after receiving the information regarding JPS’s insurance coverage. Moreover, since the discovery period was ongoing and JPS’s counsel had conceded that Cheng’s addition as a party-defendant would not change JPS’s litigation conduct, there was no undue prejudice.
Next, the Court rejected JPS’s bad faith argument. Plaintiff’s allegations were supported by facts that must be taken as true, and the Court could not conclude that Plaintiff had engaged in bad faith conduct through the second amended complaint.
Finally, the Court addressed JPS’s futility arguments. The Court denied the addition of a disgorgement claim as Plaintiff conceded at the hearing that it no longer sought disgorgement. The Court also denied the addition of Cheng to the breach of contract claim as there were no allegations that Plaintiff had entered into a contract with Cheng, that Cheng was a third-party beneficiary of the contract, or that Cheng is JPS’s alter ego. However, the Court allowed the addition of Plaintiff’s proposed claims against Cheng for professional malpractice/professional negligence, common law negligence, gross negligence, and breach of fiduciary duty. Since Plaintiff had made no argument regarding the breach of fiduciary duty claim, the Court concluded that Plaintiff had abandoned any contention that leave to amend should be denied as to the breach of fiduciary duty claim. As to the remaining claims, they had been adequately pleaded and were not barred by the economic loss rule because an accountant, like Cheng, owed an independent duty to competently perform services apart from any duty under contract.
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State of N.C. v. E.I. Du Pont De Nemours & Co., 2024 NCBC 5 (N.C. Super. Ct. Feb. 7, 2024) (Robinson, J.)
Key Terms: partial summary judgment; law of the case; assumption of liabilities; chemical manufacturing
In 2020, the State of North Carolina filed this action, bringing 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 Corteva and New DuPont moved to dismiss pursuant to Rules 12(b)(2) and 12(b)(6). The Business Court denied the motion under Rule 12(b)(2) (and reserved ruling on the 12(b)(6) motion), determining that it could properly exercise personal jurisdiction over the moving defendants. Defendants appealed to the N.C. Supreme Court, which affirmed the Business Court’s ruling. Following remand, Plaintiff moved for partial summary judgment on the legal issue of whether Corteva and New Dupont contractually assumed the liabilities of Old Dupont arising from Old Dupont’s use, manufacture, and discharge of PFAS.
Plaintiff contended that the Supreme Court’s ruling that Corteva and New DuPont assumed Old DuPont’s PFAS liability was the law of the case, and as such, warranted summary judgment on the issue. The Business Court agreed. Since the Supreme Court had concluded that the agreements at issue established that Corteva and New DuPont were liable for Old DuPont’s PFAS liabilities, it had necessarily determined that Corteva and New DuPont would be held liable if, at a later point in this litigation, Old DuPont is found liable for conduct related to its use, manufacture, and discharge of PFAS. Further, given the lack of any new developments in the case, the Business Court held that the issue of Corteva and New DuPont’s assumption of the PFAS liabilities had been decided with finality for the purposes of the case.
The Court rejected Defendants’ argument that, by seeking summary judgment on the issue of assumption of liability, Plaintiff sought summary judgment on Plaintiff’s first four causes of action, which had not been asserted against Corteva and New DuPont. The Court clarified that its ruling was explicitly limited to the issue of the assumption of liability and did not address any other issues presented by the agreements or whether Old DuPont was actually liable for the alleged conduct.
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Karriker v. Harpoon Holdings, L.P., 2024 NCBC 6 (N.C. Super. Ct. Feb. 12, 2024) (Conrad, J.)
Key Terms: forum-selection clause; Rule 12(b)(3); improper venue; integration clause; Delaware law
Several years ago, Plaintiff converted his membership units in a related entity into several hundred partnership units in Defendant Harpoon Holdings, LLC, thereby becoming a party to Defendant’s limited partnership agreement, which included a provision allowing Defendant to repurchase Plaintiff’s units if Plaintiff’s employment was terminated. Plaintiff later purchased seven more membership units pursuant to a subscription agreement which also permitted Defendant to repurchase the units if Plaintiff’s employment was terminated. After Plaintiff’s employment was terminated, Defendant asserted that it had the right to buy back Plaintiff’s units at cost pursuant to the limited partnership agreement. Plaintiff subsequently filed suit, demanding, among other things, payment for fair market value for all his units. Defendant moved to dismiss pursuant to Rule 12(b)(3), arguing that the subscription agreement contains a forum-selection clause designating Delaware as the exclusive jurisdiction for suits arising out of or relating to the agreement.
Because there was no dispute regarding the validity of the forum-selection clause, the Court focused on whether Plaintiff’s suit was “arising out of or relating to” the subscription agreement. Applying Delaware law, as required by the agreement’s choice-of-law clause, the Court granted Defendant’s motion to dismiss. The Court noted that the case at hand related to all of Plaintiff’s membership units, seven of which were purchased pursuant to the subscription agreement. The Court rejected Plaintiff’s argument that Defendant waived its rights under the subscription agreement when it made a pre-litigation demand to repurchase Plaintiff’s shares under the limited partnership agreement, noting that the issue of whether Defendant waived any rights granted in the subscription agreement was an issue “arising out of” the subscription agreement itself.
The Court further rejected Plaintiff’s argument that a permissive venue clause in the limited partnership agreement “conflicted” with the subscription agreement’s mandatory venue clause, finding that the permissive clause must yield to the mandatory clause. Lastly, the Court rejected Plaintiff’s argument that an integration clause contained in the limited partnership agreement superseded the provisions of the subscription agreement, as the integration clause only superseded prior agreements between the parties, not a later agreement.
The Court dismissed Plaintiff’s suit without prejudice to his right to refile his claims in an appropriate venue.
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Intersal, Inc. v. Wilson, 2024 NCBC Order 12 (N.C. Super. Ct. Feb. 1, 2024) (Earp, J.)
Key Terms: Rule 702; expert witness; motion in limine; pirate ship
In its pursuit of damages for breach of contract relating to media rights over the wreckage of Blackbeard’s flagship, the Queen Anne’s Revenge (the “QAR”), Plaintiff sought to offer the expert testimony of Samuel Weiser related to (i) the viability of, and potential revenue stream from, touring exhibitions utilizing the artifacts and intellectual property related to the discovery of the QAR; (ii) the sufficiency and quality of the artifacts recovered from QAR and the corresponding video and images of the recovery operations; and (iii) the importance of intellectual property and imagery related to the QAR recovery in creating and preserving the value of the potential touring exhibitions. Defendants filed a motion in limine, challenging Weiser’s qualifications, methodology, and the inclusion of legal conclusions in his interpretations.
The Court granted Defendants’ motion in part and denied it in part. The Court granted Defendants’ motion as it related to Weiser’s testimony relating to damages resulting from commercial narrative projects that did not materialize, or legal interpretations of the settlement agreement at issue. The Court denied the remainder of Defendants’ motion, having concluded that Weiser qualified as an expert witness under Rule 702 and his methodology was reasonable.
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Intersal v. Wilson, 2024 NCBC Order 13 (N.C. Super. Ct. Feb. 2, 2024) (Earp, J.)
Key Terms: Rule 702; Rule 403; expert witness; legal conclusions; motion in limine; pirate ship
In the same case as above, Defendants sought to admit Professor Deborah Gerhardt as an expert witness to counter Plaintiff’s expert witness testimony relating to damages asserted. Gerhardt produced a report responding to four questions posed by the Defendants, which concluded that: (1) intellectual property law does not provide any foundation for Plaintiff to claim exclusive rights in the narrative (commercial or not) of salvaging the Queen Anne’s Revenge (“QAR”); (2) the Court should not enforce any provision in a way that gives Intersal the exclusive right to telling the story of the QAR salvage as such an interpretation would violate constitutional and federal public policy; (3) Defendant DNCR did not place any of Intersal’s intellectual property in the public domain because Intersal has failed to identify any protectable intellectual property; and (4) Intersal does not have an ownership interest in QAR photos taken by Defendant DNCR because no express written copyright assignment existed.
Plaintiff filed a motion in limine to exclude Gerhardt’s expert testimony. The Court granted Plaintiff’s motion, on the basis that Gerhardt’s opinions were legal conclusions intended to provide a legal clarification of copyright law, rather than opinions of a factual nature. The Court noted that Gerhardt’s report was “tantamount to a well-written legal memorandum on intellectual property law,” and did not address the propriety of Plaintiff’s use of a theoretical licensing model to assess damages. As such, the Court determined that under both Rule 702 and 403, Gerhardt’s testimony should be excluded.
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Vitaform, Inc. v. Aeroflow, Inc., 2024 NCBC Order 14 (N.C. Super. Ct. Feb. 5, 2024) (Bledsoe, C.J.)
Key Terms: attorneys’ fees; fee application; RPC Rule 1.5(a); block billing; hourly rates
As summarized here, the Court previously granted, in part, Defendants’ motion for attorneys’ fees, awarding Defendants their attorneys’ fees incurred in connection with prosecuting their motion for summary judgment and defending against Plaintiff’s counterclaims. As requested by the Court, Defendants subsequently submitted a fee application, supported by billing records documenting the tasks and time worked for which they sought attorneys’ fees.
The Court evaluated the fee application based on the factors set forth in Rule 1.5(a) of the Revised Rules of Professional Conduct. First, it considered the hourly rates charged (ranging from $235 to $400 per hour) and determined, based on affidavits, previous holdings of North Carolina’s state and federal courts, and its own knowledge, that the rates were reasonable and within those customarily charged in Buncombe County and in cases in the Business Court. The Court next considered the time and labor expended and, in its discretion, reduced certain entries that were block-billed, but otherwise found the time expended reasonable. Finally, the Court determined that the remaining factors of Rule 1.5(a) merited the award of the fees submitted. The Court also clarified that Defendants’ right to seek relief under Rule 41(d) of the North Carolina Rules of Civil Procedure was not affected by the Court’s fee order.
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 02/13/24
Cardiorentis AG v. IQVIA Ltd., 2024 NCBC 2 (N.C. Super. Ct. Jan. 18, 2024) (Conrad, J.)
Key Terms: N.C.G.S. § 1-75.12; inconvenient forum; stay; administrative dismissal
Shortly after Plaintiff filed suit in 2018, Defendants moved to stay the case under N.C.G.S. § 1-75.12(a) arguing that North Carolina was an inconvenient forum and that Plaintiff’s claims should be litigated in England. The Court granted the stay and the parties litigated their dispute in England, resulting in a final judgment in 2022. Defendants then moved to dismiss the complaint administratively under section 1-75.12(b), which provides that the “jurisdiction of the court continues for a period of five years from the entry of the last order affecting the stay.” Since no orders had been entered modifying the stay since it was entered more than five years ago, and the Plaintiff had not responded to Defendants’ motion to dismiss, the Court granted the motion and dismissed all claims.
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CTS Metrolina, LLC v. Berastain, 2024 NCBC Order 8 (N.C. Super. Ct. Jan. 19, 2024) (Earp, J.)
Key Terms: preliminary injunction; restrictive covenant; non-compete; asset purchase agreement; material breach; prior pending action doctrine; arbitration; blue-pencil rule; look-back rule
In 2022, Defendants Berastain and Moreau sold the assets of their company to CTS Metrolina in exchange for $3.6 million and minority non-voting interests in CTS Metrolina and were promised an Earnout Payment and a true up of working capital. They also accepted co-president positions with CTS Metrolina and signed employment agreements and restrictive covenants. The following year, Berastain and Moreau sued CTS Metrolina seeking to invalidate the acquisition; however, that lawsuit was stayed pending arbitration. After Berastain’s and Moreau’s employment with CTS Metrolina ended, CTS Metrolina filed suit against them and moved for a preliminary injunction enjoining them from violating their restrictive covenants based upon allegations that they were involved in a competing business.
Defendants challenged the Court’s jurisdiction arguing that 1) the parties had agreed to arbitrate claims related to the restrictive covenants and 2) any injunctive relief should be sought in the prior pending lawsuit. The Court disagreed. Although the APA and the employment agreements contained arbitration provisions, those provisions gave way to the restrictive covenants which specified that CTS Metrolina could seek enforcement of the restrictive covenants “by any court having jurisdiction.” In addition, the prior pending action doctrine did not apply because the two actions involved different parties, issues, and relief.
Defendants also argued that they were relieved from their obligations under the restrictive covenants because CTS Metrolina had breached the APA by not paying them the Earnout Payment or the working capital true up. However, the Court was unable to conclude that this conduct was a material breach going to the very heart of the APA sufficient to excuse Defendants from their obligations under the restrictive covenants.
Turning to the request for a preliminary injunction, the Court first determined that a five-year restrictive period (or even a six-year period if the look-back rule applied) was not unreasonable in the context of the sale of a business involving sophisticated parties dealing at arms-length. Next, the Court determined that the noncompetition covenant had been drafted such that the Court could blue pencil and refuse to enforce any overbroad geographic provisions and that the remaining restricted territory was not unreasonable. Finally, the Court concluded that, based on the evidence presented, CTS Metrolina was likely to succeed on its claim that the individual Defendants had violated one or more of the restrictive covenants. Accordingly, the Court granted the motion and enjoined the individual Defendants (and their agents) from further violations of the restrictive covenants.
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Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2024 NCBC Order 9 (N.C. Super. Ct. Jan. 22, 2024) (Davis, J.)
Key Terms: discovery violation; untimely production; eve of trial; Rule 37; sanctions; attorneys’ fees; adverse inference instruction
As summarized here and here, this suit involves a dispute between Plaintiffs and a number of insurance companies over the amount of insurance proceeds payable under excess insurance policies issued by Defendants following a fire that occurred at a chicken plant. The case proceeded through discovery and motions practice and was scheduled for trial in late January 2024. The day before the parties were to exchange trial exhibit lists, Plaintiffs produced, for the first time, two sets of materials, including extensive handwritten notes by an executive of Plaintiff Brakebush and a cache of photos and videos. Following a status conference, Defendants moved for sanctions for discovery violations and the Court canceled the trial, to be rescheduled at a later date.
The Court denied Defendants’ requests to bar Plaintiffs from using the documents at trial and to give an adverse inference jury instruction. The documents were highly relevant to the key issues in the case and therefore should be allowed to be offered as evidence. In addition, an adverse inference instruction was not appropriate because the documents had not been destroyed. However, the Court granted Defendants’ requests for an order allowing them to conduct additional discovery regarding the documents and awarding their reasonable attorneys’ fees incurred from the motion for sanctions and from the subsequent discovery. Additional discovery was needed to ameliorate any prejudice caused to Defendants by the late production and monetary sanctions were appropriate under Rule 37 as the untimely production was not substantially justified.
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Howard v. IOMAXIS, LLC, 2024 NCBC Order 10 (N.C. Super. Ct. Jan. 25, 2024) (Earp, J.)
Key Terms: limited receiver; economic interest; fraud; rights adversely affected
As summarized here, this action involves a dispute between the Ronald E. Howard Revocable Trust (a purported 51% economic interest holder in IOMAXIS) and the IOMAXIS members regarding the Trust’s right to the economic benefits from its interest. Following discovery, the Trust moved for the appointment of a receiver, based on allegations that the IOMAXIS Defendants had formulated and were actively implementing a plan to transfer assets, disguise distributions paid to other interest holders, and dilute the Trust’s economic interest.
The Court granted the motion and appointed the Finley Group as limited receiver for IOMAXIS. A receiver was necessary and appropriate based on evidence that 1) the IOMAXIS Defendants had set up a new entity to take control of IOMAXIS and had exchanged their interests in IOMAXIS for like interests in the new entity; 2) the new entity had sold IOMAXIS’s assets without accounting for the proceeds; 3) the IOMAXIS Defendants had plans to develop additional entities to move more of IOMAXIS’s assets; and 4) the IOMAXIS Defendants had converted their capital accounts in IOMAXIS to loans so they (but not the Trust) could receive “repayments” rather than distributions. This evidence combined with the IOMAXIS Defendants’ adamance that Plaintiffs were not entitled to review financial information and their disregard for the Trust generally was sufficient for the Court to conclude that the Plaintiffs had shown a reasonable likelihood of success on their fraud-based claims and that their rights in the assets of IOMAXIS may be adversely impacted during the suit. The receiver was directed to, among other things, review IOMAXIS’s books and records, investigate any planned or actual transfers of IOMAXIS’s assets, identify any entities formed by the IOMAXIS Defendants, and ascertain the terms of any agreement between IOMAXIS and the newly created entity.
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Miller v. RedGoose, L.L.C., 2024 NCBC Order 11 (N.C. Super. Ct. Jan. 30, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; counterclaim; N.C.G.S. § 7A-45.4(a)(5); intellectual property
Defendant RedGoose filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(5) based on its counterclaims for fraud, conversion, tortious interference with contract, and unfair and deceptive trade practices. Plaintiff opposed designation arguing that designation was improper because the counterclaims did not involve intellectual property and because the allegations in the counterclaims were false.
The Court overruled Plaintiff’s opposition to designation. First, each of the counterclaims was based on Plaintiff’s alleged misuse of RedGoose’s software, IT systems, and client data and data security, which satisfied the statutory requirement of a dispute involving the use of intellectual property. The fact that the words “intellectual property” were not used in the counterclaims was irrelevant since the Court assesses designation based not only on the claims asserted but also on the underlying factual allegations. Second, Plaintiff’s challenge to the truthfulness of the allegations was misplaced and premature because allegations in the subject pleading are accepted as true for the purposes of determining whether a case qualifies for mandatory complex business designation. Accordingly, the Court did not consider the affidavits proffered by the parties in opposition to and in support of designation.
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 01/30/24
BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91A (N.C. Super. Ct. Jan. 9, 2024) (Robinson, J.)
Key Terms: Rule 12(b)(5); amended order; dismissal without prejudice
As summarized here, the Court previously entered an order granting Counterclaim-Defendants’ motions to dismiss pursuant to Rule 12(b)(5). The Court entered this amended order to clarify three things: 1) that the dismissals were without prejudice; 2) that the Court had not considered affidavits of service filed after full briefing and a hearing on the motions; and 3) to correct the date of the hearing.
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Johnson v. Everett, 2024 NCBC 1 (N.C. Super. Ct. Jan. 5, 2024) (Davis, J.)
Key Terms: motion for judgment on the pleadings; Rule 12(c); fraud; quantum meruit; constructive fraud; conspiracy
Defendant Brian Estes filed a Motion for Judgment on the Pleadings as to the claims against him for quantum meruit, constructive fraud, conspiracy, and fraud. Generally, Plaintiffs alleged that Defendants engaged in a scheme whereby Plaintiffs invested in Defendants’ company that was seeking a patent for a stair box system and then, using Plaintiffs’ investments and other assets of the first company, formed a separate company, to the exclusion of Plaintiffs, and when the patent was granted, assigned the patent for the product to the new company. Defendant Estes assisted in the formation of the second, competing company and was allegedly involved in its operations that took place to the detriment of the company Plaintiffs invested in.
Fraud: The Court dismissed with prejudice Plaintiffs’ fraud claim against Estes as Plaintiffs conceded at the hearing that their allegations were insufficient to state a valid claim for fraud against Estes.
Quantum Meruit: The Court dismissed with prejudice this claim as well because Plaintiffs’ allegations failed to meet the first required element of a claim for quantum meruit – that Plaintiffs rendered services to Estes.
Constructive Fraud: The Court also dismissed with prejudice the constructive fraud claim because Plaintiffs did not allege the existence of a de jure fiduciary relationship between them and Estes and the allegations in the complaint could not reasonably be construed as asserting the existence of a de facto fiduciary relationship either.
Conspiracy: With respect to Estes, Plaintiffs alleged that he joined the other Defendants’ conspiracy shortly after the new, competing company was formed, agreed to participate in the unlawful conduct of Defendants thereafter, and did participate in such unlawful conduct by sending an email to Plaintiffs explaining their options related to the failure of their investments in the original company. Estes argued that the purpose of the conspiracy (using Plaintiffs’ money to form the competing company) was accomplished before he became involved with Defendants and therefore, he cannot be liable for any such conspiracy. While the Court found that Plaintiffs’ conspiracy allegations were “not a model of specificity,” they were nevertheless, sufficient to allow the conspiracy claim against Estes to go forward. The Court therefore denied Estes’ motion as to Plaintiffs’ civil conspiracy claim.
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Live Oak Banking Co. v. Mafic USA LLC, 2024 NCBC Order 2 (N.C. Super. Ct. Jan. 3, 2024) (Conrad, J.)
Key Terms: claim objections; receivership; receivership estate; N.C. Commercial Receivership Act; Bankruptcy Code; proof of claim
Following the appointment of a Receiver over Defendant Mafic to oversee an orderly liquidation process, the Receiver objected to nine creditors’ proofs of claims. The Court looked to the Bankruptcy Code as an instructive guide for the framework related to the presentation of evidence and burden of proof necessary to determine the reasonableness or validity of a claim accepted or rejected by a Receiver. The Court determined that all of the challenged claims against Mafic arose under contract law and therefore that the claimants bore the burden of proving the existence and breach of a valid contract by a preponderance of the evidence.
AFC Worldwide Express Inc.: AFC claimed that Mafic owed it $13,045.57 for freight services, but only attached an account statement listing dates and amounts of invoices, but not the invoices themselves, to its proof of claim. The Receiver submitted evidence that Mafic never received the invoices or purchased goods or services from AFC on the dates listed on the account statement. AFC did not appear at the hearing and the Court found that the Receiver successfully rebutted the proof of claim, sustained his objection, and disallowed AFC’s claim.
Alvaro Ruiz Emparanza: Ruiz, a former employee of Mafic, claimed that Mafic owed him $99,875.00 in bonus payments based on an alleged employment contract. Based on the language of the document, entitled an “Employment Proposal Letter,” the Receiver argued and the Court agreed that the document was an unenforceable agreement to agree and Ruiz did not carry his burden to establish the existence of a valid contract. The Court disallowed his claim.
CP Metal Crafters, Inc.: CP Metal Crafters claimed that Mafic owed it $54,548.76 for goods sold and the Receiver conceded that Mafic owes $31,297.50 in unpaid invoices but objected that it had no record of invoices above that amount. CP Metal Crafters did not appear at the hearing or offer evidence in response to the objection. The Court sustained the Receiver’s objection, allowing an unsecured claim for $31,297.50, and disallowing the remainder of the claim.
JEC Group: JEC Group claimed that Mafic owed it €15,096.80 for cancelling Mafic’s planned participation in a trade show in 2023. The Court found that the terms of the relevant contract stated it would only become effective upon JEC Group’s receipt of a down payment from Mafic and the Receiver presented evidence that Mafic never made such a down payment. JEC Group did not appear at the hearing or offer evidence to show that a valid contract existed between it and Mafic. As a result, the Court disallowed the claim in its entirety.
Metallix Refining Inc.: Metallix Refining claimed that Mafic failed to pay two invoices—one totaling $1,850 and the other $1,400—for goods and shipping charges, but the Receiver offered evidence, which Metallix Refining failed to dispute, that Mafic only received the $1,400 invoice. The Court found that the Receiver rebutted Metallix Refining’s claim, sustained his objection, allowed an unsecured claim for $1,400, and disallowed the remainder of the claim.
Pitney Bowes Inc.: Pitney Bowes claimed that Mafic owed it $1,091.50 arising from its rejection of an equipment lease, and attached an account statement but failed to attach the lease to its proof of claim. The Receiver offered evidence from Mafic’s records to show that it owed only $195.25 in unpaid invoices to Pitney Bowes, which the creditor did not rebut. The Court sustained the Receiver’s objection, allowed an unsecured claim for $195.25, and disallowed the remainder of the claim.
R+L Carriers, Inc.: In support of its claim, R+L Carriers attached four invoices for $15,342.34 for freight services performed for Mafic. The Receiver objected that Mafic owes only $2,200.05 and presented invoices at the hearing showing that R+L Carriers gave Mafic a discount on each charge so that the total amount due is only $2,200.05. R+L Carriers did not appear at the hearing or present additional evidence in response to the objection. The Court concluded that the Receiver rebutted the claim, sustained his objection, allowed an unsecured claim for $2,200.05, and disallowed the remainder of the claim.
Université de Sherbrooke: Sherbrooke submitted a proof-of-claim form stating that Mafic owes a substantial sum under a research agreement, but Sherbrooke’s agreement was with “Mafic Inc.”—not Mafic USA. At the hearing, the Receiver represented that officials of Sherbrooke acknowledged the mistaken identity and agree with his objection. The Court sustained the objection and disallowed the claim.
Electric Glass Fiber America, LLC: EGFA submitted a claim for $73,864.24 four days after the deadline to submit claims and the Court disallowed it as untimely.
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Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2024 NCBC Order 3 (N.C. Super. Ct. Jan. 5, 2024) (Earp, J.)
Key Terms: motion for leave to withdraw; failure to communicate with counsel; failure to pay attorneys’ fees; financial hardship; North Carolina Rule of Professional Conduct 1.16; justifiable cause; foreign language; conditional withdrawal; procedural protections
Plaintiffs’ counsel initially filed a motion for leave to withdraw from the representation of six Plaintiffs, who are all Chinese nationals. In the motion, Plaintiffs’ counsel maintained that withdrawal was appropriate pursuant to North Carolina Rule of Professional Conduct 1.16 because the Six Plaintiffs had both failed to communicate with counsel and to pay their attorneys’ fees, and that continued representation would lead to unreasonable financial hardship. Plaintiffs’ counsel subsequently filed a second motion to withdraw from representation of all Plaintiffs relying on the same arguments as in their first motion to withdraw. Defendants opposed the motion citing Plaintiffs’ lack of fluency in English, failure of Plaintiffs’ counsel to ensure that substitute counsel had been retained, and concern over delays in the litigation. Five Plaintiffs consented to the withdrawal of counsel and four of those five subsequently settled with the Defendants.
Although the Court found that justifiable cause for Plaintiffs’ counsel to withdraw existed and that Plaintiffs’ counsel gave reasonable notice of withdrawal to the Plaintiffs, the burden on Defendants and the Court of allowing Plaintiffs’ counsel to withdraw without procedural protections in place would be unreasonable. Therefore, the Court conditioned Plaintiffs’ counsel’s withdraw upon “assurances that each Plaintiff (1) is able to communicate with opposing counsel and the Court (including, if necessary, by having access to a translator at their cost), (2) understands his/her obligations pursuant to the North Carolina Rules of Civil Procedure, the Case Management Order, and the Court’s Rules, (3) has an account on the Court’s electronic filing system and is able to serve and be served with pleadings and to receive electronic notices from the Court, and (4) understands his/her obligation to provide and maintain with the Court reliable contact information.” In addition, given that the deadline to complete fact discovery was near, counsel’s withdrawal would not be permitted until fact discovery had been completed.
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Rockingham Cnty. v. NTE Energy, LLC, 2024 NCBC Order 4 (N.C. Super. Ct. Jan. 8, 2024) (Bledsoe, C.J.)
Key Terms: notice of designation; opposition; law governing corporations, LLCs, partnerships; N.C.G.S. 7A-45.4(a)(1); amended complaint; piercing the corporate veil; joint enterprise
Defendants filed a notice of designation of action as a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a)(1) after Plaintiff Rockingham County amended its original complaint to include numerous additional claims against Defendants. The County opposed designation arguing that designation was improper because its claims did not assert complex questions involving the law governing corporations and because any corporate law allegations of the amended complaint were ancillary to the material issues in the case.
The Court disagreed because the complexity of the case had no bearing on the propriety of designation, and the allegations implicating the law governing corporations, LLCs, or partnerships, including piercing the corporate veil, were not ancillary issues. Citing an array of allegations from the Plaintiff’s amended complaint, the Court found that the “law governing corporations, partnerships, and LLCs is material to the issue of which Defendant entity (or entities) is liable to the County for the misconduct alleged.” The Court also noted that because the County is master of its complaint and chose to amend its complaint to include issues involving the law governing corporations, partnerships, and LLCs, it must accept the consequence that the action now qualified for designation. The Court overruled the County’s opposition to designation.
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Potts v. Steel Tube, Inc. 2024 NCBC Order 5 (N.C. Super. Ct. Jan. 12, 2024) (Conrad, J.)
Key Terms: charging order; judgment creditors; Board of CPA Examiners; involuntary transfer of ownership interest
Following entry of a judgment in favor of Judgment Creditors, the Court issued an order in July 2020 charging Defendant Rives’ ownership interest in Rives & Associates, LLP (“R&A”) and several other entities with the unsatisfied amount of the judgment. In Rives’ discovery responses leading up to entry of the charging order, Rives stated that there had been discussions regarding the cancellation or repurchase of his ownership interests in R&A but that no transfer of ownership had occurred. Long after entry of the charging order, the Judgment Creditors learned that Rives had, pursuant to an Involuntary Agreement, surrendered his interest in R&A due to his suspension by the N.C. Board of Certified Public Accountant Examiners and that he claimed to have received no consideration for said transfer and that the transfer had occurred prior to entry of the charging order. Believing that the Involuntary Agreement was a sham designed to conceal the transfer of Rives’ interest to his wife, Judgment Creditors moved to enforce the charging order and for an order appointing a receiver and directing Rives and R&A to appear and show cause why they should not be held in civil contempt.
Despite some discrepancies regarding the date the Involuntary Agreement was entered into, the Court found that the Involuntary Agreement had been finalized prior to entry of the charging order. Therefore, since the charging order charged an interest that Rives did not actually possess, and the evidence showed that Rives had not received any payments on account of that interest after entry of the charging order, Rives had not violated the charging order. Further, while Rives may have subsequently made false statements to the IRS and NCDOR regarding his status with R&A, such statements were not a violation of the charging order. Finally, to the extent Judgment Creditors sought to have the transfer set aside as fraudulent, the proper remedy was to bring a civil action under the Uniform Voidable Transactions Act.
Nevertheless, based on Rives’ previous lack of candor, the Court found it appropriate to enter an order enjoining Rives from transferring or otherwise disposing of his ownership interests in the other entities subject to the charging order.
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Bui v. Phan, 2024 NCBC Order 6 (N.C. Super. Ct. Jan. 12, 2024) (Bledsoe, C.J.)
Key Terms: order on designation; N.C.G.S. § 7A-45.4(a)(1); breach of operating agreement; law governing LLCs
Plaintiff filed suit alleging that she and Defendant Phan are 50/50 member-managers of Defendant Golden Rooster, LLC, and that while she and Phan were negotiating the buyout of her membership interest, Phan took several unilateral actions on behalf of Golden Rooster which violated its operating agreement. Plaintiff asserted a claim for breach of the operating agreement and sought a judicial declaration that Phan is subject to expulsion from membership in Golden Rooster pursuant to the operating agreement. Plaintiff filed a notice of designation, contending that designation as a mandatory complex business case is proper under N.C.G.S. § 7A-45.4(a)(1), which provides for designation in actions involving a material issue related to disputes involving the law governing LLCs.
The Court determined that the action should not proceed as a mandatory complex business case as the resolution of Plaintiff’s asserted claims required only a straightforward application of contract law principles.
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James H.Q. Davis Tr. v. JHD Props., LLC, 2024 NCBC Order 7 (N.C. Super. Ct. Jan. 16, 2024) (Bledsoe, C.J.)
Key Terms: stay pending appeal; sua sponte order; summary judgment; judicial dissolution; N.C.G.S. § 1-294; N.C.G.S. § 7A-27; appeal from final order of Business Court; North Carolina Supreme Court; North Carolina Court of Appeals
As summarized here, the Court previously entered an Order granting Plaintiffs’ motion for summary judgment, denying Defendant’s motion for summary judgment, and entering summary judgment for Plaintiffs on their claim for judicial dissolution. Thereafter, Defendant filed a notice of appeal of the Order to the N.C. Court of Appeals. After the Court noticed a status conference to discuss the process for dissolution and winding up, Defendant contended that as a result of the appeal, further proceedings in the trial court were stayed pursuant to N.C.G.S. § 1-294. Plaintiffs responded that Defendant’s failure to timely file an appeal with the N.C. Supreme Court, as required by N.C.G.S. § 7A-27, rendered the appeal without legal effect and therefore the Court retained jurisdiction to proceed with dissolution.
The Court agreed with Plaintiffs. The Court of Appeals lacks jurisdiction over appeals from orders of the Business Court because such appeals must be brought in the Supreme Court. Accordingly, Defendant’s appeal to the Court of Appeals was without legal effect, subject to dismissal, and was not and could not be perfected. Additionally, since the time for Defendant to file its appeal of the summary judgment order expired without Defendant filing an appeal in the proper court, Defendant had not and could not belatedly perfect a newly filed appeal in the Supreme Court. Therefore, the Court found it was not divested of jurisdiction, the stay provisions of section 1-294 did not apply, and the Court could proceed to consider the dissolution of the two defendant LLCs at issue.
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 01/17/24
Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 88 (N.C. Super. Ct. Dec. 22, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15; amended complaint; futility; 12(b)(6); breach of fiduciary duty; tortious interference; anticipatory repudiation
As previously summarized here, this dispute arose from a series of agreements entered into by parties associated with Husqvarna and parties associated with Robin Autopilot. Husqvarna sought leave to amend its complaint to supplement the complaint’s factual allegations, add Robin Autopilot’s formed CEO, Logan Fahey, as a defendant, assert additional claims, and reassert certain existing claims. Defendant Robin Autopilot opposed the motion on the basis of futility.
Breach of Fiduciary Duty Claim against Fahey. The Court denied Plaintiff’s motion to amend to add a derivative claim for breach of fiduciary duty against Fahey because Plaintiff had failed to make a written pre-suit demand as required by the governing Ohio LLC statute. The Court found no basis to read a futility exception into the Ohio law as urged by Plaintiff. Accordingly, the claim was futile because Plaintiff lacked standing to assert it.
Tortious Interference Claim against Fahey. The Court granted Plaintiff’s motion to add tortious interference with contract claims against Fahey. The Court noted that Plaintiff’s allegations of malice made “upon information and belief” were sufficient to survive a 12(b)(6) dismissal motion. Additionally, the Court rejected Robin Autopilot’s public policy argument, stating that North Carolina law permits a party to seek to hold a corporate officer accountable for tortiously interfering with their company’s contracts for their own personal benefit.
Anticipatory Repudiation. The Court granted Plaintiff’s motion as to its reasserted claims for anticipatory breach of contract. Robin Autopilot argued that the claim, which stems from a memo sent by Fahey to Plaintiff, was futile. Robin Autopilot based its argument on language found in the Court’s Order and Opinion on Plaintiff’s Motion to Dismiss Amended Counterclaims from November 2023, in which the Court concluded that the memo was not a “distinct, unequivocal, and absolute refusal to perform.” The Court held that its Order did not resolve issues of fact and did not constitute a holding in regard to the memo’s interpretation.
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McFee v. Presley, 2023 NCBC 89 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: summary judgment; 12(b)(6); fraudulent transfer; fraud; statute of limitations; breach of fiduciary duty; N.C.G.S § 39-23.4; unjust enrichment
Plaintiff Jacqueline McFee served as the lead designer for CPP, a stationery and office supply company, for ten years. Defendant William Presley served as CPP’s President, CEO, and partial owner during the relevant period. In 2008, McFee became a Class B member of CPP with 10% of non-voting stock. At that time, McFee entered into a written employment agreement with CPP, which assigned all intellectual property rights in her design work to CPP but granted McFee the option to reclaim the intellectual property rights if certain events occurred. McFee alleged that Defendant falsely promised to protect her intellectual property rights and ensure that CPP would reassign them to her when the time arose.
After CPP’s business went into decline, McFee and other Class B members abandoned their membership interests in 2013. McFee alleged that prior to her abandoning her membership interest, Defendant falsely represented to her that CPP’s poor performance had rendered her membership interest worthless. After CPP terminated McFee’s employment, she requested that she be reassigned the rights to her design. Defendant refused McFee’s request. McFee subsequently sued CPP in both federal and state court over the dispute and she obtained a default judgment against CPP in the state action. During the pendency of the state action, CPP sold some of its assets for $11 million to a company called Pacon and used the profits to pay off a secured lender, make a distribution to Defendant, and retained a portion as capital. Defendant resigned from CPP in 2017. After CPP defaulted on a line of credit in 2019, CPP’s lender foreclosed on its assets used as collateral and sold them to a company called Bay Sales.
In 2021, McFee filed the present lawsuit against Defendant for fraud, unjust enrichment, breach of fiduciary duty, and constructive fraud. McFee also alleged that the Pacon sale and Bay Sales foreclosure sale were fraudulent transfers. The parties filed cross-motions for summary judgment.
Fraudulent Transfer—N.C.G.S. § 39-23.5(b). The Court granted Defendant’s motion as to McFee’s claim under N.C.G.S. § 39-23.5(b) as the one-year statute of limitations precluded the claim.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Pacon Sale). The Court granted Defendant’s motion for summary judgment and denied McFee’s cross-motion on the basis that the claim was untimely. N.C.G.S. §39-23.4(a)(1) provides a limitations period of “not later than four years after the transfer was made . . . or, if later, not later than one year after the transfer . . . was or could reasonably have been discovered.” Noting that the sale occurred in 2017, and the undisputed evidence suggested that McFee received actual notice of the sale in 2019, the Court dismissed McFee’s claim as untimely.
Fraudulent Transfer—N.C.G.S. §39-23.4(a)(1) (Bay Sales Foreclosure Sale). The Court granted Defendant’s motion and denied McFee’s cross-motion as to the Bay Sales foreclosure sale, as the foreclosure sale did not constitute a “transfer” under the statute. The statute defines “transfer” as disposal of an “asset” and defines “asset” to exclude property encumbered by a valid lien. The evidence showed that the property sold to Bay Sales was collateral encumbered by a valid lien.
Fraud. The Court granted Defendant’s motion as to McFee’s fraud claim on the basis that it was untimely and lacked evidence to survive dismissal on the merits of the claim. McFee failed to provide evidence which would create a genuine issue of material fact concerning when her fraud claim accrued. The Court noted that, by McFee’s own admission, she was aware of the alleged fraud when she initiated suit in state court in 2017. Additionally, Defendant’s arguments and evidence relating to the merits of the claim remained unrebutted by McFee. As such, McFee’s claim was dismissed.
Unjust Enrichment. The Court granted Defendant’s motion as to McFee’s unjust enrichment claim as it related to the Pacon sale (2017), holding that the statute of limitations for unjust enrichment (3 years) barred recovery for McFee’s claim, which was filed in 2021. The Court held that McFee’s claim was not time-barred as it related to the Bay Sales foreclosure sale (2019). However, after analyzing the merits of the claim, the Court granted Defendant’s motion on the basis that: (i) a written employment agreement governed the intellectual property rights, making unjust enrichment an improper claim; and (2) McFee had failed to allege or otherwise provide evidence demonstrating that she had conferred a benefit upon Defendant.
Breach of Fiduciary Duty and Constructive Fraud. The Court likewise granted Defendant’s motion and dismissed Plaintiff’s breach of fiduciary duty and constructive fraud claims. The Court held that, while the managers of an LLC “owe a fiduciary duty to the LLC’s creditors to treat members of the same creditor class fairly and equally” when the LLC finds itself in circumstances amounting to a winding-up or dissolution, Defendant did not owe Plaintiff a fiduciary duty in the present circumstances. First, Defendant was not a manager at the time the Bay Sales foreclosure sale occurred in 2019. Second, the undisputed evidence showed that CPP was not in “circumstances amounting to a winding-up” at the time of the Pacon sale. As such, Defendant did not owe Plaintiff a fiduciary duty at the time the relevant transactions took place. As the Court held that no fiduciary duty existed, the constructive fraud claim was dismissed as well.
Veil Piercing. As the Court entered summary judgment in favor of Defendant on every claim for relief, the Court also entered summary judgment in Defendant’s favor on Plaintiff’s veil piercing claim.
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McFee v. Presley, 2023 NCBC 90 (N.C. Super. Ct. Dec. 28, 2023) (Conrad, J.)
Key Terms: default judgment; fraudulent transfer; standing; breach of fiduciary duty; constructive fraud; unjust enrichment; N.C.G.S § 39-23.4; N.C.G.S. § 39-23.5(b); veil-piercing
A more detailed factual summary of this case can be found in our summary of McFee v. Presley, 2023 NCBC 89, above. This opinion arises from Plaintiffs Jacqueline McFee (“McFee”) and her solely owned, dissolved corporation, Savage McFee, Inc.’s Motion for Default Judgment against Defendants Bill Stacks, Sabr Leme, Inc., Stacks Holding, Inc., and CPP International, LLC (collectively, the “Defaulting Defendants”). After the Defaulting Defendants failed to answer or otherwise respond to Plaintiffs’ amended complaint, the Court entered default against the Defaulting Defendants in May 2023.
Even after default is properly entered and the defaulting party is deemed to have admitted the factual allegations in the complaint, the Court must still assess the sufficiency of the allegations to determine if they are sufficient to state a cause of action.
Standing. The Court began by ordering Savage McFee, Inc. to show cause why its claims should not be dismissed for lack of standing, as the complaint contained no allegations that Savage McFee took part in any of the relevant events, nor that it was harmed by the Defaulting Defendants.
Breach of Fiduciary Duty and Constructive Fraud. The Court denied McFee’s motion as to the breach of fiduciary duty and constructive fraud claims as they related to the Pacon transaction. The complaint did not adequately allege that Default Defendant Bill Stacks owed a fiduciary duty to McFee because 1) Stacks, as an officer of the LLC, did not owe a fiduciary duty to McFee as a member or employee; and 2) Stacks was not an officer of CPP at the time the Pacon sale was executed and thus he did not owe a fiduciary duty to McFee as a creditor. However, the Court granted McFee’s motion as it related to the Bay Sales transaction, as the complaint alleged that at the relevant time, Stacks was a manager, CPP was winding up, and McFee was a known creditor.
Fraudulent Transfer. The Court granted McFee’s motion as it related to fraudulent transfer under N.C.G.S § 39-23.4 against CPP, as the amended complaint adequately alleged that McFee was a creditor of CPP; CPP was put on notice of McFee’s claim; that substantially all of CPP’s assets were transferred to Pacon and Bay Sales; that CPP concealed these transfers from McFee; and that CPP transferred the assets with the intent to hinder, delay and defraud McFee. The Court denied McFee’s motion as it related to Defaulting Defendants Sabr Leme and Stacks Holding, as the complaint provided no allegations to hold Sabr Leme or Stack Holding liable on a veil-piercing theory. The Court also denied McFee’s motion against Stacks as it related to the Pacon sale, as the amended complaint alleged that Stacks did not acquire ownership in, or become an officer of, CPP until after the Pacon sale was completed. The Court granted McFee’s motion against Stacks as it related to the Bay Sales transaction, as the amended complaint made sufficient allegations against Stack of domination and control regarding the Bay Sales transaction to warrant veil-piercing. McFee’s claim under N.C.G.S. § 39-23.5(b) was denied in full, as the amended complaint did not allege an antecedent debt existed.
Unjust Enrichment. Lastly, the Court denied McFee’s motion as it related to the unjust enrichment claims. Her allegations against Stacks were conclusory and contradictory and otherwise insufficient. Her allegations regarding the other Defendants showed that her intellectual property rights were governed by a written contract, which foreclosed any claim for unjust enrichment.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC 91 (N.C. Super. Ct. Dec. 28, 2023) (Robinson, J.)
Key Terms: service; summons; Rule 4; Rule 12(b)(5); designated delivery service; FedEx Express Saver; 26 U.S.C. § 7502(f)(2)
This opinion was issued in response to the 12(b)(5) motions to dismiss filed by Counterclaim-Defendants Goodwin Procter LLP and Leila Strickland. On February 6, 2023, Defendants/Counterclaim-Plaintiffs Shayne Guiliano and 108LABS, LLC filed their answer and counterclaims to BIOMILQ’s complaint. Counterclaim-Plaintiffs did not cause a summons to be issued for either Goodwin or Strickland prior to or at the time of filing its counterclaims. After the Court’s inquiry on the issue, Counterclaim-Plaintiffs secured the issuance of summons for service upon Goodwin and Strickland on April 20, 2023.
Counterclaim-Plaintiffs attempted to serve Goodwin and Strickland by FedEx’s “Express Saver” service. The tracking history for Strickland’s summons demonstrated that the materials were purportedly delivered to Strickland on May 2, 2023, but no signature was required or obtained. Counterclaim-Plaintiffs sent the summons and materials to Goodwin through the same “Express Saver” service, addressed to “Goodwin Procter LLP” but not addressed to an individual person. The tracking history shows that the package was delivered to Goodwin’s mailroom on May 4, 2023 and was signed for by an individual. Counterclaim-Defendants moved for dismissal of the counterclaims and third-party claims on the basis of improper service.
Noting that Rule 12(b)(5) requires an action to be dismissed when service of process is not valid, the Court granted both Counterclaim-Defendants’ motions. The Court looked to Rule 4(j)(7)(a) and 4(j)(1)d, which govern service by designated delivery service on a partnership and an individual, respectively. Both provisions require that the serving party deposit the summons and complaint “with a designated delivery service authorized pursuant to 26 U.S.C. § 7502(f)(2)” for delivery. Because FedEx’s “Express Saver” service is not a designated delivery service pursuant to 26 U.S.C. § 7502(f)(2), Counterclaim-Plaintiff’s attempted service did not comply with Rule 4 and was therefore insufficient. The Court found unpersuasive Counterclaim-Plaintiff’s arguments that 1) the list of designated delivery services was not properly before the Court; 2) that the list was illustrative rather than exhaustive; 3) that because FedEx Express Saver meets the minimum requirements necessary to be a designated delivery service, it is a proper method of service; 4) that the policy set forth in N.C.G.S. § 1-75.1 liberalizing the grounds for jurisdiction should prevail over a mechanical application of the law; and 5) that a rebuttable presumption that service was proper applies to their attempted service.
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Loyd v. Griffin, 2023 NCBC 92 (N.C. Super. Ct. Dec. 29, 2023) (Robinson, J.)
Key Terms: judgment; jury verdict; specific performance; breach of contract
Following a jury verdict, the Court issued this Final Order and Judgment. In the Order, the Court analyzed the contract at issue to determine if specific performance was an appropriate remedy. After the jury found that a shareholder agreement between the parties had been amended, the Court concluded that the amended agreement’s language did not require Plaintiff to sell his shares back to Defendant. As a result, Defendant was not entitled to specific performance on its counterclaim, as it was unable to establish the requisite elements of a breach of contract claim.
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CTS Metrolina, LLC v. Berastain, 2023 NCBC Order 68 (N.C. Super. Ct. Dec. 24, 2023) (Earp, J.)
Key Terms: temporary restraining order; injunctive relief; sale of a business; restrictive covenants; misappropriation of trade secrets
This order arises from Plaintiff CTS Metrolina, LLC’s motion for a temporary restraining order against Defendants Dustin Berastain, Timothy Moreau, and Inkwell Emergency Response LLC. CTS purchased the assets of Metrolina Restoration, LLC, a company owned and operated by Berastain and Moreau. As part of this transaction, Berastain and Moreau agreed to certain restrictive covenants, namely noncompetition, nonsolicitation, and confidentiality provisions, and became employed by CTS. CTS later terminated Berastain, and Moreau resigned soon after. CTS alleges that Berastain and Moreau are now affiliated with one of CTS’ competitors, Inkwell, which was founded soon after Berastain’s and Moreau’s exits from CTS. CTS filed the present motion to enjoin Defendants from activity in violation of the restrictive covenants or misappropriating CTS’ trade secrets.
The Court granted CTS’ motion as it related to the restrictive covenants. The Court found that CTS presented evidence sufficient to establish a reasonable likelihood that it will succeed on its claim that the restrictive covenants at issue are enforceable, and that Berastain and Moreau have violated one or more of them through their association with Inkwell. Finding the equities weighing in favor of CTS, the Court issued a temporary restraining order prohibiting certain competitive activity by the Defendants, including the disclosure of confidential information.
The Court denied CTS’ motion as it related to the misappropriation of trade secrets claim, concluding that Plaintiff had not shown a reasonable likelihood of success on that claim because CTS failed to identify the alleged trade secrets in sufficient detail and did not specify the particular measures taken to maintain the alleged trade secrets.
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Londry v. Stream Realty Partners L.P., 2023 NCBC Order 69 (N.C. Super. Ct. Dec. 28, 2023) (Earp, J.)
Key Terms: injunctive relief; pleading standards; ancillary relief
While employed by Stream Charlotte, a commercial real estate services firm, Plaintiff worked with RCC Investors to find a buyer for property RCC Investors was selling (the “PBC Deal”). However, RCC Investors never entered into a listing agreement with Stream Charlotte. After Plaintiff left Stream Charlotte, he began working for his own real estate firm and executed a listing agreement with RCC Investors for the PBC Deal. After Stream Charlotte learned that a purchase agreement had been entered into for the PBC Deal, it demanded that the money it would have received had there been a listing agreement prior to Plaintiff leaving Stream Charlotte be held in escrow. In July 2023, Plaintiff filed suit alleging claims against his former employer for breach of contract, breach of partnership agreement, breach of fiduciary duty, fraud, and unfair trade practices; however, none of the claims involved the PBC Deal. In October, Plaintiff filed a motion for injunctive relief seeking a mandatory injunction requiring Defendants to sign a release allowing the escrowed funds to be disbursed and a prohibitory injunction requiring Defendants to cease all contact with Plaintiff’s clientele. Plaintiff argued that Defendants’ interference with the PBC Deal had damaged him, both financially and personally, and had placed a financial strain on his business.
The Court denied the motion because the complaint (i) failed to assert a claim to which the requested relief could be ancillary; and (ii) sought only damages, not injunctive relief, in its prayer for relief.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Academy St. QOZB I, LLC, 2024 NCBC Order 1 (N.C. Super. Ct. Jan. 2, 2024) (Bledsoe, C.J.)
Key Terms: receivership; sanctions; violation of receivership order
In March 2023, the Court appointed the Receiver as general receiver for Defendant QOZB to administer the property of the Receivership Estate, including a piece of real property in Greenville, South Carolina (the “Multi-Family Land”). The Receivership Order also provided that the Receiver would have sole authority to act on behalf of QOZB and that the Court retained jurisdiction and supervision over all receivership-related matters. The Receiver subsequently reached an agreement on a proposed sale of the Multi-Family Land and circulated, by email, the proposed contract to counsel for QOZB’s investors: Plaintiffs, CitiSculpt Fund Services, and 10 Academy Opportunity Zone. Approximately two hours later, counsel for Academy and for CitiSculpt Fund Services indicated that they opposed the sale. Minutes later, CitiSculpt Fund Services’ counsel—Smith Currie & Hancock—filed a lawsuit on behalf of CitiSculpt SC, LLC against QOZB in South Carolina state court, seeking a declaration that a parking lease previously entered into was a valid and enforceable encumbrance on the Receivership Estate and recorded a notice of lis pendens against the Multi-Family Land. CitiSculpt SC and its counsel did not seek or obtain leave to file the South Carolina action or the lis pendens and never served the Receiver with either, instead only serving QOZB’s registered agent, a CitiSculpt employee. After finally being notified regarding the South Carolina action in July, the Receiver moved to approve the sale, enjoin the South Carolina action, and award sanctions against the CitiSculpt entities (including McAlpine, which owns and controls the CitiSculpt entities) and their counsel for violating the Receivership Order and for damages and attorneys’ fees incurred. Plaintiffs joined the motion and in support showed that McAlpine had made false statements to the Court.
The Court granted the motion. By attempting to exercise control over the Multi-Family Land through the filing of the South Carolina action and lis pendens, the CitiSculpt entities and their counsel: 1) violated the stay set forth in N.C.G.S. § 1-507.42(c); 2) violated the mandatory venue provisions of N.C.G.S. § 1-507.38(b); 3) violated N.C.G.S. § 1-507.22 which requires any claim relating to receivership property to be heard by the Court; and 4) violated their duties as Responsible Parties under the Receivership Order and as set forth in N.C.G.S. § 1-507.30. Further, the Court found that the evidence regarding false statements made by McAlpine provided further support for sanctions. The Court determined that the arguments advanced by the CitiSculpt entities and their counsel were meritless. The Court ordered the Receiver’s counsel to submit a petition seeking recovery of the Receiver’s actual damages and attorneys’ fees and ordered the sanctioned parties to dismiss the South Carolina action and cancel the lis pendens.
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 01/03/24
Am. Circuits, Inc. v. Bayatronics, LLC, 2023 NCBC 84 (N.C. Super. Ct. Dec. 8, 2023) (Robinson, J.)
Key Terms: summary judgment; misappropriation of trade secrets; UDTPA; unjust enrichment; punitive damages; civil conspiracy
This dispute arose from Defendant Patel’s resignation from ACI, and his alleged misappropriation of ACI’s trade secrets for use at Bayatronics, a competing business which he co-founded while still an ACI employee. ACI brought suit against Bayatronics and its members. Following completion of discovery, Defendants moved for summary judgment on all claims.
Misappropriation of Trade Secrets. The Court first addressed the three groups of alleged trade secrets provided by ACI to determine whether a trade secret had been sufficiently identified. From the first group, the Court concluded that one file identified—a customer list—could be a trade secret because it included qualitative information regarding the products manufactured for each customer and their potential revenue, which was not readily available through other sources. Regarding the second group, ACI had failed to identify any specific files for the Court to consider. Thus, the Court granted the motion as to these broadly defined categories of files. The third group, however, passed muster as the complaint specifically provided the name of each file, its content, how it was developed and used by ACI, and its value to competitors. The Court next considered the protective measures taken by ACI—requiring all employees to sign employment agreements with a confidentiality provision and maintaining the alleged trade secrets on a password-protected server—and could not conclude that those efforts were unreasonable as a matter of law. Lastly, the Court concluded that the forensic evidence was sufficient to create an inference of misappropriation, but only as to Bayatronics and one of its co-founders, Mr. Warriner. Accordingly, the claim against them survived summary judgment but was dismissed as to the other defendants.
UDTPA. The Court denied the motion to the extent it was based on ACI’s surviving misappropriation of trade secrets claim against Mr. Warriner and Bayatronics but granted it as to the other parties.
Civil Conspiracy. Although the surviving misappropriation of trade secrets claim could serve as the underlying tort for civil conspiracy, ACI’s circumstantial evidence of an unlawful agreement did not rise above mere suspicion or conjecture and therefore the claim was dismissed.
Unjust Enrichment. ACI argued that it had conferred the benefit of access to its confidential information on Patel and that the Bayatronic Defendants had been unjustly enriched by obtaining the benefit of that confidential information through their conspiracy. The Court, however, rejected this argument and dismissed the claim. The evidence showed, at most, that Patel had taken or retained confidential information which the Bayatronic Defendants ultimately received. It did not show that ACI had voluntarily conferred a benefit on the Bayatronic Defendants.
Punitive Damages. Noting that punitive damages are not a standalone claim, the Court granted the motion as to the claim for punitive damages without prejudice to ACI’s ability to seek punitive damages for conduct which may later be found to meet the statutory requirements of N.C.G.S. § 1D-15.
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Conservation Station, Inc. v. Bolesky, 2023 NCBC 85 (N.C. Super. Ct. Dec. 12, 2023) (Robinson, J.)
Key Terms: entry of default; bench trial; breach of fiduciary duty; constructive fraud; lost profits; punitive damages; fraud; conversion; intangible assets; tracing; tortious interference with prospective economic advantage; UDTPA; in or affecting commerce
Plaintiff CSI brought suit against its former employee/officer Bolesky and his new competing business CTS, asserting a number of claims arising from Bolesky’s alleged misconduct in running CSI. Following entry of default against Defendants, the Court proceeded to a bench trial at which Bolesky represented himself and CTS did not appear. This opinion constitutes the Court’s final judgment. Although entry of default renders the factual allegations admitted, it does not necessarily establish liability as the Court must still determine whether the allegations are sufficient to state a claim for relief.
Breach of Fiduciary Duty and Constructive Fraud. The Court concluded that CSI had sufficiently alleged that 1) Bolesky owed CSI a fiduciary duty as an officer; 2) Bolesky had breached that duty by, among other things, converting CSI’s business assets, failing to file CSI’s tax returns, and neglecting CSI’s supplier relationships; 3) Bolesky sought to benefit himself through these actions; and 4) CSI had been significantly damaged by Bolesky’s misconduct. CSI requested over $8 million in actual damages based on lost profits. However, because CSI’s lost profits calculations were too speculative, the Court determined that CSI was only entitled to recover $200,000 from the Defendants, jointly and severally, for these claims. The Court also awarded $600,000 in punitive damages based on evidence that Bolesky’s breaches of his fiduciary duty were carefully calculated and intended to destroy CSI’s ability to compete in the market.
Fraud. CSI’s first fraud claim was based on its allegation that Bolesky had made a material misrepresentation of fact when he stated under oath in a previous proceeding that he did not know whether he would use his new business, CTS, to engage in the same type of business as CSI. The Court concluded that CSI was not entitled to recovery on this claim because the complaint did not include allegations of how such statement was reasonably calculated to deceive. CSI’s second fraud claim was based on its allegation that Bolesky had made material misrepresentations to CSI’s customers regarding the relationship between CSI and CTS. The Court found this claim insufficient as well because the complaint did not allege the time, place, and content of the fraudulent representations.
Conversion. CSI alleged that Defendants had converted CSI’s funds, accounts receivable, distributorship rights, business relationships with customers, and good will. The Court concluded that this claim failed. Intangible interests, such as distributorship rights, business relationships, and good will, cannot form the basis of a conversion claim. In addition, a claim for conversion of money requires the funds in question to be specifically traced and identified, which CSI failed to do.
Tortious Interference. CSI’s claim for tortious interference with prospective economic advantage failed because CSI did not identify any specific contract which would have resulted but for Defendants’ alleged tortious interference.
UDTPA. CSI’s UDTPA claim failed because Bolesky’s formation of CTS and usurpation of CSI’s corporate opportunities was not in or affecting commerce; rather, CTS was formed and used as an instrument to facilitate harm within CSI.
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Emrich Enters. LLC v. Hornwood Inc., 2023 NCBC 86 (N.C. Super. Ct. Dec. 14, 2023) (Robinson, J.)
Key Terms: judgment notwithstanding the verdict; motion for a new trial; operating agreement; waiver of fiduciary duties; direct claim; standing; punitive damages; breach of contract
In this action, Emrich Enterprises, the minority member of Triangle, brought claims individually, and derivatively on behalf of Triangle, against Hornwood, Inc., the majority member of Triangle, arising from Hornwood’s alleged breach of Triangle’s governing documents and of fiduciary duties owed to Emrich and Triangle. After a seven-day trial, the jury found that Hornwood had breached its fiduciary duties on various bases and awarded damages. Following entry of final judgment, Hornwood moved for judgment notwithstanding the verdict and for a new trial.
Triangle’s Fiduciary Duty Claims Against Hornwood. Hornwood moved for JNOV regarding Triangle’s fiduciary duty claims on the basis that Triangle’s operating agreement eliminated Hornwood’s liability for such duties. The Court agreed and further concluded that duties owed under other sections of the agreement were contractual, not fiduciary, in nature. Thus, since the jury’s determination that Hornwood owed Triangle fiduciary duties was legally unsubstantiated, the Court granted the JNOV motion on these claims and amended the judgment accordingly.
Hornwood’s Self-Interested Transactions. Based on its conclusion that there was no evidence that Hornwood owed, and breached, fiduciary duties to Triangle, the Court granted the JNOV motion and amended the judgment with regards to the jury’s finding that Hornwood had engaged in self-interested transactions and the jury’s resulting award of compensatory damages. Due to this amendment, the Court also amended the judgment to reinstate Issue 11, which it had previously stricken as duplicative. The Court determined that JNOV was not appropriate on Issue 11 but allowed Hornwood leave to move for a new trial on that issue.
Emrich’s Direct Claims Against Hornwood. At trial, the jury found that Hornwood, as majority member of Triangle, breached fiduciary duties owed to Emrich by working with another entity and threatening to cease manufacturing for Triangle. In support of its JNOV motion, Hornwood argued that Emrich did not have standing to bring direct claims. The Court disagreed, concluding that Emrich, as a minority member of Triangle, had standing to bring direct claims against Hornwood, the majority member. In addition, the jury’s award of damages in differing amounts to Emrich and Triangle for the same conduct showed that Emrich suffered injuries distinct from those suffered by Triangle. Nevertheless, the Court granted the JNOV motion with regard to the claim arising from Hornwood’s threat to cease manufacturing because no fiduciary duty was owed to Emrich under the joint venture agreement.
Hornwood’s Breach of Contract. The Court determined that there was ample evidence at trial to support the jury’s finding that Hornwood had breached Section 4.4 of the Triangle operating agreement. Thus, the Court denied the JNOV motion as to this claim.
Triangle’s Punitive Damages. The Court granted JNOV with regards to the jury’s award of punitive damages. Since Triangle’s only surviving claims were breach of contract claims and the Court had determined that the jury’s findings regarding underlying torts which would have warranted punitive damages were unsupported by the evidence, there was no legal basis for punitive damages.
Motion for a New Trial or to Amend Judgment. Hornwood moved to amend the final judgment award for its breach of Section 4.4 of the Operating Agreement, arguing that the award was inconsistent with the jury’s award of nominal damages to Triangle for similar conduct, was unsupported by the greater weight of the evidence, and excessive. The Court disagreed and denied the motion. The verdict was not inconsistent as the jury could have relied on different evidence when awarding damages for separate claims. Moreover, based on the evidence presented the jury’s award was reasonable and not against the greater weight of the evidence.
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Blueprint 2020 Opportunity Zone Fund, LLLP v. 10 Acad. St. QOZB I, LLC, 2023 NCBC 87 (N.C. Super. Ct. Dec. 15, 2023) (Bledsoe, C.J.)
Key Terms: receivership; subject matter jurisdiction; in rem; in personam; sale of real property; free and clear; lease; N.C.G.S. § 1-507.41; N.C.G.S. § 1-507.46(c); N.C.G.S. § 1-507.45(g)(2); balancing of equities
As summarized here, the Court previously appointed a receiver over Defendant QOZB. Thereafter, the Receiver filed a motion seeking authority to sell, free and clear of all liens and encumbrances, a piece of property in South Carolina currently encumbered by several parking leases. A number of parties opposed the motion.
The Opposing Parties first argued that the Court did not have subject matter jurisdiction to authorize the Receiver to sell property located in South Carolina. The Court rejected this argument. Although the Court did not have in rem jurisdiction to transfer title itself, it could exercise its in personam jurisdiction to authorize the Receiver to take appropriate steps to effectuate the sale.
The Opposing Parties then argued that, pursuant to N.C.G.S. § 1-507.41, the Receiver needed to obtain an ancillary receivership in South Carolina before exercising control over the property. This argument failed as well because the statute’s language regarding foreign receiverships was permissive rather than mandatory.
The Opposing Parties next argued that N.C.G.S. § 1-507.46(c) restricts a receiver’s power to effect sales to those that are free and clear of liens but not of other types of encumbrances, and that this provision preempts all other statutes and common law principles regarding the sale of receivership property. The Court again disagreed. It determined that the statute’s plain language only addressed a receiver’s authority to engage in sales made “free and clear of all liens and rights of redemption and claims of exemption,” but did not address or create a restriction on a receiver’s authority to sell free and clear of other encumbrances. Moreover, the Commercial Receivership Act expressly provides that other statutory and common law supplement its provisions unless explicitly displaced. Since North Carolina law has long held that a receiver has the power to sell property free and clear of all encumbrances, it followed that if the legislature intended to change the common law, it would have expressly said so.
The Court next concluded that the Receiver did not have the authority to reject the current parking lease as an executory contract pursuant to N.C.G.S. § 1-507.45(g)(2) because the statute expressly prohibited a receiver from rejecting an unexpired lease of real property under which the debtor is the landlord and the receiver was appointed at the request of a person other than the mortgagee—which were the facts at hand here. Nevertheless, the Court concluded that the parking leases were void under South Carolina law. First, the current parking lease was void because it was supported by grossly inadequate consideration and accompanied by various “inequitable incidents.” Second, the remaining parking leases were void due to fatal defects, including that the lessor did not have rights to the leased property, the parent lease was invalid, and the same party was on both sides of the transaction.
Based on the above, and the balancing of the equities, the Court granted the motion, approved the proposed sale contract, and authorized the Receiver to effectuate the sale and transfer the property free and clear of all liens and other encumbrances, including the parking leases.
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Bank of Am. N.A. v. Klaussner Furniture Indus., Inc., 2023 NCBC Order 66 (N.C. Super. Ct. 15, 2023) (Robinson, J.)
Key Terms: receivership; attorneys’ fees; application for compensation; reasonableness; hourly rate; N.C.G.S. § 1-507.31(b)
This order addressed K&L Gates’ first monthly application for payment of attorneys’ fees and expenses as counsel to the Receiver for Klaussner Furniture. In determining the reasonableness of the compensation requested, the Court considered the factors set forth in N.C.G.S. § 1-507.31(b), including the value of the debtors’ assets, the number and amount of the debtors’ creditors, the time and labor expended, the billing rates charged, the novelty and complexity of the receivership, and rates previously found reasonable in similar circumstances. Although acknowledging that K&L Gates had provided high-level performance, the Court ultimately determined that the rates needed to be adjusted. Accordingly, the Court granted the application in part and permitted the Receiver to remit to K&L Gates compensation at the rates set forth by the Court. However, the Court denied the motion as to payment of expenses because the application did not include any specific information or itemization for the costs incurred.
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Clearview Ltd., LLC v. Fife, 2023 NCBC Order 67 (N.C. Super. Ct. Dec. 18, 2023) (Bledsoe, C.J.)
Key Terms: order on designation; mandatory complex business case; N.C.G.S. § 7A-45.4(a)(8); amended complaint; trade secrets; confidential or proprietary information
This action arose out of a dispute between Plaintiff and two of its former employees. Plaintiff asserted claims for breach of contract, unfair and deceptive trade practices, unfair competition, civil conspiracy, and tortious interference with contract. Shortly after filing suit, Plaintiff filed an amended complaint asserting the same claims but modifying the factual allegations, including removal of references to trade secrets. Thereafter, Defendants filed a notice of designation under N.C.G.S. § 7A-45.4(a)(8), which permits designation in disputes involving trade secrets. Defendants argued that designation was proper despite the removal of references to trade secrets because the nature of the action had not changed. The Court disagreed, noting that it had never construed section 7A-45.4(a)(8) so broadly as to permit designation based on claims involving generalized confidential or proprietary information. Accordingly, since the allegations of the amended complaint only involved misuse of generalized proprietary information, designation was improper.
By: Ashley 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 12/20/23
James H. Q. Davis Tr. v. JHD Props., LLC, 2023 NCBC 78A (N.C. Super. Ct. Nov. 16, 2023) (Bledsoe, C.J.)
Key Terms: summary judgment; judicial dissolution; N.C.G.S. § 57D-6-02(2)(i); deadlock
As summarized here, this action arose from disagreements over estate planning vehicles established by Dr. Davis for the benefit of his four sons, namely a trust for each son, as well as two LLCs, which each of the trusts hold an equal interest in and which two of the sons—Charles and Jim—are managers of. The LLCs own four undeveloped tracts of land. After Charles and Jim were unable to reach an agreement on use of the property, two of the trusts filed this action seeking judicial dissolution of the LLCs under N.C.G.S. § 57D-6-02(2)(i). Charles, through his trust, intervened to oppose the dissolution. Both sides moved for summary judgment.
The evidence showed that, although Charles and Jim have been cordial and cooperative in their communications, they have been unable to reach agreement for at least three years, resulting in the failure of the LLCs to conduct any economically useful activity as contemplated by their operating agreements. Moreover, the operating agreements did not provide any mechanism to break the deadlock. As such, the Court concluded that it was not practicable to conduct the LLCs’ business and therefore, judicial dissolution was warranted.
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Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 79 (N.C. Super. Ct. Nov. 28, 2023) (Bledsoe, C.J.)
Key Terms: Rule 12(b)(6); breach of fiduciary duty; de facto duty; partnership duty; constructive fraud; misappropriation of trade secrets; tortious interference with prospective economic advantage; economic loss rule; UDTPA; breach of contract; breach of implied covenant of good faith and fair dealing
As previously summarized here, this dispute arose from a series of agreements entered into by parties associated with Husqvarna and parties associated with Robin Autopilot. In this opinion, the Court addressed Plaintiff Husqvarna’s motion to dismiss Robin’s amended counterclaims pursuant to Rule 12(b)(6).
Breach of Fiduciary Duty. Robin contended that the Husqvarna Parties owed it fiduciary duties on a number of bases, each of which the Court rejected. First, under Ohio law, which governed the standard of care owed by Robin’s members and managers, the Husqvarna Parties did not owe a fiduciary duty to Robin by virtue of their membership in Robin. Second, the fact that Husqvarna was permitted under the Robin Operating Agreement to designate two members of Robin’s seven-member board did not make the Husqvarna Parties themselves managers or members of the Board, and thus they did not owe any fiduciary duties on that basis. Further, Husqvarna’s ability to appoint two members of Robin’s board did not amount to the level of control or power required to impose de facto fiduciary duties. Third, Robin did not allege that it had any agreement with the Husqvarna Parties to share profits, so no fiduciary duty could arise on the basis of a partnership. Finally, no fiduciary duty arose from the parties’ confidentiality agreements because Robin did not allege any special duties or damages arising apart from those created by the agreements. Accordingly, Robin’s breach of fiduciary counterclaim was dismissed with prejudice.
Constructive Fraud. The Court also dismissed Robin’s counterclaim for constructive fraud, since Robin failed to establish the existence of a fiduciary duty.
Misappropriation of Trade Secrets. The Court denied Husqvarna’s motion as to Robin’s counterclaim for misappropriation of trade secrets. Robin’s allegations regarding customer lists, business strategies, and technical information were sufficient to identify a trade secret at the 12(b)(6) stage. Robin also sufficiently pleaded facts regarding misappropriation, including that Husqvarna acquired trade secret information under a confidentiality agreement and used those trade secrets to enhance their own products and interfere with Robin’s customer and prospective customer relationships.
Tortious Interference with Prospective Economic Advantage. The Husqvarna Parties sought dismissal of Robin’s claim that Plaintiffs tortiously interfered with Robin’s prospective contracts with AutoCut and the Mariani Group. The Court granted dismissal with regards to AutoCut because Robin’s allegations showed that it hoped for a contract with AutoCut, but failed to show that a contract would have been entered into absent Plaintiffs’ interference. However, the Court denied the motion as to the Mariani Group because Robin had sufficiently pleaded but-for causation by alleging that the deal between Robin and Mariani was “set to close” until the Husqvarna parties contacted Mariani. The Court also rejected the Husqvarna Parties’ legal justification argument since Robin had sufficiently alleged that the Husqvarna Parties interfered unlawfully by misappropriating trade secrets. Lastly, the Court concluded that the claim was not barred by the economic loss rule because Robin had sufficiently alleged a duty (the duty not to interfere) which was distinct from any contractual obligations between the parties.
Unfair and Deceptive Trade Practices. The Court denied Husqvarna’s motion to dismiss Robin’s UDTPA claim since Robin’s surviving claims for trade secret misappropriation and tortious interference claims formed the basis of the UDTPA claim.
Breach of the Admission Agreement and Amended Admission Agreement and Breach of Implied Covenant of Good Faith and Fair Dealing. Husqvarna sought to dismiss Robin’s claims for breach of the admission agreement on the basis that: (i) Robin’s pleadings failed to allege that Husqvarna’s time to provide the products to Robin has expired; and (ii) Robin repudiated the agreement by sending a memo before Husqvarna’s duty of payment was triggered. The Court held that Robin’s pleadings adequately addressed the timing issue and did not establish that the agreements were repudiated by Robin’s memo. As such, the Court denied Husqvarna’s motion as to these claims. Since Robin’s implied covenant claim was based on the same acts as its breach of contract claim, the Court also denied Husqvarna’s motion as to Robin’s implied covenant claim.
Breach of the Confidentiality Agreement. Husqvarna argued that Robin’s claim for breach of the confidentiality agreement should be dismissed, as Robin did not allege the specific provisions breached or attach the agreement to its counterclaims. Noting that North Carolina permits notice pleading, the Court held that Robin’s pleadings sufficiently alleged the elements for breach of contract and therefore denied Husqvarna’s motion.
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Howard v. IOMAXIS, LLC, 2023 NCBC 80 (N.C. Super. Ct. Nov. 29, 2023) (Earp, J.)
Key Terms: motion to amend complaint; supplemental complaint; standing; derivative claim; economic interest holder; breach of contract; alternative pleading; repudiation; fraudulent concealment; duty to disclose; reasonable reliance; survival of claim upon death; UVTA; conversion; economic loss rule; conspiracy; personal jurisdiction
Plaintiffs are the trustees of the Ronald E. Howard Revocable Trust. Prior to his 2017 death, Ronald Howard was the majority member of IOMAXIS. Plaintiffs alleged that upon Howard’s death, and pursuant to IOMAXIS’s North Carolina operating agreement, his membership interest became an economic interest and eventually passed to the Trust. This action arose from disputes with the remaining IOMAXIS members over the OA’s buy-sell provisions and the Trust’s right to the economic benefits from Howard’s interest. After a lengthy discovery period, which included a trip to the Supreme Court as summarized here, Plaintiffs moved to file a supplemental and second amended complaint, which Defendants opposed.
Standing. Defendants asserted that the Trust lacked standing because the movement of Howard’s economic interest from his Estate to the Trust without member approval violated the OA and because the Trust cannot bring claims for the alleged devaluing of its interest because the claims are derivative and an economic interest holder, such as the Trust, lacks standing to bring derivative claims. The Court rejected both arguments. The Court had previously determined that the Trust’s allegations were sufficient to establish standing and nothing in the proposed amendments affected that determination. Moreover, Plaintiffs’ fraudulent concealment claim was not derivative because, as alleged, the claim belongs to the Trust alone since only the Trust was kept in the dark.
Breach of Contract. Plaintiffs sought to add a claim for a declaration that IOMAXIS repudiated the OA and to divide their contract-related allegations into separate claims for breach of the OA’s provisions regarding distributions, the buy-sell process, and the implied duty of good faith and fair dealing. The Court allowed these amendments. These amendments were not unduly prejudicial or untimely given the unusual procedural history of the case. In addition, at this stage, Plaintiffs could plead their breach of contract claim under alternative theories of breach by non-performance or breach by repudiation; thus, the repudiation theory was not futile.
Fraudulent Concealment. Defendants asserted that the proposed amendments to Plaintiffs’ fraudulent concealment claim were futile because a duty to disclose and reasonable reliance were not adequately alleged. The Court determined that Plaintiffs’ allegations of affirmative steps that the IOMAXIS Defendants and Five Insights had taken to conceal material facts was sufficient to give rise to a duty to disclose and its allegations that it had been unable to ascertain the truth despite reasonable diligence satisfied the reliance element. Accordingly, the Court allowed the amendments; however, the amendment was denied to the extent it sought to reassert a claim for fraud occurring prior to Howard’s death. Although, the right to prosecute an action existing at the time of death survives, a claim for fraud only accrues upon discovery by the plaintiff of facts constituting the fraud. Thus, no fraud claim survived Howard’s death that could have become part of his residuary estate.
Uniform Voidable Transactions Act. Plaintiffs sought to expand their UVTA claim to include transfers that had recently incurred. The Court allowed these amendments as Plaintiffs had sufficiently alleged that transfers were made with an intent to hinder, delay, or defraud.
Conversion. Plaintiffs’ proposed conversion claim was based on the alleged conversion by IOMAXIS of the Trust’s right to capital, income, losses, credits, and other economic rights. However, because this right existed by virtue of the Trust’s status as an economic interest holder pursuant to the OA, the claim arose from contractual duties owed to the Trust and was therefore barred by the economic loss rule. Thus, the conversion claim was futile and this amendment was denied.
Conspiracy. The Court allowed the addition of a conspiracy claim based on Plaintiffs’ factual allegations showing that the IOMAXIS Defendants, along with proposed Defendant Five Insights, agreed to and engaged in a coordinated scheme to unlawfully deprive the Trust of distributions and reduce the value of its economic interest.
Addition of Five Insights as a Defendant. The IOMAXIS Defendants objected to the addition of Five Insights because it was a Delaware company with no connection to North Carolina such that the Court lacked personal jurisdiction over it. However, Plaintiffs’ allegations that Five Insights is a successor-in-interest and the sole member of IOMAXIS were sufficient at this stage to allow the inference of jurisdiction. Thus, the motion was granted to allow the addition of Five Insights.
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PreGel Am., Inc. v. Casol, 2023 NCBC 81 (N.C. Super. Ct. Dec 1, 2023) (Bledsoe, C.J.)
Key Terms: summary judgment; Rule 56; indemnification; N.C.G.S. § 55-8-52; N.C.G.S. § 55-8-56; bylaws
After Plaintiff’s initial federal lawsuit against Casol, its former CEO, was dismissed for lack of subject matter jurisdiction, Casol made a demand for indemnification which Plaintiff rejected. Thereafter, Plaintiff filed this state court action asserting substantially similar claims as in the federal action and seeking a declaration that it was not required to indemnify Casol under its bylaws or N.C.G.S. §§ 55-8-52 and 55-8-56. Casol counterclaimed seeking a declaration that Plaintiff was required to indemnify him for his expenses from the federal action. The parties submitted cross-motions for summary judgment on the declaratory judgment claims.
The Court held that determining Plaintiff’s obligation to indemnify Casol under the bylaws was premature, as the bylaws required a finding that Casol did not know or believe that his actions were in conflict with the company’s best interest and no evidence had been submitted on this issue.
However, the Court granted Casol’s motion and denied Plaintiff’s motion regarding indemnification under N.C.G.S. §§ 55-8-52 and 55-8-56, which mandate indemnification for a corporate officer “who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he [] was an [officer] of the corporation.” The federal action was a completed action in which Casol produced a victorious procedural defense; thus the statutory requirements were satisfied and Casol was entitled to mandatory indemnification from Plaintiff for his reasonable expenses incurred in connection with the federal action.
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Weddle v. WakeMed Health & Hosps., 2023 NCBC 82 (N.C. Super. Ct. Dec 4, 2023) (Conrad, J.)
Key Terms: motion to dismiss; Rule 12(b)(6); patients; class action; Meta; Facebook; personal and medical data; negligence; negligence per se; invasion of privacy; breach of implied contract; unjust enrichment; UDTPA; breach of fiduciary duty; Meta Pixel; learned profession exception
Plaintiffs—patients or former patients of Defendant Wake Med—filed suit asserting various claims arising from WakeMed’s alleged unauthorized disclosure of Plaintiffs’ sensitive personal and health information to Meta through use of a data collection software code, Meta Pixel, embedded in its website and patient portal. WakeMed moved to dimiss all claims.
Negligence and Negligence Per Se. Plaintiffs alleged that WakeMed’s unauthorized disclosure of private patient information to Meta violated section 5 of the Federal Trade Commission Act and certain HIPAA regulations and that such violations constitute negligence per se. However, the Court determined that because neither the FTC Act nor the HIPAA regulations are public safety laws, i.e., laws for the protection of life or limb, the negligence per se claim failed. However, the Court found that Plaintiffs did adequately state a claim for common-law negligence based on its allegations that WakeMed breached its duty to exercise reasonable care when handling its patients’ confidential information by using Pixel and giving Meta unauthorized access to the information. That unauthorized disclosure led to foreseeable, avoidable harm, compounded by WakeMed’s delay in notifying its patients of the breach of confidence.
Invasion of Privacy/Intrusion into Seclusion. The Court dismissed this claim, concluding that WakeMed’s alleged unauthorized disclosure of voluntarily-shared confidential information to a third party did not amount to an intrusion into Plaintiffs’ private affairs since there was no unauthorized examination by WakeMed.
Breach of Implied Contract. Given the low bar to plead existence of a valid contract, Plaintiffs’ allegations of the elements of a contract were sufficient to give notice of their claim and the basis for it. The Court denied the motion to dismiss Plaintiffs’ claim for breach of implied contract.
Unjust Enrichment. Plaintiffs’ allegations of unjust enrichment were insufficient to state a claim because Plaintiffs failed to allege that they expected to receive any other compensation or benefit, apart from medical services, in return for providing their personal information to WakeMed. The Court was also unpersuaded by Plaintiffs’ argument that they conferred the marketing value of their data, which WakeMed used to enrich itself, because Plaintiffs could not point to any allegations that they intentionally conferred the marketing value of their data on WakeMed or that they expected compensation for it.
Section 75-1.1. Plaintiffs asserted that WakeMed’s disclosure of its patients’ information to Meta violated section 75-1.1. The Court, however, dismissed this claim under the learned profession exception. As a hospital system, WakeMed is a member of a learned profession and its alleged conduct was a rendering of professional services because its collection and use of patients’ information is entwined with its provision of professional services.
Breach of Fiduciary Duty. Plaintiffs alleged that they shared confidential information with WakeMed in the context of a physician–patient relationship for the purpose of receiving medical care. The Court found that such allegations were enough to plead the existence of a fiduciary relationship and that the allegation that WakeMed unauthorizedly disclosed such confidential information was enough to plead a breach of that duty. The Court denied the motion to dismiss the breach of fiduciary duty claim.
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N.C. Dep’t of Revenue v. Hayden Olivia Bridal, LLC, 2023 NCBC 83 (N.C. Super. Ct. Dec. 5, 2023) (Bledsoe, C.J.)
Key Terms: Department of Revenue; Notice of Final Determination; Office of Administrative Hearings; petition for a contested tax case; untimely; appeal; substantial right; sovereign immunity; N.C.G.S. § 150B-43; N.C.G.S. § 150B-23(f)
On August 30, 2022, the Department of Revenue sent Respondent a Notice of Final Determination assessing additional taxes. The NOFD also notified Respondent of the appeal process, which required Respondent to file a petition for a contested tax case hearing within 60 days of mailing of the NOFD. This deadline fell on a Saturday. Respondent emailed its contested case petition to the OAH’s Clerk’s Office after 5 PM the following Monday. It was accepted by the Clerk the next morning. The Department moved to dismiss the petition, contending that by failing to timely file the petition, Respondent failed to satisfy a necessary condition precedent to the Department’s waiver of sovereign immunity. The OAH denied the motion, reasoning that the NOFD was inadequate because it did not inform the Respondent that the filing deadline was 5 PM. The Department appealed.
The Court first determined that it had subject matter jurisdiction based on N.C.G.S. § 150B-43 which creates a path to judicial review of an OAH order that is not a final decision but that affects a substantial right—such as the denial of a 12(b)(2) motion premised on sovereign immunity.
The Court next determined that the Department’s NOFD was sufficient because the relevant statute (N.C.G.S. § 150B-23(f)) clearly and unambiguously required only that the Department provide notice that the time limit to file a contested case petition was 60 days, which the Department did.
Lastly, the Court concluded that Respondent’s filing after the OAH Clerk’s Office was closed was untimely as it did not comply with the N.C. Administrative Code’s filing rules. The Court rejected Respondent’s argument that it had an additional three days for mailing pursuant to Rule 6(e)as North Carolina Courts have consistently held that a petition to challenge an agency action must be filed within the statutory limitations period.
Accordingly, the Court reversed the OAH’s order and remanded back to the OAH with instructions to dismiss the petition as untimely and thus barred by sovereign immunity.
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Loyd v. Griffin, 2023 NCBC Order 60 (N.C. Super. Ct. Nov. 16, 2023) (Robinson, J.)
Key Terms: motion in limine; evidence; trial; interlocutory; crime; fraud; certificates of insurance; unduly prejudicial; opinion testimony; speculation; Rule 403; Rule 602; hearsay; motion to exclude; expert testimony; Rule 702; Daubert standard
The factual background of this action is summarized here. At issue in this order are the parties’ motions in limine and Defendants’ motion to exclude Plaintiff’s expert witness.
Plaintiff’s Motions
Plaintiff’s Motions sought to prohibit Defendants from (1) admitting any material or testimony into evidence that refers to Plaintiff as having committed or being convicted of a crime, having committed fraud, or having been found by any court or adjudicative body of committing fraud or a crime, and (2) calling any witness to testify that was not disclosed during discovery. As to the first request, the Court concluded, in its discretion, that Rule 403 barred the admission of this evidence because any probative value was substantially outweighed by the danger of unfair prejudice since accusing Plaintiff of a crime in the jury’s presence would be highly prejudicial and potentially misleading. Further, labeling Plaintiff’s conduct as illegal was a legal conclusion to which no witness could testify. Therefore, this motion was granted. As to the second request, the Court granted the motion to the extent it sought to prohibit testimony from two individuals who were not disclosed in Defendants’ initial or supplemental discovery responses.
Defendants’ Motions
Defendants’ Motions requested that the Court limit or exclude the following evidence: (1) testimony that Mr. Griffin “must have known” of the issuance of false or inaccurate COIs at GIA; (2) testimony and argument regarding COIs issued to Concrete Forming Associates, Inc. and Mr. Griffin’s knowledge of them; (3) testimony and argument that Plaintiff was “coerced” or entered into the GIA Shareholder Agreement by “duress” or force; (4) testimony and argument that Plaintiff and Mr. Griffin established a partnership; and (5) testimony that Nationwide allegedly “blessed” Plaintiff’s practice of issuing false or misleading certificates of insurance.”
As to the first and second requests, the Court found, based on Plaintiff’s deposition testimony, that Plaintiff improperly sought to provide opinion testimony based purely on speculation and had not come forth with evidence to support his contention that Mr. Griffin “must have known” about Plaintiff’s issuance of false or misleading COIs. Therefore, the Court granted Defendants’ Motions as to these requests, reserving, however, the opportunity to reconsider at trial if Plaintiff could lay a foundation that such testimony was based on first-hand observations.
On the third request, the Court agreed with Defendants that any testimony regarding duress or coercion was no longer relevant to the matter because Plaintiff’s claim related to this testimony had been previously dismissed. Further, any probative value of the testimony would be outweighed by the danger of unfair prejudice. The Court granted Defendants’ Motions as to their third request.
Regarding partnership testimony, Plaintiff wanted to elicit such testimony to show that the parties’ course of conduct revealed a fiduciary relationship. However, since Plaintiff’s breach of fiduciary duty and constructive fraud claims had previously been dismissed to the extent they were based on an alleged partnership, the Court granted Defendants’ motion to exclude this testimony.
Regarding Defendants’ fifth request, Plaintiff argued that although his testimony on what someone from Nationwide told him may be impermissible hearsay, he could nonetheless testify regarding it for the purpose of explaining subsequent conduct. However, because it was not clear to the Court that Plaintiff could identify the individual at Nationwide who “blessed” his issuance of false or misleading COIs, the Court granted Defendants’ Motions to the extent Plaintiff sought to testify regarding permission from Nationwide about its policies on issuing false or misleading COIs.
Defendants’ Motion to Exclude
Defendants sought to exclude Plaintiff’s expert witness on the basis that the witness’s testimony did not meet the standard for admission imposed by Rule 702(a) of the North Carolina Rules of Evidence, which is the same as the federal Daubert standard. Defendants challenged the expert’s methods and the application of that methodology to the facts at issue, but the Court found that the expert’s methodology was sufficiently reliable. The Court also noted that “courts following the Daubert standard typically conclude that challenges as to the application of methodology to the facts at issue go to the weight of an expert’s opinion, not to the admissibility of that testimony.” The Court found that, to the extent Defendants dispute the expert’s damages conclusions, that dispute is better left to the trier of fact and vigorous cross-examination by Defendants’ counsel at trial. However, the expert was not designated as an expert with respect to the validity or enforceability of the Shareholder Agreement at issue and is not an attorney qualified to opine on such an issue. Therefore, the Court granted Defendants’ Motion to Exclude to this limited extent Otherwise, the Court denied Defendants’ Motion to Exclude.
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC Order 61 (N.C. Super. Ct. Nov. 21, 2023) (Conrad, J.)
Key Terms: motion in limine; employment agreement; breach of contract; incentive compensation; expert testimony; Daubert standard; source deals; Rule 408; compromise offers; hearsay; other lawsuits; Rule 608(b); impeachment
The factual background of this action is summarized here. At issue in this order are one motion in limine by Plaintiff and six motions in limine by Defendant.
Plaintiff sought to exclude a witness from testifying at trial on the ground that the Defendant had not identified him during discovery as a person with knowledge of the events alleged in the complaint. The Court denied Plaintiff’s motion because even if the witness should have been previously identified, his testimony would only be to authenticate documents and therefore was not prejudicial to Plaintiff.
Two of Defendant’s motions sought to exclude certain documents evidencing Defendant’s (or its principals’) wealth and regarding damages because, Defendant argued, the documents were irrelevant or prejudicial. The Court disagreed. The evidence related directly to the deal at the center of the case and any self-interest by the Defendant’s principals was highly relevant to their credibility. Moreover, the disputed documents were relevant to issues other than damages, including the nature and substance of the transaction, how it was structured, and who was involved. Accordingly, these motions were denied.
Defendant also sought to exclude Plaintiff’s expert witness because his anticipated testimony conflicted with the Court’s summary-judgment opinion and was otherwise unreliable and irrelevant. The Court agreed, finding that the expected testimony failed the Daubert test Specifically, since the Court had already construed the term “source” as a matter of law at the summary judgment stage, the expert witness’s conflicting construction of the term was irrelevant. The Court also found that Plaintiff had not provided enough information related to the witness’s testimony about industry norms to allow the Court to determine its relevancy. Thus, this motion was granted.
Defendant next moved to exclude all evidence of its severance offers to Plaintiff and the related discussions, arguing that the statements were made in negotiations to compromise a disputed claim and were therefore inadmissible under Rule 408. Plaintiff responded that statements made prior to November 2020 were admissible because they occurred before a dispute regarding his claim had arisen. The Court disagreed with Plaintiff. The circumstances showed that even though litigation had not been threatened, a dispute had arisen between the parties in September 2020 and thus statements made after that date were properly excluded unless Plaintiff could show that he intended to offer the evidence for a purpose other than to establish the validity or amount of his claim. The Plaintiff failed to make this showing and therefore the Court granted the motion.
The Court also granted Defendant’s motion to exclude as inadmissible hearsay several e-mails generated by a customer relationship management system, which included the names of the deal and the “deal owner.” The Court noted that computerized records that require actual human input or discretion in their generation, such as the ones at issue here, are subject to hearsay rules. The Court also found that the e-mails’ limited probative value was substantially outweighed by the danger of unfair prejudice and potential to mislead the jury.
Lastly, Defendant sought to exclude evidence of other lawsuits in which it is a defendant. Plaintiff argued it was using such evidence to impeach Defendant’s principals under Rule 608(b). However, because Plaintiff was unable to identify any alleged conduct by the principals bearing on their character for truthfulness, the Court was unpersuaded and granted the motion.
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Lineage Logistics, LLC v. Primus Builders, Inc., 2023 NCBC Order 62 (N.C. Super. Ct. Nov. 27, 2023) (Bledsoe, C.J.)
Key Terms: motion to strike; affirmative defenses; Rule 12(f); BCR 7; BCR 7.2; motion; separate brief
The Plaintiff here filed a 21-page motion to strike affirmative defenses, which appeared to be a combined motion and brief. Because BCR 7.2 requires a motion to be accompanied by a separately filed brief, the Court, in its discretion, summarily denied the motion without prejudice to the Plaintiff’s right to refile in compliance with the Business Court Rules.
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Roesel v. Roesel, 2023 NCBC Order 63 (N.C. Super. Ct. Nov. 29, 2023) (Earp, J.)
Key Terms: preliminary injunction; irreparable harm; motion to stay; equitable distribution; marital property
The individual parties—Plaintiff Liz Roesel and Defendant Phil Roesel—in this action married in 2013 and separated in 2021. An equitable distribution action regarding their marital property commenced in June 2023 and is currently pending. In October, Liz and her company Fenix Contracting (“Fenix”) brought this action against Phil and his recently-formed competing company Fenix Insurance Contracting (“FIC”), asserting a number of claims relating to Phil’s alleged taking of Fenix’s business records and access to electronic accounts for use by FIC. Shortly after filing the complaint, Plaintiffs moved for a preliminary injunction seeking return of Fenix’s records and other property. Defendants subsequently moved to stay the case pending a determination of the individual parties’ equitable distribution claims.
The Court granted the motion for a preliminary injunction. Plaintiffs were likely to succeed on the merits of their conversion claim based on the evidence presented that 1) Phil had copied Fenix’s electronic records and was using them to operate FIC; 2) Fenix has been deprived of access to its business records; and 3) Fenix’s demands for the return of the records and property had been rejected. In addition, Fenix had shown immediate, ongoing, and irreparable injury based on its inability to operate its business without the records and other property. The Court ordered that Defendants immediately return Fenix’s business records and access to Fenix’s electronic accounts.
The Court also granted the motion to stay, except as to the preliminary injunction. There was a clear interrelationship between the present action and the equitable distribution action as both involved Fenix. Accordingly, the Court stayed the case until the District Court determined ownership of marital property, including Fenix.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC Order 64 (N.C. Super. Ct. Nov. 29, 2023) (Robinson, J.)
Key Terms: motion to withdraw as counsel; Rule 1.16 of the Rules of Professional Conduct
Before the Court was a motion to withdraw as counsel of record for Defendant Guiliano by Carnes Warwick, who served as counsel for both Guiliano and Defendant 108Labs. The Court granted the motion as Guiliano had already terminated Carnes Warwick and indicated that he intended to proceed pro se, and thus the requirements of reasonable notice to the client and justifiable cause were satisfied. The Court directed that the parties confer regarding how to address the provision in the case’s protective order regarding documents marked “Highly Confidential – Attorneys’ Eyes Only” since it clearly did not contemplate self-represented parties. The Court also noted that Guiliano could not make representations on behalf of 108Labs since an LLC may only be spoken for by licensed counsel. Lastly, the Court advised Guiliano to follow basis rules of ethics and civility in his communications with both the Court and opposing counsel and to abide by the Business Court’s rules and procedures.
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Worley v. Ormund, 2023 NCBC Order 65 (N.C. Super. Ct. Nov. 30, 2023) (Earp, J.)
Key Terms: writ of mandamus; inspection request; minority shareholder; director; Business Corporation Act; N.C.G.S. § 55-16-02; N.C.G.S. § 55-16-04; N.C.G.S. § 55-16-05
Plaintiffs, the minority shareholders of both Ormund Oil & Gas and Ormund Sales and Service, filed suit asserting claims arising from the alleged misconduct of their brother, the majority shareholder of both companies. They also sought a writ of mandamus to permit inspection of corporate documents previously demanded by them in their roles as shareholders and members of special committees of the boards of each company. At the hearing on Plaintiffs’ motion for summary relief to permit inspection, Defendants did not raise any objection to Plaintiffs’ authority to inspect the records but contended that they had not been given sufficient time to comply. Following the hearing but prior to the issuance of this order, Defendants produced some, but not all, of the requested documents.
The Court granted the motion based on sections 55-16-02(a)-(b), 55-16-04(a)-(b), and 55-16-05(a) of the Business Corporation Act, which provide qualified shareholders and directors, with certain inspection rights and the right to file an action seeking to enforce such rights. In addition, the Court noted that Plaintiffs, as qualified shareholders of both companies and as directors of Ormund Oil & Gas, could petition for the reasonable fees and costs incurred with respect to their inspection requests, pursuant to sections 55-16-04(c) and 55-16-05(c).
By: Rachel E. Brinson, Natalie Kutcher, and Ashley 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 12/06/23
Cone v. Blue Gem, Inc., 2023 NCBC 74 (N.C. Super. Ct. Nov. 7, 2023) (Earp, J.)
Key Terms: derivative claim; improper purpose; N.C.G.S. § 55-7-46(2) and (3); attorneys’ fees
As summarized here, the Court previously entered an opinion dismissing Plaintiffs’ derivative claim for breach of fiduciary duty with prejudice, dismissing their judicial dissolution claim without prejudice, and taxing costs of the action against Plaintiffs. Thereafter, the individual Defendants moved for attorneys’ fees pursuant to N.C.G.S. § 55-7-46(2) and (3) (which permit the Court to award a defendant its reasonable expenses if a derivative proceeding was “commenced or maintained without reasonable cause or for an improper purpose”) or, alternatively, for court ordered indemnification pursuant to N.C. Gen. Stat. § 55-8-54. Defendant Blue Gem also sought its expenses pursuant to N.C.G.S. § 55-7-46(2) and (3), and an order taxing Plaintiffs with any amount it is required to indemnify the individual Defendants. Defendants argued that the derivative suit was filed for the improper purpose of coercing the individual Defendants into a buyout of Plaintiffs’ shares in Blue Gem at an unwarranted premium.
After assessing Plaintiffs’ objective behavior in view of the totality of the circumstances, the Court concluded that Plaintiffs’ derivative claim was not well-grounded in fact or warranted by law, and was pursued for the improper purpose of pressuring Defendants into voting for a proposal that would allow Plaintiffs to exit the company and maximize their interests. The Court granted the individual Defendants’ motion as to their attorneys’ fees but denied Defendant Blue Gem’s motion, as Blue Gem was not itself a defendant of the derivative claim, and as such, lacked a basis to seek recovery of expenses under the statute.
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7 Mile Advisors, LLC v. Zaelab, LLC, 2023 NCBC 75 (N.C. Super. Ct. Nov. 8, 2023) (Bledsoe, C.J.)
Key Terms: summary judgment; motion to deny or continue; Rule 56(f); completion of discovery
Plaintiff and Defendant entered into a letter agreement, whereby Plaintiff agreed to act as Defendant’s exclusive financial advisor in connection with the sale or transfer of Defendant’s equity or assets in exchange for retainer fees and transaction-based compensation. After a transaction occurred, a dispute between the parties arose as to Plaintiff’s right to receive a fee from the transfer, and Plaintiffs filed suit. After Plaintiffs moved for summary judgment in September 2023, Defendants moved, pursuant to Rule 56(f), for the denial or continuance of the summary judgment motion until discovery was completed. The Court’s case management order provided a discovery deadline of January 19, 2024.
At the motion’s hearing, Defendants presented factual evidence suggesting that certain defenses may be available to it upon further exploration in discovery. The Court agreed at the hearing that Defendant should be permitted to continue to explore these fact-based defenses through discovery before it should be required to respond to Plaintiff’s motion for summary judgment. Prior to entry of the Court’s written order conveying the same, Plaintiff withdrew its motion for summary judgment. As a result, the Court denied Defendant’s motion as moot.
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Vitaform, Inc. v. Aeroflow, Inc., 2023 NCBC 76 (N.C. Super. Ct. Nov. 9, 2023) (Bledsoe, C.J.)
Key Terms: attorneys’ fees; inextricably intertwined; N.C. Trade Secret Protection Act; N.C.G.S. § 66-154(d); bad faith; Lanham Act; 15 U.S.C. § 1117(a); UDTPA; N.C.G.S. § 75-16.1; frivolous and malicious; nonjusticiable issue; N.C.G.S. § 6-21.5
As summarized here, Plaintiff, a designer and manufacturer of post-partum compression garments, brought a variety of claims against Defendants arising from Defendants’ alleged misuse of Plaintiff’s confidential information to design a competing product. The majority of the claims were resolved either through voluntary dismissal or at summary judgment. Trial was set for April 2023; however, shortly before trial, the parties voluntarily dismissed without prejudice the remaining claims. Thereafter, Defendants sought attorneys’ fees and costs under several statutes.
Beginning with North Carolina’s Trade Secrets Protection Act, which permits an award of attorneys’ fees to the prevailing party where a claim is made in bad faith, the Court disagreed with Defendants’ argument that Plaintiff had pursued its trade secret misappropriation claim in bad faith by changing its legal theory and its supporting facts to avoid dismissal and by continuing to prosecute the claim long after it knew it was meritless. Plaintiff’s modification of its purported trade secret was more likely due to a reconsideration of the best way to identify its trade secret for pleading purposes, and Plaintiff’s new or revised factual allegations could just as likely have been due to imprecise recollections of events which happened years prior. Moreover, while Plaintiff’s legal and factual arguments ultimately failed, they were sufficient to preclude a finding of bad faith. Thus, the Court denied Defendants’ motion for fees under the TSPA.
Turning to the Lanham Act, which allows the prevailing party to recover attorneys’ fees in “exceptional cases,” the Court agreed with Defendants that attorneys’ fees were warranted because Plaintiff failed to dismiss its Lanham Act claim, thereby forcing Defendants to seek summary judgment, even after Plaintiff knew at the close of discovery that there was no evidence to support its allegation that Defendant Motif had copied Plaintiff’s products and passed them off as its own. The Court also concluded that Plaintiff should be required to pay all of Defendants’ attorneys’ fees incurred in connection with the summary judgment motion, rather than apportioning them between the Lanham Act claim and other claims, since the claims were inextricably interwoven and arose from a common nucleus of operative fact.
The Court next addressed North Carolina’s Unfair and Deceptive Trade Practices Act, which permits an award of attorneys’ fees incurred in defending a UDTPA claim if the party bringing the action knew, or should have known, the action was frivolous and malicious. Plaintiff’s UDTPA claim was based on its TSPA and Lanham Act claims, as well as its unsuccessful fraud claim. Defendants argued they were entitled to fees based on each of these claims. The Court declined to award fees under the UDTPA based on either the TSPA or fraud claims but agreed that Defendants were entitled to attorneys’ fees under the UDTPA based on the Lanham Act claim for the reasons previously stated. However, Defendants could only have a single recovery of their attorneys’ fees under the two statutes.
Finally, the Court granted in part, and denied in part, Defendants’ motion for attorneys’ fees pursuant to N.C.G.S. § 6-21.5, which allows the Court to award attorneys’ fees if there was a complete absence of a justiciable issue in any pleading. Defendants first argued that they should receive attorneys’ fees under N.C.G.S. § 6-21.5 based on Plaintiff’s TSPA, Lanham Act, and UDTPA claims. The Court denied the motion to the extent it was based on the TSPA claim, but granted it for the other two claims. Defendants also requested attorneys’ fees based on Plaintiff’s efforts to present damages evidence and theories disallowed by the Court. The Court denied this request because the statute only prohibits taking nonjusticiable positions in pleadings, not in motions practice. Lastly, Defendants sought attorneys’ fees for successfully defeating Plaintiff’s counterclaims for defamation, tortious interference, and violation of the UDTPA. The Court agreed that these claims were nonjusticiable since they were procedurally improper, barred by the judicial proceeding privilege, and fatally deficient on the merits. Thus, the Court awarded Defendants their attorneys’ fees in defending against Plaintiff’s counterclaims.
Pursuant to N.C.G.S. § 6-20, the Court also awarded Defendants their costs incurred in connection with Defendants’ motion for summary judgment and Plaintiff’s counterclaims.
Defendants were directed to submit supplemental briefing and supporting documentation detailing their fees and costs incurred in prosecuting their summary judgment motion and defending against Plaintiff’s counterclaims.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC 77 (N.C. Super. Ct. Nov. 13, 2023) (Robinson, J.)
Key Terms: Rule 12(b)(6); untimely; Rule 12(c)
Following a partial dismissal of its claims, Plaintiff sought leave to file a second amended complaint. The Court granted the motion, and Plaintiff filed its second amended complaint on April 21, 2023. Thirty-two days later, Defendants filed a partial answer, followed three minutes later by their Rule 12(b)(6) motion to dismiss.
The Court, sua sponte, denied the motion as untimely. The Court has consistently interpreted Rule 12(b) to require that a motion to dismiss for failure to state a claim must be filed prior to the filing of an answer, not contemporaneously or minutes after. Since Defendants had filed their partial answer—which constituted an answer for Rule 12(b) purposes even though it did not fully respond to the complaint—prior to the motion to dismiss, the motion to dismiss was untimely. Furthermore, the Court could not treat Defendants’ motion as a Rule 12(c) motion for judgment on the pleadings, as the pleadings were not closed in light of Plaintiff’s right to reply to Defendants’ counterclaim.
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James H. Q. Davis Tr. v. JHD Props., LLC, 2023 NCBC 78 (N.C. Super. Ct. Nov. 14, 2023) (Bledsoe, C.J.)
Key Terms: judicial dissolution; N.C.G.S. § 57D-6-02(2)(i); deadlock
As summarized here, this action arose from disagreements over estate planning vehicles established by Dr. Davis for the benefit of his four sons, namely a trust for each son, as well as two LLCs, which each of the trusts hold an equal interest in and which two of the sons—Charles and Jim—are managers of. The LLCs own four undeveloped tracts of land. After Charles and Jim were unable to reach an agreement on use of the property, two of the trusts filed this action seeking judicial dissolution of the LLCs under N.C.G.S. § 57D-6-02(2)(i). Charles, through his trust, intervened to oppose the dissolution. Both sides moved for summary judgment.
The evidence showed that, although Charles and Jim have been cordial and cooperative in their communications, they have been unable to reach agreement for at least three years, resulting in the failure of the LLCs to conduct any economically useful activity as contemplated by their operating agreements. Moreover, the operating agreements did not provide any mechanism to break the deadlock. As such, the Court concluded that it was not practicable to conduct the LLCs business and therefore, judicial dissolution was warranted.
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Innovare, Ltd. v. Sciteck Diagnostics, Inc., 2023 NCBC Order 55 (N.C. Super. Ct. Nov. 1, 2023) (Davis, J.)
Key Terms: motion to withdraw as counsel; Rules 1.16(b)(6) and (7) of the N.C. Rules of Professional Conduct; unreasonable financial burden
This order addresses Kilpatrick Townsend & Stockton LLP’s motion to withdraw as counsel for Plaintiff. Previously, Kilpatrick had sought and received extensions of time to complete briefing on the parties’ cross-motions for partial summary judgment, due to an issue that had arisen between Plaintiff and Kilpatrick potentially implicating Rules 1.16(b)(6) and (7) of the N.C. Rules of Professional Conduct.
Thereafter, Kilpatrick filed the motion to withdraw, in which Kilpatrick represented that Plaintiff had a substantially unfulfilled obligation to Kilpatrick regarding legal services and that further representation of Plaintiff would result in an unreasonable financial burden on Kilpatrick. Kilpatrick also represented that it had sought Plaintiff’s consent, but Plaintiff had declined to indicate whether it consents to the requested relief.
The Court granted Kilpatrick’s motion, ordering that Kilpatrick would be released from further representation of Plaintiff in the present matter upon the filing of a notice of appearance by Plaintiff’s new counsel, which must occur within 30 days of the order. If Plaintiff failed to obtain new counsel, the Court may dismiss Plaintiff’s complaint and enter summary judgment in favor of Defendant on its counterclaims.
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Husqvarna Pro. Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC Order 56 (N.C. Super. Ct. Nov. 1, 2023) (Bledsoe, C.J.)
Key Terms: consent protective order; attorneys’ eyes only
This matter was before the Court sua sponte to address a dispute between the parties relating to certain provision in the parties’ proposed consent protective order. The parties’ dispute centered around materials provided by Defendants in discovery which are labelled “Attorneys’ Eyes Only” or “Confidential – Source Code.” Defendants argued that they had a legitimate interest in avoiding potential competitive harm that could result from the disclosure of these materials. Plaintiffs argued that they would be severely prejudiced if their outside counsel could not share and discuss this highly-technical material with their in-house counsel and experts.
The Court agreed with both sides but concluded that the risk of misuse of the material could be ameliorated by 1) limiting the disclosure to a small number of Plaintiffs’ in-house attorneys who were not engaged in competitive decisionmaking in the areas of Plaintiffs’ business that compete with Defendants; and 2) requiring that any retained experts with access to the materials (i) sign a non-disclosure agreement; (ii) execute an affidavit under penalty of perjury that they are not competing against the party who produced the confidential information nor will they use the confidential material for improper purposes; (iii) provide answers to a series of questions listed by the Court regarding the expert’s background and employment; and (iv) provide the retaining party the expert’s curriculum vitae. The Court ordered that these documents be submitted for in camera review promptly upon retention of the expert.
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BIOMILQ, Inc. v. Guiliano, 2023 NCBC Order 57 (N.C. Super Ct. Nov. 3, 2023) (Robinson, J.)
Key Terms: motion for entry of default; motion to dismiss; answer
Plaintiff BIOMILQ moved to dismiss all but three of the counterclaims asserted by Defendants but did not file any answer. Defendants then moved for entry of default against BIOMILQ for its failure to answer the three counterclaims that were not addressed in BIOMILQ’s motion to dismiss.
The Court denied the motion for entry of default without a hearing and without awaiting the filing of a response by BIOMILQ. Defendants did not cite any caselaw in support of their motion and Rule 12 is clear: the time to answer a pleading is tolled until the Court rules on the pending 12(b)(6) motion.
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Howard v. IOMAXIS, LLC, 2023 NCBC Order 58 (N.C. Super. Ct. Nov. 3, 2023) (Earp, J.)
Key Terms: motion to compel; attorney-client privilege; work product doctrine; common interest agreement; joint defense rule; waiver
This matter came before the Court upon the IOMAXIS Defendants’ (“IOMAXIS”) motion to compel the production of communications and agreements between Plaintiff and Defendant Nicholas Hurysh, Jr. The communications at issue were withheld from discovery on the basis of attorney-client privilege or work product doctrine. Plaintiffs argued that a common interest agreement between them and Hurysh prevented the waiver of any applicable privilege to documents shared between them. IOMAXIS argued that a common interest could not exist between Plaintiffs and Hurysh because: (i) Plaintiffs and Hurysch are on opposite sides of the lawsuit; and (ii) no common interest has been identified in the case.
The Court disagreed with both contentions. The common interest doctrine does not require allied parties to be completely aligned on all matters in the litigation. Moreover, while mere conclusory allegations that a common interest exists are insufficient, after conducting an in camera review of the documents withheld, the Court determined that Plaintiffs and Hurysh had multiple interests in common with respect to the litigation. Nevertheless, the documents here revealed that the common interest agreement was not finalized until November 20, 2020. Thus, the Court granted IOMAXIS’ motion to the extent that it compelled the production of documents and communications between Plaintiff and Hurysh prior to that date, as well as purely administrative communications. The Court denied the motion as to all remaining communications and documents exchanged relating to the parties’ strategies with respect to the claims in the case.
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Mauck v. Cherry Oil Co., 2023 NCBC Order 59 (N.C. Super. Ct. Nov. 14, 2023) (Davis, J.)
Key Terms: supervision of call of shares; share valuation; appraiser; motion to supplement complaint; N.C.G.S. § 55-16-04; corporate record inspection
This suit arose from a dispute among family members over the management of their business, Cherry Oil. As summarized here, the Court previously granted summary judgment to Defendants on Plaintiffs’ remaining claims. In this Order, the Court addressed several motions relating to 1) the steps remaining to effectuate the purchase of Plaintiffs’ shares in Cherry Oil, a process that began with Defendants’ prior vote to exercise the “call” provision in the Shareholders’ Agreement; and 2) Cherry Oil’s alleged refusal to grant Plaintiffs the opportunity to inspect certain records of the company.
Having failed to reach an agreement with Plaintiffs on the process for valuing their shares under the terms of the Shareholders’ Agreement, Defendants filed a motion proposing alternative methods for proceeding with the valuation, to which Plaintiffs responded with their own proposal. The Court refused Defendants’ proposal of having the Court, rather than appraisers, decide the value of shares. Instead, the Court facilitated an agreement at the hearing on the motions, under which each side would designate an appraiser of their choice, and the two selected appraisers would subsequently select a third appraiser.
The Court next addressed whether Plaintiffs were entitled to obtain additional documents from Cherry Oil. Since Plaintiffs remain shareholders until they are actually bought out, they retained the statutory right to inspect certain corporate records as provided in N.C.G.S. § 55-16-02. Thus, in the interest of judicial economy, the Court ordered that Plaintiffs were permitted to file a supplemental complaint to seek an order, pursuant to N.C.G.S. § 55-16-04, allowing them to inspect and copy Cherry Oil’s records.
By: Natalie E. Kutcher and Ashley 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 11/15/23
Woodcock v. Cumberland Cnty. Hosp. Sys., Inc., 2023 NCBC 72 (N.C. Super. Ct. Oct. 18, 2023) (Davis, J.)
Key Terms: summary judgment; limited partnership; general partner; breach of limited partnership agreement; implied covenant of good faith and fair dealing; breach of fiduciary duty
This action involves a limited partnership dispute relating to Fayetteville Ambulatory Surgery Center Limited Partnership (“Fayetteville ASC”), which had Cape Fear Valley ASC as its General Partner and twelve Limited Partners, including Cape Fear Valley ASC, Cumberland County Hospital System, Village ASA, and Michael Woodcock. In April 2019, Cumberland County Hospital System conveyed, pursuant to a Contribution Agreement, its Limited Partner Units to Cape Fear Valley ASC and, pursuant to an Equity Purchase Agreement, purchased 100% of the equity of Cape Fear Valley ASC (the “April Transactions”). Thus, upon the completion of these transactions, Cumberland County Hospital System purported to own 100% of the equity of Cape Fear Valley ASC and to indirectly own 100% of the General Partner Units and approximately 44% of the Limited Partner Units of Fayetteville ASC. Woodcock filed suit alleging, inter alia, that the transactions violated Fayetteville ASC’s limited partnership agreement (the “LPA”). Defendants moved for summary judgment on all remaining claims and Woodcock moved for summary judgment on his breach of contract claim.
Woodcock contended that the April Transactions violated Sections 15.9 and 14.5 of the LPA. Section 15.9 prohibited any transaction which would result in any Limited Partner or any successor of a Limited Partner owning more than 20% of the stock of the General Partner or its affiliates. Woodcock argued that Section 15.9 prevented Cumberland County Hospital System, as a Limited Partner or as a successor to a Limited Partner, from acquiring more than 20% of the equity interest of Cape Fear Valley ASC. The Court rejected this argument. First, Cumberland County Hospital System was not a Limited Partner at the time it acquired the equity of Cape Fear Valley ASC since it had divested itself of its LP Units prior to the transaction. Second, it was not a successor to a Limited Partner because, even if it could exercise authority over the LP Units owned by Cape Fear Valley ASC, it was not the direct owner of the LP Units and thus it could not be said to have “stepped into the shoes” of Cape Fear Valley ASC. Accordingly, the Court determined that the April Transactions did not violate Section 15.9 of the LPA.
Section 14.5 of the LPA prohibited Cape Fear Valley ASC or its affiliates from engaging or investing in the business of a surgical center or related medical facility (a “Competitive Facility”) in areas from which Fayetteville ASC derived its business. Woodcock argued that Cumberland County Hospital System became an affiliate of Cape Fear Valley ASC through the April Transactions and thus could not compete against Fayetteville ASC by engaging in the business of a Competitive Facility. In response, Defendants argued that their hospitals do not compete with ambulatory surgical centers and thus there was no violation and, even if a violation did occur, the General Partner and the necessary two-thirds in interest of the Limited Partners had retroactively ratified the April Transactions. The Court was skeptical that the hospitals could not qualify as Competitive Facilities since they performed outpatient surgeries; however, it agreed with Defendants that the April Transactions had been properly ratified through a subsequent amendment and consent agreement. Accordingly, the Court granted summary judgment to Defendants on Woodcock’s breach of contract claim.
The Court also dismissed Woodcock’s claim for breach of the implied covenant of good faith and fair dealing since it was based on the same acts as his claim for breach of contract. Similarly, in light of the Court’s entry of summary judgment on Woodcock’s breach of contract claim, the Court granted Defendants summary judgment on Woodcock’s breach of fiduciary duty and declaratory judgment claims since they were based on the alleged invalidity of the April Transactions.
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Davis v. Davis Funeral Serv., Inc., 2023 NCBC 73 (N.C. Super. Ct. Oct. 25, 2023) (Conrad, J.)
Key Terms: breach of contract; unpaid wages; statute of limitations; unjust enrichment; quantum meruit; summary judgment
Plaintiff sued his former employer, Davis Funeral Service, and its officers, the Morgans and Tillman, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit, and unjust enrichment, all based on the company’s alleged failure to pay him his full wages beginning in 2018. Plaintiff also asserted a claim for defamation based on statements Tillman allegedly made after Plaintiff’s departure. Defendants moved for summary judgment on these claims.
The Court granted summary judgment in favor of the Morgans because the Morgans did not have any personal involvement in any alleged misconduct and officers are not liable for a corporation’s acts merely by virtue of their office.
The Court also granted summary judgment in Davis Funeral Service’s favor on the breach of contract claim to the extent it was based on failure to pay wages that became due beyond the three-year statute of limitations since each unpaid installment is its own breach subject to the statute of limitations.
The Court denied summary judgment on the unjust enrichment and quantum meruit claims as an express contract, or its terms, had yet to be established. The Court also denied summary judgment on the defamation claim as Davis Funeral Service had abandoned its arguments on this claim at the hearing.
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Cumberland Cnty. Hosp. Sys., Inc. v. Woodcock, 2023 NCBC Order 51 (N.C. Super. Ct. Oct. 24, 2023) (Davis, J.)
Key Terms: motion to amend complaint; Rule 15; uncontested
As summarized here, this case involves a dispute between the owners of Woodcock Custom Vision regarding the company’s management. Here, Plaintiff moved to file an amended complaint that adds a new defendant and asserts new claims, including various derivative claims. Defendants did not file any response to the motion and thus did not meet their burden of showing any basis for denial. Accordingly, the Court granted the motion to amend.
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Caliber Packaging & Equip., LLC v. Swaringen, 2023 NCBC Order 52 (N.C. Super. Ct. Oct. 25, 2023) (Earp, J.)
Key Terms: motion to amend; Rule 15; futility; summary judgment standard; Rule 12(b)(6) standard; North Carolina’s Electronic Surveillance Act, N.C.G.S. § 15A-287 et seq.
As summarized here, this case involves a dispute between Plaintiffs and their former employee who allegedly misappropriated trade secrets and other confidential information. During discovery, Plaintiffs produced two audio recordings of conversations between Defendant and third-parties which were recorded while Defendant was an employee. Defendant then moved to amend her answer to add a counterclaim for violation of North Carolina’s Electronic Surveillance Act, N.C.G.S. § 15A-287 et seq, which prohibits the willful interception of communications without the consent of at least one party to the conversation. Plaintiffs opposed the amendment on the grounds of futility and filed a supporting affidavit which contradicted Defendant’s proposed allegations. Although the Court acknowledged that a motion to amend could be denied on futility grounds due to the proposed claim being subject to summary judgment, the Court found that Plaintiffs had failed to demonstrate that were no genuine issues of material fact regarding the claim. In addition, the Court determined that Defendant had successfully pleaded a claim under the more commonly used Rule 12(b)(6) analysis. First, Defendant had alleged sufficient facts to show a reasonable expectation of privacy in her office where the conversations were recorded. Second, the Court disagreed with Plaintiffs’ contention that the recordings were justified and therefore not willful. Case law in which otherwise illegal interceptions were found to be justified turned on whether public safety was implicated, which was not at issue here. Accordingly, the Court granted the motion to amend.
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Davis v. Davis Funeral Serv., Inc., 2023 NCBC Order 53 (N.C. Super. Ct. Oct. 25, 2023) (Conrad, J.)
Key Terms: motion to amend complaint; motion for reconsideration; undue delay; prejudice
Plaintiff sought partial reconsideration of the Court’s previous order denying his motion to amend his complaint due to undue delay and futility. The Court denied the motion for reconsideration. Even though Plaintiff had “slimmed down” its proposed amendments and eliminated the futile claim, the amendments were still untimely (being submitted sixteen months after the original complaint had been filed, over two months after the close of discovery, and over one month since Defendant moved for summary judgment) and would cause Defendant substantial prejudice since they would double the size of the complaint, introduce a new theory of liability, and change the measure of damages.
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Howard v. IOMAXIS, LLC, 2023 NCBC Order 54 (N.C. Super. Ct. Oct. 30, 2023) (Earp, J.)
Key Terms: motion to seal; BCR 5; competitive advantage; confidential; public interest; relevance
This order addresses two motions to seal. Regarding the first, Defendant IOMAXIS filed (provisionally under seal) a transcript of a July 2020 telephone conference and a motion to seal the transcript in its entirety, arguing that information in the transcript would harm its competitive advantage, was confidential commercial information, and was irrelevant to the case. The Court denied the motion because 1) IOMAXIS did not specifically explain how disclosure would harm its competitive advantage or identify which portions, if disclosed, would result in harm, and 2) the public’s interest in disclosure was strong because the transcript contained discussion of various operating agreements and financial matters which were at issue in the case.
In the second, Plaintiffs sought leave to file under seal portions of their amended motion to appoint receiver and supporting materials, based on IOMAXIS’s designation of certain of the materials as confidential. IOMAXIS argued that the materials should remain sealed because they were not relevant to the motion or underlying claims. The Court disagreed, concluding that the materials were directly relevant to Plaintiffs’ fraud-based claims. Accordingly, the Court denied the motion, with the exception of one document which contained the financial terms of a sale.
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McKnight v. Wakefield Missionary Baptist Church, Inc., 2023 N.C. LEXIS 783, 2023 WL 6933326 (N.C. 2023) (per curiam)
Key Terms: appeal; affirmed; trade name infringement; permanent injunction; costs; N.C.G.S. §§ 6-1, 6-20; N.C.G.S. § 7A-305(d)
This suit involved, in part, a dispute between Wakefield Missionary Baptist Church, Inc. (“WMBC, Inc.”) and a number of estranged church members over the use of the name “Wakefield Missionary Baptist Church.” In February 2022, the Business Court entered an order granting summary judgment to WMBC, Inc. on its counterclaim for trade name infringement. It subsequently entered a permanent injunction and final order enjoining the estranged members from using the name Wake Missionary Baptist Church and an order awarding costs to WMBC, Inc., pursuant to N.C.G.S. §§ 6-1, 6-20, and 7A-305(d). The estranged members appealed from all three orders; however, the N.C. Supreme Court previously dismissed all issues arising from the summary judgment order. Here, the Court affirmed, per curiam, the permanent injunction and final order and the order awarding costs.
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 10/31/23
Karriker v. Harpoon Holdings, L.P., 2023 NCBC 67 (N.C. Super. Ct. Oct. 6, 2023) (Conrad, J.)
Key Terms: motion to strike; motion to seal; Rule 12(f)
Defendant moved to dismiss the complaint and then subsequently moved to either strike or seal a draft version of its Amended and Restated Limited Partnership Agreement which Plaintiff had attached as an exhibit in opposition to the dismissal motion. Before the Court ruled on the motion to dismiss, Plaintiff filed an amended complaint thereby mooting the motion to dismiss.
The Court denied the Rule 12(f) motion to strike because Rule 12(f) was inapplicable to the Draft LPA since the Draft LPA was not contained in any pleading, but rather was submitted as an exhibit in opposition to the motion to dismiss, and regardless, the Court never considered the document since the motion to dismiss was denied as moot.
The Court did, however, grant the motion to seal the Draft LPA based on Defendant’s argument that it contained sensitive information about employment and ownership incentives, investor rights, and internal corporate governance. Moreover, it was unlikely to be considered by the Court in the future as it had no bearing on disputed issues following the filing of the amended complaint, and, therefore, the public’s interest was negligible.
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Harris Teeter Supermarkets, Inc. v. Ace Am. Ins. Co., 2023 NCBC 68 (N.C. Super. Ct. Oct. 10, 2023) (Robinson, J.)
Key Terms: insurance coverage; opioid epidemic; Rule 12(b)(2); personal jurisdiction; Mallory v. Norfolk Southern Railway Co.; registration requirements; N.C.G.S. § 58-21-100; N.C.G.S. § 58-16-30; service of process; Commissioner of Insurance; Rule 12(b)(6); declaratory judgment action; forum shopping; N.C.G.S. § 1-75.12; discretionary stay
This lawsuit is primarily an insurance coverage dispute concerning whether Defendants, insurance companies that issued policies to Plaintiffs, owe coverage to Plaintiffs with respect to nearly 800 underlying lawsuits seeking damages related to injuries allegedly caused by Plaintiffs’ distribution and dispensing of opioid drugs. Plaintiffs are two Ohio entities (the “Kroger Plaintiffs”) and two North Carolina entities (the “Harris Teeter Plaintiffs”). Following the Ohio Supreme Court’s decision in September 2022 holding that governmental entities suing for alleged economic loss sustained by their citizens caused by the opioid epidemic were not seeking damages because of “bodily injury,” several of the insurers filed the Ohio Insurance Action seeking declarations that they were not required to provide coverage to the Kroger Plaintiffs for underlying opioid litigation. Shortly after, Plaintiffs filed the present action. Defendants moved to dismiss for lack of personal jurisdiction and under the North Carolina Declaratory Judgment Act and moved to stay the case.
The Court first addressed the motion to dismiss for lack of personal jurisdiction brought by the PJ Moving Defendants. Taking into consideration 1) the U.S. Supreme Court’s recent decision in Mallory v. Norfolk Southern Railway Co., which held that the Pennsylvania law at issue permitted Pennsylvania’s state courts to exercise general personal jurisdiction over a registered foreign corporation because the foreign corporation had submitted to suit there by completing the mandatory statutory registration procedures, and 2) North Carolina’s insurance statutes which set forth requirements for foreign insurance companies to be admitted and authorized to do business in North Carolina, the Court concluded that the exercise of personal jurisdiction over Defendants was proper. Regarding all of the PJ Moving Defendants except AXIS, the Court found that they had submitted to suit in North Carolina by completing the statutorily required registration procedures, including filing an instrument appointing the Commissioner of Insurance as their agent to accept service of process. Regarding AXIS, which the Court separately considered because it is a surplus lines insurance company subject to different licensing requirements than the other PJ Moving Defendants, the Court concluded that under N.C.G.S. § 58-21-100, surplus line insurers are subject to suit in North Carolina for causes of action arising in the state under any surplus lines insurance contract made by that insurer, so long as service of process is made upon the Commissioner pursuant to N.C.G.S. § 58-16-30. Because AXIS had designated the Commissioner as its agent for service of process in its policy and had, in fact, accepted service of process for the lawsuit through the Commissioner, it had consented to the exercise of general personal jurisdiction over it by North Carolina courts. Accordingly, the motion to dismiss for lack of personal jurisdiction was denied.
Defendants also argued that the action should be dismissed under Rule 12(b)(6) and pursuant to the Court’s discretionary authority to dismiss declaratory judgment claims under N.C.G.S. § 1-257 because the Kroger Plaintiffs’ filing of this action constituted forum shopping. As to the Kroger Plaintiffs, the Court agreed. The filing of the action appeared to be an attempt by them to avoid their home state of Ohio and adverse precedent there even though the Ohio Insurance Action addressed the same issues, was first filed, and remained pending. Thus, the Court granted the motion to dismiss as it related to the Kroger Plaintiffs. However, the Court disagreed as to the Harris Teeter Plaintiffs. The Harris Teeter Plaintiffs are at home in North Carolina and the determination of their rights under their insurance policies is not at issue in the Ohio Insurance Action, to which they are not a party. Thus, the motion to dismiss was denied as to the Harris Teeter Plaintiffs.
Lastly, Defendants sought a discretionary stay of the action pursuant to N.C.G.S. § 1-75.12 in favor of the Ohio Insurance Action. This motion was denied as moot with regards to the Kroger Plaintiffs since their claims were dismissed. As to the Harris Teeter Plaintiffs, the Court determined, after weighing the applicable Lawyers Mutual factors, that a stay was not warranted or reasonable. The Harris Teeter Plaintiffs’ election of home forum was entitled to great deference, North Carolina and its residents have a strong interest in having the suit decided here, and it was reasonably possible that the Court would have to apply North Carolina law. Based on these factors and the Defendants’ failure to show that continuing the case in North Carolina would work a substantial injustice on them, the Court denied the motion to stay.
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Mary Annette, LLC v. Crider, 2023 NCBC 69 (N.C. Super. Ct. Oct. 11, 2023) (Conrad, J.)
Key Terms: motion for summary judgment; quite title; real property; offensive summary judgment; conclusions of law; superior court judge; overrule; deeds; ambiguity; extrinsic evidence
This case arises out of disputes concerning the creation, ownership, and management of Plaintiff Mary Annette, LLC. Defendants moved for summary judgment on their quiet title claim, in which they contended that the Crider siblings’ transfer of certain real property parcels to Mary Annette transferred only the common area surrounding cabins and RV spots within the perimeter of tract C-4, not the cabins and RV spots themselves.
Prior to this case’s designation to the business court, Mary Annette was granted a preliminary injunction barring the Crider siblings from handling rentals on tract C-4. In ruling on the preliminary injunction, the superior court judge found that Mary Annette had purchased all cabins and RV spots within tract C-4 from the Crider siblings. Mary Annette therefore argued here that the Court was bound by the superior court judge’s order. The Court disagreed, concluding that the determination by the superior court judge regarding the ownership of the property was a finding of fact, which the Court was not bound by. Nevertheless, because the deed was ambiguous and there was conflicting extrinsic evidence regarding the Crider siblings’ intent, the Court denied the motion for summary judgment.
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Cone v. Blue Gem, Inc., 2023 NCBC 70 (N.C. Super. Ct. Oct. 13, 2023) (Earp, J.)
Key Terms: motion to dismiss; judicial dissolution; majority control; shareholders; corporate waste; C corporation; redemption; deadlock; taxes; breach of fiduciary duty; derivative claim; voluntary dismissal; bad faith; Rule 41; business judgment rule; prejudice
Plaintiffs, shareholders in a family-owned corporation, filed this action seeking a judicial dissolution of the business and asserting a derivative claim for breach of fiduciary duty. After Defendants moved to dismiss, Plaintiffs also filed a motion to dismiss without prejudice.
Pursuant to Rule 41(a) and absent any showing of bad faith by Plaintiffs in filing the dismissal, the Court granted the dismissal of the judicial dissolution claim without prejudice. However, the Court rejected Plaintiffs’ request that each side bear its own costs since Rule 41(d) mandates that a plaintiff dismissing under Rule 41(a) be taxed with the costs of the action.
The Court separately addressed the breach of fiduciary duty claim because N.C.G.S. § 55-7-45(a) requires court approval for dismissal of derivative claims. All parties agreed to dismissal; however, Defendants argued that any dismissal should be with prejudice because 1) Plaintiffs did not allege sufficient facts to show that they had complied with the pre-suit demand requirement and 2) the complaint lacked factual support for Plaintiffs’ conclusion that the individual defendants had acted in bad faith or in self-interest and therefore the business judgment rule controlled. The Court concluded that Plaintiffs had sufficiently alleged compliance with the demand requirement by attaching the derivative demand itself to the complaint. Nevertheless, the Court determined that Plaintiffs’ complaint failed to adequately allege facts to support their conclusory statements regarding the individual defendants. Thus, the Court granted Defendants’ motion and dismissed the claim with prejudice.
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Trail Creek Invs. LLC v. Warren Oil Holding Co., 2023 NCBC 71 (N.C. Super. Ct. Oct. 13, 2023) (Davis, J.)
Key Terms: motion to amend; second amended complaint; disclosure; fraud; environmental liabilities; civil conspiracy; indemnification; Rule 15; latent ambiguity; timeliness; futility; prejudice; relation back; statute of limitations
Having previously dismissed certain of Plaintiff’s claims without prejudice, the Court considered Plaintiff’s Renewed Motion for Leave to File Second Amended Complaint. Plaintiff sought first to replead its fraud and civil conspiracy claims with beefed-up allegations, including a more detailed list of the environmental regulations allegedly violated by Defendants, and second, to add allegations regarding a purported latent ambiguity in the purchase agreement at issue. Defendants opposed the amendments on the grounds of undue delay, prejudice, and futility.
Regarding the first group of proposed amendments, the Court found that there was no undue delay since the motion to amend was filed only forty-three days after the claims were dismissed. Further, the Court found that there was no prejudice resulting from the amendments because the claims were not new theories but had been pleaded in the original complaint. Lastly, the Court determined that the claims were not futile as they had been alleged with sufficient particularity and the Court could not make a definitive ruling at this time on whether the claims “related back” to the filing of the original complaint. Accordingly, the Court granted Plaintiff’s motion to amend as to its new claims for fraud and civil conspiracy and their accompanying allegations.
Regarding the second group of proposed amendments, Plaintiff sought to allege that the indemnification provisions at issue contained a latent ambiguity and therefore, parol evidence concerning the parties’ negotiations and contemporaneous understanding of the meaning of the provisions should be considered. However, because Plaintiff had not sought leave to allege an ambiguity in the purchase agreement until 356 days after the initial filing of the lawsuit and had previously taken a contrary position, the Court concluded that Plaintiff’s delay was excessive. The Court also concluded that Plaintiff had failed to show the existence of a latent ambiguity under North Carolina law. Thus, the motion was denied as to these amendments.
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Lafayette Vill. Pub, LLC v. Burnham, 2023 NCBC Order 48 (N.C. Super. Ct. Oct. 3, 2023) (Davis, J.)
Key Terms: voluntary dismissal; derivative claims; court approval; N.C.G.S. § 57D-8-04(a)
Pursuant to the North Carolina LLC Act, a plaintiff cannot dismiss or settle a derivative claim without the approval of the Court. Plaintiff here filed a notice of voluntary dismissal of its individual and derivative claims. The Court, on its own motion, ordered Plaintiff to file a motion to approve the dismissal of the derivative claims and supporting brief explaining why dismissal is in the best interest of the company.
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Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel LLLP, 2023 NCBC Order 49 (N.C. Super. Ct. Oct. 4, 2023) (Earp, J.)
Key Terms: motion to dismiss; unperfected appeal; interlocutory appeal; Appellate Rule 3; Appellate Rule 25; Rule 58; BCR 3.8; timely notice of appeal
After the Court entered an order partially granted Defendants’ motion to dismiss on July 27, 2023, certain of the Plaintiffs electronically filed notices of appeal on August 25, 2023, on the Business Court’s docket. However, none of the Plaintiffs ever filed a notice of appeal with the Clerk of Superior Court of New Hanover County, the county of venue. Defendants moved to dismiss the appeals, arguing that the notices of appeal were not timely filed with the clerk of court within thirty days after entry of the dismissal order in violation of Appellate Rule 3. The Court agreed and dismissed the appeals, finding that Appellate Rule 3 is jurisdictional and non-waivable and thus, failure to file a notice of appeal with the clerk of court of the county of venue within the time prescribed in Appellate Rule 3 is fatal to the appeal.
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Airtron, Inc. v. Bentley, 2023 NCBC Order 50 (N.C. Super. Ct. Oct. 5, 2023) (Conrad, J.)
Key Terms: motion to compel; discovery dispute; BCR 10.9; motion for sanctions; Rule 37(b); pro se litigant; judicial estoppel
Following several discovery conferences with the Court, a failed settlement agreement, and incomplete discovery responses from Defendant Heinrich, Plaintiff Airtron sought not only complete discovery responses but also an order shifting some of its attorney’s fees to Heinrich, striking his answer, and entering a default judgment against him. Airtron also requested that the Court enforce the parties’ settlement agreement based on principles of judicial estoppel.
The Court found that Heinrich’s responses to Plaintiff’s discovery requests were incomplete, his objections untimely and nonresponsive, and violative of the Court’s order to provide full and complete responses to Airtron’s interrogatories and document requests. Despite Heinrich’s deficient responses, the Court found his noncompliance was more likely due to his “unfamiliarity with civil litigation as a nonlawyer rather than truly willful disobedience” and declined to impose the severe sanctions of striking his answer and entering default judgment against him. The Court, however, did enter an order (1) requiring Heinrich to supplement his discovery responses; (2) permitting Airtron to depose Heinrich again following receipt of his supplemental responses; and (3) requiring Heinrich to reimburse Airtron for certain reasonable expenses that it incurred in preparing for and attending the discovery hearing on October 2, 2023.
Regarding the settlement agreement, the Court determined that pursuant to the terms of the agreement, it was rendered null and void by Heinrich’s failure to execute a confession of judgment. Thus, there was no settlement agreement for the Court to enforce.
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 10/17/23
Visionary Ed. Tech. Holdings Grp., Inc. v. Issuer Direct Corp., 2023 NCBC 65 (N.C. Super. Ct. Sept. 22, 2023) (Conrad, J.)
Key Terms: N.C. Gen. Stat. § 25-8-403; security transfer; appropriate person; standing; transfer agent; security registration
This action is a sister case to a case pending in Canada in which Fan Zhou, the majority shareholder of Visionary Education Technology Holdings Group, Inc., sued two former directors, You Bun Chan and Thomas Traves, for breach of contract and sought the return of Visionary’s shares which had previously been transferred to Chan and Traves. Zhou and Visionary filed the present case in North Carolina against Visionary’s transfer agent, Issuer Direct Corporation, seeking, first, an order barring Issuer Direct from removing restrictions on the shares and registering a transfer if and when Chan and Traves make such a request, and, second, a declaration that Issuer Direct cannot be liable to Chan and Traves for refusing to register a transfer.
The Court determined that Plaintiffs did not have standing to seek their requested relief under N.C. Gen. Stat. § 25-8-403. Section 25-8-403 allows an “appropriate person” to demand that an issuer’s transfer agent not register transfer of a security. “Appropriate person” is defined as the security’s registered owner. Because Visionary Education and Zhou were not the registered owners of the shares at issue, they did not have standing to seek relief under N.C. Gen. Stat. § 25-8-403, and, therefore, the Court did not have jurisdiction to grant such relief. The Court dismissed the complaint without prejudice. The Court did not rule on whether an issuer could enforce restrictions on share transfers through other contractual or statutory means.
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Husqvarna Pro Prods., Inc. v. Robin Autopilot Holdings, LLC, 2023 NCBC 66 (N.C. Super. Ct. Sept. 22, 2023) (Bledsoe, C.J.)
Key Terms: motion to dismiss; Rule 12(b)(6); Rule 12(h)(3); declaratory judgment; actual case or controversy; non-competition agreement; operating agreement; anticipatory breach
Husqvarna Products (collectively with Husqvarna Business, the “Husqvarna Parties”) specializes in outdoor power equipment, including robotic lawnmowers. Robin Autopilot (collectively with Robin Technologies, the “Robin Parties”) sells or rents robots to subscribers. Seeking to form a business relationship, Husqvarna Products and Robin Technologies entered into a non-disclosure agreement, followed by Robin Autopilot and Husqvarna Business entering into the Original Admission Agreement, whereby the Husqvarna Parties would contribute capital and robotics, parts, and accessories to Robin Autopilot through a separate Supply Agreement, and, in return, Husqvarna Business would be admitted as a member of Robin Autopilot and permitted to fill one seat on Robin Autopilot’s board of managers. The Original Admission Agreement included a non-solicitation provision, which prohibited Husqvarna from soliciting two businesses for a certain period. Robin Autopilot subsequently entered into an Amended Operating Agreement which allowed its members to engage in competitive business ventures. Following certain disputes, the Husqvarna Parties and the Robin Parties entered into a Settlement Agreement, and Husqvarna Business and Robin Autopilot entered into an Amended Admission Agreement and a Note Purchase Agreement.
The dispute underlying this litigation arose when Husqvarna Products began pursuing sales of its robotic products to professional users directly. After Robin Autopilot’s CEO sent a memo to the Husqvarna Parties objecting to this practice, the Husqvarna Parties filed suit against the Robin Parties and certain of Robin Autopilot’s members (the “Member Defendants”), asserting claims for a declaratory judgment regarding the parties’ rights under the various agreements; anticipatory breach of the Settlement Agreement and Note Purchase Agreement; and breach of the Supply Agreement. Robin Technologies and the Member Defendants moved to dismiss pursuant to Rules 12(b)(6) and 12(h)(3).
The Court first addressed Plaintiffs’ claims for a declaration that the Admission and Operating Agreements did not restrict their right to sell their products directly to third-parties. The Member Defendants and Robin Technologies contended that because they were not signatories to either agreement and their interests were unaffected by the declarations sought, the “actual case or controversy” requirement for a declaratory judgment action was not met and the claims should be dismissed. The Court agreed as to the Admission Agreements as a declaration of rights under those agreements would not impact any interests of the Member Defendants or Robin Technologies. That the Member Defendants disagreed with the Husqvarna Parties’ position was irrelevant because a mere difference of opinion does not constitute a controversy under the Declaratory Judgment Act. The Court also agreed that with respect to the Operating Agreement, the claim should be dismissed against Robin Technologies because it was not a member of Robin Autopilot and thus had no rights under the Operating Agreement. However, the Court disagreed with regard to the Member Defendants, since as members of Robin Autopilot, a determination of Husqvarna Business’s rights to compete under the Operating Agreement would necessarily determine the Member Defendants’ rights to compete as well.
Turning to the other agreements, the Court dismissed the declaratory judgment claims against Robin Technologies relating to the Supply Agreement and the Note Purchase Agreement as Robin Technologies was not a party to either and had no interests thereunder. The motion was denied, however, with respect to the Settlement Agreement, as Robin Technologies was a signatory to, and had continuing obligations under, the agreement.
Lastly, Robin Technologies sought dismissal of the claim for anticipatory breach of the Settlement Agreement, contending that since the claim was based on the memo from Robin Autopilot’s CEO, it did not show a refusal to perform by Robin Technologies. The Court disagreed. The complaint alleged that the memo’s author was the CEO of both companies, that Robin Technologies’ watermark appeared throughout the memo, and that the memo’s signature line identified the author as “CEO | Robin Technologies.” These allegations were sufficient at the 12(b)(6) stage to show that the memo was sent on behalf of both companies.
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Cutter v. Vojnovic, 2023 NCBC Order 45 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: BCR 10.9; discovery dispute; discovery period; deposition; BCR 10.4
This order addresses a Business Court Rule 10.9 dispute. Plaintiff noticed a 30(b)(6) deposition of Defendant for February 2023. All parties appeared, but rather than taking the deposition, Plaintiff opted to engage in settlement negotiations. The discovery period expired in March with neither side seeking an extension. After settlement negotiations failed, Plaintiff served an amended notice for a 30(b)(6) deposition of Defendant. Defendant objected, contending that the notice was untimely and improper. Plaintiff responded that the parties had agreed to reconvene the deposition if settlement negotiations were unsuccessful.
The Court denied Plaintiff’s request to take the deposition and struck the notice. Although parties may agree to conduct discovery after the discovery deadline, BCR 10.4(d) prohibits the Court from entertaining a motion to compel or a motion for sanctions in connection with that discovery unless the parties have sought an order allowing the discovery.
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Truist Fin. Corp. v. Rocco, 2023 NCBC Order 46 (N.C. Super. Ct. Sept. 20, 2023) (Bledsoe, C.J.)
Key Terms: Rule 15(a); amendment as of right; responsive pleading; motion to dismiss
This order addresses whether Rule 15(a) precludes a plaintiff’s amendment as of right after any defendant files a responsive pleading. Plaintiffs had filed suit against Colliers Mortgage Holdings, LLC and certain Executives previously employed by Plaintiffs. Both Colliers and the Executives moved to dismiss; however, the Executives also filed an answer. Plaintiffs then filed an amended complaint as of right against Colliers, while simultaneously seeking leave to amend against the Executives (and asking for leave to amend against Colliers if the Court determined that they could not amend as of right). Colliers challenged Plaintiffs’ right to amend as of right.
While noting that federal courts have often reached a contrary conclusion, the Court determined that under North Carolina precedent, a plaintiff’s right to amend is cut off after any defendant files a responsive pleading. Accordingly, Plaintiffs’ amended complaint was void and without legal effect because Plaintiffs’ right to amend as of right was cut off by the Executives’ filing of an answer. Nevertheless, the Court ruled that in the interests of judicial efficiency and economy, the motion to amend was granted as to all Defendants, without prejudice to Defendants’ right to seek dismissal under Rule 12. The motions to dismiss the original complaint were denied as moot.
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Anderson v. Beresni, 2023 NCBC Order 47 (N.C. Super. Ct. Sept. 22, 2023) (Davis, J.)
Key Terms: Nonprofit Corporation Act; N.C. Gen. Stat. § 55A-7-40(d); derivative action; settlement; consent motion to approve settlement and dismissal; property owners association
Plaintiffs, members of a property owners association operating under North Carolina’s Nonprofit Corporation Act, had brought a derivative action against current and former members of the association’s board of directors and the declarant asserting that the board had failed to invoice the declarant for lot assessments allegedly owed. After reaching a settlement agreement, the parties, pursuant to N.C. Gen. Stat. § 55A-7-40(d), sought approval from the Court of the settlement and dismissal of the derivative claims.
The Court noted that the balancing factors typically applied to approval of the settlement of derivative claims in the context a for-profit corporation—balancing 1) any legitimate corporate claims against 2) the corporation’s best interests—were equally applicable to a non-profit corporation. Applying these factors and noting the risk, uncertainty, and significant expense of continued litigation, the Court granted the motion, determining that the proposed settlement was in the best interest of the association and its members, and was fair, reasonable, and adequate in all respects.
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 10/03/23
North Carolina ex rel. Stein v. MV Realty PBC, LLC, 2023 NCBC 59 (N.C. Super. Ct. Aug. 30, 2023) (Davis, J.)
Key Terms: homeowner; listing agreement; preliminary injunction; House Bill 422; N.C.G.S. § 93A-85.2; covenant running with the land; UDTPA; liquidated damages; unenforceable penalty; notice of lis pendens; lien
The Attorney General brought suit against MV Realty asserting statutory claims for unfair or deceptive trade practices, unlawful telephone solicitation practices, unfair debt collection practices, and usurious lending practices, all based on the Homeowner Benefit Agreement (“HBA”) program which MV Realty markets to North Carolina homeowners. Under the program, MV Realty offers homeowners an immediate cash payment in exchange for the homeowners entering into an HBA, which grants MV Realty the exclusive right to serve as the homeowner’s listing agent if they decide to sell their home. Under the terms of the HBA, the agreement is binding on the homeowner and their heirs for forty years and, if breached, entitles MV Realty to an Early Termination Fee (“ETF”) of 3% of the fair market value of the home. The HBA further provides that its obligations constitute covenants running with the land and any amounts owed thereunder due to breach are secured by a security interest in and lien against the home. The State sought a preliminary injunction and submitted various exhibits in support thereof, including fourteen affidavits by homeowners claiming to have been misled by the program.
The Court began by noting that the newly enacted N.C.G.S. § 93A-85.2, which effectively prohibits MV Realty from entering into new HBAs with North Carolina homeowners going forward, did not govern the Court’s determination of whether the State was entitled to an injunction regarding MV Realty’s enforcement of existing HBAs. Turning to the State’s arguments, the Court first determined that the State had shown a reasonable likelihood of success on the merits regarding its argument that the ETF was an unlawful, and therefore unenforceable, penalty. Second, the Court found that the State was likely to succeed on its UDTP claim as to those aspects of the HBA program which created a cloud on the title of homeowners, namely the recordation of a memorandum of the HBA and the filing of a notice of lis pendens. Third, the Court concluded that the State had shown a likelihood of success on its claim that the MV Realty program possessed a capacity to deceive, and had in fact deceived, homeowners because the HBA did not sufficiently put homeowners on notice regarding a potential lien or the ramifications of recordation of the memorandum, which in any event was likely unlawful. For all of these reasons, the Court concluded that even under previous North Carolina law, the State was entitled to a preliminary injunction because it had adequately shown a likelihood of success on the merits of its UDTP claim and that the act or practice complained of adversely affected the public interest.
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United Therapeutics Corp. v. Liquidia Techs., Inc., 2023 NCBC 60 (N.C. Super. Ct. Aug. 31, 2023) (Earp, J.)
Key Terms: motion to reconsider; Rule 54(b); clear error; motion to amend; undue delay; unfair prejudice
In a previous opinion, discussed here, the Court granted in part and denied in part Plaintiff’s motion to amend its complaint a second time. Plaintiff moved the Court to reconsider its ruling and permit Plaintiff to amend its complaint to add a declaratory judgment claim with respect to Defendant Roscigno’s employment agreements.
Rejecting Plaintiff’s argument that amendment should always be allowed unless some material prejudice is demonstrated, the Court denied the motion. Plaintiff had offered no reasonable explanation for its delay in asserting the new declaratory judgment claim. Moreover, as the Court had previously found, the proposed claim would increase the stakes of the litigation and likely require additional discovery, thereby unfairly prejudicing Defendants.
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Gvest Real Est., LLC v. JS Real Est. Invs., LLC, 2023 NCBC 61 (N.C. Super. Ct. Sept. 12, 2023) (Conrad, J.)
Key Terms: summary judgment; declaratory judgment; corporate records; moot; fiduciary duty; majority member; fraudulent inducement; alter ego liability; punitive damages; UDTPA; in or affecting commerce; capital raising
In this dispute arising from a business relationship gone bad, the three members of Yards at NoDa, LLC, with Gvest on one side and JS Real Estate and TR Real Estate on the other, asserted competing claims relating to corporate governance issues, breach of fiduciary duties, and fraud. Both sides moved for summary judgment.
Defendants’ Motion for Summary Judgment
Gvest’s Claim for Declaratory Judgment. Gvest sought a declaratory judgment that it was the sole member of Yards at NoDa due to JS Real Estate’s and TR Real Estate’s previous attempts to transfer their membership rights. However, since Gvest had not offered any evidence to show that the requirements of Yards at Noda’s operating agreement to transfer membership had been satisfied, any attempted transfer was null and void. Accordingly, the Court granted summary judgment to Defendants on this claim.
Gvest’s Demand for Corporate Records. The Court dismissed as moot Gvest’s claims seeking to enforce its contractual and statutory rights to corporate records because the evidence showed that Gvest had already received all requested documents.
Gvest’s Claims for Breach of Fiduciary Duty and Constructive Fraud. Rejecting Gvest’s argument that JS Real Estate’s and TR Real Estate’s collective ownership of 75% of Yards at NoDa created a fiduciary duty owed to Gvest as the minority member, the Court concluded that Gvest had not shown a genuine issue of material fact regarding the existence of a fiduciary relationship and therefore granted summary judgment to Defendants on these claims.
Gvest’s Claims for Fraudulent Inducement and Negligent Misrepresentation. The Court granted Defendants summary judgment on these claims because Gvest failed to come forth with evidence to controvert Defendants’ evidence that the alleged misrepresentations were, in fact, true and that Gvest had not reasonably relied on any misrepresentation.
Gvest’s Claims for Alter Ego Liability and Punitive Damages. Because summary judgment had been entered on all of Gvest’s other claims, the Court also entered summary judgment on Gvest’s claims for alter ego liability and punitive damages since neither can stand alone.
Gvest’s Motion for Summary Judgment
Defendants’ Claim for Breach of Fiduciary Duty. The Court granted Gvest summary judgment on this claim as to all Defendants except Yards at NoDa. Regarding Yards at NoDa, a genuine issue of material fact existed as to whether Gee (Gvest’s principal), as the alter ego of Gvest, acted in bad faith or was grossly negligent in his duties as manager.
Defendants’ Claim for Fraudulent Inducement. The Court denied Gvest summary judgment on Defendants’ claim that Gvest had fraudulently induced them to invest in Yards at NoDa. Although the Court agreed with Gvest that some of Defendants’ allegations could not form the basis of the claim, it declined to consider Gvest’s arguments regarding other allegations because Gvest failed to make the arguments in its opening brief.
Defendants’ Claim for Unfair or Deceptive Trade Practices. The Court granted Gvest summary judgment on this claim because the alleged misconduct involved raising capital for Yards at NoDa and was therefore not in or affecting commerce.
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Mauck v. Cherry Oil Co., 2023 NCBC 62 (N.C. Super. Ct. Sept. 15, 2023) (Davis, J.)
Key Terms: summary judgment; breach of fiduciary duty; put/call provision; shareholders’ agreement; breach of contract; notice of shareholders’ meeting; N.C. Gen. Stat. § 55-1-41(c)
This action concerns a dispute among family members over the management and future direction of their business, Cherry Oil. Plaintiffs, the minority shareholders, alleged that the Cherrys, the majority shareholders, had engaged in various misconduct in the management of Cherry Oil. During the course of the dispute, Cherry Oil called the shares of Plaintiffs pursuant to the put/call provision in the Shareholders’ Agreement. After a number of Plaintiffs’ claims were dismissed at the Rule 12(b) stage, Defendants moved for summary judgment on Plaintiffs’ remaining claims and asked for the Court to supervise the process for finalizing the purchase of the Plaintiffs’ shares.
Breach of Fiduciary Duty. The Court had previously determined that the Cherrys, as majority shareholders, owed a fiduciary duty to the Plaintiffs, as minority shareholders. Here, however, the Court determined that the Plaintiffs had failed to offer sufficient evidence regarding breach of that duty to survive summary judgment. Based on the protections of the put/call provision in the Shareholders’ Agreement, the Court rejected the Plaintiffs’ argument that taking away their management roles within Cherry Oil frustrated their reasonable expectations. The Court also determined that any actions taken by Defendants relating to the Plaintiffs’ status as employees or officers could not serve as the basis for a breach of fiduciary duty claim arising from the Plaintiffs’ status as minority shareholders. Finally, the Court concluded that there was insufficient evidence in the record to support the Plaintiffs’ assertions that Defendants had hid corporate records, improperly refused to issue a dividend, and relied on the Plaintiffs’ personal guaranties without permission. Accordingly, the Court granted Defendants’ summary judgment on this claim.
Breach of Contract. The Plaintiffs initially alleged that Defendants breached the Shareholders’ Agreement by failing to take the steps necessary to close the purchase of their shares under the put/call provision. However, in opposing summary judgment, the Plaintiffs contended that their breach of contract claim was actually based on no valid call vote ever taking place due to a failure to provide sufficient notice of the meeting and the failure to establish a price prior to the call. The Court concluded that the claim failed on any of those theories. First, the record showed that it was the Plaintiffs, not the Defendants, who were primarily responsible for any lack of progress on closing the transaction. Second, the Court concluded that notice of the shareholders meeting was sufficient because N.C. Gen. Stat. § 55-1-41(c), which provides that written notice is effective when deposited in the mail, superseded the provision in Cherry Oil’s bylaws that notice was not effective unless delivered not less than ten days before the meeting. Third, the Court determined that the language of the Shareholders’ Agreement did not support the Plaintiffs’ argument that the valuation of their shares was a condition precedent to the call vote. Accordingly, the Court granted Defendants’ summary judgment on this claim.
Motion for Supervision. Acknowledging that it would eventually need to resolve the parties’ dispute regarding the call process, the Court deferred ruling on the motion for supervision to allow the parties to submit new briefs now that the motion for summary judgment had been decided.
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Spivey v. Smith, 2023 NCBC 63 (N.C. Super. Ct. Sept. 18, 2023) (Earp, J.)
Key Terms: judgment on the pleadings; Rule 12(c); breach of fiduciary duty; reverse veil piercing; fraud; Rule 9(b); constructive fraud; statute of limitations; discovery rule; standing; Rule 12(b)(1); Barger exceptions; marital trust; constructive trust
This action involves a dispute between Plaintiff Spivey and the co-owner of Spivey’s late husband’s trucking business. Spivey is the widow of Thomas Spivey, who founded Inman Trucking, Inc. At some point in the company’s history, Thomas Spivey hired Defendant Smith. In 1984, Thomas Spivey formed Inman Management, Inc., an entity that retains ownership of the trucks used by Inman Trucking. Spivey is the sole owner of a company called KS Transportation, LLC, which owns one truck. Smith is the sole owner of a company called Desparado, Inc. Upon Thomas Spivey’s death, Spivey inherited 75% of Inman Management through a marital trust, while Smith owned the remaining 25%. During the last years of Thomas Spivey’s life, Smith took over operations of Inman Trucking and Inman Management. Following Thomas Spivey’s death, Smith formed Inman Transportation, LLC, which was owned by Smith (51%) and Spivey (49%). Spivey alleges that Smith took steps to seize control of the businesses and render her ownership interests worthless. Additionally, Spivey alleges that Smith either used KS’s truck without paying KS, or refused to use the truck to damage Spivey, its sole owner. Spivey also alleges that Smith siphoned off Inman Management’s assets to Desparado. Kathy Spivey and KS Transportation filed suit against Smith, the Inman entities, and Desparado, alleging breach of fiduciary duty and fraud against all parties. Defendants moved for judgment on the pleadings and dismissal for lack of standing.
Breach of Fiduciary Duty. The Court summarily granted the motion for judgment on the pleadings as to the breach of fiduciary duty claims by KS against the Inman entities, as the complaint did not allege that these entities owed KS a fiduciary duty. The Court also granted the motion as to the claims by Spivey against the Inman entities, on the basis that a corporation does not owe fiduciary duties to its shareholders, nor do managers or officers of an LLC owe a fiduciary duty to the LLC’s members. However, the Court denied the motion as to Spivey’s breach of fiduciary duty claim against Smith with regards to Inman Management. The Court concluded that despite the fact that Smith was the minority shareholder, the facts alleged regarding Smith’s control and Spivey’s poor health were sufficient to show a de facto fiduciary relationship at this stage. Spivey’s claim against Smith with regards to Inman Transportation also survived because the complaint sufficiently alleged that Smith was in control of the company based on his majority voting interest and management position. Lastly, the Court addressed Spivey’s attempt to assert a breach of fiduciary duty claim against Desparado based on a reverse veil piercing theory. The Court concluded that Spivey failed to allege any of the factors North Carolina courts consider when determining whether a party has enough control to pierce the corporate veil. Thus, the motion was granted as to Desparado.
Fraud. The Court granted the motion as to Plaintiffs’ claim for affirmative fraud, as the complaint’s allegations failed to meet the heightened pleading standard required under Rule 9(b). The Court also granted the motion as to KS’s claim for fraudulent concealment against Smith, as KS failed to allege that Smith owed it a duty to disclose. However, the Court denied the motion as to Spivey’s fraudulent concealment claim against Smith, as Spivey sufficiently alleged that Smith had a duty to disclose as a fiduciary and had prevented her from discovering fraudulent conduct to her detriment.
Statute of Limitations. Defendants challenged Plaintiffs’ claims on the basis that the suit was filed after the statute of limitations had run. The Court rejected this argument, as the discovery rule applied to both the fiduciary duty and fraud claims, pursuant to which the statute of limitations did not begin to run until Spivey knew, or should have known, that her rights had been violated. In addition, the Court determined that Spivey had sufficiently alleged a constructive fraud claim, even though not labelled as such, which was subject to a ten-year statute of limitations.
Standing. Pursuant to Rule 12(b)(1), Defendants challenged Spiveys’ standing to bring claims: (1) directly, versus derivatively; and (2) as the beneficiary of a marital trust. The Court held that Spivey possessed standing to sue directly, rather than derivatively, because she alleged a breach of fiduciary duty as well as a harm that is separate and distinct from that suffered by other shareholders. Secondly, the Court held that the complaint’s allegations support the conclusion that Spivey has standing to sue as the real party in interest, as she claims to be “a majority owner by virtue of a marital trust.” The complaint also lacked any allegation that a third-party trustee controlled her interest at any time.
Constructive Trust. Lastly, the Court granted Defendants’ motion to dismiss Spivey’s claim for a constructive trust, as a constructive trust is a remedy, not a claim.
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Wright v. LoRusso, 2023 NCBC 64 (N.C. Super. Ct. Sept. 19, 2023) (Conrad, J.)
Key Terms: summary judgment; minority member; majority member; derivative claim; limited liability company; operating agreement; fraud; negligent misrepresentation; breach of contract; breach of fiduciary duty
Cinch.Skirt and its minority members asserted more than a dozen direct and derivative claims against the LLC’s majority member and manager based on her alleged abuse of her positions. Defendant moved for summary judgment on some, but not all, of Plaintiffs’ claims.
Unjust Enrichment and Punitive Damages. – The Court summarily denied summary judgment on Plaintiffs’ claims for unjust enrichment and punitive damages because the Defendant’s brief did not address those claims.
Fraud and Negligent Misrepresentation. – These claims, based on allegations of self-dealing and misuse of company funds, were brought both as derivative and direct claims. In her opening brief, Defendant challenged the allegation that she improperly paid herself a distribution by presenting deposition testimony from Plaintiffs in which they admitted that she legitimately earned the payment. Because Plaintiffs failed to provide contradictory evidence or controvert Defendant’s characterization of their testimony, the Court found no genuine issue of material fact regarding the payment, and granted Defendant’s motion to the extent that the claims were based on the payment. The Court declined to consider additional arguments raised in Defendant’s reply brief and therefore denied the motion as to these claims in all other respects.
Breach of Contract – Plaintiffs asserted direct and derivative claims for numerous breaches of the purchase agreement, the operating agreement, and certain oral agreements. Regarding the purchase agreement, the Court agreed with the Defendant that since she was not a party to the agreement, having only signed it as a representative of the LLC, she could not be held liable for any breach. Regarding the operating agreement, the Court denied the motion as to the breaches which Defendant failed to address beyond a single conclusory sentence. As to an alleged breach related to the termination of Plaintiff Stansell from his position with the LLC, the Court found that there was an issue of fact as to Stansell’s role at the company and whether Defendant had the unilateral authority to terminate him. Accordingly, the Court denied the motion as to this breach as well. Regarding breaches of two “oral agreements” made at member meetings, Defendant argued the agreements were invalid due to a provision of the operating agreement which prohibited oral operating agreements. The Court was unpersuaded because Defendant did not explain why the agreements were not permissible member actions, and, in any event, some evidence existed that the agreements had been memorialized in writing. Thus, the Court denied the motion as to the oral agreements.
Breach of Fiduciary Duty – Defendant moved for summary judgment on both the direct and derivative claims for breach of fiduciary duty; however, because Defendant did not brief the derivative claim, the Court denied the motion as to it. As to the direct claim, the Court agreed with Defendant that she did not owe a fiduciary duty to the Plaintiffs, who were minority members. Although Defendant held a numerical majority interest, she did not have a controlling interest due to various protections in the operating agreement. Similarly, her position as manager did not create a fiduciary duty due to the safeguards in the operating agreement. Accordingly, the Court granted the motion as to the direct claim for breach of fiduciary duty.
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Caliber Packaging & Equip., LLC v. Swaringen, 2023 NCBC Order 42 (N.C. Super. Ct. Sept. 8, 2023) (Earp, J.)
Key Terms: subpoena duces tecum; Rule 45; motion to quash; motion for a protective order
Plaintiffs and its former affiliate Prism are competitors in the industrial packaging industry. After the entities parted ways, Plaintiffs sued Defendant Swaringen, a former employee, for taking their trade secret information allegedly with the purpose of using it to entice prospective employers, including Prism. In response to a subpoena duces tecum served on it, Prism objected and moved to quash and for a protective order.
Prism first argued that the requests were unduly burdensome because Plaintiffs had not exhausted other means of obtaining the information and because of the effort required to respond. The Court determined that since the other potential sources of information were adverse to Plaintiffs, or potentially unreliable, Plaintiffs should not be required to exhaust other sources of information before seeking it from Prism. Prism also failed to show that responding to the requests would unduly burden it with regards to time, effort, or expense; however, the Court found that the burden on Prism to produce certain confidential business information outweighed Plaintiffs’ need for the information, at least on the present record.
Prism also argued that the requests were irrelevant to the case and were instead being sought for use in pending litigation in Illinois. The Court rejected this argument, finding that the requests were reasonable given the factual allegations.
Lastly, Prism argued that because it had entered into a joint defense agreement with Swaringen, certain requested documents, namely documents regarding the payment of Swaringen’s legal fees and any indemnity agreements, were protected by the attorney-client privilege or the work product doctrine. Noting that fee agreements are not automatically protected by attorney-client privilege, the Court advised that should Prism take the position that content within a joint defense agreement was privileged, it would need to produce a privilege log.
Accordingly, the Court denied Prism’s motion except with respect to the requests that sought confidential business information.
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North Carolina ex rel. Stein v. MV Realty PBC, LLC, 2023 NCBC Order 43 (N.C. Super. Ct. Sept. 18, 2023) (Davis, J.)
Key Terms: preliminary injunction; homeowner benefit agreement; early termination fee; termination of memoranda; cancellation of lis pendens
On August 30, 2023, the Court granted the State’s motion for a preliminary injunction but deferred setting out the specific terms of the injunctive relief to allow the parties an opportunity to submit proposed orders and supporting briefs. This order sets out the terms of the relief as follows: Defendants are immediately enjoined from 1) recording any memorandums of HBAs entered into prior to August 24, 2023; 2) asserting that MV Realty holds a valid lien or other interest based on an HBA; 3) recovering any ETF or penalty relating to an HBA; 4) filing or indexing a lis pendens on any property subject to an HBA; and 5) commencing or continuing any legal action to enforce an ETF or interest arising from an HBA. The Court further ordered that the Defendants shall record terminations of any memoranda filed on properties based on an HBA and file cancellations of all lis pendens filed on properties based on an HBA.
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Found. Bldg. Materials, LLC v. Conking & Calabrese, Co., 2023 NCBC Order 44 (N.C. Super. Ct. Sept. 19, 2023) (Earp, J.)
Key Terms: temporary restraining order; emergency relief; speculation; expedited discovery
On July 10, 2023, Defendants answered Plaintiff’s complaint against them and filed counterclaims and a third-party complaint. On September 15, Defendants moved for a temporary restraining order and a preliminary injunction, and sought expedited discovery.
The Court denied the TRO motion, because 1) Defendants’ several-month delay in seeking relief undercut their claim that there was an immediate need for emergency relief; and 2) their affidavits did not provide a sufficient evidentiary basis for a TRO because they were based on speculation and hearsay. The Court also denied Defendants’ motion for expedited discovery finding that there was no justification for expediting discovery based on the record currently before the Court.
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Value Health Solutions, Inc. v. Pharmaceutical Research Assoc., Inc., 2023 N.C. LEXIS 585, 2023 WL 5658848 (N.C. 2023) (Barringer, J.)
Key Terms: negligent misrepresentation; Rule 9(b); heightened pleading; fraud; 12(b)(6); summary judgment; APA; implied covenant of good faith and fair dealing; UDTPA; aggravating circumstances; motion to amend; discovery dispute; BCR 10.9; dissent
Plaintiff VHS is a software company, founded by Plaintiff Parthasarathy, which developed software applications for use in the clinical trial process. Defendants entered into an asset purchase agreement to acquire the software, under which additional contingent payments would be made if certain milestones were met. Following a dispute regarding payments under the APA, Plaintiffs brought suit alleging breach of the APA and various fraud-based claims. After all claims were disposed of, Plaintiffs appealed to the North Carolina Supreme Court from several orders of the Business Court.
12(b)(6) Dismissals. The Court first addressed the order dismissing Plaintiffs’ fraud- and misrepresentation-based claims. The fraud by omission and promissory fraud claims were properly dismissed because, although briefed, they were not pleaded in the amended complaint. The pre-APA fraud and fraudulent inducement claims were also properly dismissed because the amended complaint did not specify the time, place, and content of the misrepresentations, or who specifically made them. Finally, the Court agreed with the line of decisions from both the Business Court and North Carolina’s federal courts that negligent misrepresentation claims must meet the heightened pleading standard of Rule 9(b). Since Plaintiffs had failed to do so, this claim was properly dismissed as well.
Summary Judgment. Turning to the trial court’s order granting summary judgment to Defendants on Plaintiffs’ claims for breach of the APA, the Court, applying Delaware law, affirmed in part and reversed in part. The Plaintiffs had claimed that Defendants breached the implied covenant of good faith and fair dealing by failing to reasonably determine completion of certain milestones set forth in the APA. The Court, however, affirmed summary judgment in this regard because there was no “contractual gap” regarding these milestones and thus the implied covenant was inapplicable. Nonetheless, the Court reversed with regard to breach of other express provisions, finding that there was a genuine issue of material fact.
As to Plaintiffs’ claims of intentional misrepresentation and fraudulent inducement based on representations made in the LOI, the Court affirmed summary judgment in favor of Defendants because the LOI was non-binding, contemplated a more complete future agreement, and expressly disclaimed any reliance on its contents. The Court also affirmed summary judgment in Defendants’ favor on Plaintiffs’ claims of intentional misrepresentation and fraudulent inducement based on PRA’s post-APA statements regarding possible amendments to the APA. Although the parties did not ultimately reach an agreement regarding the amendments, Plaintiffs failed to present sufficient evidence that PRA knew the statements were false at the time they were made. Finally, the Court affirmed summary judgment in favor of Defendants on Plaintiffs’ UDTPA claims which alleged that Defendants violated the UDTPA by negotiating the APA under false pretenses, interfering with the APA milestones, and terminating Parthasarathy’s employment. The Court agreed with the trial court that there was insufficient support for a finding of “substantial aggravating circumstances” to elevate any breach of contract to an unfair trade practice or of egregious conduct to overcome the presumption against UDTPA claims in an employer-employee context.
Motion to Amend. The Court affirmed the trial court’ denial of Plaintiffs’ second motion to amend the complaint, concluding that the trial court had plentiful justification for denying the motion, including that the Plaintiffs had previously amended their complaint, the amendment contained extensive revisions, discovery had closed, and the parties had already fully briefed the motion to dismiss the first amended complaint.
Discovery. Lastly, the Court addressed Plaintiffs’ discovery request, which the trial court had found unduly burdensome. The Court affirmed, rejecting Plaintiffs’ argument that the trial court had improperly converted their emailed request for assistance with a discovery dispute pursuant to BCR 10.9 into a motion to compel. The Court noted, however, that given the Court’s partial reversal of the summary judgment order, additional discovery may be necessary on remand.
Dissent in Part. Two Justices dissented in part with regards to the applicability of Rule 9(b) to negligent misrepresentation claims and the applicability of the implied covenant of good faith and fair dealing to the breach of contract claims.
By: Natalie E. Kutcher, 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 09/20/23
Atkinson v. Lexington Cmty. Ass’n, 2023 NCBC 58 (N.C. Super. Ct. Aug. 16, 2023) (Conrad, J.)
Key Terms: Planned Community Act; motion for judgment on the pleadings; Rule 12(c); declaratory judgment; declaration; standing; third-party complaint; moot
After being sued in a dispute regarding recovery of earnest money, the Association filed a third-party complaint against its president, Rankin, alleging breach of fiduciary duties. Rankin counterclaimed seeking, inter alia, a declaratory judgment that the Association had no authority to institute the action against him because it did not receive member approval as required by its governing declaration. Rankin filed a motion for judgment on the pleadings on his declaratory judgment claim.
The Court agreed with Rankin and found that the declaration required the Association to obtain membership approval before asserting third-party claims against Rankin. Because the Association failed to do so and the exemption for claims to enforce the declaration was inapplicable, its claims against Rankin were barred. The Court granted Rankin’s motion for judgment on the pleadings with respect to all claims asserted against him but dismissed the claims without prejudice because the Association could obtain member approval to refile. The Court then concluded that Rankin’s claim for declaratory judgment was mooted by the dismissal of the claims against him.
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Campbell Sales Grp., Inc. v. Niroflex by Jiufeng Furniture, LLC, 2023 NCBC Order 38 (N.C. Super. Ct. Aug. 11, 2023) (Davis, J.)
Key Terms: motion in limine; evidence; lost profits damages; proximate cause; loss of reputation damages; admissibility; unfair or deceptive trade practices
Prior to the commencement of a jury trial set for August 21, 2023, Defendants filed two motions in limine relating to Plaintiff’s damages evidence on its UDTPA claim.
Defendants’ first motion in limine sought to prevent Plaintiff from presenting evidence of, or claiming entitlement to, lost profits damages because, Defendants argued, the damages Plaintiff suffered were not proximately caused by Defendants’ conduct and were too speculative. The Court agreed and granted the motion, concluding that Plaintiff’s lost profits damages were not proximately caused by Defendants’ conduct because it was Plaintiff who chose to discontinue its relationship with Genfine rather than Genfine refusing to sell its products through Plaintiff anymore. The Court hypothesized that a lost profits argument based on the profits Plaintiff lost by not being the exclusive retailer of Genfine furniture might have been viable, but that it was too late to now assert such a theory.
Defendants’ second motion in limine sought to prevent Plaintiff from presenting evidence of, or claiming entitlement to, damages from reputational harm. The Court granted this motion as well, noting first that Plaintiff had failed to cite any North Carolina case in which reputational damages were awarded in a business dispute, and concluding that even if such damages were potentially recoverable, Plaintiff’s apparent reputational damages were too speculative and its supporting evidence deficient.
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Moose v. Allegacy Fed. Credit Union, 2023 NCBC Order 39 (N.C. Super. Ct. Aug. 21, 2023) (Conrad, J.)
Key Terms: motion to approve settlement; pre-certification class action; class claims; putative class; due process; public interest; indicia of abuse; settlement agreement
Plaintiff Moose brought individual and class claims against Defendant for assessing overdraft fees for certain debit-card transactions. No class had yet been certified in the case despite its pendency for almost three years. Nevertheless, having reached a settlement, the parties jointly moved for an order approving dismissal of Moose’s individual claims with prejudice and the putative class claims without prejudice.
The Court began by explaining that to guard against potential abuse of the class-action mechanism, a trial court must not only approve class-wide settlements, but must also conduct a limited inquiry where a named plaintiff has reached an individual settlement and is seeking a voluntary dismissal of a pre-certification class-action complaint. Upon review of the proposed settlement here, the Court was not persuaded by the parties “practical considerations” for settlement and found numerous indicia of abuse. Among them, the Plaintiff and her counsel would receive a settlement payment “several hundred times” the amount of the Plaintiff’s individual alleged damages and significantly more than she could have reasonably expected to recover through ordinary litigation.
Additionally, Moose herself would receive less than five percent of the total settlement amount while her counsel would receive the remainder. The Court was also concerned that the settlement could prejudice the absent class members since it did not address tolling or the effect of the statute of limitations on the class members’ claims.
For these reasons, the Court declined to approve the parties’ settlement agreement in its proposed form and ordered that they (1) file their settlement agreement publicly, (2) provide supplemental information to the Court including class size, the potential cost to notify the class of the settlement, an estimate of damages, and counsel’s billing rates and hours, and (3) attend an in-person hearing for all counsel of record, including out-of-state counsel who had not moved to appear pro hac vice, to discuss certification of the class.
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Rorie v. Charlotte-Mecklenburg Hosp. Auth., 2023 NCBC Order 40 (N.C. Super. Ct. Aug. 21, 2023) (Conrad, J.)
Key Terms: motion to voluntarily dismiss; class action; precertification; prejudice; putative class
Plaintiff initiated a class action alleging that Defendant improperly disclosed the private health information of its patients through third-party tracking technology embedded in its website and asserted claims both individually and on behalf of all others similarly situated. Following Defendant’s motion to dismiss Plaintiff’s amended complaint, Plaintiff filed a notice of voluntary dismissal without prejudice.
The Court has a duty to ensure putative class members will not be prejudiced by the voluntary dismissal of a class-action complaint and therefore has to approve such a dismissal.
After conducting its limited review, the Court here found that neither the Plaintiff nor her counsel would gain from the dismissal of her individual or class claims and that the decision to dismiss the claims was instead based on the Plaintiff’s belief of the unlikelihood of success of her claims following review of the Defendant’s motion to dismiss. The Court also found that the dismissal would not harm putative class members because it was without prejudice and would not prevent putative class members from filing their own individual or class claims in the future.
Therefore, the Court approved the dismissal of Plaintiff’s claims without prejudice.
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Mary Annette, LLC v. Crider, 2023 NCBC Order 41 (N.C. Super. Ct. Aug. 24, 2023) (Conrad, J.)
Key Terms: motion to compel; BCR 10.9; discovery dispute; Rule 34; requests for production of documents; attorneys’ fees; Rule 37; BCR 10.1; ESI protocol
Following compliance with Business Court Rule 10.9’s discovery dispute requirements, and with permission of the Court, Defendants filed a motion to compel regarding their requests for production. Defendants argued that Plaintiffs had failed to timely, completely, and competently respond to their requests.
Since Plaintiffs had not objected to any of the requests, the only issue was whether their production of documents was complete and properly formatted. Under Rule 34, which applied because the parties had not agreed to an ESI protocol, Plaintiffs were required to identify the form they intended to use for production, which they failed to do. Moreover, they then provided Defendants a cloud-based folder followed by a physical USB drive which “may or may not” contain the same files. The Court thus concluded that Plaintiffs production was incomplete and ordered Plaintiffs to produce all of the requested documents in a form agreeable to both sides. However, the Court denied Defendants’ related request that Plaintiffs produce an income and expense ledger that was not already in existence.
The Court also determined that Defendants, pursuant to Rule 37(a)(4), were entitled to their reasonable expenses, including attorneys’ fees, incurred in pursuing their motion to compel since Plaintiffs had failed to timely respond or comply with Rule 34 and had provided no justification for their noncompliance.
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 08/30/23
Murphy-Brown, LLC v. Ace Am. Ins. Co., 2023 NCBC 50 (N.C. Super. Ct. Aug. 7, 2023) (Davis, J.)
Key Terms: primary insurance coverage; excess insurance coverage; nuisance lawsuit; hog farm; cause test
Beginning in 2013, Plaintiffs were named defendants in multiple nuisance lawsuits, in which neighboring property owners alleged physical property invasion and loss of use and enjoyment of their land due to Plaintiffs’ hog farming operations. After five “bellwether” trials in federal court resulted in verdicts for the property owners, Plaintiffs reached a global settlement with all of the property owners. Plaintiffs then sued their various primary and excess insurance providers, alleging that the insurers should be held liable for the amounts Plaintiffs paid to defend and settle the nuisance lawsuits.
As the policies require an “accident” to occur for coverage to apply, Defendants XL Insurance America, Inc. and XL Specialty Insurance Company moved for partial summary judgment seeking a ruling that, assuming a jury would find the nuisance lawsuits were caused by an “accident” under the terms of the policies, the nuisance lawsuits arose from multiple “accidents” as opposed to a single “accident.” The ruling on this issue would determine whether the XL Defendants, who were excess insurers, would be liable for any payment, as multiple “accidents” would require the primary coverage to be exhausted for each accident before the XL Defendants’ obligations arose.
The Court denied the XL Defendants’ motion, holding that the claims brought under the nuisance lawsuits resulted from a single “accident” under the “cause” test set forth in Gaston Cty. Dyeing Mach. Co. v. Northfield Ins. Co., which permits the utilization of proximate cause in cases where there is no single one-time event giving rise to injury. The Court held that the nuisance lawsuits’ claims arose from a single “accident,” since the claims “stemmed from central, uniform policies and procedures decided upon and implemented by Plaintiffs in operating their farms” and the injuries “did not materially vary based on differences in the various farms owned or operated by Plaintiffs.”
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Murphy-Brown, LLC v. Ace Am. Ins. Co., 2023 NCBC 51 (N.C. Super. Ct. Aug. 7, 2023) (Davis, J.)
Key Terms: nuisance lawsuit; hog farm; insurance; duty to defend; defense costs; allocation
This opinion, arising from the same case addressed above in Opinion No. 50, was issued in response to Defendant ACE American Insurance Company’s motion for partial summary judgment on the issue of defense costs allocation. In prior summary judgment rulings, the Court held that (1) ACE breached its duty to defend Plaintiffs in the nuisance lawsuits; and (2) as a result of that breach, ACE is estopped from asserting coverage defenses in its policy. However, the Court had not addressed the issue of how the award of the defense costs would be allocated.
ACE first argued that, despite the Court’s prior ruling that ACE is estopped from asserting coverage defenses, it is still entitled to challenge the reasonableness of the defense costs incurred by Plaintiffs. Noting that North Carolina’s present case law only states that an insurer is obligated to pay the insured for “reasonable” defense costs when the duty to defend has been breached and finding no persuasive authority to the contrary, the Court agreed with ACE and granted the motion on this issue.
ACE’s second argument related to the allocation of Plaintiffs’ defense costs. In its prior ruling, the Court held that both ACE and Old Republic Insurance Company breached their duty to defend Plaintiffs in the nuisance lawsuits. ORIC subsequently settled all claims Plaintiffs asserted against it. ACE argued that all defense costs should be allocated among all triggered policy years and further allocated between primary coverage for each triggered policy year. In response, Plaintiffs contended that ACE is liable for all of Plaintiffs’ defenses costs not reimbursed by ORIC up to ACE’s 50% share. The Court agreed and denied ACE’s motion as to the allocation method, holding that ACE is liable for a 50% share of Plaintiffs’ reasonable defense costs from the nuisance lawsuits, subject to any credit ACE may be entitled to based on ORIC’s contributions.
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Murphy-Brown, LLC v. Ace Am. Ins. Co., 2023 NCBC 52 (N.C. Super. Ct. Aug. 7, 2023) (Davis, J.)
Key Terms: hog farm; nuisance lawsuit; indemnity allocation; pro rata method; all sum method
This opinion, arising from the same case addressed above in Opinion Nos. 50 and 51, addresses Defendants ACE American Insurance Company, Ace Property & Casualty Insurance Company and Great American Insurance Company of New York’s (collectively, “Certain Insurers”) Amended Motion for Partial Summary Judgment on the Issue of Indemnity Allocation, as well as Defendants XL Insurance America, Inc. (“XLIA”) and XL Specialty Insurance Company’s (“XL Specialty”) Amended Motion for Summary Judgment on Indemnity Allocation Issues. Both motions address the common issue of which method should be utilized to properly allocate indemnity liability for the injuries giving rise to the nuisance lawsuits, when such injuries span multiple policy periods.
In Certain Insurers’ Motion, the respective defendants argued for the application of the “pro rata method,” in which any indemnity amounts Plaintiffs may recover would be allocated among the applicable insurers pro rata based on the amount of time each insurer provided coverage to Plaintiffs. Plaintiffs, relying on a different provision in the policies, argued for an “all sum method,” in which the insurers would be liable for “any continuation, change, or resumption” of injuries occurring inside the policy period. Applying the methodology used by the Supreme Court in Radiator Specialty Co. v. Arrowood Indem. Co., the Court determined that the policies in question did not contain the requisite language to merit the application of the “all sum method.” The Court granted the Certain Insurer’s Motion, holding that the “pro rata” method was the appropriate method for calculating indemnification allocation.
In the XL Motion, XL Specialty argued that its policy provides no coverage, as Defendant American Guarantee & Liability Insurance Company would be exclusively liable for excess coverage indemnification as a result of its continuing coverage provision. Finding this argument inconsistent with the Court’s analysis of the Certain Insured’s Motion and subsequent application of the “pro rata method,” the Court rejected XL Specialty’s argument. XLIA proposed a similar argument to XL Specialty, in that the various insurance policies held by Plaintiffs “telescoped” in a manner that resulted in the higher-tiered policies absorbing any potential liability. The Court likewise rejected this argument and denied the XL Motion in full.
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Langley v. Autocraft, Inc., 2023 NCBC 53 (N.C. Super. Ct. Aug. 7, 2023) (Earp, J.)
Key Terms: motion for judgment on the pleadings; Rule 12(c); breach of fiduciary duty; constructive fraud; unfair or deceptive trade practices; employee/employer relationship
Plaintiff Langley, while employed by Defendant Autocraft, started a competing business, LBM. Autocraft terminated Langley’s employment upon discovery of his competing business activities. Langley sued Autocraft for breach of his employment agreement and Autocraft counterclaimed against Langley and LBM for breach of fiduciary duty, constructive fraud, and unfair or deceptive trade practices. Langley and LBM moved for judgment on the pleadings with respect to Autocraft’s counterclaims.
The Court dismissed the claim for breach of fiduciary duty because Autocraft’s allegations fell short of alleging the necessary domination and control by Langley, who was at most a high-lever manager, to establish a de facto fiduciary relationship. Further, since no fiduciary relationship existed, the Court also dismissed the constructive fraud claim.
Regarding unfair or deceptive trade practices, the Court found that Langley’s alleged misconduct was not in or affecting commerce because the wrongs only affected Autocraft and not external market participants. LBM’s involvement did not transform the misconduct into an unfair or deceptive trade practice that affected commerce since LBM was merely used as an instrument to facilitate harm within Autocraft. Thus, this claim was dismissed as well.
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Lineage Logistics, LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2023 NCBC 54 (N.C. Super. Ct. Aug. 10, 2023) (Bledsoe, C.J.)
Key Terms: duty to defend; indemnification; additional insured; ripeness; mootness; Rule 12(b)(1); Rule 12(b)(6); N.C.G.S. § 22B-1
This case arose from an incident that occurred at Plaintiff Lineage’s food storage facility, which caused one death and significant loss of products, along with other damages, which resulted in Lineage and its contractor, Plaintiff Primus, being named in a number of underlying actions. Following the incident, Plaintiffs sought defense and indemnification from the applicable insurers. After some of the insurers refused to acknowledge their alleged duties, Plaintiffs brought suit. Defendants moved to dismiss under Rules 12(b)(1), (6), and (7).
Lineage’s Declaratory Judgment Claims against Travelers. Lineage sought a declaratory judgment that Travelers owes it duties of defense and indemnification, and that Lineage is an additional insured under the Travelers Policies. Because Travelers had already agreed to defend Lineage (albeit with a reservation of rights), the Court determined that the duty to defend claim was moot as to present claims and not ripe as to future claims. Similarly, the indemnification claim was not ripe because it depended on the outcome of the ongoing underlying actions. Lineage’s additional insured status claim was also moot because Travelers had already recognized Lineage as an additional insured and any attempt to prospectively bind Travelers to this recognition was not ripe. Accordingly, the Court dismissed these declaratory judgment claims without prejudice.
Lineage’s Breach of Contract Claim against Travelers. Lineage alleged that Travelers had breached its duties to defend and to indemnify under the Travelers Policies. However, since Travelers began defending Lineage after the lawsuit commenced, the Court dismissed this aspect of the claim. The Court also dismissed the claim as to indemnification because Lineage had not alleged a determination that the obligation arose because of acts or omissions of Primus or Republic (the subcontractor) which was necessary under the applicable policy language.
Primus’s Declaratory Judgment Claims against Travelers. Primus sought a declaratory judgment that Travelers owes it duties of defense and indemnification, and that Primus is an additional insured under the Travelers-Republic Policy. The Court dismissed these claims without prejudice for the same reasons it dismissed Lineage’s parallel claims.
Lineage’s Indemnification and Breach of Contract Claims against Republic. Republic argued that Lineage’s claims for breach of its indemnification clause and for a declaratory judgment regarding the same should be dismissed as not ripe because its indemnity obligations were contingent on a yet-to-be-made factual determination that Republic was responsible for the claims and losses for which Lineage sought indemnification. However, the Court rejected this argument because the indemnity clause expressly stated that Republic’s indemnity obligations activated in response to an alleged act or omission and Lineage had adequately alleged that Republic was responsible for the losses. Republic also argued that the indemnity clause was contrary to public policy as expressed by N.C.G.S. § 22B-1, which prohibits a party to a construction contract from indemnifying a second party for damages caused by the second party’s own negligence. The Court acknowledged that two portions of the indemnity clause could potentially violate § 22B-1 but determined that the troublesome phrases could be severed. Thus, the motion to dismiss was denied as to these claims.
Lineage’s Tortious Interference with Contract Claim against Republic. Lineage alleged that it had negotiated a settlement with an insurer under which the insurer would pay out its policy limits to Lineage, but that Republic had caused the insurer to withdraw from the settlement and instead pay its limits to Republic. Republic argued, and the Court agreed, that the claim failed because Republic was a party to the contract at issue, and a party generally cannot interfere with its own contract. Moreover, the claim did not qualify for the malice exception to this general rule, since Lineage had not alleged that Republic acted without an economic motive or through the commission of an independent wrongful act. Accordingly, the Court dismissed this claim.
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Wijewickrama v. Christian, 2023 NCBC 55 (N.C. Super. Ct. Aug. 11, 2023) (Bledsoe, C.J.)
Key Terms: co-counsel agreement; attorney’s fees; breach of contract; breach of fiduciary duty; motion to dismiss; declaratory judgment; pleading standards; motion to strike; economic loss rule; specific performance
This case arises from a contentious fee dispute between four attorneys over fees obtained from a series of lawsuits against the Cherokee County Department of Social Services (as relevant here, the Hogan, Cordell, and Simonds cases). In 2017, Wijewickrama, Jackson, Moore, and Christian entered into a written Co-Counsel Agreement to govern the division of the fees and workload associated with the CCDSS lawsuits. Pursuant to the Agreement, each attorney would contribute to the representation, and any fees collected would be split equally amongst the four. The Agreement contained an “opt-out” provision, which permitted each attorney to “opt out at any time during the course of the litigation, appeal or other proceeding.” Following an attorney’s decision to opt-out, the attorney would be entitled to a billable rate of $300 per hour for each hour spent on the case.
After a $4.6 million jury verdict against CCDSS in the Hogan case in May 2021, the Cordell cases were settled for substantial sums and settlement negotiations began in the Simonds case. Around that time, Christian began experiencing personal, health, and financial difficulties, which eventually led to Wijewickrama and Moore confronting Christian and informing him that he would not receive compensation regarding the Simonds case. Christian withdrew from the Simonds case which later settled for $42 million. After receiving a letter from Christian demanding a ¼ share of the fees from the Simonds case, Wijewickrama, Jackson, and Moore instituted this suit alleging claims for breach of fiduciary duty and breach of contract and seeking a declaratory judgment and specific performance. Christian moved to strike and to dismiss and filed counterclaims, which Plaintiff also moved to dismiss.
Defendant’s Motion to Dismiss. The Court first rejected Defendant’s argument that Plaintiffs had failed to allege breach of contract with adequate specificity since Rule 8(a)(1) does not require heightened pleading and the complaint adequately pleaded breach by non-performance and repudiation. The Court also concluded that Plaintiffs had adequately pleaded their alternative claim for specific performance.
Regarding Plaintiffs’ claim for breach of fiduciary duty, the Court found that not only had Plaintiffs alleged that the Co-Counsel Agreement was a joint venture or partnership agreement, which would create a fiduciary relationship as a matter of law, but also that Defendant had admitted the same in his answer and therefore the existence of a fiduciary relationship was deemed admitted. However, the Court nonetheless dismissed the claim because any damages suffered by Plaintiffs arose from a breach of the Agreement, and not from any fiduciary relationship, and therefore the claim was barred by the economic loss rule.
Plaintiffs’ Motion to Dismiss. Plaintiffs moved to dismiss Defendant’s counterclaims for breach of contract and breach of fiduciary duty relating to the loss of prospective fees in the Hogan case. The Court granted the motion, determining as a matter of first impression in North Carolina that co-counsel have neither “a fiduciary duty to protect one another’s prospective interests in a fee” nor a “cause of action against one another for prospective fees lost.”
Defendant’s Motion to Strike. Defendant moved to strike those allegations that discussed his demand letter, bankruptcy proceeding, and personal behavior. The Court denied the motion as to the demand letter and bankruptcy proceeding, which could possibly have a bearing on the case, but granted it as to his personal behavior because the specific language used was immaterial and inflammatory. The Court directed that this language be replaced with “scandalous personal conduct.”
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Kearey Builders, Inc. v. Galleries@NoDa, LLC, 2023 NCBC 56 (N.C. Super. Ct. Aug. 14, 2023) (Robinson, J.)
Key Terms: breach of contract; motion to stay; arbitration; motion to dismiss; tortious interference with contract
This dispute arose out of an agreement Plaintiff Keary Builders, a general contractor, entered into with Defendant Galleries@NoDa, LLC, the developer, to construct a mixed-use building containing condominiums and retail space. Defendant Studio Fusion served as the architect and interior designer on the project. Studio Fusion’s duties included administrating the Agreement and issuing certificates for payment and substantial completion. After a dispute over payment under the Agreement, Plaintifff brought eight claims against Galleries and a ninth claim for tortious interference with contract against Defendant Studio Fusion, alleging that Studio Fusion induced Galleries to breach the Agreement by refusing to issue the requisite certificate of substantial completion. In response, Studio Fusion moved to dismiss Plaintiff’s ninth claim. Plaintiff then sought to stay the proceedings in favor of arbitration.
The Court granted Plaintiff’s motion to stay on the grounds that the Agreement contained an arbitration provision that specifically referenced and incorporated the AAA Construction Industry Arbitration Rules. The Court noted that the AAA Rules establish that the arbitrator “shall have the power to rule on his or her own jurisdiction.” Finding that the parties to the Agreement chose to delegate questions of substantive arbitrability to the arbitrator, the Court ordered Plaintiff’s first eight claims to arbitration and stayed the case pending the arbitrator’s decision.
As Studio Fusion was not a party to the Agreement, and therefore not subject to the Agreement’s arbitration provision, the Court ruled on Studio Fusion’s motion to dismiss Plaintiff’s ninth claim. The Court granted Studio Fusion’s motion to dismiss, on the basis that the complaint did not sufficiently plead factual allegations that Studio Fusion intentionally induced Galleries to breach the relevant agreements.
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Vill. at Motts Landing Homeowners’ Assoc. v. Aftew Props. LLC, 2023 NCBC 57 (N.C. Super. Ct. Aug. 14, 2023) (Conrad, J.)
Key Terms: pickleball; motion to dismiss; planned community; declaration; homeowners’ association; breach of fiduciary duty; business judgment rule; breach of contract; implied covenant of good faith and fair dealing; negligent construction; breach of implied warranty of workmanlike construction; easement
The homeowners’ association of a planned community sued, among other defendants, the Sobols (three former board members) and Aftew Properties (the community’s developer) related to alleged defects in the construction of the community’s common areas and mismanagement by the board members. The Sobols are the two principals of Aftew, and their daughter. The Sobols and Aftew each moved to dismiss Plaintiff’s claims.
The Sobols’ Motion to Dismiss—Breach of Fiduciary Duty. The Association alleged that the Sobols, as officers and directors, owed it fiduciary duties, which they breached by favoring Aftew’s interests over the Association’s by failing to maintain records and collect reserve funds, and by accepting defective common elements conveyed by Aftew. The Sobols argued that neither the declaration nor the governing statutes imposed express duties upon them to collect reserve funds or supervise the construction of common elements. The Court, however, found that the officers and directors of homeowners’ associations and other nonprofit corporations owe duties of care and loyalty and that construed liberally the complaint sufficiently alleged that the Sobols engaged in self-dealing and “intentionally took actions to benefit Aftew—and, thus, themselves—at the Association’s expense.” Moreover, the Sobols were not shielded by the business judgment rule because their actions were self-interested. Accordingly, the Court denied the Sobols’ motion to dismiss.
Aftew’s Motion to Dismiss—Breach of Fiduciary Duty. The Complaint alleged that Aftew breached fiduciary duties arising from the special confidence that Association placed in it during its period of developer control. Guided by common-law principles, the Court agreed, finding that the Association sufficiently alleged that the authority granted to Aftew by the declaration placed it “in a position of dominance over the Association” so that “members of the Association had no choice but to rely on Aftew to protect their interests” thereby supporting the existence of a fiduciary relationship. Thus, the Court denied Aftew’s motion to dismiss the claim for breach of fiduciary duty.
Aftew’s Motion to Dismiss—Breach of Contract. Aftew argued, and the Court agreed, that the alleged misconduct by Aftew was not governed by, and therefore could not be breaches of, the declaration. Further, because the claim for breach of the implied covenant of good faith and fair dealing was premised on the same conduct as the claim for breach of contract, that claim fell with the breach of contract claim.
Aftew’s Motion to Dismiss—Negligent Construction and Implied Warranty of Workmanlike Construction. The Association claimed that Aftew negligently constructed various common elements of the community and that Aftew breached the implied warranty of workmanlike construction regarding the community’s pickleball courts. Aftew argued that these claims should be dismissed because it did not perform the construction of the common areas itself but rather hired contractors to perform the work. The Court noted that “any person responsible for supervising a construction project is subject to being held liable on a negligent construction theory” and that similar rules apply to implied warranties to extend liability to other who are actively involved in the construction. Since the Complaint sufficiently alleged that Aftew participated in the construction of certain common elements and retained the right to supervise its contractors, the Court denied the motion to dismiss.
Aftew’s Motion to Dismiss—Demand for Easement Proceeds. The Court granted Aftew’s motion to dismiss the Association’s demand for proceeds from an easement on a recreation area in the community because, as the Association admitted, Aftew owns the recreation area and had not conveyed it to the Association.
By: Natalie 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 08/16/23
Chi v. N. Riverfront Marina & Hotel LLLP; Feng v. N. Riverfront Marina & Hotel, LLLP, 2023 NCBC 47 (N.C. Super. Ct. July 27, 2023) (Earp, J.)
Key Terms: partnership; fraud; negligent misrepresentation; N.C.G.S. § 78A-8; statute of limitations; equitable tolling; Rule 9(b); conversion; breach of fiduciary duty; gross mismanagement; breach of contract; unjust enrichment; inspection demand; N.C.G.S. § 59-305; N.C.G.S. § 59-106(b)
After their investments in Defendant NRMH failed to provide the allegedly promised return, Plaintiffs brought suit asserting various claims related to purported misrepresentations. Defendants moved to dismiss all claims.
Fraud, Negligent Misrepresentation, and Violation of N.C.G.S. § 78A-8. The Court determined that, even taking into account the discovery rule, these claims were barred against certain Defendants by a three-year statute of limitation. However, as to other Defendants, the Court found that the statute of limitations had been tolled by equitable estoppel due to these Defendants’ representations which delayed Plaintiffs from filing suit. Nonetheless, the Court dismissed the claims because Plaintiffs failed to specify the misrepresentations made by each Defendant separately and therefore did not satisfy Rule 9(b)’s heightened pleading requirements. The Court also elected to dismiss these claims with prejudice because Plaintiffs had repeatedly failed to cure the deficiencies despite the Court’s directions.
Conversion. The Court determined that a three-year statute of limitations, running from the date the unauthorized exercise of ownership occurred, applied and therefore barred the claims, except as to those Defendants which Plaintiffs had sufficiently pleaded that the statute should be tolled.
Breach of Fiduciary Duty and Gross Mismanagement. The Court held that while NRHM’s general partner owed a de jure fiduciary duty to Plaintiffs, they did not have standing to bring a direct claim against the general partner under either of the Barger exceptions. As for the remaining Defendants, Plaintiffs’ allegations did not sufficiently allege the requisite domination and control to establish a de facto fiduciary duty and thus the claim failed. The Court also dismissed Plaintiffs’ claims of gross mismanagement as Plaintiffs did not have standing.
Breach of Contract. The Court dismissed Plaintiff’s breach of contract claims against those Defendants who were not a party to the contracts. The Court also dismissed the claims to the extent they were contradicted by the complaint’s allegations and exhibits. However, the Court upheld some of Plaintiff’s breach of contract claims and agreed that the statute of limitations should be equitably tolled as to those claims.
Unjust Enrichment. The Court dismissed this claim because the allegations did not fit the claim—Plaintiffs alleged that they provided investment capital to NRMH that was then used by multiple other companies. Since Plaintiffs did not allege that they agreed to the transfers with the expectation of receiving a benefit, the claim failed.
Records Demand. The Court determined that the nine Plaintiffs who had previously sent a demand letter requesting inspection of partnership records had adequately stated a claim for violation of their rights under N.C.G.S. § 59-305 and § 59-106(b).
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC 48 (N.C. Super. Ct. July 31, 2023) (Conrad, J.)
Key Terms: summary judgment; contract interpretation; plain meaning; genuine issue of material fact
Under his employment agreement with Defendant Ten Oaks, Plaintiff Harris was entitled to different incentive compensation depending on whether he “sourced” a deal or just assisted with project management. After his employment ended, a dispute arose regarding what compensation Harris was entitled to regarding a particular deal. Plaintiff brought suit for breach of his employment contract and both sides subsequently moved for summary judgment.
The Court denied Harris’s motion as it presented a new theory of the case that had not been pleaded. Moreover, the Court denied Harris’s request to amend the complaint to fit his new theory as a summary judgment brief was not the appropriate means to make such a request and, in any event, the request was untimely.
The Court also denied Ten Oaks’ motion. Although the Court agreed with Ten Oaks regarding the plain meaning of the term “source” in the employment contract at issue (and rejected Harris’s request to inject his subjective understanding into the meaning), the Court determined that there were genuine issues of material fact as to who sourced the deal.
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Weaver, Bennett & Bland, P.A. v. Villmer, 2023 NCBC 49 (N.C. Super. Ct. July 31, 2023) (Robinson, J.)
Key Terms: law firm; fraud; duty of disclosure; breach of contract; consideration; tortious interference with contract; facilitation of fraud; attorney fraudulent practices; N.C.G.S. § 84-13; constructive trust; disgorgement; punitive damages
Defendants are two former partners and officers of Plaintiff Weaver Bennet & Bland, who left WBB and started a competing law firm, taking several of WBB’s attorneys and clients with them. After a dispute arose regarding how the parties would split fees for contingent fee cases worked on by both firms, WBB filed suit. Defendants moved to dismiss several of the claims.
Fraud. The Court found that WBB had adequately alleged claims for fraudulent misrepresentation and fraudulent omission based on the individual Defendants’ failure to disclose their plans to leave the firm. However, the Court dismissed the claim as against the new firm since the complaint did not allege that it had a duty of disclosure to WBB.
Breach of Contract. Defendants argued that WBB’s claim for breach of a contract to split attorneys’ fees should be dismissed because WBB failed to allege valid consideration. The Court, however, determined that the complaint’s allegations did not call into question the issue of consideration and therefore, the Court found it unnecessary to consider it at the 12(b)(6) stage.
Tortious Interference with Contract. The Court denied dismissal of WBB’s claim that Defendants had tortiously interfered with the employment contracts of WBB’s associate attorneys. WBB’s allegations that Defendants met with the associates to convince them to leave WBB was sufficient to allege inducement. Further, the complaint did not reveal any legitimate business purpose for their conduct since Defendants were not outsiders to the employment contracts and were acting for their own benefit.
Facilitation of Fraud. The Court dismissed this claim as it was duplicative of WBB’s civil conspiracy claim.
Attorney Fraudulent Practices under N.C.G.S. § 84-13. WBB sought, under N.C.G.S. § 84-13, to subject Defendants to double damages for its fraud-based claims. The Court, however, determined that the statute governed the relationship between attorneys and clients and was thus inapplicable here.
Remedies. The Court denied dismissal of WBB’s requests for a constructive trust, disgorgement, and punitive damages as those had been properly re-framed as remedies in the amended complaint.
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United Therapeutics Corp. v. Liquidia Techs., Inc., 2023 NCBC Order 36 (N.C. Super. Ct. July 20, 2023) (Earp, J.)
Key Terms: motion to amend; undue prejudice; delay
Over nineteenth months after filing suit, Plaintiff United Therapeutics Corporation moved to amend its complaint to add parties, claims, and factual allegations. Defendants opposed the amendments.
The Court permitted the addition of UTC’s subsidiary as a plaintiff since its addition was not a surprise and would not delay the case. However, the Court rejected the addition of new defendants because UTC did not provide a satisfactory reason for its delay in adding parties it was long aware of and their addition would extend the litigation and unduly prejudice Defendants. For similar reasons, the Court also denied the motion to add claims against Defendant Roscigno, expand the existing UDTPA claim, and add a declaratory judgment claim. However, the Court granted UTC’s motion to add allegations based on recently produced discovery because UTC moved promptly to amend, and the proposed amendments did not fundamentally change the nature of the claims against Defendants.
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Harris v. Ten Oaks Mgmt., LLC, 2023 NCBC Order 37 (N.C. Super. Ct. July 31, 2023) (Conrad, J.)
Key Terms: motion to seal; BCR 5; BCR 7; noncompliance
This order addresses five motions to seal filed in connection with the parties’ motions for summary judgment.
The Court began by addressing the parties’ failures to comply with BCR Rules 5 and 7 regarding motions to seal. First, the parties repeatedly filed the same exhibits despite BCR 7.5’s direction to cite to the docket location of previously filed materials. Second, the parties also filed many of their supporting materials as omnibus electronic files containing groups of documents making it difficult for the Court to review and to seal or unseal filed materials in a targeted way. The Court’s preference is for supporting exhibits to be filed as separate documents attached to a “lead document.” Third, the parties failed to comply with the consultation requirements of BCR 5.2(b)(6) and 7.3 or failed to provide opposing counsel with sufficient time to review. Fourth, the parties did not comply with BCR 5.2’s requirements that adequate non-confidential descriptions of the documents at issue be provided in the motion and that a public version of the provisionally sealed documents with appropriate redactions also be filed.
Turning to the merits of the motions, the Court first determined that Plaintiff’s 2020 bank statements did not warrant sealing in their entirety because the unredacted portions did not reveal sensitive or personal information. Next, the Court considered Defendant’s request to seal documents that it contended contained sensitive business and personal information (including personal email addresses) or that discussed the terms of Plaintiff’s departure from Defendant. The Court concluded that Defendant had failed to meet its burden to show that any of the materials were confidential or that their disclosure would result in harm. As to the email addresses, the Court noted that email addresses are not considered personal identifying information under N.C.G.S. § 132-1.10(d) and Defendant had not provided any authority to the contrary. The Court then determined that several exhibits containing information about a third-party should be sealed for the time-being since they had limited public interest and included information that the third-party may consider confidential.
By: Ashley Oldfield and Grace Kinley
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 08/02/23
Found. Bldg. Materials, LLC v. Conking & Calabrese, Co., 2023 NCBC 46 (N.C. Super. Ct. July 7, 2023) (Earp, J.)
Key Terms: temporary restraining order; expedited discovery; misappropriation of trade secrets; preliminary injunction; irreparable harm; balance of equities
Plaintiff Foundation Building Materials, LLC (FBM) filed a complaint alleging that its former employees had resigned to start the North Carolina office of a competing company and in doing so are using FBM’s trade secrets. FBM simultaneously moved for a TRO, which was granted, and a preliminary injunction, both relating to the alleged misappropriation of trade secrets. Following expedited discovery, the Court heard the motion for a preliminary injunction and granted it in part and denied it in part.
The Court first determined that of the seven categories of information alleged to be trade secrets, FBM was only likely to succeed on the misappropriation of trade secrets claim as to three of the categories because, based on the evidence presented, the remaining categories either did not appear to be trade secrets or had not been misappropriated.
Regarding irreparable injury, the Court concluded that FBM was still susceptible to irreparable harm from improper use of two of the categories of information, but, as for the third category, any potential harm had already occurred and therefore a preliminary injunction was not appropriate in that regard.
Finally, the Court concluded that the equities weighed in favor of granting a preliminary injunction regarding the remaining two categories because failure to do so could deprive FBM of its competitive advantage, while Defendants would suffer little or no injury if the injunction were issued.
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Chi v. N. Riverfront Marina and Hotel LLLP; Feng v. N. Riverfront Marina and Hotel LLLP, 2023 NCBC Order 35 (N.C. Super Ct. July 11, 2023) (Earp, J.)
Key Terms: attendance at mediation; impasse; sanctions; N.C.G.S. 7A-38.1
Pursuant to case management orders entered by the Court, a two-day mediation, involving the parties in both actions, occurred by Zoom in May 2023. However, only eight of the nineteen plaintiffs participated on the first day and none participated on the second day, although their counsel appeared to convey an impasse. After learning that the defendants intended to move for sanctions for plaintiffs’ failure to appear, counsel for plaintiffs offered to pay the full mediator’s fee and reimburse defendants’ reasonable attorneys’ fees. The defendants rejected these offers and filed a motion for sanctions.
By statute and the rules governing mediated settlement conferences, parties to an action must attend mediation and are subject to sanctions for failure to do so without good cause. Moreover, only the mediator has the authority to declare an impasse. Accordingly, since the plaintiffs had not shown good cause for not attending the mediation, the Court granted the motion and ordered the plaintiffs to pay defendants’ attorneys’ fees for the mediation.
By: Natalie Kutcher and Grace Kinley
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 07/19/23
Vanguard Pai Lung, LLC v. Moody, 2023 NCBC 44 (N.C. Super. Ct. Jun. 27, 2023) (Conrad, J.)
Key Terms: self-dealing; judgment notwithstanding the verdict; motion for a new trial; motion to amend the judgment; Rule 59(e); jury instructions; fraud; circumstantial evidence; waiver of issues; conversion; embezzlement; UDTPA; in or affecting commerce; double damages; punitive damages
In this action, Vanguard and its majority member Pai Lung alleged that Defendant William Moody engaged in self-dealing and other misconduct through his position as manager and president of Vanguard and through using Defendants Nova Trading (Vanguard’s minority member) and Nova Wingate, both of which were solely owned by Moody. Following a jury verdict of over $3 million in favor of Plaintiffs, Defendants moved for judgment notwithstanding the verdict, for a new trial, and to alter or amend the judgment.
Fraud. The Court rejected Defendants’ argument that there was insufficient evidence of intent to deceive because 1) they failed to preserve the issue since it was not part of their motion for a directed verdict at trial; 2) they failed to comply with the Court’s briefing rules by not citing to the record; and 3) Plaintiffs’ circumstantial evidence of intent was sufficient to support the jury’s verdict.
Conversion. Defendants contended that there was insufficient evidence to support the jury’s award for conversion of money and other property because Plaintiffs did not identify the converted money and did not show that Moody himself possessed any of the converted property. However, the Court found that these arguments were waived since they were not raised at trial, and, in any event, there was sufficient evidence on both points to submit the issue to the jury.
Embezzlement. The Court found that Defendants’ two-sentence argument concerning Moody’s liability for embezzlement was conclusory, procedurally defective, and meritless and thus denied the motion as to the embezzlement claim.
Unfair and Deceptive Trade Practices Under Section 75-1.1. Plaintiffs’ UDTPA claim concerned a lease agreement between Vanguard and Nova Wingate, which Moody signed on behalf of Vanguard as its president and on behalf of Nova Wingate as its sole member. Defendants argued that any misconduct regarding the lease was internal and therefore not in or affecting commerce. The Court agreed—since Nova Wingate was a shell company that Moody used to channel money to himself and conceal misconduct, the unfairness did not concern the regular interactions of separate market participants but instead occurred in interactions between the principals of Vanguard. Accordingly, the Court granted the motion for JNOV as to the UDTPA claim.
Motion for New Trial. Defendants contended that the differing damages award for unjust enrichment and unfair and deceptive trade practices were contradictory and amounted to double recovery since they were based on the same underlying conduct. However, since the Court set aside the UDTPA verdict any potential inconsistency or double recovery was moot. Further, the Court found that the two claims were not identical and thus there was no contradiction. Defendants also argued that the damages award for conversion was excessive because it included amounts converted by Defendants that were outside the limitations period. The Court rejected this argument because it had correctly instructed the jury to limit its award to damages incurred during the limitations period and the jury is presumed to have followed the Court’s instruction. Finally, the Court rejected Defendants’ argument that the verdict was against the greater weight of the evidence because they had not remotely shown that the verdict was so exceptional that it resulted in a miscarriage of justice.
Motion to Alter or Amend the Judgment. Defendants moved to amend the judgment under Rule 59(e) to include a single $50,000 award for punitive damages arguing that the entity Defendants could not be separately liable for punitive damages because the jury found that they were alter egos of Moody with no independent identities. The Court denied this motion because 1) Defendants had waived the issue by not objecting at trial to the Court’s instruction on punitive damages; and 2) the jury had found all three Defendants liable on theories of alter-ego liability and direct liability.
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Cumberland Cnty. Hosp. Sys., Inc. v. Woodcock, 2023 NCBC 45 (N.C. Super. Ct. Jun. 27, 2023) (Davis, J.)
Key Terms: requests for admission; summary judgment; discovery; case management order; BCR 10.4
Plaintiff and Defendant Michael Woodcock are the two members of Defendant WCV. In its complaint, Plaintiff asserted both individual and derivative claims based largely on alleged misconduct by Woodcock. Following the Court’s dismissal of the derivative claims in a previous order (discussed here), WCV moved for a protective order and declaratory judgment seeking an order from the Court that WCV was not required to respond to Plaintiff’s discovery requests and declaring that WCV was no longer a party due to the dismissal of the derivative claims. In addition, Plaintiff moved for partial summary judgment against Woodcock based on his failure to respond to requests for admission and, in turn, Woodcock moved to withdraw and amend the deemed admissions.
The Court first granted Woodcock’s motion to withdraw and amend based on confusion over whether Woodcock was actually served with the requests for admission and Plaintiff’s failure to show that it would be prejudiced by Woodcock being allowed to serve responses. Since Plaintiff’s
motion for partial summary judgment was predicated on the deemed admissions, the Court denied the motion without prejudice.
Regarding WCV’s motion, the Court clarified that since two of Plaintiff’s individual claims were asserted against WCV, the claims were still pending against WCV and, accordingly, WCV remained a party and was required to respond to the discovery requests. The Court also rejected WCV’s argument that the discovery requests were invalid because they were served before the entry of the case management order—BCR 10.4 expressly provides that parties may begin discovery prior to entry of a CMO.
By: Rachel Brinson and Grace Kinley
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 07/04/23
Loray Mill Devs., LLC v. Camden Loray Mill Phase I, LLC, 2023 NCBC 41 (N.C. Super. Ct. Jun. 12, 2023) (Bledsoe, C.J.)
Key Terms: partial summary judgment; motion for reconsideration; Rule 60(b); Rule 54(b); declaratory judgment; statute of limitations
After Plaintiffs filed suit on April 5, 2021, Defendants answered and asserted counterclaims seeking, inter alia, a declaratory judgment regarding the extent of Defendant’s ownership interest in several of the Plaintiff entities and the amount, timing, and conditions precedent for Plaintiffs’ payment of a development fee to Defendants. After the parties filed cross-motions for summary judgment, the Court issued its original order concluding that Defendants’ claims for breach of contract, declaratory judgment, and breach of fiduciary duty were time-barred to the extent they were based on conduct occurring before April 5, 2018. Thereafter, the Court sua sponte issued an amended order, which, in effect, allowed that portion of the Defendants’ declaratory judgment claim seeking to establish the parties’ ownership interest in the various entities to survive summary judgment, whether premised on events before or after April 5, 2018. Plaintiffs moved for reconsideration under Rules 54(b) and 60(b), contending that these changes constituted clear error.
The Court denied the motion to the extent it sought relief under Rule 60(b), because Rule 60 applies only to final orders, not interlocutory orders, such as a ruling on partial summary judgment. However, the Court granted the motion under Rule 54(b). Declaratory judgment claims are subject to the same statute of limitations that govern the substantive right that is most closely associated with the declaration that is being sought. Thus, because Defendants’ declaratory judgment claim rested on alleged breaches of contract and fiduciary duties, it was subject to a three-year statute of limitations and therefore barred as to conduct occurring before April 5, 2018. Accordingly, the Court’s conclusion in the original order was correct and its conclusion to the contrary in the amended order was clear error.
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Davis v. Davis Funeral Serv. Inc., 2023 NCBC 42 (N.C. Super. Ct. Jun. 12, 2023) (Conrad, J.)
Key Terms: summary judgment; breach of fiduciary duty; N.C. Wage and Hour Act
Plaintiff sued his former employer alleging that he was unfairly ousted as president. Defendant countered with allegations of self-dealing and other misconduct by Plaintiff, as well as third-party claims against Tedder, another former employee. Tedder counterclaimed and subsequently moved for summary judgment on all claims.
Defendant’s Claims. At the hearing, Defendant abandoned all of its claims against Tedder except for the portion of a claim for breach of fiduciary duty based on allegations that Tedder had bought a car from the Defendant for below-market value. The Court granted summary judgment in Tedder’s favor, determining that at the time she negotiated the car purchase, she was not an employee of Defendant, let alone a fiduciary. Further, even if she became a corporate officer when she was later elected secretary of the board, she had no duty to renegotiate the existing agreement.
Tedder’s Counterclaims. Tedder’s counterclaims for breach of her employment agreement and violation of the Wage and Hour Act were based on Defendant’s failure to pay Tedder’s November 2021 wages on time after terminating her employment. The Court determined that there was no genuine dispute as to liability, but a dispute of fact existed as to whether Defendant acted in good faith and had reasonable grounds for believing that its conduct did not violate the statute. Accordingly, the Court granted Tedder summary judgment as to liability but not as to the amount of her damages.
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New Restoration & Recovery Servs., LLC v. Dragonfly Pond Works, 2023 NCBC 43 (N.C. Super. Ct. Jun. 15, 2023) (Bledsoe, C.J.)
Key Terms: 12(b)(6) motion to dismiss; misappropriation of trade secrets; tortious interference with contract; nondisclosure agreement; tortious interference with prospective economic advantage; malice; unjust enrichment; indirect benefit; UDTPA; civil conspiracy
After its former employee allegedly shared confidential information with a competitor in violation of a nondisclosure agreement, Plaintiff brought suit against the competitor. Defendant moved to dismiss all claims under Rule 12(b)(6).
Misappropriation of Trade Secrets. The Court first determined that Plaintiff’s description of its trade secrets as customer contact information, bid proposals, client-specific pricing spreadsheets, and project completion summaries sufficiently identified the trade secrets at issue. Further, the Court rejected Defendant’s argument that the material could not constitute trade secrets because it was shared with third parties—namely, the clients themselves. The Court also determined that Plaintiff’s allegations that it had required the employee to sign an NDA and repeatedly attempted to reinforce the confidentiality obligations were sufficient to constitute reasonable efforts to maintain the secrecy of the trade secrets. Thus, the trade secrets claim survived dismissal.
Tortious Interference with Contract. The Court dismissed this claim, concluding that Plaintiff had not adequately alleged that Defendant knew of the employee’s NDA. Plaintiff’s allegation that Defendant had reviewed a settlement agreement between Plaintiff and the employee, which vaguely referenced nondisclosure agreements, was insufficient to impute knowledge of the NDA to Defendant.
Tortious Interference with Prospective Economic Advantage. The Court rejected Defendant’s challenge to the malice element of this claims based on Plaintiff’s allegations that Defendant competed through unlawful means—misappropriation of trade secrets.
Unjust Enrichment. Defendant contended that an unjust enrichment claim requires a conferral of the benefit directly from a plaintiff to a defendant and that here, any benefits that Defendant received came from an unaffiliated third party (the former employee). Surveying case law from North Carolina and around the country, the Court rejected this argument and concluded that Plaintiff had adequately alleged an unjust enrichment claim based on Defendant receiving and using a measurable benefit, albeit indirectly through a third party.
Unfair and Deceptive Trade Practices. The Court dismissed this claim to the extent it was based on the tortious interference with contract claim, but denied the motion to the extent the claim was based on Plaintiff’s surviving trade secrets claim.
Civil Conspiracy. The Court also denied dismissal of this claim due to the survival of the underlying trade secrets claim.
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Norment v. Rabon, 2023 NCBC Order 32 (N.C. Super Ct. June 16, 2023) (Davis, J.)
Key Terms: order dissolving preliminary injunction
Following the parties’ filing a stipulation of dismissal with prejudice as to all claims, the Court, on its own motion, entered an order dissolving the preliminary injunction previously issued in the case and directed the clerk of court to return the cash bond posted by Plaintiff.
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Rel. Ins., Inc. v. Pilot Risk Mgmt. Consulting, LLC, 2023 NCBC Order 33 (N.C. Super. Ct. June 19, 2023) (Davis, J.)
Key Terms: BCR 10.9; discovery dispute; interrogatories; identification of trade secrets
Pursuant to Business Court Rule 10.9, the Defendants submitted a discovery dispute to the Court arising from their contention that one of Plaintiffs’ interrogatory responses was inadequate. The interrogatory requested Plaintiffs to “Describe and identify any and all alleged trade secrets allegedly misappropriated by each of the Defendants, and identify all documents, communications and electronic data related to such misappropriation.” Plaintiffs responded with a number of objections, referred Defendants to various documents previously produced, and listed several categories of documents as examples of the trade secrets allegedly misappropriated.
The Court first determined that because Defendants’ misappropriation of trade secrets was at the heart of Plaintiffs’ claims, the interrogatory was a proper attempt by Defendants to obtain discoverable information. Further, the Court determined that the present response was inadequate—the Defendants were entitled to have Plaintiffs provide a definitive list of all trade secrets allegedly misappropriated and an identification of all non-privileged documents evidencing such misappropriation. Accordingly, the Court ordered the Plaintiffs to supplement their response.
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Bradford Aquatic Grp., LLC v. Barber, 2023 NCBC Order 34 (N.C. Super. Ct. June 19, 2023) (Bledsoe, C.J.)
Key Terms: order on designation; untimely; N.C.G.S. § 7A-45.4(d)(3)
The Court determined that Defendant’s notice of designation was untimely because it was not filed within thirty days of Defendant accepting service of the complaint, as required by N.C.G.S. § 7A-45.4(d)(3). Accordingly, designation was improper.
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Howard v. IOMAXIS, LLC, 2023 N.C. LEXIS 426 (N.C. 2023) (Dietz, J.)
Key Terms: attorney-client privilege; corporate counsel; joint representation; waiver; Bevill test; competent evidence standard
Prior to this lawsuit, the law firm Holland & Knight represented IOMAXIS in connection with general corporate matters pursuant to an engagement letter. Following initiation of the lawsuit, Holland & Knight executed a second engagement letter encompassing the litigation. Under this engagement letter, Holland & Knight agreed to jointly represent IOMAXIS and its individual corporate members, whom were named defendants. After the relationship between the members deteriorated, one of them (Hurysh) sought to bring crossclaims against the others and to use a recording he had secretly made of a call between the members and a Holland & Knight attorney. IOMAXIS moved for a protective order, asserting that it held the exclusive attorney-client privilege over the call and that Hurysh could not waive it. The Business Court found that the legal advice given on the call was made under the second, joint representation engagement letter, and therefore, Hurysh held the attorney-client privilege and could waive it.
IOMAXIS appealed, arguing that the trial court should not have used the traditional test for privilege but should instead have used the Bevill test to determine whether a corporate officer personally holds a privilege over communications with corporate counsel. Under the Bevill test, which has been adopted by other state and federal courts, corporate officers asserting personal privilege claims must show (1) that they approached the corporate counsel for the purpose of seeking legal advice, (2) that when they approached counsel they made it clear that they were seeking legal advice in their individual rather than in their representative capacities, (3) that counsel saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise, (4) that their conversations with counsel were confidential, and (5) that the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company. The Court endorsed the test but found that it was inapplicable to the facts at hand since the Business Court found that Holland & Knight was acting as joint defense counsel, and not as corporate counsel, during the call. This finding was supported by competent evidence and thus had to be accepted by the Court under the applicable standard of review. Accordingly, the Court affirmed the decision of the Business Court.
The Court concluded by summarizing the steps that corporations and their counsel can take to avoid factual disputes over the scope of counsel’s legal advice.
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Potts v. KEL, LLC, 2023 N.C. LEXIS 427 (N.C. 2023) (per curiam)
Key Terms: motion for a new trial; motion for judgment notwithstanding the verdict; fraud; punitive damages
This lawsuit arose out of a dispute between Potts and Rives, as co-owners of Steel Tube, Inc., relating to alleged fraud and self-dealing by Rives. A trial was eventually conducted, resulting in a jury verdict against Rives and another entity. They moved for a new trial and for judgment notwithstanding the verdict, which were denied by the trial court. Upon appeal, the North Carolina Supreme Court affirmed the decision of the trial court for the reasons stated in the trial court’s order and opinion.
By: Ashley Oldfield and Grace Kinley
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 06/21/23
Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2023 NCBC 37 (N.C. Super. Ct. May 30, 2023) (Davis, J.)
Key Terms: summary judgment; fire insurance; N.C.G.S. § 58-44-16; fraud
In 2018, Brakebush acquired a chicken processing plant which had recently suffered a fire. The plant’s primary insurer paid out its policy limit of $20 million for the fire damage; Brakebush, however, sought additional coverage under its eight excess policies. After a dispute arose regarding the excess insurance, Brakebush brought suit against the excess insurers seeking, inter alia, a declaratory judgment regarding the insurers’ obligations. Defendants filed counterclaims alleging that Brakebush had fraudulently submitted a fire insurance claim seeking proceeds that grossly exceeded the value of the actual damage in order to fund expansion and upgrades of the plant. Brakebush moved for summary judgment on these counterclaims.
Upon review of the evidence in the summary judgment record, the Court concluded that a factual dispute existed regarding whether Brakebush deliberately claimed entitlement to insurance proceeds as part of its fire loss claim for costs unrelated to fire damage. Accordingly, the Court denied Brakebush’s motion for summary judgment.
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Caliber Packaging & Equip., LLC v. Swaringen, 2023 NCBC 38 (N.C. Super. Ct. May 31, 2023) (Earp, J.)
Key Terms: civil liability for theft; N.C.G.S. § 1-538.2; unjust enrichment; misappropriation of trade secrets
Plaintiffs brought suit against a former employee, alleging that she had misappropriated Plainitffs’ confidential and trade secret information and then leveraged that information to entice employment offers and financial rewards. Defendant moved to dismiss the claims for civil liability for theft by an employee and unjust enrichment.
Civil Liability for Theft. Plaintiffs alleged that Defendant committed employee larceny and embezzlement and was therefore liable for damages pursuant to N.C.G.S. § 1-538.2, which permits an employer to pursue a civil claim for damages against an employee who commits an act punishable under certain statutes. Defendant argued that because there is no reference to intellectual property such as confidential information or trade secrets in the underlying criminal statutes, § 1-538.2 was not intended to cover theft of intellectual property. The Court determined that confidential and trade secret information in its tangible form constitute chattels belonging to the employer, and the predicate crimes cover theft of chattels. Since Plaintiff alleged that Defendant stole information in the form of paper invoices, the Court denied Defendant’s motion to dismiss this claim.
Unjust Enrichment. Plaintiffs alleged that Defendant was unjustly enriched when she exchanged the confidential information she received from Plaintiffs for employment opportunities and financial rewards. The Court, however, found that these benefits identified by Plaintiffs were not ones that they conferred on Defendant; rather, the benefits were the gains of her misconduct. Accordingly, the Court granted Defendant’s motion to dismiss this claim.
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N.C. Dep’t of Revenue v. Wireless Ctr. Of NC, Inc., 2023 NCBC 39 (N.C. Super. Ct. Jun. 2, 2023) (Robinson, J.)
Key Terms: Department of Revenue; contested tax case; North Carolina Sales and Use Tax Act; N.C.G.S. § 105-164.4
Wireless Center petitioned for a contested tax case hearing after the N.C. Department of Revenue issued its determination that Wireless Center, a retailer of cell phone products and services, owed over $500,000 in unpaid sales taxes for products known as “Real Time Replenishments” (“RTRs”) for tax years 2016-18. Following the hearing, the N.C. Office of Administrative Hearings entered its Final Decision which (1) remanded the assessment for Period I because although Wireless Center had failed to collect and remit tax on RTRs during Period I, the Department had over-assessed the tax bill; and (2) reversed the assessment for Period II because the Department failed to show that Boost (of which Wireless Center was an independent contractor) had not paid the taxes on behalf of Wireless Center for Period II. The parties cross-petitioned for judicial review.
First, the Court found that the RTRs, regardless of how they were classified by Boost, were taxable under the North Carolina Sales and Use Tax Act (“SUTA”). Moreover, pursuant to both the agreement between Boost and Wireless Center and SUTA, Wireless Center was a “retailer” subject to taxation at all relevant times.
Second, the Court found that due to the absence of records establishing the payment of its tax liability, Wireless Center was unable to overcome the initial presumption that the tax assessment for Period II was correct. Accordingly, the Court reversed the OAH and upheld the tax assessment for Period II.
Finally, the Court found that the unrebutted evidence clearly demonstrated that the Department had properly credited Wireless Center for the tax it already remitted, and therefore, the Department had not over-assessed for Period I. Consequently, the Court reversed the OAH and upheld the tax assessment for Period I.
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Bivins v. Pacheco, 2023 NCBC 40 (N.C. Super. Ct. Jun. 2, 2023) (Earp, J.)
Key Terms: standing; Barger exceptions; dissolution; N.C.G.S. § 57D-6-02(2); statute of limitations; discovery rule; constructive fraud; fraud; Rule 9(b); fraudulent conveyance; motion for a more definite statement
In 2015, the Bivens and the Pachecos formed two LLCs (KJ Launch and KJ Endeavors) to own and operate a trampoline park. Each of the individuals owned twenty-five percent of KJ Launch, while two additional entities, controlled by the Bivens and the Pachecos respectively, each owned fifty percent of KJ Endeavors. After discovering financial irregularities, the Bivens brought suit alleging direct and indirect claims, including that the misconduct of Jennifer Pacheco, who had served as bookkeeper for the business, triggered the involuntary withdrawal of Jennifer and her company. Defendants moved to dismiss and alternatively, sought a more definitive statement.
Standing. Defendants moved to dismiss Plaintiffs’ direct claims for lack of standing under the Barger rule. Upon consideration of the four “direct” claims, the Court disagreed and denied the motion. First, with regards to breach of the operating agreements, the Court found that Jennifer’s alleged acceptance of her ex-husband’s membership interest in KJ Launch without giving Plaintiffs an opportunity to purchase the interest impacted only Plaintiffs and accordingly gave Plaintiffs a direct claim. Second, the Court found that Plaintiffs had standing to assert the four direct claims, which sought a judgment that Defendants breached the operating agreements and thereby triggered certain rights, because parties to an operating agreement have standing to seek a declaration of rights under the agreement. Third, Plaintiffs had standing as current LLC members to seek dissolution under N.C.G.S. § 57D-6-02(2).
Statute of Limitations. The Court denied Defendants’ motion to dismiss based on statutes of limitations because although the complaint alleged that the improper transfers occurred outside of the statute of limitations, it was silent as to when Plaintiffs discovered the wrongdoing. The Court also identified an unenumerated constructive fraud claim and determined that it fell well within the ten-year statute of limitations.
Rule 9(b). The Court dismissed the fraud claim to the extent it was based upon certain undated transactions and a promissory misrepresentation because Plaintiffs had failed to satisfy Rule 9(b)’s particularity requirements. The Court also dismissed the fraudulent conveyance claim for the same reason and because Plaintiffs did not plead that Defendants were debtors or that Plaintiffs were creditors as required by the Uniform Voidable Transactions Act.
Motion for More Definitive Statement. The Court denied Defendant’s motion for a more definite statement after determining that the surviving claims met the requirements of Rule 8 and enabled Defendant to conduct the necessary discovery.
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Kelly v. Nolan, 2023 NCBC Order 31 (N.C. Super. Ct. June 6, 2023) (Davis, J.)
Key Terms: subpoenas duces tecum; BCR 10.4(a); discovery
On 31 May 2023, Defendants emailed the Court identifying an unresolved discovery dispute regarding three subpoenas duces tecum served by Plaintiffs on third-party financial institutions—Wells Fargo, Suntrust/Truist Bank, and Southern Bank. All three subpoenas purported to require the production of certain documents at the office of Plaintiffs’ counsel on 9 June 2023. Defendants requested that the subpoenas be quashed because they were served on or after the last day of the discovery period in the case and were therefore untimely.
The Court held a WebEx conference and ruled that the three subpoenas were untimely and not served in compliance with Business Court Rule 10.4(a), which requires each party to ensure that discovery will be completed within the time period provided in the case management order. Therefore, the Court ordered that the three subpoenas at issue be quashed. The Court further directed counsel for Plaintiffs to serve a copy of this order upon Wells Fargo, Suntrust/Truist Bank, and Southern Bank immediately and inform them that they are not required to comply with the subpoenas.
By: Rachel Brinson and Grace Kinley
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 06/07/23
Trail Creek Invs. LLC v. Warren Oil Holding Co., 2023 NCBC 36 (N.C. Super. Ct. May 9, 2023) (Davis, J.)
Key Terms: environmental liabilities; motion to strike; Rule 12(b)(6); breach of fiduciary duty; constructive fraud; statute of limitations; negligent misrepresentation; economic loss rule; fraud; Rule 9(b); breach of contract; breach of confidentiality agreement; obstruction of justice; civil conspiracy; rescission; N.C. Securities Act; primary liability; secondary liability
In 2016, Plaintiff Trail Creek Investments purchased Warren Oil Company LLC and related entities pursuant to an equity interest purchase agreement (“EIPA”). After subsequently discovering serious environmental compliance issues with the companies, Plaintiffs brought suit against the sellers (and certain individuals involved in the sale) alleging numerous claims based largely on Defendants’ failure to disclose the environmental liabilities prior to the sale. Defendants moved to dismiss.
The Court first addressed Plaintiffs’ motion to strike certain exhibits which Defendants had submitted in support of their motion to dismiss. The Court granted the motion as to exhibits that were not expressly referenced in the Complaint but denied it as to those that were.
Statute of Limitations. Defendants contended that several of Plaintiffs’ claims were barred by their statutes of limitations. However, because a dispute of fact existed as to when Plaintiffs knew, or should have known, the key facts upon which the claims were based, the Court denied dismissal on this basis.
Breach of Fiduciary Duty. Plaintiffs alleged that the individual Defendants, each of whom were connected to Warren Oil prior to the sale and subsequently served on its board, breached their fiduciary duties as board members by failing to disclose the environmental liabilities. Because Warren Oil’s operating agreement was not attached to the complaint, the Court relied on the default rule that LLC managers owe a fiduciary duty to the LLC and determined that Plaintiffs had sufficiently alleged the existence of a fiduciary duty and a breach thereof.
Constructive Fraud. Having determined that Plaintiffs had adequately alleged breach of fiduciary duty, the Court turned to the “personal benefit” prong of constructive fraud and determined that, while Plaintiffs’ allegation that the individual Defendants had gained the benefit of continued employment and bonuses was insufficient, their allegation that two of the individuals had received portions of released escrow funds was sufficient to sustain the claim as to them.
Negligent Misrepresentation. The Court granted dismissal on this claim, concluding that it was barred by the economic loss rule. The claim arose from Defendants’ allegedly false representations of environmental compliance that were expressly contained in the EIPA – the breach of which also formed the basis for Plaintiffs’ breach of contract claim.
Fraud. The Court also dismissed the fraud claim, determining that many of the allegations were too general to satisfy Rule 9(b). Among other deficiencies, the complaint frequently attributed statements and actions to “Defendants” collectively rather than attributing them to specific persons and was impermissibly vague as to the specifics of the misrepresentations and omissions.
Rescission. The Court dismissed the rescission claim because rescission is a remedy not a standalone claim. However, it declined, at this stage, to bar Plaintiffs from seeking rescission as a remedy if warranted.
Securities Act. Plaintiffs asserted claims for violation of the N.C. Securities Act under theories of both primary and secondary liability. The Court dismissed the primary liability claim because Plaintiffs failed to plead the circumstances with the particularity required by rule 9(b). Consequently, the Court also dismissed the secondary liability claim because it must be accompanied by a primary liability claim.
Breach of Confidentiality Agreements. Plaintiffs claimed that Defendants breached two confidentiality agreements by disclosing confidential information to third parties whose interests were adverse to Plaintiffs’ interests. The Court granted Defendants’ motion to dismiss as to this claim because the claim was devoid of any details of the alleged breach.
Obstruction of Justice. The Court determined that Plaintiffs’ bare-bones allegations that “Defendants” obstructed justice by deleting and destroying emails was insufficient to state a claim.
Civil Conspiracy. The Court dismissed this claim because the Plaintiffs failed to make clear which of the numerous Defendants were alleged to have engaged in a conspiracy.
Breach of Contract. Plaintiffs’ breach of contract claim was based, in part, on Defendants’ failure to indemnify Plaintiffs as required by the EIPA. Defendants sought a ruling from the Court as to the correct construction of the EIPA’s indemnification provisions. However, because Plaintiffs had since moved to amend their complaint to add allegations relevant to this issue, the Court elected to defer ruling on the issue at this time.
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Preston v. HomeTrust Bancshares, Inc., 2023 NCBC Order 30 (N.C. Super. Ct. May 10, 2023) (Robinson, J).
Key Terms: putative class action; voluntary dismissal; Rule 41(a)(1); Rule 23(c)
After filing a putative class action in February 2023, Plaintiff filed a notice of voluntary dismissal without prejudice pursuant to Rule 41(a)(1). The Court noted that where, as here, dismissal is sought before a class is certified, Rule 23(c) requires the trial court to conduct a limited inquiry into the circumstances of the dismissal to determine (1) whether the parties have abused the class-action mechanism for personal gain, and (2) whether the dismissal will prejudice absent putative class members. Because it was unclear from the filing whether the decision to dismiss the action was a unilateral decision by Plaintiff or the result of negotiation with Defendant’s agents or others, the Court directed the Plaintiff to file a statement explaining her decision in conformity with the elements previously set forth set forth in Rickenbaugh v. Power Home Solar, LLC.
By: Natalie Kutcher and Grace Kinley
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 05/24/23
Davis v. HCA Healthcare, Inc., 2023 NCBC 32 (N.C. Super. Ct. April 27, 2023) (Davis, J.)
Key Terms: restraint of trade; monopoly maintenance; monopoly leverage; monopoly acquisition; attempted monopoly; healthcare; outpatient services; inpatient services
Plaintiffs initially filed suit alleging various monopoly and restraint of trade claims against Defendants, who operate a hospital system in and around Asheville. In a previous order, discussed here, the Court dismissed the monopoly claims without prejudice. Plaintiffs then filed an amended complaint reasserting their monopoly claims and alleging that Defendants used their market power to coerce commercial health insurers to include provisions in their health insurance contracts which allowed Defendants to not only maintain their existing monopoly regarding inpatient services in the Asheville region, but also extend it to additional markets in western North Carolina. Defendants moved to dismiss all of the monopolization and attempted monopolization claims.
A monopolization claim must allege 1) the possession of monopoly power in the relevant market, and 2) willful acquisition or maintenance of that power separate from growth or development due to superior product, business acumen, or historic accident.
Monopoly Maintenance. The Court determined that Plaintiffs’ new allegations that Defendants had used the restraints in the insurance contracts to maintain their existing monopoly over inpatient services in the Asheville region were sufficient and thus denied dismissal.
Monopoly Leveraging. Plaintiffs alleged that Defendants had used their existing monopoly in the Asheville region inpatient services market to gain monopolies in the inpatient services market in the outlying regions and the outpatient services markets in both the Asheville region and the outlying regions. Regarding the outlying regions inpatient services market, the Court concluded that Plaintiffs’ new allegations regarding Defendants’ market share for this market were sufficient and thus denied dismissal as to the claim for this market. However, the Court granted dismissal as to the outpatient services market in both the Asheville region and the outlying regions because Plaintiffs had failed to sufficiently allege Defendants’ market share or that Defendants had the ability to control prices in those markets.
Attempted Monopolization. The Court’s conclusions mirrored those of the actual monopolization claims—the motion was denied as to the inpatient services market in the outlying regions, but granted as to the outpatient services markets in the Asheville region and the outlying regions.
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N.C. Dep’t of Revenue v. Philip Morris USA, Inc., 2023 NCBC 33 (N.C. Super. Ct. May 3, 2023) (Earp, J.)
Key Terms: N.C.G.S. § 105-122; franchise tax; capital base; constitutional challenge; dormant commerce clause; subject matter jurisdiction; Office of Administrative Hearings
Under N.C.G.S. § 105-122, Defendant was required to pay an annual franchise tax for the privilege of doing business in North Carolina. For tax years 2012 through 2014, Defendant used its “Capital Base” to calculate its tax due. Capital Base is determined by totaling the company’s issued and outstanding capital stock, surplus, and undivided profits and then applying various adjustments. Upon conducting an audit of Defendant’s franchise tax liability for these years, NCDOR determined that Defendant had improperly adjusted its Capital Base resulting in an underreporting of its tax liability, and, consequently, owed over $300,000. Defendant challenged this determination with the Office of Administrative Hearings, arguing that section 105-122(b)’s differing treatment of affiliate receivables violated the dormant commerce clause of the U.S. Constitution and was therefore unconstitutional as applied to Defendant. After determining that the OAH had jurisdiction over as-applied challenges, the administrative law judge agreed with Defendant, granted summary judgment in its favor, and reversed and rescinded NCDOR’s determination. NCDOR petitioned for judicial review, challenging both the OAH’s jurisdiction and the merits of the decision.
NCDOR argued that the statute requires the OAH to dismiss any case in which the sole issue is the constitutionality of a statute, regardless of whether the challenge is facial or as-applied. The Court agreed. Constitutional challenges to tax statutes must be heard by the Business Court, but only after the statutory requirements are met, including the requirement that the OAH dismiss the case for lack of jurisdiction. Moreover, a contrary interpretation of the statute would not only violate the basic tenets of statutory construction and legislative intent, but also create fundamental uncertainty since there is no clear-cut test to distinguish facial challenges from as-applied challenges. The Court found the two cases cited by Defendant unpersuasive because they involved both constitutional and misapplication issues and reached the Court on appeals from summary judgment rulings that involved misapplication.
The Court also held that even if the OAH has jurisdiction to determine as-applied constitutional challenges, it could not have decided this case because the challenge here was a facial one as reflected by the remedy ordered by the ALJ. A party’s characterization of the issue as an as-applied challenge is not conclusive of the court’s jurisdiction.
Accordingly, the Court reversed the ALJ’s decision and remanded the matter with instructions to dismiss the case for lack of subject matter jurisdiction.
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Wright v. LoRusso, 2023 NCBC 34 (N.C. Super. Ct. May 4, 2023) (Conrad, J.)
Key Terms: offensive summary judgment; premature; pending discovery; BCR 7.7
Plaintiffs, the minority members of an LLC, brought suit against Defendant Krista LoRusso, alleging that she had abused her position as the LLC’s majority member. While discovery was ongoing, Plaintiffs moved for partial summary judgment on their direct claim for declaratory judgment regarding whether a buy-sell event had been triggered under the LLC’s operating agreement by Defendant’s alleged misconduct.
The Court denied the motion. Not only was the motion premature due to pending discovery, but Plaintiffs had also failed to meet the higher burden required for offensive summary judgment. Specifically, their key evidence—a letter from their expert—was unsworn and thus inadmissible, and the Plaintiffs’ affidavits, although admissible, were vague and contradicted by Defendant’s affidavit. Finally, Plaintiffs’ reply brief contained new arguments and new evidence, which the Court declined to consider under Business Court Rule 7.7.
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Columbus Life Ins. Co. v. Wells Fargo Bank, N.A., 2023 NCBC 35 (N.C. Super. Ct. May 4, 2023) (Davis, J.)
Key Terms: life insurance policy; wagering contract; STOLI policy; public policy
At issue in this case is whether a life insurance policy taken out by the named insured on his own life solely for the purpose of later selling it to investors is void as an unlawful wagering contract under North Carolina law. In 2005, Dr. Trevathan, with the assistance of an insurance producer named Chesson, was issued a life insurance policy by Plaintiff. Dr. Trevathan’s stated intention was to sell the policy to make additional money. To fund the initial premiums, Dr. Trevathan obtained a non-recourse premium finance loan from a third-party, with the options, upon the loan’s maturity in two years, to 1) surrender the policy to the lender in satisfaction of the loan; 2) pay off the loan and retain the policy; or 3) sell the policy and use the proceeds to pay off the loan. Dr. Trevathan sold the policy and paid off the loan in 2007. Five years later, the policy was sold to Defendant, with the beneficiary designation being changed to Defendant as well. However, Plaintiff did not disclose to Defendant that it suspected that the policy was a “stranger-oriented life insurance” (“STOLI”) policy. In 2021, Plaintiff initiated this action seeking declarations that the policy is unenforceable as an illegal wagering contract or due to the lack of an insurable interest. Defendant answered, asserting that the policy is valid, or in the alternative, asserting a counterclaim for return of premiums. Both parties moved for summary judgment.
The Court began by noting that, although numerous courts across the country have addressed the validity of STOLI policies in the last two decades, North Carolina’s appellate courts have not had occasion to address such issues in recent years. However, in the late 19th/early 20th century, North Carolina’s Supreme Court decided a line of cases involving whether a life insurance policy was void as an unlawful wagering contract. Based on its review of these cases, the Court articulated the following rule: a life insurance policy is “void as a wagering contract only where there is evidence of an agreement—prior to the policy’s issuance—that the policy would be assigned to a third party and that the third party participated in that agreement.” Here, there was no evidence that any of the ultimate assignees had any involvement relating to the policy until well after the policy’s issuance. Thus, the Court held that the policy was valid and enforceable and granted summary judgment in favor of Defendant.
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Auto Club Grp. v. Frosch Int’l Travel, LLC, 2023 NCBC Order 27 (N.C. Super. Ct. May 3, 2023) (Robinson, J.)
Key Terms: attorneys’ fees; Rule 11; sanctions; N.C.G.S. § 6-21.5; justiciable issue; N.C.G.S. § 66-156; trade secrets; bad faith; N.C.G.S. § 75-1.1; UDTPA; frivolous; malicious; Rule 41(d); costs
Plaintiffs filed suit alleging claims for conversion, violations of the Trade Secrets Protection Act, and violations of the Unfair and Deceptive Trade Practices Act, based on contentions that Defendants had orchestrated the hiring of Plaintiffs’ travel agents and caused those agents to provide Defendants with Plaintiffs’ trade secrets and other confidential information. The action was voluntarily dismissed without prejudice and then re-filed without the TSPA claim. Defendants moved for an award of costs, attorneys’ fees, and sanctions against Plaintiffs pursuant to various rules and statutes.
Rule 11. Defendants sought sanctions under both the factual sufficiency and improper purpose prongs of Rule 11. Regarding factual sufficiency, the Court determined that the complaint was facially plausible because it showed that Plaintiffs had undertaken a reasonable inquiry into the facts and reasonably believed their position was well-grounded in fact. Regarding improper purpose, the Court found that an objective analysis of the complaint demonstrated that its purpose was to vindicate Plaintiffs’ rights. Defendants also contended that the affidavits it provided from the travel agents were sufficient to disprove Plaintiffs’ claims and thus maintaining the suit thereafter was improper. However, later testimony from one of the agents which contradicted her affidavit demonstrated otherwise. Thus, sanctions under Rule 11 were denied.
N.C.G.S. § 66-154. This section allows attorneys’ fees if a claim for misappropriation of trade secrets is made in bad faith. Defendants argued that the TSPA claim was made in bad faith because Plaintiffs 1) continued the action after receiving the agents’ affidavits; 2) could not show that Defendant received any trade secrets; 3) did not seek a TRO or preliminary injunction; and 4) did not re-file the TSPA claim. The Court did not find this sufficient to show bad faith, especially since the agents’ affidavits were contradicted by later testimony. Thus, attorneys’ fees pursuant to N.C.G.S. § 66-154 were denied.
N.C.G.S. § 75-16.1. This section allows attorneys’ fees for a UDTPA claim if the plaintiff knew the action was frivolous and malicious. For the reasons already stated, the Court could not conclude that the claim was frivolous. Moreover, Defendants’ assertion that Plaintiffs acted maliciously by bringing claims against a competitor with a “rapidly growing business” was insufficient to show that Plaintiffs brought the claim without just cause or as a result of ill will. The Court denied attorneys’ fees pursuant to N.C.G.S. § 75-16.1.
N.C.G.S. § 6-21.5. This section allows attorneys’ fees for the prevailing party if there was a complete absence of a justiciable issue of law or fact raised by the losing party in any pleading. However, as already discussed, the evidence showed that justiciable issues existed when the suit was filed and continued to exist throughout the litigation. Thus, attorneys’ fees pursuant to N.C.G.S. § 6-21.5 were denied.
Rule 41(d). The Court granted the motion under this Rule, which provides for the award of certain costs when an action is dismissed under Rule 41(a). Plaintiffs had previously tendered a check for the applicable costs to Defendants which was rejected. Accordingly, the Court ordered that Plaintiffs deposit the amount with the Clerk of Court for the benefit of Defendants.
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Wright v. LoRusso, 2023 NCBC Order 28 (N.C. Super. Ct. May 4, 2023) (Conrad, J.)
Key Terms: BCR 7.5; BCR 7.8; word limit; pinpoint citations; summary judgment
Before the end of discovery in this case, the Individual Plaintiffs filed a partial motion for summary judgment. They then filed two more summary judgment motions, each with an accompanying brief, as well as a separate document entitled Statement of Undisputed Material Facts. The Court determined that these actions violated Business Court Rule 7.8, which prohibits parties from attempting to circumvent applicable word limits by filing multiple motions and incorporating one document into another. Moreover, the briefs also violated Rule 7.5 because they did not include pinpoint citations to the record. Noting that the Individual Plaintiffs had failed to comply with procedural rules throughout the case, the Court struck the second and third motions and the accompanying documents without leave to re-file them.
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McManus v. Dry, 2023 NCBC Order 29 (N.C. Super. Ct. May 5, 2023) (Bledsoe, C.J.)
Key Terms: attorneys’ fees; Rule 1.5 factors; hourly rate; class action settlement
As discussed here, the parties had previously reached a class action settlement agreement which the Court approved, reserving, however, the request for attorneys’ fees and expenses pending supplemental briefing. The Court now addressed that request.
The reasonableness of a fee award is governed by Rule 1.5 of the Rules of Professional Conduct, which provides eight factors for consideration. The Court addressed each in turn.
The first factor weighed in favor of the award as the time expended by counsel was reasonable and the case involved complex and novel questions regarding digital privacy which required high legal skill to resolve. The second factor weighed against as there was no evidence that Plaintiffs’ counsels’ work on this case precluded other work.
In considering the third factor—the fee customarily charged in the locality—the Court first determined that the relevant locality was North Carolina, not the national plaintiffs’ data breach bar at large. The Court then surveyed recently approved hourly rates, which ranged from $250 to $600, but also acknowledged that hourly rates have been on the rise. In light of that, and the complex and novel area of the law at issue in the case, the Court concluded that hourly rates ranging from $575 to $700 for the partners and of $350 for the associates were reasonable.
The fourth factor also weighed in favor because Plaintiffs’ counsel had achieved a favorable settlement for the class. There was no evidence before the Court regarding the fifth (time limitations), sixth (nature of professional relationship with the client), or eighth (nature of the attorneys’ fee arrangement) factors, thus these weighed neither for nor against the award. The seventh factor also weighed in favor as Plaintiffs’ counsel all had extensive experience in data breach class actions. Lastly, the Court noted that the settlement class had received notice of the request but no member had objected.
Accordingly, the Court determined that, overall, the Rule 1.5 factors weighed in favor of the award and therefore approved the payment of attorneys’ fees and expenses with the stated adjustments to the hourly rates.
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 05/09/23
